<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
AMERICAN FINANCE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6159 94-3226128
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S.
JURISDICTION CLASSIFICATION CODE NUMBER) EMPLOYER
OF INCORPORATION OR IDENTIFICATION
ORGANIZATION) NO.)
24 SCHOOL STREET
BOSTON, MASSACHUSETTS 02108
(617) 557-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DONALD R. DUGAN, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN FINANCE GROUP, INC.
24 SCHOOL STREET
BOSTON, MASSACHUSETTS 02108
(617) 557-9300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
THEODORE J. KOZLOFF, ESQ. LEWIS J. GEFFEN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & MINTZ, LEVIN, COHN, FERRIS, GLOVSKY
FLOM LLP AND POPEO, P.C.
FOUR EMBARCADERO CENTER, SUITE ONE FINANCIAL CENTER
3800 BOSTON MASSACHUSETTS 02111
SAN FRANCISCO, CALIFORNIA 94111 (617) 542-6000
(415) 984-6400 (617) 542-2241(FAX)
(415) 984-2698 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 2,472,500
$0.01 per share....... shares $15.00 $37,087,500 $10,941
</TABLE>
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(1) Includes 322,500 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Calculated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THE SECURITIES DESCRIBED HEREIN HAS BEEN +
+FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT +
+BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION +
+STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO +
+SELL OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 7, 1998
PROSPECTUS
2,150,000 SHARES
[LOGO]
AMERICAN FINANCE GROUP, INC.
COMMON STOCK
-----------
Of the 2,150,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), of American Finance Group, Inc. (together with its
subsidiaries, the "Company") offered hereby (the "Offering"), 1,570,000 shares
are being offered by the Company and 580,000 shares are being offered by the
Selling Stockholder. See "Principal and Selling Stockholders." The Company will
not receive any of the proceeds from the sale of shares of Common Stock in the
Offering by the Selling Stockholder.
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $13.00 and $15.00 per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. The Company has applied for quotation of the Common Stock on
the Nasdaq National Market under the symbol "AFGC."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
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<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
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Total(3).......... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, estimated to be $725,000, payable by the
Company.
(3) The Company and the Selling Stockholder have granted the Underwriters an
option, exercisable within 30 days of the date hereof, to purchase from the
Company up to 322,500 additional shares of Common Stock at the Price to
Public less Underwriting Discount and Commissions solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholder will be $ , $ , $ , and $ ,
respectively. See "Underwriting."
-----------
The shares of Common Stock to be distributed to the public are offered by the
Underwriters, subject to prior sale, when, as and if issued to and accepted by
the Underwriters and subject to approval of certain legal matters by counsel
for the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel, or modify such offer and to reject orders in whole
or in part. It is expected that the Common Stock will be delivered in book
entry form through the facilities of the Depository Trust Company in New York,
New York on or about , 1998.
-----------
LEGG MASON WOOD WALKER FURMAN SELZ
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[MAP OF U.S. SHOWING THE COMPANY'S REGIONAL OFFICES AND PORTFOLIO DATA,
INCLUDING GROWTH IN OWNED PORTFOLIO AND GROWTH IN OWNED AND SERVICED
PORTFOLIO]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK, INCLUDING EFFECTING SYNDICATE COVERING TRANSACTIONS, INITIATING BIDS OR
EFFECTING PURCHASES ON THE NASDAQ NATIONAL MARKET FOR THE PURPOSE OF
PREVENTING OR RETARDING A DECLINE IN THE MARKET PRICE OF THE COMMON STOCK, OR
IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
----------------
Trademarks of certain companies other than the Company used in this
Prospectus are the property of their respective owners.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Prospective purchasers of shares of Common Stock offered hereby
should carefully consider the factors set forth under "Risk Factors." Unless
otherwise specified, the information in this Prospectus assumes that the
underwriters do not exercise the over-allotment option described herein under
"Underwriting." Unless otherwise indicated, the information in this Prospectus
gives effect to (i) a 4,200-for-1 stock split to be effected on , 1998,
(ii) the Company's Amended and Restated Certificate of Incorporation, to be
filed by the Company with the Delaware Secretary of State prior to completion
of the Offering and (iii) the Company's Amended and Restated Bylaws, to be made
effective prior to completion of the Offering. As used in this Prospectus,
unless the context indicates otherwise, the terms "AFG" and the "Company" refer
to American Finance Group, Inc. and its subsidiaries.
THE COMPANY
The Company is a commercial finance company engaged in the leasing and
secured financing of a variety of equipment for investment-grade "Fortune 1000"
companies and creditworthy middle-market companies. The Company's principal
businesses include (i) the direct origination of (a) equipment leases and (b)
secured loans, hybrid leases and other specialized financings ("structured
finance products") through its sales force, (ii) the management and servicing
of equipment leases and structured finance products retained by the Company or
sold to institutional leasing investment programs ("institutional programs"),
(iii) the sale and acquisition of equipment leases and structured finance
products to and from third parties ("syndication") and (iv) the sale and re-
marketing of equipment as it comes off lease. The Company's sales force markets
its equipment leases and structured finance products nationally through sales
offices located in the Boston, New York, Houston, Chicago and San Francisco
metropolitan areas and in Charlottesville, Virginia. During 1996 and 1997, the
Company originated over $347 million of equipment leases and structured finance
products covering over 59,000 items of equipment.
The Company's leases and structured finance products encompass a broad
spectrum of equipment classes, including manufacturing and materials handling
equipment, computer and telecommunications equipment, point of sale equipment,
construction and mining equipment, over-the-road trucks and office equipment.
The Company seeks to maintain a diversified asset portfolio in order to
minimize its credit and residual exposure to any single lessee, industry or
equipment category. As of March 31, 1998, no single industry accounted for more
than 15% of the Company's portfolio of leases, and no single lessee accounted
for more than 11% of its portfolio of leases.
The Company has master leases in place with more than 500 potential
customers, approximately 115 of whom currently are doing business with the
Company. Master leases are contracts that establish the general terms and
conditions under which the Company conducts its leasing business and are
frequently a prerequisite in competing for new financing. The master leases
simplify the approval process for lessees and enable the Company to compete for
new business at all levels of the enterprise. The Company's ten largest lessees
by cumulative dollar volume of leases and finance receivables (based on
original equipment cost) owned or serviced through March 31, 1998 were Ultramar
Diamond Shamrock Corp., Owens Corning, Chrysler Corporation, America Online,
Inc., Merck & Company, Inc., Wal-Mart Stores, Inc., U-Haul International, Inc.,
Fina Oil and Chemical Company, Atmel Corporation, and Marathon Oil Company. At
March 31, 1998, based primarily on published credit ratings by Moody's Investor
Services, Inc. and Standard & Poor's Corporation, the dollar-weighted average
credit rating of the Company's lessees was the equivalent of Baa2.
The Company initially finances the origination and acquisition of its
equipment leases and structured finance products through a traditional
warehouse credit facility. The Company either retains the equipment leases and
3
<PAGE>
structured finance products financed in a long-term nonrecourse facility, sells
them to institutional programs or syndicates them to unaffiliated third
parties. Of the equipment leases and structured finance products originated or
acquired by the Company in 1996 and 1997, the Company retained 45% and 55%,
sold 16% and 16% to institutional programs and syndicated 39% and 30% to
unaffiliated third parties in the same periods. Equipment leases and structured
finance products retained or serviced by the Company increased $233.6 million,
or 229%, from $101.8 million for the period commencing January 1996 to $335.4
million as of December 31, 1997. The Company serviced $102.4 million and $126.3
million in assets (based on original equipment cost) for institutional programs
in 1996 and 1997, respectively. As of March 31, 1998, the Company had awards
for future business amounting to approximately $176.1 million, as compared to
$45.8 million and $69.5 million for the same period in 1996 and 1997,
respectively. The Company has experienced on average that approximately 75% of
its awarded business ultimately is funded.
The Company's revenue for 1997 increased 117% as compared to 1996, growing to
$20.7 million from $9.5 million. The Company's net income for 1997 was $2.1
million as compared to a net loss of $0.8 million in 1996. The Company earns
direct finance lease or operating lease income on leases originated and
retained by the Company. The Company derives an operating profit from the
positive difference between the yield received on leases and secured loans
owned by the Company and the associated cost of funds. The financing of these
leases is accomplished through the Company's securitization facility, which
requires the Company to retain an equity interest in a majority of these
leases. The Company does not recognize a gain on sale of assets financed
through its securitization facility, retaining the leases and debt on its
balance sheet ("on balance sheet securitization"). The Company, however, does
recognize a gain on sale of assets in the case of leases and associated
equipment sold without a retained equity interest to institutional programs or
syndicated to unaffiliated third parties. The gain on sale represents the cash
received from the sales of the leases and associated equipment above the
Company's book value of such assets.
The equipment leasing and financing industry in the United States is a large
and growing source of financing for capital expenditures by businesses. The
Equipment Leasing Association (the "ELA") estimates that 80% of U.S. companies
lease all or a portion of their equipment. The ELA projects that $183 billion
of the $593 billion expected to be invested in equipment in 1998 will be
financed by means of leasing. According to the ELA, from 1996 to 1997 equipment
placed on lease grew by approximately $10 billion to an estimated $180 billion,
and investment in equipment placed on lease in 1996 represents an increase of
approximately 100% from comparable 1986 data. The Company believes that leasing
allows businesses to acquire capital equipment more efficiently, receive
favorable tax and accounting treatment, and avoid or mitigate the perceived
risks of equipment ownership, including obsolescence.
Key elements of the Company's business strategy include:
. Capitalize on Master Lease Relationships. The Company intends to expand
its business significantly through internal growth, particularly by
increasing the number of master leases under which it actively services
customers.
. Expand Middle-Market Business Line. The Company intends to continue to
expand its business with creditworthy middle-market companies, focusing
on transactions ranging in size from $100,000 to $2,000,000.
. Continue to Access Capital at Lower Costs. The Company intends to
continue to increase its access to low-cost capital from both public and
private sources by utilizing traditional credit facilities and on
balance sheet securitizations.
. Expand Offering of Structured Finance Products. The Company intends to
expand its underwriting of structured finance products to increase its
market share, manage its residual exposure and allow the Company to
manage a larger portfolio at lower incremental operating costs.
4
<PAGE>
. Expand Syndication Business. The Company intends to expand its
underwriting of transactions for syndication by offering a broader
variety of structured finance products.
. Explore and Develop Related Business Opportunities. The Company intends
to develop strategic alliances and pursue acquisitions that will provide
management expertise, specific equipment knowledge, information systems,
infrastructure and origination capabilities that complement the
Company's existing business in an effort to provide the Company's
customers the best services and product mix possible. The Company also
intends to explore opportunities to expand its operations to markets
outside of the United States and Canada.
. Utilize Technology and Infrastructure. The Company intends to improve
continually its information and customer servicing systems in order to
enhance its operational efficiency and offer differentiated services.
The Company's management team has extensive experience in lease financing,
securitizations and asset management. Donald R. Dugan, Jr., President and Chief
Executive Officer of the Company, has over nine years of experience in the
leasing and structured finance industry. Jeffrey F. Zerrer, Senior Vice
President, Marketing of the Company, has over 18 years of experience in the
equipment leasing industry. Susan S. Franklin, Senior Vice President,
Operations of the Company, has over 13 years of general management experience
in the leasing industry. David W. Fisher, Director of Asset Management of the
Company, has over eight years of experience servicing the leasing industry in
the fields of asset brokerage and disposal.
The Company was incorporated on February 9, 1995 in Delaware as a wholly
owned subsidiary of PLM International, Inc., a Delaware corporation ("PLMI" or
the "Selling Stockholder"). Upon completion of the Offering, PLMI will own
approximately 62.7% of the outstanding shares of Common Stock. The Company's
principal executive office is located at 24 School Street, Boston,
Massachusetts 02108, and its telephone number at that address is (617) 557-
9300.
THE OFFERING
Common Stock offered by the
Company............................. 1,570,000 shares
Common Stock offered by the Selling
Stockholder......................... 580,000 shares
Common Stock to be outstanding after
the Offering........................ 5,770,000 shares
Use of proceeds...................... For working capital and other general
corporate purposes, including repayment
of all outstanding indebtedness to PLMI
and a portion of amounts outstanding
under the Company's secured bank
warehouse credit facility. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol.............................. AFGC
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1997 1997 1997 1997
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<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Finance lease.......... $ 695 $ 734 $ 1,452 $ 1,793 $ 1,572 $ 2,210
Operating lease........ 892 3,143 2,403 2,159 2,134 1,938
Financing income....... 15 77 145 146 133 122
Management fees........ 131 142 144 182 234 169
Revenue from sale of
leases and related
assets................ 417 1,174 1,095 510 1,289 843
------- ------- ------- ------- -------- --------
Total revenues........ 2,150 5,270 5,239 4,790 5,362 5,282
Expenses:
Operations support..... 891 1,036 1,061 860 1,034 992
Depreciation and
amortization.......... 877 2,564 1,930 1,639 1,530 1,523
General and
administrative........ 342 295 253 379 366 265
------- ------- ------- ------- -------- --------
Total costs and
expenses............. 2,110 3,895 3,244 2,878 2,930 2,780
------- ------- ------- ------- -------- --------
Operating income........ 40 1,375 1,995 1,912 2,432 2,502
Interest expense........ (564) (1,175) (1,426) (1,378) (1,431) (1,565)
Interest income......... 76 45 73 78 73 100
------- ------- ------- ------- -------- --------
Income (loss) before
income taxes........... (448) 245 642 612 1,074 1,037
Provision for (benefit
from) income taxes..... (159) 88 240 229 402 388
------- ------- ------- ------- -------- --------
Net income (loss)....... $ (289) $ 157 $ 402 $ 383 $ 672 $ 649
======= ======= ======= ======= ======== ========
Basic and fully diluted
earnings (loss) per
weighted-average share
of Common Stock
outstanding(1)......... $ (0.07) $ 0.04 $ 0.10 $ 0.09 $ 0.16 $ 0.15
======= ======= ======= ======= ======== ========
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1997 1997 1997 1997
------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net investment in direct
finance leases......... $34,564 $52,964 $64,807 $65,335 $ 76,857 $112,465
Net investment in
operating leases....... 20,396 31,134 15,083 14,696 14,878 23,475
Loans receivable........ 3,007 5,718 6,017 5,516 5,002 5,861
Total assets............ 67,465 99,321 95,816 94,439 107,059 151,466
Short term debt......... 27,790 26,886 22,524 7,141 -- 23,040
Nonrecourse debt........ 22,308 45,392 47,674 52,343 68,507 81,302
Advance from PLMI....... -- -- -- 12,118 10,465 6,478
Total liabilities....... 52,713 81,448 79,610 79,912 89,738 131,487
Stockholder's equity.... 14,752 17,873 16,206 14,527 17,357 19,979
</TABLE>
- -------
(1) Earnings per share reflect a 4,200-for-1 stock split to be effected on
, 1998.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective purchasers in evaluating
the Company and its business before purchasing shares of the Common Stock
offered hereby.
RESIDUAL REALIZATION RISKS
The Company retains a residual interest in the assets related to a majority
of its leases. The residual interest represents the projected fair market
value of the underlying equipment at the end of the lease term. For direct
finance leases, the present value of residual interests is reflected on the
Company's balance sheet as a component of investment in direct finance leases.
For operating leases, the equipment is recorded on the Company's balance
sheet, and the net book value of the equipment reflects the Company's
underlying investment. The Company's results of operations depend in part upon
its ability to realize these residual values. Realization of residual values
depends on several factors, most of which are outside the Company's control,
including (i) general market conditions at the time of expiration of the
lease, (ii) the cost of comparable new equipment, (iii) the extent, if any, to
which the equipment has become technologically or economically obsolete during
its contracted lease term, (iv) any unusual or excessive wear and tear on the
equipment not covered in the contracted return conditions and (v) the effects
of any additional or amended government regulations. The Company's recorded
residual values are based in part on historical lease renewals and lessee
purchases of equipment at the end of the lease term, which results are subject
to variation in the future. If upon the expiration of a lease the Company
sells the underlying equipment and the amount realized is less than the
recorded value of the residual interest in such equipment, the Company
recognizes a loss reflecting the difference. Because of the Company's short
operating history, only limited performance data are available with respect to
the Company's residual realizations. Any failure by the Company to realize
aggregate recorded residual values could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Leasing and Financing Activity--Underwriting."
DEPENDENCE ON SECURITIZATION TRANSACTIONS
The Company has financed a significant portion of its lease and finance
receivables through the issuance of securities backed by such receivables in
securitized transactions. In a securitization, the Company transfers a pool of
leases and finance receivables to a wholly owned, special purpose subsidiary
of the Company. The special purpose subsidiary simultaneously transfers its
interest in the leases and finance receivables to a trust that issues
beneficial interests in the leases in the form of senior securities sold in
private placements or public offerings. Although the Company has not elected
to do so to date, the Company may issue in the future additional securities
subordinated to these senior securities. The Company currently intends to
securitize substantially all of the lease and finance receivables that it
originates and acquires in the future other than receivables sold by the
Company to institutional programs and unaffiliated third-parties.
The Company is dependent on securitizations for refinancing lease and
finance receivables outstanding under its revolving warehouse credit facility
(the "Warehouse Credit Facility"). Several factors affect the Company's
ability to complete a securitization, including (i) conditions in the
securities market generally, (ii) conditions in the asset-backed securities
market, (iii) the credit quality of underlying lease and finance receivables
in the Company's portfolio, (iv) compliance of its portfolio with the
eligibility criteria established in connection with the securitizations, (v)
the ability of the Company to adequately service its portfolio and (vi) the
absence of any material downgrading or withdrawal of ratings given to
securities previously issued in the Company's securitizations. Any impairment
of access to the securitization market for the Company's leases and finance
receivables or any adverse change in the terms of such securitizations could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
7
<PAGE>
DEPENDENCE ON EXTERNAL FINANCING
The Company initially finances substantially all of the lease and finance
receivables it originates or acquires through the Warehouse Credit Facility.
The Warehouse Credit Facility is available to fund equipment leases and
structured finance products that satisfy eligibility criteria for (i)
inclusion in the Company's securitizations, (ii) sale to institutional
programs or (iii) syndication to unaffiliated third parties. Borrowings under
the facility are repaid with proceeds generated by securitizations, sales to
institutional programs and syndication activity. Any adverse impact on the
Company's ability to complete securitizations or sales to institutional
programs or to operate the syndication business successfully could have a
material adverse effect on the Company's ability to obtain or maintain
warehouse credit facilities and the amounts available to the Company under
such facilities. The Company's servicing agreements with institutional
programs are subject to termination at any time, and the termination of such
agreements could have a material adverse effect on the Company's business,
financial condition and results of operation. Any failure by the Company to
comply with the terms of or renew the Warehouse Credit Facility, obtain
additional warehouse credit facilities or other financings with pricing,
advance rates and other terms and conditions consistent with its existing
facility or maintain its current institutional programs could have a material
adverse effect on the Company's business, financial condition and results of
operation. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
NEED FOR ADDITIONAL CAPITAL
The Company initially finances substantially all of the lease and finance
receivables it originates or acquires through the Warehouse Credit Facility.
The failure of the Company to obtain an increase of the commitment under, or
to renew, the Warehouse Credit Facility or to obtain additional warehouse loan
facilities on terms acceptable to the Company could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, if the terms of the Company's warehouse facilities or
the structure of its securitizations are not appropriate in light of future
market conditions, the Company may require additional capital to fund its
operations. The Company also may require additional capital to finance the
exploration and development of related business opportunities in the future.
No assurance can be given that such additional capital will be available on
terms acceptable to the Company, if at all. The failure of the Company to
obtain additional capital when, as and if needed could have a material adverse
effect on the Company's business, financial condition and results of
operations.
INTEREST RATE RISKS
The Company's profitability is determined in part by the difference between
the Company's cost of funds and the revenue generated by the Company from its
leasing and finance activities. Equipment leases underwritten by the Company
are generally non-cancellable obligations and require payments to be made by
the obligor for specified terms at fixed rates based on interest rates
prevailing in the market at the time the equipment lease is financed in the
Warehouse Credit Facility. Prior to selling or securitizing its leases, the
Company generally funds the leases under the Warehouse Credit Facility or from
working capital. In the event the Company is unable to sell or securitize its
leases with fixed rates within a reasonable period of time after acquisition
under the Warehouse Credit Facility, the Company's operating margins could be
adversely effected by increases in interest rates. Moreover, increases in
interest rates to the Company, which cause the Company to raise the implicit
rates charged to its customers in turn, could result in a reduction in demand
for the Company's lease financing. The Company currently has a program to
hedge against the risk of interest rate increases for those leases designated
for its revolving securitization facility (the "Securitization Facility"), but
the Company generally does not enter into hedges for leases designated for
sale to institutional programs or for syndication. Such hedging activities may
limit the Company's ability to participate in the benefits of any decrease in
interest rates with respect to the hedged portfolio of leases. In addition,
there can be no assurance that the Company's hedging activities will
adequately insulate the Company from related risks in all interest rate
environments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
8
<PAGE>
DEFAULT RISKS
The failure of the Company's lessees to comply with the terms of their
leases results in the inability of the related lease and finance receivables
to qualify to serve as collateral under the Warehouse Credit Facility and any
securitization program, and a significant volume of such failures would have a
material adverse effect on the Company's liquidity. Additionally,
delinquencies and defaults experienced in excess of levels estimated by
management in determining the Company's allowance for credit losses and in
valuing the Company's right to receive excess cash flows under its
securitization program could have a material adverse effect on the Company's
ability to obtain financing and effect securitization transactions which, in
turn, could have a material adverse effect on the Company's business,
financial condition and results of operations. As the Company seeks to expand
its presence in the middle market, the risk of default on the Company's lease
and finance receivables will increase, and there can be no assurance that the
actual rate of such defaults experienced by the Company will not increase.See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
UNCERTAIN ABILITY TO SUSTAIN INCREASING VOLUMES OF RECEIVABLES
The Company's ability to sustain continued growth is dependent on its
capacity to attract, evaluate, finance and service increasing volumes of lease
and finance receivables of suitable yield and credit quality. Accomplishing
this on a cost-effective basis is largely a function of the Company's ability
to (i) market its products effectively, (ii) manage the credit evaluation
process in a manner that assures adequate portfolio quality, (iii) provide
competent, attentive and efficient lease servicing, (iv) maintain access to
institutional financing sources for its products with an acceptable cost of
funds and (v) obtain access to new sources of such institutional financing.
Any failure by the Company to market its products effectively, maintain its
portfolio quality, service its leases or obtain institutional financing at
reasonable rates would have a material adverse effect on the Company's
business financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," "Business--Lease Portfolio" and "Business--
Leasing and Financing Activity."
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES
The Company was incorporated and commenced business in 1995 and therefore
has a limited operating history upon which to evaluate its performance. The
Company incurred net losses of $0.8 million in each of 1995 and 1996. While
the Company was profitable in 1997, there can be no assurance that the
Company's operations will remain profitable on a consistent basis in future
years, if at all. The Company's profitability is dependent on its ability to
secure financing necessary to operate its business, and there can be no
assurance that the Company's limited operating history will not adversely
affect its ability to secure such financing. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE UPON KEY PERSONNEL
The Company depends to a significant degree upon the experience, abilities,
leadership and continued efforts of members of its senior management,
including Donald R. Dugan, Jr., President and Chief Executive Officer, Jeffrey
F. Zerrer, Senior Vice President, Marketing, Susan S. Franklin, Senior Vice
President, Operations, and David W. Fisher, Director of Asset Management. The
Company has not entered into employment agreements with any of its employees,
nor does it maintain key man life insurance on any of its employees. The loss
of the services of one or more of the key members of the Company's senior
management could have a material adverse effect on the Company's business,
financial condition and results of operations. The future success of the
Company also depends upon its ability to identify, attract and retain
additional skilled management personnel necessary to support anticipated
future growth. See "Management."
CONTROL OF THE COMPANY BY MAJORITY STOCKHOLDER; CONFLICTS OF INTEREST.
The Company is currently a wholly owned subsidiary of PLMI. Upon completion
of the Offering, approximately 62.7% (approximately 58.3% if the Underwriters'
over-allotment option is exercised in full) of
9
<PAGE>
the outstanding shares of Common Stock will be owned by PLMI. This
concentration of ownership effectively will give PLMI voting control over all
matters requiring approval of the Company's stockholders, including, among
other things, the election or removal of the entire Board of Directors of the
Company (through which PLMI will be able to control the direction and future
operations of the Company), decisions regarding the issuance of additional
shares of Common Stock and other securities and decisions regarding the
dissolution, merger or sale of all or substantially all of the assets of the
Company. In addition, the Amended and Restated Certificate of Incorporation of
the Company (the "Charter") requires the affirmative vote of at least 80% of
the entire Board of Directors, or of the holders of at least a majority in
voting power of the shares of capital stock of the Company entitled to vote in
an election of directors, to adopt, amend, alter or repeal the bylaws of the
Company, effectively giving PLMI the ability (as long as it continues to be
the majority stockholder of the Company) to control changes to the Company's
bylaws. In the foregoing situations or otherwise, various conflicts of
interest between the Company and PLMI may arise, and there can be no assurance
that any such conflict of interest will be resolved in favor of the Company.
Conflicts of interest between the Company and PLMI may also arise in a number
of areas relating to their past, ongoing or future relationship, including the
nature, quality and pricing of services rendered by PLMI to the Company under
the Intercompany Relationship Agreement being entered into by the Company and
PLMI in connection with the Offering (the "Intercompany Agreement"), potential
competitive business activities, opportunities or prospects, sales or
distributions by PLMI of any portion of its ownership interest in the Company,
and PLMI's ability to control the management and affairs of the Company. There
can be no assurance that PLMI and the Company will be able to resolve any such
conflict or that, if resolved, the Company would not have received a more
favorable resolution if it were dealing with an unaffiliated third party.
Future transactions by the Company involving the issuance of Common Stock
could reduce PLMI's proportionate ownership of the Common Stock. As long as
PLMI continues to be the majority stockholder of the Company, however, third
parties will not be able to obtain control of the Company through purchases of
Common Stock on the open market. Notwithstanding a reduction in PLMI's
proportionate ownership of the Common Stock to less than 50%, the Intercompany
Agreement provides, among other things, that until members of the PLMI
Affiliated Group (as defined below) cease to control at least 35% of the
combined voting power of the outstanding Common Stock or no longer own at
least 35% of the outstanding Common Stock, the prior written consent of PLMI
will be required for: (i) any consolidation or merger of the Company or any of
its subsidiaries with any person (other than certain transactions involving
wholly owned subsidiaries); (ii) any sale, lease, exchange or other
disposition by the Company or any of its subsidiaries (other than transactions
to which the Company and its wholly owned subsidiaries are the only parties),
directly or indirectly, of all or substantially all of the assets of the
Company or any of its subsidiaries; (iii) any alteration, amendment or repeal
of the Charter or Bylaws (each of such terms, as defined below); (iv) any
issuance by the Company or any subsidiary of the Company of any equity
securities or equity derivative securities (except (a) up to 965,500 options
to purchase shares of Common Stock pursuant to employee and director stock
option, profit sharing and other benefit plans of the Company and its
subsidiaries and the issuance of the shares of Common Stock underlying such
options, (b) the issuance of shares of capital stock of a wholly owned
subsidiary of the Company to the Company or another wholly owned subsidiary of
the Company and (c) in the Offering); (v) the election or appointment of
persons to, or the filling of a vacancy in, the offices of president or chief
executive officer of the Company; and (vi) the dissolution, liquidation or
winding up of the Company. In addition, the Amended and Restated By-Laws of
the Company (the "Bylaws") provide that as long as the PLMI Affiliated Group
maintains such 35% interest in the Common Stock, the Board of Directors of the
Company will nominate two persons designated by PLMI for election to the Board
of Directors at each annual meeting and at any special meeting of stockholders
called for the purpose of electing directors. So long as PLMI owns a
significant number of the outstanding shares of Common Stock, PLMI will be
able to exert influence over many decisions affecting the Company. See
"Certain Transactions," "Principal and Selling Stockholders" and "Description
of Capital Stock."
DEPENDENCE ON MAJORITY STOCKHOLDER
Following completion of the Offering, the Company will be dependent to a
significant degree on PLMI for certain essential administrative, legal and
other operational services to be provided to the Company under the
10
<PAGE>
Intercompany Agreement for a period of three years at an annual cost of
$500,000. Any failure by PLMI to provide such services in accordance with the
terms of the Intercompany Agreement could have a material adverse effect on
the Company's business, financial condition and results of operations. There
can be no assurance that PLMI will fully perform its obligations under the
Intercompany Agreement or that the services to be provided by PLMI to the
Company thereunder will be provided in a manner or on terms as favorable to
the Company as could be obtained from unaffiliated third parties. In addition,
prior to completion of the Offering, PLMI has been a guarantor under the
Warehouse Credit Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation" and "Certain Transactions."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company experiences significant fluctuations in quarterly operating
results on account of a number of factors, including, among others, variations
in the volume of leases funded by the Company, the number and size of
transactions originated for third parties generating gains on sales, ultimate
realization of residual values at lease termination, required write-downs of
residual interests, differences between the Company's cost of funds and the
average implicit yield to the Company on its leases prior to being
securitized, the effectiveness of the Company's hedging strategy, the degree
to which the Company encounters competition in its markets, the interest rate
on securities issued in connection with securitization transactions by the
Company, and general economic conditions. As a result of these fluctuations,
results for any one quarter should not be relied upon as being indicative of
performance in future quarters. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION
The business of equipment leasing and secured financing is highly
competitive. The Company competes for customers with a number of
international, national and regional finance and leasing companies and banks.
In addition, the Company's competitors include equipment manufacturers that
finance the sale or lease of their products themselves. Many of the Company's
competitors and potential competitors have greater financial, marketing and
operational resources than the Company. The Company's competitors, some of
which are larger and more established than the Company, may have a lower cost
of funds than the Company and access to capital markets and to other funding
sources that may not be available to the Company. See "Business--Competition."
RISKS INHERENT IN FOREIGN OPERATIONS AND INVESTMENTS
If the Company elects to expand its operations to markets outside of the
United States and Canada, whether by acquisitions or direct sales of its
equipment leases and structured finance products in such markets, the Company
will incur certain risks inherent in foreign operations and investments,
including loss of revenue, property and equipment from expropriation,
nationalization, war, insurrection, terrorism and other political risks, and
risks of increases in taxes and governmental royalties and fees. In addition,
the Company will be exposed to risks of change in foreign and domestic laws
and policies that govern operations of foreign-based companies. In the event
of such an expansion of the Company's operations, the Company will not be able
to insure itself against all of such risks. The Company currently does not
have insurance with respect to such risks.
GENERAL ECONOMIC RISKS
The Company's business could be affected by general economic conditions in
the United States and abroad, and any sustained period of economic slowdown or
recession could have a material adverse effect on the Company's business,
financial condition and results of operations. The risks to which the
Company's business is subject may become more acute during an economic
slowdown or recession as the ability of lessees to make lease payments or
honor guarantees may be impaired, resulting in increased credit losses to the
Company. In addition to reducing or eliminating spreads and potentially
requiring a write-down of the Company's lease and finance receivables,
increased credit losses may impair the Company's access to the securitization
and bank financing markets. Reduced levels of demand for equipment in a
slowdown or recession also may result in reduced lease originations by the
Company.
11
<PAGE>
CERTAIN ANTI-TAKEOVER PROVISIONS
The Charter and the Bylaws contain certain provisions that may have the
effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals that a stockholder might consider
favorable, including provisions (i) authorizing the issuance of "blank check"
preferred stock, (ii) limiting the persons who may call special stockholders'
meetings, (iii) establishing advance notice requirements for nominations for
election to the Board of Directors or for proposing matters that can be acted
upon at stockholders' meetings and (iv) requiring the affirmative vote of at
least 80% of the entire Board of Directors, or of the holders of at least a
majority in voting power of the shares of capital stock of the Company
entitled to vote in an election of directors, to adopt, amend, alter or repeal
the Bylaws. The Intercompany Agreement contains provisions that among other
things, prevent the Company, without the prior written consent of PLMI, from
entering into certain types of transactions, including mergers and a sale of
substantially all of the assets of the Company, and from amending the Charter
or Bylaws so long as PLMI controls at least 35% of the combined voting power
of the outstanding Common Stock or 35% of the issued and outstanding shares of
Common Stock. In addition, certain provisions of Delaware law may have the
effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals. See "Certain Transactions" and
"Description of Capital Stock--Delaware Law and Certain Charter Provisions."
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market after
the Offering could affect adversely the market price of the Common Stock. Upon
completion of the Offering, the Company will have 5,770,000 shares of Common
Stock outstanding. The shares of Common Stock offered hereby will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except for shares sold by persons
deemed to be "affiliates" of the Company or acting as "underwriters," as those
terms are defined in the Securities Act. Upon completion of the Offering,
approximately 62.7% (approximately 58.3% if the Underwriters' over-allotment
option is exercised in full) of the outstanding shares of Common Stock will be
owned by PLMI. Following the expiration of the lock-up period described below,
these shares of Common Stock will be freely tradeable subject to the
restrictions on resale imposed upon "affiliates" by Rule 144 under the
Securities Act. The Company, its officers and directors and the Selling
Stockholder have agreed not to offer, sell or grant any option for the sale
of, or otherwise dispose of any shares of Common Stock, or any securities
convertible into or exercisable for, shares of Common Stock for a period of
180 days commencing on the date of this Prospectus without the prior written
consent of Legg Mason Wood Walker, Incorporated, other than the issuance of
options to purchase Common Stock or shares of Common Stock issuable upon the
exercise thereof in connection with the Company's stock option plans, provided
that such options shall not vest or such shares shall not be transferable
prior to the end of the 180-day period. Pursuant to the Intercompany
Agreement, PLMI and certain of its subsidiaries have certain registration
rights with respect to the shares of Common Stock held by them. See
"Management--Stock Incentive Plans," "Certain Transactions," "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriting."
RISK OF CHANGES IN ACCOUNTING PRINCIPLES OR TAX LAWS
While a sizeable portion of the Company's lease portfolio is accounted for
by the Company as direct finance leases, the leases are often classified as
operating leases by the lessees owing to independent judgments made about
economic useful lives and discount rates as well as third-party guarantees of
residual values obtained by the Company. Lessees generally consider operating
lease treatment to be favorable owing to the off-balance sheet accounting for
operating leases. For tax purposes, the majority of the Company's leases are
treated as true leases, which generate considerable depreciation allowances
that provide the Company with substantial tax benefits on an ongoing basis.
Any changes to current tax laws or accounting principles that make operating
lease financing less attractive could adversely affect the Company's business,
financial condition and results of operations.
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active market for the Common Stock will
develop upon completion of the Offering or, if developed, that
12
<PAGE>
such a market will be sustained. The initial public offering price of the
Common Stock will be determined through negotiations among the Company, PLMI,
and the representatives of the Underwriters and may bear no relationship to
the market price of the Common Stock after the Offering. For information
relating to the factors to be considered in determining the initial public
offering price, see "Underwriting." Prices for the Common Stock after the
Offering may be influenced by a number of factors, including the liquidity of
the market for the Common Stock, investor perceptions of the Company and the
equipment financing industry in general, and general economic and other
conditions. Sales of substantial amounts of Common Stock in the public market
subsequent to the Offering could adversely affect the market price of the
Common Stock. In addition, the trading price of the Common Stock could be
subject to wide fluctuations in response to variations in financial estimates
by securities analysts and other events or facts. See "Shares Eligible for
Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of the Common Stock offered hereby is
substantially higher than the book value per share of the outstanding Common
Stock. Accordingly, investors purchasing Common Stock in the Offering will
experience immediate and substantial dilution in net tangible book value per
share of $6.94 (assuming an initial public offering price of $14.00 per share
and after deducting estimated underwriting discounts and commissions payable
by the Company). See "Dilution."
ABSENCE OF DIVIDENDS
Following the Offering, the Company intends to retain earnings to finance
the growth and development of its business. Additionally, provisions in the
Warehouse Credit Facility contain certain restrictions on the Company's
ability to pay dividends on the Common Stock. Accordingly, the Company does
not anticipate paying cash dividends on the Common Stock in the foreseeable
future. See "Dividend Policy."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects" and words of similar import, constitute forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: the Company's dependence on securitization transactions, external
financing, key personnel and its majority stockholder; the Company's need for
additional capital; interest rate, residual realization and default risks;
uncertainty concerning the Company's ability to sustain increasing volumes of
receivables, its limited operating history and history of operating losses;
competition; the risk of changes in accounting principles or tax laws
affecting the Company; and other factors referred to in this Prospectus.
Certain of these factors are discussed in more detail elsewhere in this
Prospectus, including, without limitation, in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Given these uncertainties, prospective purchasers are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to announce publicly the result of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
13
<PAGE>
THE COMPANY
The Company was incorporated on February 9, 1995 in Delaware as a wholly
owned subsidiary of PLMI. In January 1995, PLMI had entered into an agreement
with an entity presently named Equis Financial Group, a Massachusetts general
partnership ("Equis"), to manage certain operations of Equis. During 1995, the
Company provided management services for certain of the Equis investor
programs, for which the Company earned management fees and other revenues.
During the period the Company provided management services to Equis, Equis's
business consisted of approximately 55 employees managing 30 public limited
partnerships with approximately 50,000 limited partnership investors and
aggregate assets in excess of $700 million (based on original acquisition
cost).
In December 1995, the agreement with Equis was modified to terminate the
management of the Equis investor programs following a determination by PLMI
that the business of providing management services did not meet either the
profitability expectations or strategic growth objectives it held for the
Company. Under the modified agreement, the Company hired certain of Equis's
lease origination and servicing employees and acquired from Equis certain
customer lists, master lease agreements and the rights to originate and
service equipment leases sold to an institutional program. Additionally, the
modified agreement provided for the Company to purchase certain software,
computers and furniture from Equis. The Company began 1996 with an owned
portfolio of $17.7 million in leases and associated equipment and 19
employees. As of March 31, 1998, the owned portfolio of leases and finance
receivables was $166.7 million and the Company had 26 employees.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting estimated underwriting discounts and other
expenses of the Offering (all of which are payable by the Company), are
estimated to be approximately $19,716,000 at an assumed initial public
offering price of $14.00 per share (approximately $21,816,000 if the
Underwriters' over-allotment option is exercised in full). The Company will
not receive any of the proceeds from the sale of shares of Common Stock in the
Offering by the Selling Stockholder. See "Principal and Selling Stockholders."
The Company intends to use a portion of the net proceeds of the Offering to
repay all indebtedness owed to PLMI (approximately $2.0 million as of March
31, 1998 bearing interest at a floating rate equal to the 30-day London
Interbank Offered Rate ("LIBOR") plus 1.625%) and the remainder of the net
proceeds to originate new leases and structured finance products. In the event
any of the net proceeds of the Offering are not immediately used by the
Company to purchase leases or structured finance products, the Company will
use such proceeds to repay a portion of its short term debt outstanding under
the Warehouse Credit Facility, which totaled $38.7 million at March 31, 1998.
Following the Offering, borrowings under the Warehouse Credit Facility will
bear interest, at the option of the Company, at a floating rate equal to 30-
day LIBOR plus 1.25% or at the prime rate. Pending such uses, the proceeds of
the Offering will be invested in short-term, investment grade interest-bearing
securities. The Company may require additional financing in the future to
finance continuing growth. No assurance can be given that such financing will
be available on terms favorable to the Company, if at all.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently intends to retain all of its future earnings, if
any, to finance the growth and development of its business and does not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future. Additionally, provisions in the Warehouse Credit Facility contain
certain restrictions on the Company's ability to pay dividends on the Common
Stock. Any change in the Company's dividend policy in the future will be made
at the discretion of the Company's Board of Directors in light of the
financial condition, capital requirements, earnings and prospects of the
Company and other factors that the Board of Directors may deem relevant at
such time. See "Risk Factors--Control of the Company by Majority Stockholder;
Conflicts of Interest, --Absence of Dividends" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the debt and capitalization of the Company as
of March 31, 1998, and as adjusted on a pro forma basis to give effect to the
sale of shares of Common Stock, at an assumed initial public offering price of
$14.00 per share, by the Company and the application of the net proceeds of
such sale:
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
ACTUAL AS ADJUSTED
------------ ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Warehouse Credit Facility........................... $ 38,734 $ 21,005
Advance from PLMI................................... 1,987 --
Nonrecourse debt.................................... 96,425 96,425
------------ ------------
Total debt (1).................................. 137,146 117,430
------------ ------------
Stockholders' equity:
Common Stock, $0.01 par value; 4,200,000 shares
authorized, issued and outstanding, actual;
30,000,000 shares authorized, 5,770,000 issued
and outstanding, as adjusted..................... -- 58
Retained earnings................................. 919 919
Paid-in capital, in excess of par................. 22,721 42,379
------------ ------------
Total stockholders' equity...................... 23,640 43,356
------------ ------------
Total capitalization................................ $ 160,786 $ 160,786
============ ============
</TABLE>
- --------
(1) For information with respect to the Company's debt, see Notes 6 and 7 to
the consolidated financial statements included elsewhere in this
Prospectus.
(2) Does not include an aggregate of 865,500 shares of Common Stock reserved
for issuance under the Company's 1998 Management Stock Compensation Plan,
577,000 of which will be subject to options to be issued upon completion
of the Offering, or 100,000 shares of Common Stock reserved for issuance
under the Company's Directors' 1998 Nonqualified Stock Option Plan, 50,000
of which will be subject to options to be issued upon completion of the
Offering. See "Management --Stock Incentive Plans."
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998
was approximately $21.0 million or $5.00 per share of Common Stock outstanding
at such time. Net tangible book value per share represents the amount of the
Company's stockholders' equity, less intangible assets, divided by the
4,200,000 million shares of Common Stock outstanding at such time.
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Offering
and the pro forma net tangible book value per share of Common Stock offered
hereby immediately after completion of the Offering. After giving effect to
the sale of the Common Stock at an estimated initial public offering price of
$14.00 per share (the mid-point of the price range set forth on the cover page
of this Prospectus) and after deduction of the underwriting discounts and
commissions and estimated expenses of the Offering, the adjusted pro forma net
tangible book value, as of March 31, 1998, would have been approximately $40.7
million or $7.06 per share of Common Stock. This represents an immediate
increase in net tangible book value of $2.06 per share to existing
stockholders and an immediate dilution of $6.94 per share to new investors
purchasing the Common Stock. The following table illustrates the pro forma per
share dilution, as of March 31, 1998:
<TABLE>
<S> <C> <C>
Estimated initial public offering price per share............. $14.00
Pro forma net tangible book value per share at March 31,
1998......................................................... $5.00
Increase per share in pro forma net tangible book value
attributable to new investors................................ 2.06
-----
Pro forma net tangible book value per share after the
Offering..................................................... 7.06
------
Dilution per share to new investors........................... $ 6.94
======
</TABLE>
The following table sets forth, after giving effect to the Offering, the
number of shares of Common Stock purchased from the Company, the total
consideration paid therefor and the average price per share paid by the
existing stockholder and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholder............ 4,200,000 72.8% $22,721,000 50.8% $ 5.41
New investors................... 1,570,000 27.2% 21,980,000 49.2% 14.00
--------- ----- ----------- -----
Total......................... 5,770,000 100.0% $44,701,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table does not give effect to the sale of Common Stock in the
Offering by the Selling Stockholder. The sale of shares of Common Stock by the
Selling Stockholder in the Offering will reduce the number of such shares held
by the existing stockholder to 3,620,000, or approximately 62.7% of the total
number of shares of Common Stock outstanding upon completion of the Offering,
and will increase the number of such shares held by new investors to
2,150,000, or 37.3% of the total number of shares of Common Stock outstanding
upon completion of the Offering. See "Principal and Selling Stockholders."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
FOR THE PERIOD FROM FEBRUARY 9, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995,
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997:
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus. The statement
of operations data for the period from February 9, 1995 (inception) through
December 31, 1995 and for the years ended December 31, 1996 and 1997 and the
balance sheet data as of December 31, 1996 and December 31, 1997 are derived
from the consolidated financial statements of the Company which have been
audited by KPMG Peat Marwick LLP, independent auditors, and are included
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FOR THE YEARS
FOR THE PERIOD ENDED
FROM FEBRUARY 9, 1995 DECEMBER 31,
(INCEPTION) THROUGH ----------------
DECEMBER 31, 1995 1996 1997
--------------------- ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Finance lease......................... $ -- $ 1,763 $ 7,027
Operating lease ...................... 2,293 5,020 8,634
Financing income...................... -- 92 546
Management fees....................... 145 485 729
Revenue from sale of leases and
related assets....................... 1,252 2,188 3,737
------- ------- -------
Revenues from ongoing business
activities.......................... 3,690 9,548 20,673
Revenues from the management of Equis
investor programs..................... 1,635 -- --
------- ------- -------
Total revenues....................... 5,325 9,548 20,673
Expenses:
Operations support.................... 5,686 3,509 3,947
Depreciation and amortization......... 8 4,292 6,622
General and administrative............ 867 1,178 1,263
------- ------- -------
Total costs and expenses............. 6,561 8,979 11,832
------- ------- -------
Operating income (loss)................ (1,236) 569 8,841
Interest expense....................... -- (2,019) (5,800)
Interest income........................ -- 176 324
Other expenses......................... -- (19) --
------- ------- -------
Income (loss) before income taxes...... (1,236) (1,293) 3,365
Provision for (benefit from) income
taxes................................. (442) (457) 1,259
------- ------- -------
Net income (loss)...................... $ (794) $ (836) $ 2,106
======= ======= =======
Basic and fully diluted earnings (loss)
per weighted-average share of Common
Stock outstanding (1)................. $ (0.19) $ (0.20) $ 0.50
======= ======= =======
PRO FORMA DATA: (2)
Historical net loss:................... $ (836)
Pro forma adjustments to reflect net
income from subsidiary of Parent
earned on behalf of the Company...... 838
-------
Pro forma net income................. $ 2
=======
Pro forma basic and fully diluted
earnings (loss) per weighted-average
share of Common Stock outstanding
(1).................................. $ 0.00
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996 1997
------ ------- --------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Net investment in direct finance leases................ $ -- $52,964 $112,465
Net investment in operating leases..................... -- 31,134 23,745
Loans receivable....................................... -- 5,718 5,861
Total assets........................................... 2,644 99,321 151,466
Short term debt........................................ -- 26,886 23,040
Nonrecourse debt....................................... -- 45,392 81,302
Advance from PLMI...................................... -- -- 6,478
Total liabilities...................................... 810 81,448 131,487
Stockholder's equity................................... 1,834 17,873 19,979
</TABLE>
- -------
(1) Earnings per share reflect a 4,200-for-1 stock split to be effected on
, 1998.
(2) Pro forma data give effect to income earned on equipment purchased by
another subsidiary of PLMI. The Company arranged for the purchase of this
equipment, incurred all related origination costs and serviced the related
receivables. See Note 13 to the consolidated financial statements included
elsewhere in this Prospectus.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The primary activity of the Company is the funding and servicing of long-
term direct finance leases, operating leases and secured loans. Master lease
agreements are entered into with predominantly 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 manufacturing and
materials handling equipment, computer and telecommunications equipment, point
of sale equipment, construction and mining equipment, over-the-road trucks and
office equipment. The Company derives an operating profit from the positive
difference between the yield received on leases and secured loans owned by the
Company and the associated cost of funds. The Company also originates and
services leases for institutional programs for which it receives acquisition
and management fees. In addition, the Company earns syndication fees for
arranging purchases and sales of equipment between other unaffiliated third
parties.
The Company earns finance lease income for leases that meet the criteria for
direct finance leases, as defined by Statement of Financial Accounting
Standards ("SFAS") No. 13 "Accounting for Leases" ("SFAS No. 13"). A lease is
a direct finance lease if the collectibility of lease payments is reasonably
certain and one of the following criteria is met: (i) the lease transfers
ownership of the equipment to the lessee by the end of the lease term, (ii)
the lease contains a bargain purchase option, (iii) the lease term at
inception is at least 75% of the estimated economic life of the leased
equipment or (iv) the present value of the minimum lease payments, including
third party guaranteed residual values, is at least 90% of the fair value of
the leased equipment at the inception of the lease. For direct finance leases,
the underlying equipment is not recorded on the Company's balance sheet, but
an investment in direct finance lease is recorded that equals the present
value of the minimum lease payments and the estimated residual value. The
Company earns operating lease income for leases that do not meet the criteria
of direct finance leases, as defined by SFAS No. 13. For operating leases, the
underlying equipment is recorded on the Company's balance sheet at cost and
depreciated to an estimated residual value over the lease term, which usually
ranges from one to seven years. The Company reviews the carrying values of its
residual interests at least annually in relation to expected future market
values for the equipment in which it holds residual interests for the purpose
of assessing recoverability of recorded amounts.
The Company earns financing income on loans to customers and retains a
security interest in the equipment purchased with the loan proceeds and the
related leases.
On January 1, 1997, the Company adopted SFAS No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS No. 125"). SFAS No. 125 provides guidelines for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The Company's transfers of direct finance leases
and loans to the Securitization Facility are accounted for as financings under
SFAS No. 125.
The transfer to the Securitization Facility of equipment subject to
operating leases, in which the Company retains substantial risk of ownership,
are accounted for as financings under SFAS No. 13. The transfer of equipment
subject to operating leases to institutional programs and third parties, where
the Company retains no risk of ownership, are treated as sales with gain or
loss on sale recognized in the period title passes.
During 1996 and 1997, the Company originated transactions with an original
cost of $192.0 million and $155.8 million, respectively. During 1996 and 1997,
the Company sold equipment subject to lease with an original cost of $40.7
million and $58.3 million, respectively. As of December 31, 1996 and 1997, the
Company's portfolio (based on original equipment cost) totaled $92.0 million
and $161.9 million, respectively. As of December 31, 1996 and 1997, the
Company's owned or serviced portfolio (based on original equipment cost)
totaled $195.2 million and $297.6 million, respectively.
18
<PAGE>
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE PERIOD FROM FEBRUARY 9,
1995 ("INCEPTION") THROUGH DECEMBER 31, 1995 AND THE YEAR ENDED DECEMBER 31,
1996
In January 1995, PLMI entered into an agreement to obtain certain assets and
manage certain operations of an entity presently named Equis Financial Group,
a Massachusetts general partnership ("Equis"). During 1995, the Company
provided management services under the agreement for certain of the Equis
investor programs, for which the Company earned management fees and other
revenues. In December 1995, the agreement was modified to terminate the
management of the Equis investor programs. Under the modified agreement, the
Company hired certain Equis lease origination and servicing employees and
acquired from Equis certain customer lists, master lease agreements and the
rights to originate and service equipment leases sold to an institutional
program. The Company paid $3.2 million in the transaction, $0.5 million of
which was allocated to software, computers and furniture, $0.8 million of
which was allocated to certain intangible assets based on estimated fair
value, and the balance of $1.9 million was recorded as goodwill.
Revenues
<TABLE>
<CAPTION>
1995 1996
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Finance lease................................. $ -- $ 1,763
Operating lease............................... 2,293 5,020
Financing income.............................. -- 92
Management fees............................... 145 485
Revenue from sale of leases and related as-
sets......................................... 1,252 2,188
------------ ------------
Revenues from ongoing business activities..... 3,690 9,548
Revenues from the management of Equis investor
programs..................................... 1,635 --
------------ ------------
Total revenues............................... $ 5,325 $ 9,548
============ ============
</TABLE>
Finance lease, operating lease and financing income. Increases in finance
lease, operating lease and financing income for the period from inception
through December 31, 1995, as compared to the year ended December 31, 1996,
resulted from the overall expansion of leasing activities during 1996.
Management fees. During the period from inception through December 31, 1995
and the year ended December 31, 1996, the Company earned management fees
related to institutional programs. Management fees were $0.1 million during
the period from inception through December 31, 1995 and $0.5 million for 1996
(a 234% increase) as a result of an increase in the average equipment
portfolio serviced on behalf of an institutional program. The average cost of
equipment managed on behalf of institutional programs in the period from
inception through December 31, 1995 and in the year ended December 31, 1996
was $45.2 million and $86.7 million, respectively.
Revenue from sale of leases and related assets. During 1996, the Company
earned $1.0 million from the sale of commercial and industrial equipment,
which included $0.5 million of gains from sales to institutional programs and
$0.5 million of gains from sales to other unaffiliated third parties. There
were no gains from the sale of commercial and industrial equipment in 1995.
During the period from inception through December 31, 1995 and the year
ended December 31, 1996, the Company earned syndication fees for arranging
purchases and sales of equipment subject to lease between unaffiliated third
parties. Syndication fees were $0.1 million and $0.4 million in the period
from inception through December 31, 1995 and in the year ended December 31,
1996, respectively, due to an increase in lease syndication transactions in
1996, compared to the period from inception through December 31, 1995.
During the period from inception through December 31, 1995 and the year
ended December 31, 1996, the Company earned acquisition fees related to
institutional programs. Acquisition fees were $1.1 million from the period
from inception through December 31, 1995, compared to $0.8 million for the
year ended December 31, 1996 (a 27% decrease) as a result of a decrease in
equipment purchased and leased on behalf of institutional programs in 1996.
19
<PAGE>
Revenues from the management of Equis investor programs. Management fees and
other revenues related to the management services provided by the Company for
the Equis investor programs in 1995 are shown as revenues from the management
of Equis investor programs from the period from inception through December 31,
1995 in the statement of operations. As a result of the modification of the
purchase agreement with Equis in December 1995, the Company no longer performs
these services.
Costs and Expenses
<TABLE>
<CAPTION>
1995 1996
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Operations support................................ $ 5,686 $ 3,509
Depreciation and amortization..................... 8 4,292
General and administrative........................ 867 1,178
------------ ------------
Total costs and expenses......................... $ 6,561 $ 8,979
============ ============
</TABLE>
Operations support. Operations support expense (including salary and office-
related expenses for lease origination and servicing activities and provision
for doubtful accounts) decreased $2.2 million (38%) in the year ended December
31, 1996, compared to the period from inception through December 31, 1995, as
a result of the modifications to the management agreement in December 1995
pursuant to which the Company no longer provides management services to the
Equis investor programs. This resulted in reduced staffing related to lease
servicing activities.
Depreciation and amortization. Depreciation and amortization expense
increased $4.3 million for the year ended December 31, 1996, compared to the
period from inception through December 31, 1995. The increase was due to an
increase in average commercial and industrial equipment owned and on operating
lease.
General and administrative. General and administrative expense (including
the cost of legal, accounting, data processing, human resources and risk
management services) increased $0.3 million (36%) for the year ended December
31, 1996, compared to the period from inception through December 31, 1995, as
a result of management information services and human resources expenses
allocated to the Company in the year ended December 31, 1996 that were not
allocated from inception through December 31, 1995 and increased services
provided by PLMI and allocated to the Company due to the expansion of overall
leasing activities. These costs were allocated to the Company based on time
spent on these activities by personnel of PLMI.
Other Income and (Expenses)
<TABLE>
<CAPTION>
1995 1996
-------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Interest expense.................................. $ -- $ (2,019)
Interest income................................... -- 176
Other expense..................................... -- (19)
</TABLE>
All increases in other income and expenses for the year ended December 31,
1996, as compared to the period from inception through December 31, 1995,
resulted from the overall expansion of leasing activities during 1996.
The average balance on the Warehouse Credit Facility during 1996 was $30.9
million. The average balances outstanding on the Securitization Facility
during 1996 was $15.6 million.
Benefit from Income Taxes
For the period from inception through December 31, 1995, the Company
recognized a benefit for income taxes of $0.4 million as a result of the $1.2
million pretax loss, resulting in an effective benefit rate of 36%. For the
year ended December 31, 1996, the benefit for income taxes was $0.5 million as
a result of the $1.3 million pretax loss, representing an effective rate of
35%.
20
<PAGE>
Net Loss
As a result of the foregoing, for the period from inception through December
31, 1995 and for the year ended December 31, 1996, the net loss was $0.8
million.
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1997
Revenues
<TABLE>
<CAPTION>
1996 1997
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Finance lease.................................... $ 1,763 $ 7,027
Operating lease.................................. 5,020 8,634
Financing income................................. 92 546
Management fees.................................. 485 729
Revenue from sale of leases and related assets... 2,188 3,737
------------ -------------
Total revenues.................................. $ 9,548 $ 20,673
============ =============
</TABLE>
Finance lease. Finance lease income increased $5.3 million (299%) during
1997, compared to 1996, due to an increase in commercial and industrial assets
that were on finance lease. During 1996, the average investment in direct
finance leases was $20.6 million, compared to $74.5 million in 1997.
Operating lease. Operating lease income increased $3.6 million (72%) as a
result of an increase in commercial and industrial equipment owned and on
operating lease. During 1996, the average cost of equipment on operating lease
was $12.9 million, compared to $24.0 million in 1997.
Financing income. Financing income increased $0.5 million (493%) during 1997
as a result of increased average loans to customers. During 1996 and 1997, the
average loans outstanding were $1.1 million and $5.5 million, respectively.
Management fees. Management fees increased $0.2 million (50%) during 1997,
compared to 1996, as a result of an increase in the aggregate equipment
portfolio serviced on behalf of institutional programs. The average cost of
equipment managed on behalf of institutional programs in 1996 and 1997 was
$86.7 million and $112.4 million, respectively.
Revenue from sale of leases and related assets. During 1996, the Company
earned $1.0 million from the sale of commercial and industrial equipment,
which included $0.5 million of gains from sales to institutional programs and
$0.5 million of gains from sales to other unaffiliated third parties. During
1997, the Company earned $2.4 million from the sale of commercial and
industrial equipment, which included $0.8 million of gains from sales to
institutional programs and $1.6 million of gains from sales to other
unaffiliated third parties. These sales typically occurred within six months
of the original purchase of the equipment.
The Company earns syndication fees for arranging purchases and sales of
equipment subject to lease between unaffiliated third parties. Syndication
fees were $0.4 million and $0.5 million in 1996 and 1997, respectively, due to
an increase in lease syndication transactions in 1997, compared to 1996.
During 1996, the Company syndicated commercial and industrial equipment with
an original cost of $49.2 million. During 1997, the Company syndicated
transactions for commercial and industrial equipment with an original cost of
$32.0 million.
Acquisition fees related to equipment subject to lease purchased by the
Company for institutional programs were $0.8 million for both 1996 and 1997.
In 1996 and 1997, the Company placed equipment, with a cost of $23.0 million
and $29.6 million, respectively, into these programs.
21
<PAGE>
Costs and Expenses
<TABLE>
<CAPTION>
1996 1997
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Operations support............................... $ 3,509 $ 3,947
Depreciation and amortization.................... 4,292 6,622
General and administrative....................... 1,178 1,263
------------ -------------
Total costs and expenses........................ $ 8,979 $ 11,832
============ =============
</TABLE>
Operations support. Operations support expense (including salary and office-
related expenses for lease origination and servicing activities and provision
for doubtful accounts) increased $0.4 million (12%) for 1997, compared to
1996. The increase resulted mainly from an increase in compensation and
benefits expenses and other costs associated with the expansion of overall
leasing activities. Operations support expense increased 12% for 1997,
compared to 1996, while the original cost of the equipment portfolio increased
76%.
Depreciation and amortization. Depreciation and amortization expense
increased $2.3 million (54%) for 1997, compared to 1996. The increase was due
to an increase in average commercial and industrial equipment owned and on
operating lease.
General and administrative. General and administrative expense (including
the cost of legal, accounting, data processing, human resources and risk
management services) increased $0.1 million (7%) for 1997, compared to 1996,
as a result of increased services provided by PLMI and allocated to the
Company, due to the expansion of overall leasing activities. These costs were
allocated to the Company based on time spent on these activities by personnel
of PLMI.
Other Income and (Expenses)
<TABLE>
<CAPTION>
1996 1997
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Interest expense................................. $ (2,019) $ (5,800)
Interest income.................................. 176 324
Other expense.................................... (19) --
</TABLE>
Interest expense. Interest expense increased $3.8 million (187%) for 1997,
compared to 1996, due to an increase in average borrowings under the Warehouse
Credit Facility and Securitization Facility to fund the Company's equipment
portfolio growth. Average balances on the Warehouse Credit Facility during
1996 and 1997 were $30.9 million and $13.8 million, respectively. Average
balances outstanding on the Securitization Facility during 1996 and 1997 were
$15.6 million and $57.4 million, respectively.
Interest income. Interest income increased $0.1 million (84%) for 1997,
compared to 1996, as a result of higher average restricted cash balances in
1997, compared to 1996.
Provision for (Benefit from) Income Taxes
For 1996, the Company recognized a benefit for income taxes of $0.5 million
as a result of the $1.3 million pretax loss, resulting in an effective benefit
rate of 35%. For 1997, the provision for income taxes was $1.3 million as a
result of the $3.4 million pretax income, representing an effective rate of
37%.
Net Income (Loss)
As a result of the foregoing, the 1996 net loss was $0.8 million. For 1997,
net income was $2.1 million.
22
<PAGE>
Pro Forma Data
Prior to the Company becoming a borrower on the Warehouse Credit Facility in
September 1996, the Company arranged for the purchase of commercial and
industrial equipment by TEC AquiSub, Inc., another subsidiary of PLMI ("TEC
AcquiSub"). All costs related to arranging these transactions are included in
the Company's 1996 results, but, the revenues earned from those transactions
are not included in the Company's results. As of September 1, 1996, all
equipment owned by TEC AcquiSub was sold to the Company at its net book value,
which approximated its fair market value. Incorporating the income and
expenses incurred by TEC AcquiSub related to these transactions would add $0.8
million, producing pro forma net income of $2,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements have historically been satisfied through borrowings,
capital contributions from PLMI, cash flow from operations and the sale of
equipment. In the past, the Company has funded the equity portion of equipment
purchases through investments in the Company by PLMI. The Company believes
that the net proceeds to the Company from the sale of the shares of Common
Stock in the Offering will be adequate to fund the equity portion for the
forseeable future.
Liquidity beyond 1997 will depend, in part, on the volume of commercial and
industrial equipment leasing transactions for which the Company earns fees and
an interest rate spread, the servicing of existing leases sold to
institutional programs, and the purchase and sale of equipment. Management
believes that it will have sufficient liquidity and capital resources for the
foreseeable future. Future liquidity is influenced by the factors summarized
below.
Debt Financing
Warehouse Credit Facility. In September 1996, the Company entered as a co-
borrower into the Warehouse Credit Facility, a $35.0 million warehouse
agreement, with First Union National Bank of North Carolina ("First Union").
The other borrowers were another subsidiary of PLMI and several investment
programs managed by an affiliate of PLMI. In December 1997, the Warehouse
Credit Facility was amended and increased to provide $50.0 million and certain
terms and conditions of the facility were revised to accommodate borrowing
requirements specific to the Company's leases and collateral. The Warehouse
Credit Facility provides a source of interim financing prior to transfer of
leases and associated equipment into the Securitization Facility or sale to
institutional programs or unaffiliated third parties. The Warehouse Credit
Facility also provides for advances against the lease payment stream and the
insured residual value of the commercial and industrial equipment, up to 90%
of the original equipment cost of the assets held in the facility. As of
December 31, 1997, the Company had $23.0 million outstanding under the
Warehouse Credit Facility, bearing interest at a floating rate equal to 30-day
LIBOR plus 1.625% or the prime rate of interest. The Warehouse Credit Facility
is with recourse to the Company and contains a tangible net-worth financial
covenant by the Company with which the Company has remained in compliance. The
Warehouse Credit Facility currently expires on November 2, 1998, and all
borrowings under the facility are guaranteed by PLMI. The Warehouse Credit
Facility is being revised to provide $50.0 million for the Company without
guarantees, support from PLMI or access to the facility by other PLMI
affiliates. The revised facility will bear interest at a floating rate equal
to 30-day LIBOR plus 1.25% or the prime rate of interest and include
additional financial covenants. Had such additional covenants been in place at
December 31, 1997, the Company would have been in compliance with such
covenants. First Union, as agent, has approved the terms and conditions of the
revised facility, including its provision for a term of one year, and a
commitment letter in respect thereof has been issued to the Company by First
Union, as agent. The Company believes that the revised facility will provide
for a renewable one-year term.
Borrowings secured by investment-grade lessees can be held under the
Warehouse Credit Facility until the facility's expiration. Borrowings secured
by noninvestment-grade lessees may be outstanding for 120 days. As of March
31, 1998, the Company had $38.7 million in borrowings outstanding under the
Warehouse Credit Facility. There were no other borrowings outstanding under
the facility as of March 31, 1998.
23
<PAGE>
Securitization Facility. In July 1995, AFG Credit Corporation, a wholly
owned, bankruptcy-remote special purpose subsidiary of the Company ("AFG
Credit"), entered into the Securitization Facility, an $80.0 million
securitized master trust facility, with First Union. Pursuant to the
Securitization Facility, the Company, on an on-going basis, transfers and
sells leases and associated equipment to AFG Credit, which finances the
receivables due under the leases through the master trust. The transfer and
sale of leases and associated equipment to AFG Credit are treated as a
financing, and the Company recognizes direct finance and operating lease
income over the life of the lease. In October 1997, the Securitization
Facility was increased to $125.0 million. As of December 31, 1997, $71.3
million was outstanding under the Securitization Facility, bearing interest at
the commercial paper index plus the cost of the Company's hedging contracts.
The Securitization Facility requires that not less than 90% of the receivables
in the facility be hedged against interest rate risks. At December 31, 1997
all of the outstanding receivables in the facility were hedged against such
risks. The Securitization Facility financed approximately $101.4 million of
receivables from January 1996 through December 1997. To date the master trust
has issued 100% of the notes as senior notes and has not issued any
subordinated notes through the facility. The Securitization Facility is
recourse to AFG Credit but nonrecourse to the Company. Borrowings under the
facility are available through October 31, 1998.
The Company continually seeks to improve the efficiency and execution of its
securitization transactions. The Company has maintained a spread over
comparable treasury securities on the senior notes of 50 basis points, before
hedging costs, which the Company is striving to improve. The Company intends
that improvements in the effective costs of funds provided through the
Securitization Facility generally will be reflected in the pricing offered by
the Company, thereby maintaining or improving the Company's competitiveness in
the marketplace. Repayment under the Securitization Facility matches the terms
of the underlying leases. As of March 31, 1998, $82.1 million in borrowings
was outstanding under the facility. The Company believes that it will be able
to renew the Securitization Facility on substantially the same terms upon its
expiration.
Nonrecourse Notes. In addition to the Securitization Facility, the Company
also had $10.0 million in nonrecourse notes payable outstanding as of December
31, 1997. These nonrecourse notes are secured by direct finance leases on
commercial and industrial equipment with terms corresponding to the note
repayment schedule beginning November 1997 through October 2001. The notes
bear interest at 9.16% per annum.
Interest-Rate Swap Contracts
The Company has entered into interest-rate swap agreements in order to
manage the interest-rate exposure associated with the Securitization Facility.
As of December 31, 1997, the swap agreements had a weighted-average duration
of 1.0 year, corresponding to the terms of the related debt. As of December
31, 1997, a notional amount of $72.5 million of interest-rate swap agreements
effectively fixed interest rates at an average of 6.70% on such obligations
inclusive of the interest rate spread and fees. Interest expense increased by
$0.3 million due to these arrangements in 1997.
Lease and Financing Activities
During 1997, the Company originated lease and structured finance
transactions with an original equipment cost of $155.8 million. A portion of
these transactions was financed, on an interim basis, through the Warehouse
Credit Facility or through borrowings from PLMI, and others were sold to
institutional programs or syndicated to unaffiliated third parties.
The Company has residual interests in its equipment. If the projected
residual is less than the amount recorded, the Company writes down the
residual and a loss is recorded. The Company reviews its residual interests
periodically and a write-down has not been required since inception.
As of December 31, 1997 and March 31, 1998, the Company had outstanding
commitments to fund $153.8 million and $176.1 million, respectively, of
equipment for its lease and finance receivables portfolio, to be held by the
Company or sold to institutional programs or to unaffiliated third parties.
24
<PAGE>
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of leases and finance receivables.
Concentrations of credit risk with respect to lease and finance receivables
are limited due to the large number of typically investment-grade customers
comprising the Company's customer base and their dispersion across different
business and geographic areas. Currently, none of the Company's equipment is
leased internationally.
Management believes the Company has had no significant concentrations of
credit risk since inception that could have resulted in a material adverse
effect on the Company's business, financial condition or results of
operations.
Revenues related to institutional programs accounted for 24%, 19% and 11% of
the Company's revenues in 1995, 1996 and 1997, respectively.
Management believes that through debt and equity financing, including the
Offering, 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.
YEAR 2000 COMPLIANCE
The Company's asset management system is currently year 2000 compliant. PLMI
is currently addressing other year 2000 computer software issues and is
creating a timetable for carrying out any program modifications that may be
required in connection with providing services to the Company under the
Intercompany Agreement. The Company anticipates all such program modifications
will be completed by the end of 1998. The Company does not anticipate that the
cost of these modifications allocable to the Company will be material.
INFLATION
Inflation had no significant impact on the Company's operations during 1995,
1996 or 1997.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas and major
customers. Both statements are effective for the Company's fiscal year ended
December 31, 1998, with earlier application permitted. The effect of adoption
of these statements will be limited to the form and content of the Company's
disclosures and will not affect the Company's results of operations, cash
flow, or financial position.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post-retirement
Benefits," which revises employers' disclosure obligations about pension and
other post-retirement benefit plans. The statement is effective for fiscal
years beginning after December 15, 1997, with earlier application permitted.
Since the Company currently has no pension or other post-retirement benefit
plans, the statement has no impact on the Company.
25
<PAGE>
BUSINESS
GENERAL
The Company is a commercial finance company engaged in the leasing and
secured financing of a variety of equipment for investment-grade "Fortune
1000" companies and creditworthy middle-market companies. The Company's
principal businesses include (i) the direct origination of (a) equipment
leases and (b) secured loans, hybrid leases and other specialized financings
("structured finance products") through its sales force, (ii) the management
and servicing of equipment leases and structured finance products retained by
the Company or sold to institutional leasing investment programs
("institutional programs"), (iii) the sale and acquisition of equipment leases
and structured finance products to and from third parties ("syndication") and
(iv) the sale and re-marketing of equipment as it comes off lease. The
Company's sales force markets its equipment leases and structured finance
products nationally through sales offices located in the Boston, New York,
Houston, Chicago and San Francisco metropolitan areas and in Charlottesville,
Virginia. During 1996 and 1997, the Company originated over $347 million of
equipment leases and structured finance products covering over 59,000 items of
equipment.
The Company's leases and structured finance products encompass a broad
spectrum of equipment classes, including manufacturing and materials handling
equipment, computer and telecommunications equipment, point of sale equipment,
construction and mining equipment, over the road trucks and office equipment.
The Company seeks to maintain a diversified asset portfolio in order to
minimize its credit and residual exposure to any single lessee, industry or
equipment category. As of March 31, 1998, no single industry accounted for
more than 15% of the Company's portfolio of leases, and no single lessee
accounted for more than 11% of its portfolio of leases.
The Company has master leases in place with more than 500 potential
customers, approximately 115 of whom currently are doing business with the
Company. Master leases are contracts that establish the general terms and
conditions under which the Company conducts its leasing business and are
frequently a prerequisite in competing for new financing. The master leases
simplify the approval process for lessees and enable the Company to compete
for new business at all levels of the enterprise. The Company's ten largest
lessees by cumulative dollar volume of leases and finance receivables (based
on original equipment cost) owned or serviced through March 31, 1998 were
Ultramar Diamond Shamrock Corp., Owens Corning, Chrysler Corporation, America
Online, Inc., Merck & Company, Inc., Wal-Mart Stores, Inc., U-Haul
International, Inc., Fina Oil and Chemical Company, Atmel Corporation, and
Marathon Oil Company. At March 31, 1998, based primarily on published credit
ratings by Moody's and Standard & Poor's, the dollar-weighted average credit
rating of the Company's lessees was the equivalent of Baa2.
The Company initially finances the origination and acquisition of its
equipment leases and structured finance products through a traditional
warehouse credit facility. The Company either retains the equipment leases and
structured finance products financed in a long-term nonrecourse facility,
sells them to institutional programs or syndicates them to unaffiliated third
parties. Of the equipment leases and structured finance products originated or
acquired by the Company in 1996 and 1997, the Company retained 45% and 55%,
sold 16% and 16% to institutional programs and syndicated 39% and 30% to
unaffiliated third parties in the same periods. Equipment leases and
structured finance products retained or serviced by the Company increased
$233.6 million or 229%, from $101.8 million for the period commencing January
1996 to $335.4 million as of December 31, 1997. The Company serviced $102.4
million and $126.3 million in assets (by original equipment cost) for
institutional programs in 1996 and 1997, respectively. As of March 31, 1998,
the Company had awards for future business amounting to approximately $176.1
million, as compared to $45.8 million and $69.5 million for the same period in
1996 and 1997, respectively. The Company has experienced on average that
approximately 75% of its awarded business ultimately is funded.
The Company's revenue for 1997 increased 117% compared to 1996, growing to
$20.7 million from $9.5 million. The Company's net income for 1997 was $2.1
million as compared to a net loss of $0.8 million in 1996.
26
<PAGE>
The Company earns direct finance lease or operating lease income on leases
originated and retained by the Company. The Company derives an operating
profit from the positive difference between the yield received on leases and
secured loans owned by the Company and the associated cost of funds. The
financing of these leases is accomplished through the Company's securitization
facility, which requires the Company to retain an equity interest in a
majority of these leases. The Company does not recognize a gain on sale of
assets financed through its securitization facility, retaining the leases and
debt on its balance sheet ("on balance sheet securitization"). The Company,
however, does recognize a gain on sale of assets in the case of leases and
associated equipment sold without a retained equity interest to institutional
programs or syndicated to unaffiliated third parties. The gain on sale
represents the cash received from the sales of the leases and associated
equipment above the Company's book value of such assets.
BUSINESS STRATEGY
Capitalize on Master Lease Relationships. The Company's principal business
strategy is to expand its business through internal growth. The Company's
network of long-term financial relationships based on the more than 500 master
leases in place at the Company provides significant opportunity for internal
growth. The Company is currently servicing lease schedules under approximately
115 of the master leases. The Company intends to continue to strengthen its
sales force by attracting additional qualified and experienced individuals who
can expand existing relationships and establish new customer relationships on
both regional and national bases. The Company intends to continue its
development of new customized products to increase its share of existing
customers' business and of the overall market. Value added structures and
services have been the primary business focus of the Company's management
team, and the Company intends to continue to differentiate itself from its
competition by emphasizing and delivering value added, customer-specific
structures and services to its customers. The Company's success to date in
capitalizing on its master lease relationships is evidenced by the amount of
business derived from that base. In 1997, 79% of the Company's originated
business came from its existing master lease relationships.
The Company intends to continue to develop strong relationships with new
customers by understanding how different services and structures affect each
customer's operations and expectations. The Company intends to respond to the
needs of its customers by (i) structuring creative, customized products, (ii)
establishing capital structures to finance these products and (iii) providing
the operational support and flexibility required to manage and service these
products efficiently.
Expand Middle-Market Business Line. The Company intends to expand its
business with creditworthy middle-market companies, focusing on transactions
ranging in size from $100,000 to $2,000,000. The Company has generated over
$105 million in middle-market transactions since inception and intends to grow
its marketing efforts with the goal of furthering its presence in this market.
Continue to Access Capital at Lower Costs. The Company intends to continue
to increase its access to low-cost capital from both public and private
sources by utilizing traditional credit facilities and on balance sheet
securitizations. The Company intends to focus on reducing its cost of funds in
an effort to maximize the profitability of its leases and structured finance
products.
Expand Offering of Structured Finance Products. The Company intends to
expand its underwriting of structured finance products to increase its market
share, manage its residual exposure and allow the Company to manage a larger
portfolio at lower incremental operating costs. As of March 31, 1998, the
Company's portfolio consisted of approximately 16% structured or fixed-rate
transactions. The Company intends to increase the proportion of structured and
fixed-rate instruments in its portfolio to over 35%. While the Company intends
to increase the proportion of structured and fixed-rate transactions, there
can be no assurance that the Company will reach this goal.
Expand Syndication Business. The Company intends to expand its activities in
the syndication area. Products designed for syndication allow the Company's
sales force to bid for all of a customer's business, regardless of whether any
particular transaction meets the Company's established economic parameters,
capital
27
<PAGE>
structure, effective tax rate, tenor, concentration limits or costs of funds.
The Company completed over $140 million in syndication transactions in 1996
and 1997.
Explore and Develop Related Business Opportunities. The Company intends to
develop strategic alliances and pursue acquisitions that will provide
management expertise, specific equipment knowledge, information systems,
infrastructure and origination capabilities that complement the Company's
existing business in an effort to provide the Company's customers the best
services and product mix possible. The Company also intends to explore
opportunities to expand its operations to markets outside of the United States
and Canada, whether by acquisitions or direct sales of its equipment leases
and structured finance products in such markets.
Utilize Technology and Infrastructure. The Company intends to improve
continually its information and customer servicing systems in order to enhance
its operational efficiency and offer differentiated services. The Company's
systems and infrastructure were designed specifically with a customer-service
objective, and management believes that these systems have excess capacity to
service the increasing number of customers, contracts and assets that the
Company expects to originate and manage in the future. In addition, management
believes the Company's infrastructure, in conjunction with its systems, will
allow it to continue to manage its leases at very low per-asset servicing
costs and remain competitive as a result.
INDUSTRY OVERVIEW
The equipment leasing and financing industry in the United States is a large
and growing source of financing for capital expenditures by businesses. The
Equipment Leasing Association (the "ELA") estimates that 80% of U.S. companies
lease all or a portion of their equipment. The ELA projects that $183 billion
of the $593 billion expected to be invested in equipment in 1998 will be
financed by means of leasing. According to the ELA, from 1996 to 1997
equipment placed on lease grew by approximately $10 billion to an estimated
$180 billion, and investment in equipment placed on lease in 1996 represents
an increase of approximately 100% from comparable 1986 data. The Company
believes that leasing allows businesses to acquire capital equipment more
efficiently, receive favorable tax and accounting treatment, and avoid or
mitigate the perceived risks of equipment ownership, including obsolescence.
The Company believes there are opportunities for growth in the equipment
leasing industry due to (i) the consolidation of the banking industry, (ii)
stricter lending requirements imposed by commercial banks and (iii) the
adoption of accounting pronouncements concerning the accounting treatment of
transactions with captive finance company subsidiaries, which has caused a
number of manufacturers to eliminate their finance companies, resulting in an
increased demand for independent financing. In addition, the Company believes
that two primary factors contributing to the favorable funding environment
experienced by the commercial leasing industry are a better understanding of
the leasing business by bank regulators and a growing understanding of the
leasing industry by the investment community and credit rating agencies.
The Company believes larger, better capitalized participants in the
equipment leasing market will have opportunities to consolidate a portion of
the market on account of operating efficiencies made possible by advances in
technology and access to asset backed securities markets. The Company believes
this consolidation will be driven by (i) the highly fragmented nature of the
equipment leasing industry, (ii) the need for reductions in the cost of funds
in order to remain competitive, which will require market participants to
access capital through securitizations or other low-cost sources of funds,
(iii) the need to increase the size of lease portfolios in order to achieve
productivity gains and reductions in overhead as a percentage of revenues and
(iv) new technologies whose relatively high costs may put them beyond the
reach of small to mid-sized market participants.
PORTFOLIO
At March 31, 1998, the Company had $166.7 million of lease and finance
receivables in its portfolio, $19.3 million of which were operating leases.
Low obsolescence materials handling equipment and short-term computing assets
comprised the largest two equipment classes in the Company's portfolio. At
March 31, 1998, no single
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<PAGE>
equipment class represented over 33% of the portfolio based on total equity
invested or 36% of the portfolio based on a net book value basis. Equity
invested in leases represents the Company's exposure to the equipment subject
to the leases, net of the discounted present value of committed rentals owed
by the lessees. Therefore, equity invested in leases highlights the Company's
exposure to each category of equipment net of lessee credit risk. Net book
value of leases represents the carrying value of the leases in the Company's
financial statements and represents both the discounted present value of
committed rentals owed by the lessees and the projected future residual
proceeds assumed by the Company. The table below shows the Company's equipment
concentrations as of March 31, 1998.
<TABLE>
<CAPTION>
% OF EQUITY % OF TOTAL
EQUIPMENT TYPE INVESTED NET BOOK VALUE
-------------- ----------- --------------
<S> <C> <C>
Materials handling................................ 33% 20%
Computers and peripherals......................... 23 36
Retail fixtures................................... 15 16
Manufacturing..................................... 12 13
Communications.................................... 4 3
Other............................................. 13 12
--- ---
Total........................................... 100% 100%
=== ===
</TABLE>
As of March 31, 1998, the portfolio carried on a weighted-average net book
value basis an equivalent rating of Baal. This average rating is comprised of
primarily published ratings by Moody's Investor Services Inc. or Standard &
Poor's Corporation (each, a "Credit Rating Agency") and the Company's internal
rating procedures. See "--Leasing and Financing Activity--Credit Policies and
Procedures." As of March 31, 1998, the credit ratings of lessees with leased
equipment in the portfolio was as follows:
<TABLE>
<CAPTION>
% OF
PORTFOLIO B1-B3 BA1-BA3 BAA1-BAA3 A1-A3 AA1-AA3 AAA
--------- ----- ------- --------- ----- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Credit Rating Agency.... 75.2% 2.7% 11.6% 24.2% 26.5% 0.7% 9.5%
Internal rating equiva-
lent................... 24.8 0.2 4.1 19.8 0.7 -- --
----- --- ---- ---- ----- --- ---
Aggregate credit
rating............... 100.0% 2.9% 15.7% 44.0% 27.2% 0.7% 9.5%
===== === ==== ==== ===== === ===
</TABLE>
As of March 31, 1998, the portfolio was comprised of lease and finance
receivables of 67 customers. The highest individual customer exposure on a net
book value basis was less than 11%, with the weighted-average customer
exposure being Baa2 as of March 31, 1998. The top five customer exposures
represented approximately 44% of the total net book value exposure in the
portfolio.
The Company has developed credit underwriting policies and procedures that
management believes have been effective in the selection of creditworthy
lessees and in minimizing the risks of delinquencies and credit losses. For
1996 and 1997, delinquencies were as follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED THREE MONTHS ENDED
--------------------------------------------- ----------------------
DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1998
---------------------- ---------------------- ----------------------
(IN THOUSANDS OF DOLLARS)
% OF TOTAL % OF TOTAL % OF TOTAL
DOLLARS NET BOOK VALUE DOLLARS NET BOOK VALUE DOLLARS NET BOOK VALUE
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment in
Leases:
Delinquencies over 90
days.................. $1,615 1.8% $ 212 0.2% $1,831 1.1%
Net credit charge-offs
...................... $ -- -- % $ -- -- % $ -- -- %
</TABLE>
29
<PAGE>
LEASING AND FINANCING ACTIVITY
General
The Company leases diverse classes of business essential equipment for lease
terms of generally 84 months or less. In general, the equipment under lease is
subject to either operating lease or direct finance lease structures.
Operating leases are designed to return only a portion of the original
acquisition cost of the equipment during the initial contracted lease term. At
the completion of the initial lease term, the customer may renew the lease for
an additional term, purchase the equipment or return the equipment to the
Company for re-leasing or disposition in the secondary marketplace. The
Company's objective is to renew, extend or re-lease the equipment or dispose
of equipment profitably in the aggregate at the conclusion of the initial
lease term in order to achieve its investment objectives.
The Company prices the periodic lease payments due under its leases with the
intent of recovering the acquisition cost of the underlying asset (less
residual value) and earning an attractive return on investment over the
initial term of the lease. The Company's leases usually provide for charges
for use of leased equipment for periods before and after the initial lease
term. As a result of the foregoing and the fact that customers frequently use
leased assets both before and after the initial lease term, a substantial
portion of the Company's profitability is attributable to revenues for periods
of use of leased assets by its customers before and after the initial lease
term. The Company believes that use of leased assets by customers after the
initial lease term will continue to be an increasing source of operating
revenue for the Company.
Customers
The Company engages in business with large investment-grade "Fortune 1000"
and creditworthy middle-market companies under master lease agreements that
govern one or more equipment schedules, each of which is a separate and
independent lease. The Company has more than 500 master leases in place, and
repeat business with its existing customer base in the form of new leases or
renewal or extension of existing leases is an important source of earnings for
the Company. The Company structures innovative leases and structured finance
products in response to customer needs in a continuing effort to build long
term relationships with its customers. The Company's operations are customer
focused both in terms of its account-based operational support and extensive
technical infrastructure.
Sales and Marketing
The Company's network of long-term financial relationships is based on the
more than 500 master leases in place at the Company and serves as a focus for
the Company's sales and marketing activities. The Company currently services
over 115 customers through its direct leasing and acquisition activities. The
Company's current sales force consists of 12 people located in sales offices
in the Boston, New York, Houston, Chicago and San Francisco metropolitan areas
and in Charlottesville, Virginia. Members of the Company's sales force have
long-term relationships with some of the Company's current customers extending
back more than 15 years. The Company has been an active member of the ELA
since the Company's inception and actively seeks to build strategic alliances
with equipment vendors, manufacturers, lease brokers and investment banks in
order to provide the Company's customers with effective means of financing and
structuring the acquisition of essential equipment.
The Company originates its products through direct calling on customers and
intermediaries as well as manufacturers, vendors, dealers and distributors
with whom the Company has completed business in the past. The Company's
marketing strategy is to focus on large investment-grade and creditworthy
middle-market customers and to provide them with a "single source" financing
solution. The ability to finance a variety of equipment types provides the
Company with an advantage over some of its competitors that finance only a
narrow range of equipment types. The Company's syndication capability allows
the Company to offer prospective customers product structures that might
otherwise not fit the investment and portfolio parameters of the Company. The
Company can subsequently syndicate these products and thereby generate
syndication income while satisfying the needs of the customer and
strengthening the customer relationship.
30
<PAGE>
Personal visits to existing and prospective customers by the Company's sales
representatives and operations account managers afford the Company an improved
understanding of the financial requirements of its customers and the
opportunity to provide customers with attractive financing solutions. The
inclusion of the operations department representative allows the sales call to
focus on the administration and systems requirements of the customer and to
articulate the Company's financing capabilities as well as the range of
available services that can be customized for each transaction. Repeat
business is an important source of lease volume and earnings for the Company.
During 1997, 79% of the Company's transactions were with existing customers.
Lease Underwriting
The Company's leases, whether operating or direct finance, are predominantly
non cancellable "triple net" leases that contain "hell or high water"
provisions whereby the customers' obligations to make rental payments are
absolute, irrevocable and unconditional, may not be affected by any
circumstance and are not subject to any defense, counterclaim, set off,
diminution, abatement or recoupment. Under these leases, the customer
generally waives its rights to terminate or surrender the lease, for any
reason, including defects in the equipment. In addition, the customer is
contractually obligated to provide for "all risk" and "public liability"
insurance with respect to the equipment and its use, provide maintenance and
repair of the equipment, and pay all property, sales and use taxes assessed
with respect to the equipment or the lease throughout the lease term. The
triple net leases also provide for a full customer indemnification for any
failure by the customer to perform any of its "net" lease obligations. The
Company does, and intends to continue to, entertain modifications to its
leases during their contracted term in an effort to (i) facilitate upgrades or
extensions, (ii) respond to changing or increased customer requirements or
(iii) hedge or capitalize on changing market circumstances. In this regard,
however, the Company's policy is not to agree to lease modifications that
result in reduced returns to the Company.
The Company, or each institutional program serviced by the Company,
generally retains ownership in its leased equipment and, therefore, a carried
residual interest. In the case of operating leases, the Company realizes
substantially all of its return on investment through residual realization.
The Company's ability to renew or extend the terms of its leases or obtain
substantial sale values in the secondary market is dependent on many factors,
most of which are outside of the control of the Company. These factors include
prevailing general market conditions at the time of lease expiration, economic
or technological obsolescence, replacement cost for like equipment, unusual or
excessive wear and tear not covered in contracted return conditions, and the
impact of any applicable amendments to government regulations.
The Company attempts to utilize its standard documentation as a basis for
contracts with new customers. In circumstances where legal counsel is
warranted, the Company relies on a core group of law firms with specific
expertise. The Company reviews periodically its standard documentation in an
effort to ensure compliance with new legal judgments and modifications to
governing law, including the Uniform Commercial Code (the "UCC"), various
standards boards, bankruptcy codes and other laws affecting secured
transactions.
Credit Policies and Procedures
The Company has developed credit underwriting policies and procedures that
management believes have been effective in the selection of creditworthy
lessees and in minimizing the risks of delinquencies and credit losses. The
Securitization Facility, as well as the lease portfolio owned by institutional
programs and serviced by the Company, require a dollar-weighted investment
grade rating equivalent of Baa2/BBB or better by a Credit Rating Agency. The
Securitization Facility also requires that lessees accounting for at least 75%
of the receivables in the facility have a debt rating published by a Credit
Rating Agency. As of March 31, 1998, 75% of lessees included in the portfolio
had ratings published by the Credit Rating Agencies, and the dollar-weighted
average rating of such lessees was Baa1. The dollar-weighted average credit
rating of the remaining lessees in the portfolio, as rated by the Company, was
Ba1. The aggregate credit rating of the portfolio was Baa2.
In order to establish the creditworthiness of a prospective customer, the
Company first reviews the current ratings, if any, published by the Credit
Rating Agencies. The Company subscribes to services from both of the
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<PAGE>
Credit Rating Agencies to ensure the availability of the most current data.
The Company also subscribes to additional sources of financial information for
purposes of reviewing the credit of existing and prospective customers. In the
event a prospective customer does not have a published credit rating, the
Company undertakes an internal analysis of the customer's credit relying on a
credit-rating software package, financial statement ratios and industry
analyses. The Company's credit-rating software package compares certain
financial information concerning the prospective customer input by the Company
against similar information regarding other companies with the same standard
industrial classification code to account for industry-specific debt risk
characteristics. The software package's database maintains current information
on over 2000 companies and is updated quarterly.
Servicing and Administration
As of March 31, 1998, the Company serviced its portfolio and the portfolios
of two institutional programs with cumulative assets totaling $337.7 million
on an original equipment cost basis. The servicing and administration
performed by the Company includes underwriting, receivables administration,
sales, use, property tax and UCC compliance and asset management. The Company
is currently servicing over 1,000 contracts, covering over 64,000 items of
equipment. Since the Company's inception, neither the Company nor either of
the institutional programs serviced by the Company have charged off as
uncollectible any of their respective receivables.
The leasing business is compliance intensive, and the Company's
geographically diversified asset base requires that the Company undertake
compliance with differing jurisdictional requirements. The Company is licensed
to do business in 47 states in the United States and 7 provinces in Canada.
The Company uses various vendor software packages to manage its compliance
efforts. Each package is Windows-based and receives core data directly from
the Company's AS/400 database. These packages support the Company's ability to
assess and report its assets and remit tax receipts, all in accordance with
the specific requirements of the respective jurisdiction. These software
packages also provide the Company with fully integrated, standard audit
reporting capacities, generally accepted as satisfactory in jurisdictional
audits. The Company utilizes a Windows-based application to prepare and
maintain its UCC statements and employs a third party to file such statements
in the appropriate jurisdiction.
The Company also is required to provide monthly reporting under the
Warehouse Credit Facility and the Securitization Facility, as well as monthly
reports and cash reconciliation for institutional programs serviced by the
Company. In addition, the Company receives a servicing fee for assets managed
in its securitized portfolio. The Company is compensated for servicing
institutional programs with a management fee based on receivables collected by
the Company.
Asset Management
The Company's operating structure and computer systems are integral parts of
its ability to manage assets and their performance effectively throughout the
lease term and during the disposition phase. The diversified nature of the
Company's expiring lease base results in staggered expirations of often
dissimilar assets. To manage the complexity of this expiring lease pool, the
Company approaches asset management as a continual process and develops pro-
actively a thorough understanding of specific assets and the particular needs
of its customers. The Company's asset management team analyzes future periods
of expiring leases in terms of concentrations, exposures and the expected
vitality of the secondary marketplace. The Company's asset management effort
is focused on maintaining leased assets in-place with current lessees through
reduced usage rates, upgrades or other enhanced structures. The Company has
established numerous contacts in the secondary marketplace, including original
manufacturers, resellers, refurbishers, user groups and international brokers,
to facilitate disposition of assets coming off lease. The Company collects
information related to asset management from a variety of sources, including
manufacturer brochures, industry periodicals and the Internet.
CAPITAL RESOURCES
The Company's lease finance business is capital intensive and requires
access to substantial short-term and long-term credit facilities. The
Company's ability to obtain and maintain efficient financing is critical to
its
32
<PAGE>
business. In September 1996, the Company was added as a co-borrower to the $35
million Warehouse Credit Facility with First Union, which was subsequently
increased to $50 million in December 1997. Borrowings under the Warehouse
Credit Facility bear interest, at the option of the Company, at a floating
rate equal to 30 day LIBOR plus 1.625% or at the prime rate. The Warehouse
Credit Facility currently expires on November 2, 1998, and all borrowings
under the facility are guaranteed by PLMI. The Warehouse Credit Facility is
being revised to provide $50.0 million for the Company without guarantees,
support from PLMI or access to the facility by other PLMI affiliates. The
revised facility will bear interest at a floating rate equal to 30-day LIBOR
plus 1.25% or the prime rate of interest and include additional financial
covenants. Had such additional covenants been in place at December 31, 1997,
the Company would have been in compliance with such covenants. First Union, as
agent, has approved the terms and conditions of the revised facility,
including its provision for a term of one year, and a commitment letter in
respect thereof has been issued to the Company by First Union, as agent. The
Company believes that the revised facility will provide for a renewable one-
year term. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Debt Financing."
In July 1995, the Company entered into the Securitization Facility with
First Union, under which the Company transfers leases and related equipment to
a wholly owned, bankruptcy-remote special purpose subsidiary that in turn
finances lease receivables through a trust. The Securitization Facility was
amended in October 1997, increasing the aggregate availability under the
facility from $80 million to $125 million and extending the term under which
the Company may borrow under the facility until October 1998. Borrowings under
the Securitization Facility bear interest equivalent to the lender's cost of
funds based on commercial paper market rates for the period of borrowings plus
an interest rate spread and fees. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Debt Financing."
Since inception, the Company has been able to realize 100% of the discounted
lease payments of leases subject to the Warehouse Credit Facility and the
Securitization Facility. There can be no assurance, however, that the Company
will be able to sustain this level of performance in the future.
The Company seeks to maintain a highly diversified portfolio of lease and
finance receivables. The Securitization Facility is governed by various
concentration parameters designed to ensure diversification in terms of
customer exposure, credit exposure, equipment exposure and industry exposure.
The Securitization Facility requires the Company to manage the exposures
within the following concentration limits on an outstanding receivable basis:
single customer exposures vary by credit risk with limits of 20%, 9% and 3%
for credit risks of Aa3 or better, A1 to Baa3 and Ba1 to B1, respectively; no
more than 5% of the outstanding receivables can be comprised of single-B
credits; and equipment concentration exposures must be less than 40% of
outstanding receivables.
The Securitization Facility's concentration parameters do not limit
significantly the Company's ability to finance new business since the
Warehouse Credit Facility is not governed by such parameters and the Company
has access to transaction-specific financing. From time to time, the Company
enters into lease arrangements that contain terms that lie outside the
parameters of the Securitization Facility. The Company manages the
concentration parameters of the Securitization Facility by carrying leases in
the Warehouse Credit Facility until such time as they can be properly absorbed
by the Securitization Facility. The Company also may hold leases in the
Warehouse Credit Facility in order to optimize its return on investment upon
their ultimate transfer to the Securitization Facility or sale to
institutional programs or in the syndication markets.
Operations and Information Systems
The Company's central operations are located in Boston, Massachusetts. The
operations consist of pricing and portfolio management, underwriting and
portfolio administration, credit analysis and compliance, syndication, asset
management, systems administration and sales support. The Company's
operational structure is directed towards customer-focused portfolio
management and enables the Company to provide superior services to its
customers and absorb significant additional workload from time to time without
requiring additional staff. The cost efficiency of the operational structure
has been central to the Company's ability to realize its investments in leased
assets.
33
<PAGE>
The Company's computer systems facilitate active management of the Company's
investment in leased assets beginning prior to lease inception and concluding
upon ultimate disposition. The Company operates in a standardized desktop
environment over a local area network. The Company's central data repository
is an IBM AS/400 Model 320 located and managed at PLMI. The AS/400 supports a
relational database whose information is the core driver of all operations of
the Company. The Company accesses the AS/400 via a dedicated T1 line. The
Company believes that its technical enhancement program is forward looking,
and the Company expects its focus on technological development will allow the
Company to continue to experience sizeable growth without necessitating
significant increases in staffing. The Company is currently completing core
functionality on its website maintained locally on a secured server attached
to its local network.
Prior to the Offering, the Company received significant administrative
support from PLMI in the areas of accounting, cash management, accounts
payable, administration of payroll and benefits, and non-local systems
administration and programming. Following completion of the Offering, the
Company will continue to rely on PLMI to provide such services pursuant to the
Intercompany Agreement. See "Certain Transactions." The Company intends to
employ Boston-based financial and accounting expertise to enhance the
efficiency of support and services to be provided by PLMI.
COMPETITION
The business of equipment leasing and secured financing is highly
competitive. The Company competes for customers with a number of
international, national and regional finance and leasing companies and banks.
In addition, the Company's competitors include equipment manufacturers that
finance the sale or lease of their products themselves. Many of the Company's
competitors and potential competitors have greater financial, marketing and
operational resources than the Company. The Company's competitors, some of
which are larger and more established than the Company, may have a lower cost
of funds than the Company and access to capital markets and to other funding
sources that may not be available to the Company. The Company believes that
the principal competitive factors in the equipment leasing and secured
financing business, and the bases on which it competes, are (i) access to
sufficient capital with an efficient cost of funds, (ii) the ability to
provide flexible lease and financing structures, (iii) the ability to develop
and maintain "relationship" accounts, (iv) customer service, including
customized value-added services, (v) repeat business generated on relationship
accounts, (vii) the skill and expertise of a company's employees and (vii) the
image a company enjoys among lessees in the marketplace.
EMPLOYEES
As of March 31, 1998, the Company had 26 employees, 21 of whom were in its
corporate headquarters in Boston, Massachusetts and 5 of whom were in regional
sales offices. The Company believes that its relations with its employees are
good.
FACILITIES
The Company's corporate offices are located at 24 School Street, Suite 700,
Boston, Massachusetts 02108. The Company leases 6,736 square feet pursuant to
a lease expiring in March 2001. Over the term of the lease, the rent expense
is approximately $10,665 per month, escalating to $10,946 in the final 12
months of the lease term. The Company also pays real estate taxes and a pro
rata share of the increases over base operating expenses equal to
approximately 8% of such increases. The Company also leases office space and
services for its regional sales personnel in the New York, Houston, Chicago
and San Francisco metropolitan areas and in Charlottesville, Virginia under
leases of varying lengths and at local market rates. The total current
aggregate monthly rent due under all of the Company's office leases is $13,975
per month.
The Company believes that its existing facilities will be adequate for the
foreseeable future and that additional space will be available as needed.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position with the Company
of each of the directors and executive officers of the Company as of March 31,
1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Robert N. Tidball (1)(3)... 59 Director and Chairman of the Board
Donald R. Dugan, Jr. (3)... 37 Director, President and Chief Executive
Officer
J. Michael Allgood (2)..... 49 Director
Joseph C. Berenato (1)(2).. 51 Director*
(1)(2)..................... -- Director*
(2)(3)..................... -- Director*
Jeffrey F. Zerrer.......... 41 Senior Vice President, Marketing
Susan S. Franklin.......... 35 Senior Vice President, Operations
David W. Fisher............ 52 Director of Asset Management
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
* Effective upon completion of the Offering
Robert N. Tidball, Chairman of the Board of Directors of the Company, has
been a director of the Company since February 1995. Mr. Tidball was appointed
President and Chief Executive Officer of PLMI in March 1989. At the time of
his appointment, he was Executive Vice President of PLMI. Mr. Tidball became a
director of PLMI in April 1989 and a member of the Executive Committee of the
Board of Directors of PLMI in September 1990. Mr. Tidball was Executive Vice
President of Hunter Keith, Inc., a Minneapolis-based investment banking firm,
from March 1984 to January 1986. Prior to his employment by Hunter Keith,
Inc., he was Vice President & General Manager and Director of North American
Car Corporation, and Director of the American Railcar Institute and the
Railway Supply Association. Mr. Tidball earned a bachelor's degree from the
United States Naval Academy and an MBA from the University of Chicago.
Donald R. Dugan, Jr., President and Chief Executive Officer of the Company,
has been a director of the Company since December 1995. Mr. Dugan has over 15
years of general management experience, the last nine years being in the
leasing and structured finance industry. Mr. Dugan has been President of the
Company since January 1996 and Chief Executive Officer of the Company since
May 1998. Prior to joining the Company in January 1996, Mr. Dugan held various
positions with Equis, including National Sales Manager, Treasurer and head of
its capital markets group, beginning in 1989. Prior to joining Equis, Mr.
Dugan was a Lieutenant in the United States Navy. Mr. Dugan earned a
bachelor's degree from the United States Naval Academy and an MBA from Boston
College.
J. Michael Allgood has been a director of the Company since December 1995.
Mr. Allgood was appointed Vice President of Finance and Chief Financial
Officer of PLMI in October 1992. Between July 1991 and October 1992, Mr.
Allgood was a consultant to various private and public sector companies and
institutions specializing in financial operational systems development. In
October 1987, Mr. Allgood co-founded Electra Aviation Limited and its holding
company, Aviation Holdings plc of London, where he served as Chief Financial
Officer until July 1991. Between June 1981 and October 1987, Mr. Allgood
served as a First Vice President with American Express Bank, Ltd. In February
1978, Mr. Allgood founded, and until June 1981 served as a director of, Trade
Projects International/Philadelphia Overseas Finance Company, a joint venture
with Philadelphia National Bank. From March 1975 to February 1978, Mr. Allgood
served in various capacities with Citibank, N.A. Mr. Allgood received a
bachelor's degree from the University of California, Riverside, and an MBA
from The Haas School at the University of California, Berkeley.
35
<PAGE>
Joseph C. Berenato has been appointed to become a director of the Company
upon completion of the Offering. Mr. Berenato is currently President and Chief
Executive Officer and a director of Ducommun Incorporated, a manufacturer of
components and assemblies for the aerospace and wireless telecommunications
industries. Mr. Berenato has been employed by Ducommun Incorporated since 1991
and served previously as its Chief Operating Officer and Chief Financial
Officer. Between June 1980 and October 1991, Mr. Berenato served in various
capacities at Manufacturers Hanover Trust Co., including Senior Vice
President. Mr. Berenato earned a bachelor's degree from the United States
Military Academy, a master's degree from the University of Virginia and an MBA
from New York University.
has been appointed to become a director of the Company upon
completion of the Offering.
has been appointed to become a director of the Company upon
completion of the Offering.
Jeffrey F. Zerrer, Senior Vice President, Marketing of the Company, has over
18 years experience in the equipment leasing industry. Prior to joining the
Company in January 1996, Mr. Zerrer held various positions with Equis,
including Vice President, Marketing and Regional Sales Manager, beginning in
1984. Prior to joining Equis, Mr. Zerrer worked for various leasing companies,
including Leasing Services, Inc. and Chancellor Corporation. Mr. Zerrer earned
a bachelor's degree from Northeastern University.
Susan S. Franklin, Senior Vice President, Operations of the Company, has
over 13 years of general management experience in the leasing industry. Prior
to joining the Company in January 1996, Ms. Franklin held various positions
with Equis, including Vice President, Re-Engineering & Development and Vice
President, Lease Underwriting and Administration, beginning in 1986. Ms.
Franklin earned a bachelor's degree from Wheaton College.
David W. Fisher, Director of Asset Management of the Company, has over eight
years of experience servicing the leasing industry in the fields of assets
brokerage and disposal. Prior to joining the Company in June 1997, Mr. Fisher
was from July 1996 the principal of a privately held asset disposal and
placement company serving the leasing industry and was from March 1992 to July
1996 employed as Vice President of Line Technologies Company, an asset
brokerage company providing contract disposal services for seven major U.S.
leasing companies. Mr. Fisher earned a bachelor's degree from Lowell
Technological Institute.
DIRECTOR COMPENSATION
Following the Offering, it is anticipated that each director of the Company
who is not an officer or employee of the Company or any of its subsidiaries or
affiliated with PLMI will receive a monthly fee of $1,500. In addition, each
such director will receive an additional fee of $1,000 for each meeting of the
Board of Directors attended in person ($300 for each such meeting attended by
teleconference) and $500 for each meeting of a committee of the Board of
Directors attended in person ($300 for each such meeting attended by
teleconference). Directors of the Company who are also officers or employees
of the Company or any of its subsidiaries or of PLMI will not receive any
direct fee but will participate in the Company's 1998 Management Stock
Compensation Plan.
Each director of the Company who is not an officer or employee of the
Company or any of its subsidiaries or affiliated with PLMI will automatically
be granted as of the completion of the Offering an option to purchase 10,000
shares of Common Stock at a per share exercise price equal to the initial
public offering price. These options will vest in three equal installments on
the first, second and third anniversary of the date of grant. In addition, on
each of February 1, 1999 and February 1, 2000, each such director
automatically will be granted an option to purchase 5,000 shares of Common
Stock at a per share exercise price equal to the average of the high and low
prices, as reported in the Wall Street Journal, of such shares on the Nasdaq
National Market or such other national stock exchange on which such shares are
traded on the day immediately preceding the date as of
36
<PAGE>
which such option is granted. Each option described above will be granted
pursuant to the Directors' 1998 Nonqualified Stock Option Plan, as described
below.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of the Offering, the Board of Directors of the Company will
have an Audit Committee, a Compensation Committee and a Nominating Committee.
The Audit Committee will, among other things, oversee actions by the Company's
independent public accountants with respect to the Company. The Audit
Committee will be composed initially of Messrs. Allgood, Berenato, and
. The Compensation Committee will review and approve the compensation and
benefits payable to the Company's executive officers and consultants and make
recommendations to the Board of Directors concerning such matters. The
Compensation Committee will be composed initially of Messrs. Tidball, Berenato
and . The Nominating Committee will select nominees to fill vacancies on
the Board of Directors and to replace retiring members of the Board of
Directors. The Nominating Committee will be composed initially of Messrs.
Tidball, Dugan and .
EXECUTIVE COMPENSATION
Summary of Compensation
The following Summary Compensation Table sets forth information concerning
compensation earned in the Company's most recently completed fiscal year by
the Company's chief executive officer and its two other most highly
compensated executive officers whose salary and bonus for 1997 exceeded
$100,000 (the "Named Executive Officers"). Each option grant and restricted
stock award relates to the common stock of PLMI.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------
RESTRICTED ALL
STOCK OTHER
NAME AND SALARY BONUS AWARD(S) COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($) ($)
------------------ ---- ------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Donald R. Dugan, Jr.............. 1997 150,400 105,000 46,667 6,683(2)
President and Chief Executive Of-
ficer
Jeffrey F. Zerrer................ 1997 150,400 157,606 -- 6,033(3)
Senior Vice President, Marketing
Susan S. Franklin................ 1997 103,667 70,749 -- 6,033(3)
Senior Vice President, Operations
</TABLE>
- --------
(1) Mr. Zerrer's and Ms. Franklin's bonus amounts in 1997 were earned as
commissions.
(2) The amount shown represents (i) a $4,000 employer matching contribution
made to Mr. Dugan's account under the PLMI Profit Sharing and 401(k) Plan
(the "PLMI 401(k) Plan"), (ii) a $2,033 contribution to Mr. Dugan's
account under the PLMI 401(k) Plan and (iii) a $650 payment in respect of
life insurance premiums.
(3) The amount shown represents (i) a $4,000 employer matching contribution
made to the executive's account under the PLMI 401(k) Plan and (ii) a
$2,033 contribution to the executive's account under the PLMI 401(k) Plan.
37
<PAGE>
The following table sets forth information concerning the exercise by the
Named Executive Officers of stock options during the most recently completed
fiscal year and the aggregate value of options held by such officers as of the
end of such fiscal year. Each option exercise and the value of option holdings
relates to the common stock of PLMI.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
(PLM INTERNATIONAL, INC.)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT
YEAR-END FISCAL YEAR-END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE (#) UNEXERCISABLE ($)(1)
---- --------------- ------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
Donald R. Dugan, Jr..... -- -- 9,999/20,001 23,797/47,602
Jeffrey F. Zerrer....... -- -- 3,333/6,667 7,932/15,867
Susan S. Franklin....... -- -- 3,333/6,667 7,932/15,867
</TABLE>
- --------
(1) Based on a closing price of $5.63 per share of common stock of PLMI on the
American Stock Exchange on December 31, 1997.
STOCK INCENTIVE PLANS
1998 Management Stock Compensation Plan
The Company has adopted, and PLMI, as the Company's sole stockholder, has
approved, the 1998 Management Stock Compensation Plan (the "Management Plan")
for the purpose of attracting, retaining and motivating certain management and
key employees of the Company or of any subsidiary of the Company by giving
such employees an opportunity to acquire, or be awarded, shares of Common
Stock. The employees selected to participate in the Management Plan are
referred to hereinafter as "Participants" and awards granted under the
Management Plan are referred to hereinafter collectively as "Awards." The
Management Plan will be administered by the Board; provided, however, that (i)
Awards granted to executive officers of the Company will be made and
administered by a committee of the Board consisting of two or more directors
who are "outside directors" within the meaning of Section 162(m) of the
Internal Revenue Code (the "Code"), and (ii) Awards granted to Participants
who are subject to Section 16 of the Exchange Act with respect to the Company
will, if the Board determines that such committee administration is necessary,
be made and administered by a committee of the Board consisting of two or more
directors who are "non-employee directors" within the meaning of Rule 16b-3
under the Exchange Act. Subject to the express provisions of the Management
Plan, the Board will have full and final authority, in its sole discretion, to
(a) determine the management and key employees of the Company to whom, and the
time or times at which, Awards will be granted, the number of shares of Common
Stock to be made subject to any Award, and the exercise or purchase price of
any Award, (b) determine the terms and provisions of each Award and, but only
with the consent of the holder thereof where such consent is required,
terminate, cancel, modify or amend the terms of any Award, (c) authorize any
person to execute on behalf of the Company an agreement evidencing an Award,
(d) interpret the Management Plan and any Award, (e) accelerate or extend the
permissible exercise date of, or the lapse of any restrictions with respect
to, any Award, and (f) make all other determinations deemed necessary or
advisable for the administration of the Management Plan. The Board may also
make whatever rules and regulations it deems useful to administer the
Management Plan. Any decision or action of the Board in connection with the
Management Plan or any Award, or any shares purchased pursuant to an Award,
will be final and binding.
The Board may, without stockholder approval, alter, suspend or terminate the
Management Plan at any time or from time to time; provided, however, that
stockholder approval will be required if and to the extent the Board
determines that such approval is appropriate for purposes of satisfying
applicable law, including but not limited
38
<PAGE>
to the Exchange Act or Sections 162(m) or 422 of the Code. The Board may amend
or modify the terms of any outstanding Award at any time and from time to
time; provided, however, that no such amendment shall, without the prior
written consent of the Participant, adversely affect the rights of such
Participant under a then outstanding Award. Unless earlier terminated, the
Management Plan will expire on the tenth anniversary of its adoption;
provided, however, expiration or other termination of the Management Plan will
not, without the prior written consent of the Participant, adversely affect
the rights of any Participant under a then outstanding Award.
The Management Plan provides for the grant of stock options intended to be
"incentive stock options" within the meaning of Section 422 of the Code
("ISOs"), stock options not intended to be ISOs ("NQSOs"; and together with
ISOs, "options"), and Awards of shares of Common Stock which may be subject to
such restrictions and conditions as the Board may determine at the time of
grant. Each Award will be evidenced by an agreement (the "Award Agreement")
entered into between the Participant and the Company, which will set forth the
terms and conditions of such Award, as determined by the Board. Subject to
other provisions of the Management Plan relating to changes in the capital
structure of the Company, the total number of shares of Common Stock that may
be made subject to Awards may not exceed 865,500, and the total number to each
individual may not exceed 33.33% of the total number of shares of Common Stock
that may be subject to Awards under the Management Plan. The Management Plan
provides that if the outstanding Common Stock is increased or decreased in
number, or changed into, or exchange for, a different number or kind of
securities of the Company or any other corporation by reason of a
recapitalization, reclassification, stock split, combination of shares, stock
dividend or other event, or if any other dilutive event occurs, the number and
kind of securities that may be issued pursuant to the grant, vesting or
exercise of any outstanding or future Award, and the purchase price with
respect to any outstanding or future Awards, will be adjusted by the Board if
and to the extent the Board determines in its sole discretion that such an
adjustment is necessary or desirable.
Options granted under the Management Plan will become exercisable as to one-
third of the shares covered thereby on each of the first, second and third
anniversaries of the date of grant. The exercise price of any option will be
determined by the Board; provided, however, that (i) options granted under the
Management Plan as of completion of the Offering will have a per share
exercise price equal to the initial public offering price and (ii) with
respect to all other options granted under the Management Plan, the per share
exercise price will be equal to 100% of the closing price of the Common Stock
on the Nasdaq National Market or such other national stock exchange on which
such shares are traded as of the date of grant. The term of any option will be
determined by the Board and specified in the applicable Award Agreement;
provided, however, that in the case of an ISO, the term of such option will
not exceed 10 years from the date of grant (five years, in the case of an ISO
granted to a Participant who, at the time of grant, owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of any "parent corporation" or "subsidiary corporation" of the
Company (as such terms are defined in Section 424(f) of the Code)). The
Management Plan provides that the exercise price of all or any portion of an
option must be paid in full at the time of exercise. The exercise price of an
option may, as determined by the Board in its discretion, be paid in cash, by
check, by delivery to the Company of previously owned shares of Common Stock,
by the Participant's interest-bearing full recourse promissory note, by
cashless exercise methods, or by a combination of the above.
At the time an Award is granted under the Management Plan, the Board may
determine that the Company will retain, for itself or others, such rights to
repurchase, rights of first refusal, and other transfer restrictions
applicable to Common Shares issued pursuant to an Award, or may impose such
other restrictions as the Board may determine, which rights will be set forth
in the applicable Award Agreement. In addition, the Board may impose such
other restrictions on any shares of Common Stock issued pursuant to the
Management Plan as it may deem advisable, including, without limitation,
restrictions under the Securities Act, under the requirements of any stock
exchange upon which the shares of the same class are then listed, and under
any blue sky or other securities laws applicable to such shares.
The issuance of shares of Common Stock pursuant to the grant, vesting or
exercise of an Award will be conditioned upon payment by the Participant to
the company of amounts sufficient to enable the Company to
39
<PAGE>
pay all applicable federal, state and local withholding taxes. Such payment
may be effected through (i) the Company's withholding from the number of
shares that would otherwise be delivered a number of whole shares having a
fair market value equal to or less than the aggregate withholding taxes, (ii)
payment by the Participant of the aggregate withholding taxes in cash, (iii)
withholding by the Company from other amounts contemporaneously owed by the
Company to the Participant or (iv) any combination of the foregoing.
Upon the occurrence of a Change in Control (as defined in the Management
Plan), the Board may in its absolute discretion do any one or more of the
following: (i) shorten the period during which options are exercisable
(provided they remain exercisable, to the extent otherwise exercisable, for at
least ten days after the date notice is given), (ii) accelerate any vesting
schedule to which an Award is subject or cause to lapse any repurchase or
other rights the Company may have with respect to shares of Common Stock
acquired by a Participant pursuant to the grant, vesting or exercise of an
Award, (iii) arrange for the grant of replacement Awards or (iv) cancel
outstanding Awards or shares of Common Stock acquired by a Participant which
are subject to restrictions, for which each such Participant will be entitled
to receive in consideration an amount in cash that, in the discretion of the
Board, is determined to be equivalent to the fair market value of such Award
or shares. In considering the advisability, or the terms and conditions, of
any action it may take in connection with a Change in Control, the Board will
take into account the penalties that may result directly or indirectly from
such action to either the Company or the Participant, or both, under Section
280G of the Code, and may decide to limit such action to the extent necessary
to avoid or mitigate such penalties or their effects.
Directors' 1998 Nonqualified Stock Option Plan
The Company has adopted, and PLMI, as the Company's sole stockholder, has
approved, the Directors' 1998 Nonqualified Stock Option Plan (the "Director
Plan") for the purpose of motivating and rewarding those directors of the
Company who are not employees of the Company or any subsidiary of the Company
(such individuals, "Non-employee Directors") by granting to such directors
NQSOs (each such NQSO, a "Director Option"). The Director Plan will be
administered by the Board, which, subject to the express provisions of the
Director Plan, will have full and final authority to (i) authorize any person
to execute on behalf of the Company an agreement evidencing the grant of a
Director Option, (ii) interpret the Director Plan and any Director Option and
(iii) make all other determinations determined by the Board to be necessary or
advisable for the administration of the Director Plan. The Board may also make
whatever rules and regulations it deems useful to administer the Director
Plan. Any decision or action of the Board in connection with the Director Plan
or any Director Option, or any shares purchased pursuant to a Director Option,
will be final and binding.
The Board may, without stockholder approval, alter, suspend or terminate the
Director Plan at any time or from time to time; provided, however, that
stockholder approval will be required if and to the extent the Board
determines that such approval is appropriate for purposes of satisfying
applicable law, including but not limited to federal securities laws. The
Board may amend or modify the terms of any outstanding Director Option at any
time and from time to time; provided, however, that no such amendment will,
without the prior written consent of the optionee, adversely affect the rights
of such optionee under a then outstanding option. Unless earlier terminated,
the Director Plan will expire on the tenth anniversary of its adoption;
provided, however, expiration or other termination of the Director Plan will
not, without the prior written consent of the optionee, adversely affect the
rights of any optionee under a then outstanding option.
The total number of shares of Common Stock that may be made subject to
Director Options will not exceed in the aggregate 100,000, subject to
adjustment. The Director Plan provides that if the outstanding Common Stock is
increased or decreased in number, or changed into, or exchange for, a
different number or kind of securities of the Company or any other corporation
by reason of a recapitalization, reclassification, stock split, combination of
shares, stock dividend or other event, or if any other dilutive event occurs,
the number and kind of securities that may be issued pursuant to the grant,
vesting or exercise of any outstanding or future Director Option, and the
purchase price with respect to any outstanding or future Director Options,
will be adjusted by the Board if and to the extent the Board determines in its
sole discretion that such an adjustment is necessary or desirable.
40
<PAGE>
Each Non-employee Director automatically will be granted as of the
completion of the Offering an option to purchase 10,000 shares of Common Stock
at a per share exercise price equal to the initial public offering price. In
addition, on each of February 1, 1999 and February 1, 2000, each such director
automatically will be granted an option to purchase 5,000 shares of Common
Stock at a per share exercise price equal to the average of the high and low
prices, as reported in the Wall Street Journal, of such shares on the Nasdaq
National Market or such other national stock exchange on which such shares are
traded on the day immediately preceding the date as of which such option is
granted. The terms and conditions of each Director Option will be set forth in
an agreement entered into between the optionee and the Company. The term of
each Director Option will be ten years and each Director Option will become
exercisable as to one-third of the shares covered thereby on each of the
first, second and third anniversaries of the date of grant. If a Non-employee
Director ceases to be a director of the Company for any reason other than
death, Director Options then held by such Non-employee Director may, to the
extent be exercised, be exercised within six months (12 months, if such
individual ceases to be a director of the Company due to the such individual's
permanent and total disability) following the effective date of such cessation
of service. If a Non-employee Director dies while a director of the Company or
within the period that the Director Option remains exercisable after ceasing
to be a director, any Director Option then held by such Non-employee Director
may be exercised by such individual's personal representative or beneficiary
at any time prior to the original expiration date of such option or, if
earlier, within twelve months after the death of the Non-employee Director.
Upon the occurrence of a Change in Control (as defined in the Director
Plan), the Board may in its absolute discretion do any one or more of the
following: (i) shorten the period during which Director Options are
exercisable (provided they remain exercisable, to the extent otherwise
exercisable, for at least 10 days after the date notice is given), (ii)
accelerate any vesting schedule to which a Director Option is subject or cause
to lapse any restrictions applicable to Common Stock acquired pursuant to the
exercise of a Director Option, (iii) arrange for the grant of replacement
Director Options or (iv) cancel outstanding Director Options, for which each
such optionee will be entitled to receive in consideration an amount in cash
that, in the discretion of the Board, is determined to be equivalent to the
fair market value of such Director Option. In considering the advisability, or
the terms and conditions, of any action it may take in connection with a
Change in Control, the Board will take into account the penalties that may
result directly or indirectly from such action to either the Company or the
Non-employee Director, or both, under Section 280G of the Code, and may decide
to limit such action to the extent necessary to avoid or mitigate such
penalties or their effects.
BONUS PLANS
The Company has established a bonus program for Mr. Dugan pursuant to which
Mr. Dugan is eligible to receive (i) an annual cash bonus (the "Target
Bonus"), subject to the achievement of certain goals, and (ii) additional
bonuses (the "Residual Bonuses"), each of which is equal to 50% of the Target
Bonus and which may be earned in full in each of the four years following the
year in respect of which the Target Bonus is earned. The Target Bonus is set
annually by the Board of Directors and the percentage of the Target Bonus
actually paid is based on the achievement of certain goals ("Goals") relating
to the financial performance of the Company (including without limitation
return on equity, meeting or exceeding the Company's budget for pre-tax income
and additions to the Company's owned portfolio). Performance that exceeds the
Goals may, in the sole discretion of the Board of Directors, result in a
payment in excess of 100% of the Target Bonus.
In each year, the aggregate Residual Bonuses to be paid (including Residual
Bonuses payable based on Target Bonuses earned in respect of earlier years)
will be payable out of the gain from the disposition of leased assets owned by
AFG Credit Corporation, such payment not to exceed 50% of such gain.
41
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, the Company has not had a Compensation Committee.
Messrs. Tidball, Dugan and Allgood each participated in deliberations
concerning executive officer compensation in 1997. With the exception of Mr.
Tidball, who is a director of PLMI and certain of PLMI's subsidiaries other
than the Company, no interlocking relationship exists between the Company's
Board of Directors and the board of directors or compensation committee of any
other company, nor has any such relationship existed in the past. The Company
has engaged in certain business transactions, and has had and will continue to
have certain business relationships, with PLMI. See "Certain Transactions."
42
<PAGE>
CERTAIN TRANSACTIONS
PROVISION OF CERTAIN CORPORATE SERVICES BY PLMI
PLMI provides to the Company certain essential corporate services, including
accounting, data processing, human resources, legal and risk management
services. Prior to the Offering, the amount payable by the Company in respect
of such services was based on the time spent by personnel of PLMI in providing
such services. The allocated cost of these services in 1997 was $1.3 million.
INTERCOMPANY AGREEMENT
Prior to the Offering, the Company and PLMI will enter into the Intercompany
Agreement, certain provisions of which are summarized below. The following
summary does not purport to be complete and is qualified in its entirety by
reference to the Intercompany Agreement, a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Capitalized terms used but not defined in the following summary have the
meanings given to them in the Intercompany Agreement. As used herein, "PLMI
Affiliated Group" means PLMI collectively with its subsidiaries (other than
the Company and its subsidiaries).
Indemnification
The Intercompany Agreement provides that the Company will indemnify each
member of the PLMI Affiliated Group and each of their respective officers,
directors, employees and agents (collectively, the "Indemnitees") against
losses based on, arising out of or resulting from (i) the ownership or the
operation of the assets or properties, and the operation or conduct of the
business, of the Company or its subsidiaries, (ii) any other activities of the
Company or its subsidiaries, (iii) any other acts or omissions arising out of
performance of the Intercompany Agreement, (iv) any guaranty, keep well, net
worth or financial condition maintenance agreement of or by any member of the
PLMI Affiliated Group provided to any parties with respect to any actual or
contingent obligation of the Company or its subsidiaries and (v) certain other
matters. In addition, the Company has agreed to indemnify the Indemnitees
against certain civil liabilities, including liabilities under the Securities
Act, relating to misstatements in or omissions from the Registration Statement
of which this Prospectus forms a part and any other registration statement
that the Company files under the Securities Act (other than misstatements or
omissions made in reliance on information relating to and furnished by any
member of the PLMI Affiliated Group for use in the preparation thereof,
against which PLMI has agreed to indemnify the Company). PLMI has also agreed
to indemnify the Company and its subsidiaries and each of their respective
officers, directors, employees and agents against losses based on, arising out
of or resulting from (i) any breach by PLMI of the Intercompany Agreement,
(ii) the ownership or the operation of the assets or properties, and the
operation or conduct of the business, of PLMI and its subsidiaries (other than
the Company and its subsidiaries) and (iii) certain other specifically
identified matters.
PLMI Consent to Certain Events
The Intercompany Agreement provides that until members of the PLMI
Affiliated Group cease to control at least 35% of the combined voting power of
the outstanding Common Stock or no longer own at least 35% of the outstanding
Common Stock, the prior written consent of PLMI will be required for: (i) any
consolidation or merger of the Company or any of its subsidiaries with any
person (other than certain transactions involving wholly owned subsidiaries);
(ii) any sale, lease, exchange or other disposition by the Company or any of
its subsidiaries (other than transactions to which the Company and its wholly
owned subsidiaries are the only parties), directly or indirectly, of all or
substantially all of the assets of the Company or any of its subsidiaries;
(iii) any alteration, amendment or repeal of the Charter or Bylaws: (iv) any
issuance by the Company or any subsidiary of the Company of any equity
securities or equity derivative securities (except (a) up to 965,500 options
to purchase shares of Common Stock pursuant to employee and director stock
option, profit sharing and other benefit plans of the Company and its
subsidiaries and the issuance of the shares of Common Stock
43
<PAGE>
underlying such options, (b) the issuance of shares of capital stock of a
wholly owned subsidiary of the Company to the Company or another wholly owned
subsidiary of the Company and (c) in the Offering); (v) the election or
appointment of persons to, or the filling of a vacancy in, the offices of
president or chief executive officer of the Company; and (vi) the dissolution,
liquidation or winding up of the Company.
Registration Rights
The Company has granted to the PLMI Affiliated Group certain demand
registration rights with respect to shares of Common Stock owned by the PLMI
Affiliated Group. The PLMI Affiliated Group has the right to request demand
registrations from time to time, and such registration rights are transferable
by the PLMI Affiliated Group. The Company has agreed to pay all costs and
expenses in connection with each such registration, except underwriting
discounts and commissions applicable to the shares of Common Stock sold by the
PLMI Affiliated Group. The Intercompany Agreement contains customary terms and
provisions with respect to, among other things, registration procedures and
certain rights to indemnification granted by parties thereunder in connection
with the registration of Common Stock on behalf of the PLMI Affiliated Group.
Reimbursement of Expenses
The Company has agreed to pay all costs and expenses incurred in connection
with the Offering and certain related transactions.
Equity Purchase Rights
The Company has agreed that, to the extent permitted by the principal
national securities exchange in the United States upon which the Common Stock
is listed and so long as PLMI controls at least 35% of the combined voting
power of the outstanding Common Stock or at least 35% of the issued and
outstanding Common Stock, the PLMI Affiliated Group may purchase its pro rata
share (based on its then current percentage equity interest in the Company) of
any voting equity security issued by the Company (excluding any such
securities offered in connection with the Offering and pursuant to employee
stock options or other benefit plans, dividend reinvestment plans and other
offerings other than for cash). The exercise of such rights is currently
prohibited by the NYSE.
Certain Services to Be Provided by PLMI
The Intercompany Agreement also provides for PLMI to provide certain
corporate services to the Company during the three-year period immediately
following the date thereof, including accounting, data processing, human
resources, legal and risk management services. In consideration of the
provision of such services under the agreement, the Company is obligated to
pay PLMI an annual service fee in the amount of $500,000 in four equal
installments of $125,000 each on or before the thirtieth day of each January,
April, July and September.
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of March 31, 1998, as adjusted to
reflect the sale of the Common Stock offered hereby, for (i) each person known
by the Company to own beneficially more than 5% of the outstanding Common
Stock, (ii) the Selling Stockholder, (iii) each director of the Company, (iv)
each Named Executive Officer and (v) all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING (1) NUMBER OF OFFERING (1)
NAME OF -------------------- SHARES --------------------
BENEFICIAL OWNER NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
---------------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
PLM International, Inc. ... 4,200,000 100% 580,000 3,620,000 62.7%
One Market
Steuart Street Tower
Suite 800
San Francisco, California
94105
Robert N. Tidball.......... 0 * -- 0 *
Donald R. Dugan, Jr........ 0 * -- 0 *
J. Michael Allgood......... 0 * -- 0 *
Joseph C. Berenato......... 0 * -- 0 *
................... 0 * -- 0 *
................... 0 * -- 0 *
Jeffrey F. Zerrer.......... 0 * -- 0 *
Susan S. Franklin.......... 0 * -- 0 *
All directors and executive
officers as a group (9
persons).................. 0 * -- 0 *
</TABLE>
- --------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The persons named in this table have
sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them.
(2) Applicable percent ownership is based on 4,200,000 shares of Common Stock
outstanding as of March 31, 1998 and 5,770,000 shares of Common Stock
outstanding upon completion of the Offering.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
common stock, par value $0.01 per share ("Common Stock"), and 5,000,000 shares
of preferred stock, par value $0.01 per share ("Preferred Stock").
COMMON STOCK
As of March 31, 1998, 4,200,000 shares of Common Stock were outstanding, all
of which were held by the Selling Stockholder. Upon completion of the
Offering, 5,770,000 shares of Common Stock will be outstanding.
The holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of holders of Common Stock. The Common Stock
does not have cumulative voting rights, which means that the holders of a
majority of the voting power of shares of Common Stock outstanding are able to
elect all the directors and the holders of the remaining shares are not able
to elect any directors. Upon completion of the Offering, the Selling
Stockholder will own a majority of the outstanding shares of Common Stock.
Each share of Common Stock is entitled to participate equally in dividends,
if, as and when declared by the Company's Board of Directors, and in the
distribution of assets in the event of liquidation, subject in all cases to
any prior rights of outstanding shares of Preferred Stock. The Company has
never paid cash dividends on its Common Stock. The shares of Common Stock have
no preemptive rights, redemption rights or sinking fund provisions. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby upon issuance and sale will be, duly authorized, validly issued, fully
paid and nonassessable.
PREFERRED STOCK
The Charter authorizes the Board of Directors, without any action by the
stockholders of the Company, to issue up to 5,000,000 shares of Preferred
Stock. Pursuant to such authorization, the Company's Board of Directors may
establish, without stockholder approval, one or more classes or series of
Preferred Stock having such number of shares, designations, relative voting
rights, dividend rates, liquidation and other rights, preferences and
limitations as the Board of Directors may designate, including in connection
with the adoption of a stockholder rights plan. The Company believes that this
authorization to issue Preferred Stock will provide flexibility in connection
with possible corporate transactions. The issuance of Preferred Stock,
however, could adversely affect the voting power of holders of Common Stock
and restrict their rights to receive payments upon liquidation of the Company.
The issuance of Preferred Stock could also have the effect of delaying,
deferring or preventing a change in control of the Company.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with the Company for three years
following the date that person becomes an interested stockholder unless (i)
before that person became an interested stockholder, the Company's Board of
Directors approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination, (ii) upon
completion of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least
85% of the voting stock outstanding at the time the transaction commenced
(excluding stock held by directors who are also officers of the Company and by
employee stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer) or (iii) following the transaction in which that
person became an interested stockholder, the business combination is approved
by the Company's Board of Directors and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds of
the outstanding voting stock not owned by the interested stockholder.
46
<PAGE>
Under Section 203, these restrictions do not apply to certain business
combinations proposed by an interested stockholder following the announcement
or notification of one of certain extraordinary transactions involving the
Company and a person who was not an interested stockholder during the previous
three years or who became an interested stockholder with the approval of a
majority of the Company's directors, if that extraordinary transaction is
approved or not opposed by a majority of the directors who were directors
before any person became an interested stockholder in the previous three years
or who were recommended for election or elected to succeed such directors by a
majority of such directors then in office.
The Charter provides that following completion of the Offering, the ability
of the Company's stockholders to consent in writing, pursuant to Section 228
of the Delaware General Corporation Law, to the taking of any action with
respect to any of the following is specifically denied: (i) any consolidation
or merger of the Company with or into any person, or of any person with or
into the Company, requiring the approval of stockholders of the Company, (ii)
any sale, lease, exchange or other disposition by the Company or any
subsidiary of the Company of all or substantially all of the assets of the
Company requiring the approval of stockholders of the Company, (iii) any
dissolution, liquidation or winding up of the Company requiring the approval
of stockholders of the Company, (iv) any election of directors pursuant to
Section 211(b) of the Delaware General Corporation Law and (v) any amendment,
alteration, change or repeal of Article NINTH of the Charter, which sets forth
such provision.
The Bylaws provide that the Company's Board of Directors will be elected by
a plurality of votes cast at the annual meeting of holders of Common Stock. In
general, the Board of Directors, not the stockholders, has the right to
appoint persons to fill vacancies on the Board of Directors. The Bylaws also
provide that as long as the PLMI Affiliated Group maintains a 35% interest in
the Common Stock, the Board of Directors will nominate two persons designated
by PLMI for election to the Board of Directors at each annual meeting and at
any special meeting of stockholders called for the purpose of electing
directors.
The Bylaws provide that special meetings of holders of Common Stock may be
called only by the Company's Board of Directors or by the holders of a
majority in voting power of the outstanding capital stock of the Company and
that only such business as is specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors may
be conducted at a special meeting of stockholders of the Company.
The Bylaws provide that the only business that may be considered at an
annual meeting of holders of Common Stock, in addition to business specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors or otherwise properly brought before the
annual meeting by or at the direction of the Board of Directors, is business
proposed (or persons nominated to be director) by certain stockholders who
comply with the notice requirements set forth in the Bylaws. The Bylaws
require that a stockholder give the Company notice of proposed business or
nominations not less than 60 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders or (if the annual meeting
is called for a date not within 30 days before or after such anniversary date)
ten days after the day on which notice of the annual meeting is mailed or
public disclosure thereof made, whichever occurs first. The notice must also
contain information about the stockholder proposing the business or
nomination, the stockholder's interest in the business, and (with respect to
nominations for director) information about the nominee of the nature required
to be disclosed in public proxy statements. The stockholder also must submit a
notarized letter from each of the stockholder's nominees stating the nominee's
acceptance of the nomination and indicating the nominee's intention to serve
as director if elected.
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or bylaws, unless the
corporation's certificate of incorporation or bylaws requires a greater
percentage.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, LLC.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 5,770,000 shares of
Common Stock outstanding. The 2,150,000 shares of Common Stock offered hereby
will be freely tradeable without restriction or further registration under the
Securities Act, except for shares sold by persons deemed to be "affiliates" of
the Company or acting as "underwriters," as those terms are defined in the
Securities Act. Following the expiration of the lock-up period described
below, all of the remaining outstanding shares of Common Stock will be freely
tradeable subject to restrictions on resale imposed upon "affiliates" by Rule
144 under the Securities Act.
An aggregate of 965,500 shares of Common Stock are reserved for issuance to
directors, executives, consultants and employees of the Company pursuant to
the Management Plan and the Director Plan. The Company intends to file a
registration statement on Form S-8 covering the issuance of shares of Common
Stock pursuant to the Management Plan and the Director Plan. Accordingly,
shares issued pursuant to these plans will be freely tradeable, except for any
shares held by an "affiliate" of the Company.
PLMI and certain of its subsidiaries have been granted certain demand
registration rights pursuant to the Intercompany Agreement. See "Certain
Transactions."
The Company, its officers and directors, and the Selling Stockholder have
agreed not to offer, sell or grant any option for the sale of, or otherwise
dispose of, any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for shares of Common Stock for a period of 180
days commencing on the date of this Prospectus without the prior written
consent of the Legg Mason Wood Walker, Incorporated, other than the issuance
of options to purchase Common Stock or shares of Common Stock issuable upon
the exercise thereof in connection with the Company's stock option plans,
provided that such options shall not vest or such shares shall not be
transferable prior to the end of the 180 day period. See "Underwriting."
Prior to the Offering, there has been no market for the Common Stock. No
predictions can be made of the effect, if any, that market sales of shares of
Common Stock or the availability of such shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of significant
amounts of Common Stock could adversely affect the prevailing market price of
the Common Stock, as well as impair the ability of the Company to raise
capital through the issuance of additional equity securities.
48
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement") between the Company and the Selling
Stockholder, on the one hand, and Legg Mason Wood Walker, Incorporated ("Legg
Mason") and Furman Selz LLC, as representatives of the underwriters (the
"Representatives"), on the other hand, the underwriters named below (the
"Underwriters") have severally agreed to purchase from the Company and the
Selling Stockholder the following respective numbers of shares of Common Stock
at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Legg Mason Wood Walker, Incorporated.............................
Furman Selz LLC..................................................
---------
Total.......................................................... 2,150,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock are subject to the satisfaction of
certain conditions precedent and that the Underwriters are committed to
purchase all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any of such shares
are purchased.
The Company and the Selling Stockholder have been advised by Legg Mason that
the Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such public offering price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to certain
other underwriters or to certain other brokers or dealers. After the initial
offering to the public, the offering price and other selling terms may be
changed by Legg Mason.
The Company and the Selling Stockholder have granted the Underwriters an
option to purchase up to an additional 322,500 shares of Common Stock to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. The
Underwriters may exercise this option at any time up to 30 days after the date
of this Prospectus. To the extent that the Underwriters exercise this option,
each Underwriter will be committed, subject to certain conditions, to purchase
a number of the additional shares of Common Stock that is proportionate to
such Underwriter's initial commitment as indicated in the preceding table.
The Selling Stockholder and all of the Company's directors and officers have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any right to acquire Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Legg Mason. In addition, the Company has agreed in the Underwriting
Agreement that, during the period of 180 days after the date of this
Prospectus, without the prior written consent of Legg Mason, it will not
issue, offer, sell, grant options to purchase or otherwise dispose of any of
the Company's equity securities or any other securities convertible into or
exchangeable with the Company's Common Stock or other equity security, subject
to certain limited exceptions. Legg Mason may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to these lock-up agreements. See "Shares Eligible for Future Sale."
49
<PAGE>
Legg Mason has advised the Company and the Selling Stockholder that the
Underwriters do not intend to confirm sales in excess of 5% of the shares
offered hereby to accounts over which they exercise discretionary authority.
The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Until the distribution of the shares of Common Stock is completed, the rules
of the Securities and Exchange Commission (the "Commission") may limit the
ability of the Underwriters and certain selling group members to bid for and
purchase shares of Common Stock. As an exception to these rules, in connection
with this offering, certain Underwriters and selling group members and their
respective affiliates may engage in transactions that stabilize, maintain or
otherwise affect the market price of the Common Stock. Such transactions may
include stabilization transactions effected in accordance with Rule 104 of
Regulation M promulgated by the Commission pursuant to which such persons may
bid for or purchase Common Stock for the purpose of pegging, fixing or
maintaining the market price of the Common Stock.
The Underwriters may also create a short position for the account of the
Underwriters by selling more shares of Common Stock in connection with the
Offering than they are committed to purchase from the Company and the Selling
Stockholder, and in such case may purchase Common Stock in the open market
following completion of the Offering to cover all or a portion of such
position. The Underwriters also may elect to reduce any short position by
exercising all or part of the over-allotment option described herein.
In addition, Legg Mason, on behalf of the Underwriters, also may impose
"penalty bids" under contractual arrangements with the Underwriters whereby
they may reclaim from an Underwriter (or any selling group member
participating in this offering) for the account of the other Underwriters, the
selling concession with respect to shares of Common Stock that are distributed
in this offering but subsequently purchased for the account of the
Underwriters in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.
Neither the Company, the Selling Stockholder nor any of the Underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the
shares of Common Stock. In addition, neither the Company, the Selling
Stockholder nor any of the Underwriters makes any representations that the
Underwriters will engage in such transactions, or that such transactions once
commenced, will not be discontinued without notice.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined by
negotiation among the Company, the Selling Stockholder and the
Representatives. Among the factors to be considered in such negotiations are
the prevailing market conditions, the Company's results of operations and
current financial position, estimates of the business potential and prospects
of the Company, the experience of the Company's management, the economics of
the industry in general and other factors deemed relevant.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "AFGC."
50
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom
LLP, San Francisco, California. Certain legal matters relating to the Common
Stock offered hereby will be passed upon for the Underwriters by Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts.
EXPERTS
The financial statements of the Company as of December 31, 1997 and 1996 and
for the period from February 9, 1995 (inception) through December 31, 1995
have been included herein and in the Registration Statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and in the Registration Statement and upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the offer and sale of
Common Stock pursuant to this Prospectus. This Prospectus, filed as a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement or the exhibits and schedules thereto in
accordance with the rules and regulations of the Commission and reference is
hereby made to such omitted information. Statements made in this Prospectus
concerning the contents of any contract, agreement or other document filed as
an exhibit to the Registration Statement are summaries of the terms of such
contracts, agreements or documents and are not necessarily complete. Reference
is made to each such exhibit for a more complete description of the matters
involved, and such statements are qualified in their entirety by such
reference. The Registration Statement and the exhibits and schedules thereto
filed with the Commission may be inspected, without charge, and copies may be
obtained at prescribed rates, at the public reference facility maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621-2511. The Registration
Statement and other information filed by the Company with the Commission are
also available at the web site maintained by the Commission on the World Wide
Web at http://www.sec.gov. For further information pertaining to the Company
and the Common Stock offered by this Prospectus, reference is made to the
Registration Statement, including the exhibits thereto and the consolidated
financial statements, notes and schedules included as a part thereof.
51
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Statements of Operations for the period from February 9, 1995
(inception) through December 31, 1995, and the Years Ended December 31,
1996 and 1997............................................................ F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997.............. F-4
Consolidated Statements of Changes in Stockholder's Equity for the period
from February 9, 1995 (inception) through December 31, 1995, and the
Years Ended December 31, 1996 and 1997................................... F-5
Consolidated Statements of Cash Flows for the period from February 9, 1995
(inception) through December 31, 1995, and the Years Ended December 31,
1996 and 1997 ........................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Finance Group, Inc.
We have audited the consolidated financial statements of American Finance
Group, Inc. and subsidiaries (the "Company") as listed in the accompanying
index. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Finance Group, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for the period from February
9, 1995 (inception) through December 31, 1995 and each of the years in the
two-year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
April 24, 1998
F-2
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE YEARS ENDED
FEBRUARY 9, 1995 DECEMBER 31,
(INCEPTION) THROUGH --------------------
DECEMBER 31, 1995 1996 1997
------------------- --------- ---------
<S> <C> <C> <C>
REVENUES
Finance lease (Note 2)............... $ -- $ 1,763 $ 7,027
Operating lease (Note 4)............. 2,293 5,020 8,634
Financing income (Note 3)............ -- 92 546
Management fees (Note 1)............. 145 485 729
Revenue from sale of leases and
related assets (Note 1)............. 1,252 2,188 3,737
------- --------- ---------
Revenues from ongoing business
activities........................ 3,690 9,548 20,673
Revenues from the management of Equis
investor programs (Note 14)......... 1,635 -- --
------- --------- ---------
Total revenues................... 5,325 9,548 20,673
COSTS AND EXPENSES
Operations support................... 5,686 3,509 3,947
Depreciation and amortization........ 8 4,292 6,622
General and administrative (Note 9).. 867 1,178 1,263
------- --------- ---------
Total costs and expenses......... 6,561 8,979 11,832
------- --------- ---------
Operating income (loss).............. (1,236) 569 8,841
Interest expense..................... -- (2,019) (5,800)
Interest income...................... -- 176 324
Other expense........................ -- (19) --
------- --------- ---------
Income (loss) before income taxes.... (1,236) (1,293) 3,365
Provision for (benefit from) income
taxes (Note 8)...................... (442) (457) 1,259
------- --------- ---------
Net income (loss)................ $ (794) $ (836) $ 2,106
======= ========= =========
PRO FORMA DATA (UNAUDITED-- SEE NOTE
13)
Historical net loss.................. $ (836)
Pro forma adjustment to reflect net
income from subsidiary of Parent
earned on behalf of the Company... 838
---------
Pro forma net income............... $ 2
=========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-3
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
1996 1997
-------- --------
<S> <C> <C>
Restricted cash (Note 1)................................... $ 3,552 $ 3,775
Receivables................................................ 1,971 1,762
Investment in direct finance leases, net (Note 2).......... 52,964 112,465
Loans receivable (Note 3).................................. 5,718 5,861
Commercial and industrial equipment held for operating
leases (Note 4)........................................... 34,196 28,806
Less accumulated depreciation............................ (3,062) (5,061)
-------- --------
31,134 23,745
Other assets, net (Note 5)................................. 3,982 3,858
-------- --------
Total assets........................................... $ 99,321 $151,466
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Warehouse credit facility (Note 6)....................... $ 26,886 $ 23,040
Nonrecourse notes payable (Note 7)....................... -- 10,000
Nonrecourse securitization facility (Note 7)............. 45,392 71,302
Advance from PLMI (Note 9)............................... -- 6,478
Payables and other liabilities........................... 6,860 13,477
Deferred income taxes (Note 8)........................... 2,310 7,190
-------- --------
Total liabilities...................................... 81,448 131,487
Commitments and contingencies (Note 10)
Stockholder's equity (Note 11):
Common stock ($0.01 par value, 1,000 shares authorized,
issued and outstanding as of December 31, 1996 and 1997).. -- --
Paid-in capital, in excess of par.......................... 19,503 19,503
Retained earnings (accumulated deficit).................... (1,630) 476
-------- --------
Total stockholder's equity............................. 17,873 19,979
-------- --------
Total liabilities and stockholder's equity........... $ 99,321 $151,466
======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-4
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM FEBRUARY 9, 1995 (INCEPTION) THROUGHDECEMBER 31, 1995, AND
THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PAID-IN RETAINED
CAPITAL EARNINGS/ TOTAL
COMMON IN EXCESS (ACCUMULATED STOCKHOLDER'S
STOCK OF PAR DEFICIT) EQUITY
------ --------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCES, FEBRUARY 9, 1995
(INCEPTION)...................... $-- $ -- $ -- $ --
Capital contributions from
Parent........................... -- 2,628 -- 2,628
Net loss.......................... -- -- (794) (794)
---- ------- ------- -------
BALANCES, DECEMBER 31, 1995....... -- 2,628 (794) 1,834
Capital contributions from
Parent........................... -- 16,875 -- 16,875
Net loss.......................... -- -- (836) (836)
---- ------- ------- -------
BALANCES, DECEMBER 31, 1996....... -- 19,503 (1,630) 17,873
Net income........................ -- -- 2,106 2,106
---- ------- ------- -------
BALANCES, DECEMBER 31, 1997....... $-- $19,503 $ 476 $19,979
==== ======= ======= =======
</TABLE>
See accompanying notes to these consolidated financial statements.
F-5
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER
FOR THE PERIOD FROM 31,
FEBRUARY 9, 1995 (INCEPTION) ------------------
THROUGH DECEMBER 31, 1995 1996 1997
---------------------------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............. $ (794) $ (836) $ 2,106
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization................ 8 4,292 6,622
Deferred income tax expense.. 806 1,504 4,880
Gain on the sale or
disposition of assets, net.. -- (1,039) (2,388)
Changes in assets and
liabilities:
(Increase) decrease in
receivables................. (360) (1,611) 209
Decrease (increase) in other
assets, net................. -- (182) 115
Increase in payables and
other liabilities........... 4 1,561 1,520
------- -------- --------
Net cash provided by (used
in) operating activities... (336) 3,689 13,064
------- -------- --------
INVESTING ACTIVITIES
Principal payments received on
loans........................ -- 227 2,020
Investment in loans
receivable................... -- (5,945) (2,163)
Principal payments received on
finance leases............... -- 4,832 15,569
Investment in direct finance
leases....................... -- (53,281) (72,704)
Purchase of commercial and
industrial equipment held for
operating lease.............. -- (73,027) (50,204)
Proceeds from the sale of
commercial and industrial
equipment on operating
lease........................ -- 39,888 56,638
Proceeds from the sale of
fixed assets................. -- 528 --
Purchase of fixed assets...... (19) (605) (539)
Purchase of certain lease
origination and management
assets....................... (1,342) (1,907) --
------- -------- --------
Net cash used in investing
activities................. (1,361) (89,290) (51,383)
------- -------- --------
FINANCING ACTIVITIES
Borrowings on warehouse credit
facility..................... -- 76,392 90,908
Repayment of warehouse credit
facility..................... -- (49,506) (94,754)
Borrowings on nonrecourse
notes payable................ -- -- 10,000
Borrowings on nonrecourse
securitization facility...... -- 56,024 111,716
Repayment on nonrecourse
securitization facility...... -- (10,632) (85,806)
Payment of loan fees.......... (931) -- --
Increase in restricted cash... -- (3,552) (223)
Advance from PLMI, net........ -- -- 6,478
Capital contributions from
Parent....................... 2,628 16,875 --
------- -------- --------
Net cash provided by
financing activities....... 1,697 85,601 38,319
------- -------- --------
Net change in cash and cash
equivalents.................. -- -- --
Cash and cash equivalents at
beginning of year............ -- -- --
------- -------- --------
Cash and cash equivalents at
end of year.................. $ -- $ -- $ --
======= ======== ========
SUPPLEMENTAL DISCLOSURE NET
CASH PAID (RECEIVED) FOR:
Interest...................... $ -- $ 1,893 $ 5,057
======= ======== ========
Income taxes.................. $ (442) $ (457) $ 1,259
======= ======== ========
SUPPLEMENTAL DISCLOSURE--
NONCASH INVESTING ACTIVITIES:
Commercial and industrial
equipment purchases included
in accounts payable.......... $ -- $ 5,295 $ 10,594
======= ======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-6
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements contain all necessary
adjustments, consisting primarily of normal recurring accruals, to present
fairly the results of operations, financial position, changes in stockholder's
equity, and cash flows of American Finance Group, Inc. and its wholly owned
subsidiaries (the "Company"). The principal subsidiary is AFG Credit
Corporation, whose primary purpose is to own equipment pledged in the
nonrecourse securitization facility. All intercompany transactions among the
consolidated group have been eliminated.
The Company was incorporated in Delaware and commenced operations in
February 1995. The Company is a wholly owned subsidiary of PLM International,
Inc., a Delaware corporation ("PLMI" or the "Parent"). The Company is an
equipment leasing and management company that originates and services lease
and loan transactions for commercial and industrial equipment, such as data
processing, communications, materials-handling, and construction equipment.
These may be financed by nonrecourse debt for the Company's own account or for
sale to institutional leasing investment programs ("institutional programs")
or other investors. The Company uses its short-term secured debt facility to
finance the acquisition of assets prior to sale or permanent financing by
nonrecourse debt. The leases are accounted for as operating or direct finance
leases. The Company also originates loans in which it takes a security
interest in the assets financed.
In 1995, PLMI entered into an agreement to obtain certain assets and manage
certain operations of an entity presently named Equis Financial Group, a
Massachusetts general partnership ("Equis"). During 1995, the Company provided
management services for the Equis investor programs, for which the Company
earned management fees and other revenues. In December 1995, the agreement was
modified to exclude the management of the Equis investor programs. Under the
modified agreement, the Company hired certain Equis lease origination and
servicing employees and acquired from Equis certain customer lists, master
lease agreements and the rights to originate and service equipment leases sold
to an institutional program. The Company paid $3.2 million in the transaction,
$0.5 million of which was allocated to software, computers and furniture, $0.8
million of which was allocated to certain intangible assets based on estimated
fair value, and the balance of $1.9 million was recorded as goodwill.
These consolidated financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles. This requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
LEASING OPERATIONS
The Company's leasing operations generally consist of operating and direct
finance leases on commercial and industrial equipment. Under the operating
lease method of accounting, the leased asset is recorded at cost and
depreciated over its estimated useful life. Rental payments are recorded as
revenue over the lease term.
Under the direct finance lease method of accounting, the leased asset is
recorded as an investment in direct finance leases and represents the minimum
net lease payments receivable, including third-party guaranteed residuals,
plus the unguaranteed residual value of the equipment, less unearned income.
Rental payments, including principal and interest on the lease, reduce the
investment each month, and the interest is recorded as revenue over the lease
term.
F-7
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEASING OPERATIONS (CONTINUED)
The Company capitalizes initial direct costs of lease originations. Amounts
capitalized related to direct finance leases are included in the net
investment and are amortized using the effective interest method. Amounts
capitalized related to operating leases are included in other assets and are
amortized straight-line over the lease term, which usually ranges from one to
seven years.
EQUIPMENT
Commercial and industrial equipment on operating lease is depreciated to its
estimated residual value over the lease term, which usually ranges from one to
seven years. Residual values for commercial and industrial equipment vary
according to the type of equipment and term of the lease.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121") of the Financial Accounting
Standards Board, the Company reviews the carrying value of its equipment at
least annually in relation to expected future market conditions for the
purpose of assessing recoverability of the recorded amounts. If projected
undiscounted future lease revenues plus residual values are lower than the
carrying value of the equipment, the loss on revaluation is recorded. There
were no revaluations in 1995, 1996 or 1997.
Maintenance costs are generally the obligation of the lessee.
RESIDUAL INTERESTS
The residual value of equipment under direct finance lease is the estimated
amount to be received by the Company from disposition of equipment at lease
termination. The Company reviews the carrying values of its residual interests
at least annually in relation to expected future market values for the
equipment in which it holds residual interests for the purpose of assessing
recoverability of recorded amounts. If the projected residual is less than the
amount recorded, a loss on revaluation is recorded. There were no revaluations
in 1995, 1996 or 1997.
INTEREST-RATE SWAP AGREEMENTS
The Company has entered into interest-rate swap agreements to hedge its
interest-rate exposure on its nonrecourse securitization facility. The terms
of the swap agreements correspond to the hedged debt. The differential to be
paid or received under the swap agreement is charged or credited to interest
expense.
INSTITUTIONAL PROGRAMS
The Company earns revenues in connection with lease originations and
servicing equipment leases for institutional programs. Acquisition fees, which
are included in revenue for sale of leases and related assets, are generally
earned through the purchase and initial lease of equipment, and are generally
recognized as revenue when the Company completes substantially all of the
services required to earn the fees, generally when binding commitment
agreements are signed. Management fees are earned for servicing the equipment
portfolios and leases as provided for in various agreements, and are
recognized as revenue over time as they are earned.
TRANSFER OF DIRECT FINANCE LEASES, LOANS AND OPERATING LEASES
On January 1, 1997, the Company adopted SFAS No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS No. 125"). SFAS No. 125 provides guidelines for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The Company's transfers of direct finance leases
and loans to the securitization facility are accounted for as financings under
SFAS No. 125.
F-8
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRANSFER OF DIRECT FINANCE LEASES, LOANS AND OPERATING LEASES (CONTINUED)
The transfer to the securitization facility of equipment subject to
operating leases in which the Company retains substantial risk of ownership,
are not treated as sales in accordance with the provisions of SFAS No. 13 and
are also accounted for as financings. The transfer of equipment subject to
operating leases to institutional programs and third parties, where the
Company retains no risk of ownership, are treated as sales with gain or loss
on sale recognized in the period title passes.
RESTRICTED CASH
Restricted cash consists of a collateral account subject to withdrawal
restrictions of the nonrecourse debt facility. This agreement requires all
payments on pledged lease receivables to be deposited into a restricted cash
account. Principal, interest, and related fees are paid monthly in arrears
from this account. Cash remaining after these payments may be released to the
Company subject to certain debt covenant limitations.
INTANGIBLES
Intangibles are included in other assets, net on the balance sheet, and are
shown at the lower of net amortized cost or fair value. Intangibles primarily
relate to the purchase of certain assets from Equis and loan fees. Intangible
assets are being amortized over eight years from the acquisition date. Loan
fees are amortized over the life of the related loan. The Company annually
reviews the valuation of its intangibles based on projected future cash flows.
INCOME TAXES
The Company recognizes income tax expense using the liability method.
Deferred taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities.
The Company is included in the consolidated federal and certain combined
state income tax returns of the Parent. The Company provides for income tax
expense using a combined federal and state tax rate applied to pretax
earnings. The tax provision is calculated on a separate return basis.
Deferred income taxes arise primarily because of differences in the timing
of reporting equipment depreciation and certain reserves for financial
statement and income tax reporting purposes.
F-9
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. DIRECT FINANCE LEASES
During 1996, the Company purchased $57.8 million in commercial and
industrial equipment that was placed on finance lease. During 1997, the
Company purchased $75.3 million in commercial and industrial equipment that
was placed on finance lease.
Commercial and industrial equipment, at original equipment cost, subject to
finance leases as of December 31, 1997, is represented by the following types
(in thousands of dollars):
<TABLE>
<S> <C> <C>
Computers and peripherals...................................... $ 60,274 45%
Materials handling............................................. 28,693 21
Point of sale.................................................. 21,991 17
Manufacturing.................................................. 7,200 5
Communications................................................. 3,481 3
Construction and mining........................................ 3,348 3
General purpose plant and warehouse............................ 3,239 2
Other.......................................................... 4,842 4
-------- ---
Total........................................................ $133,068 100%
======== ===
</TABLE>
The following lists the components of the investment in direct finance
leases, net, as of December 31 (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Minimum lease payments receivable....................... $56,651 $115,521
Estimated unguaranteed residual values of leased proper-
ties................................................... 6,928 18,998
Initial lease origination costs, net.................... 294 535
------- --------
63,873 135,054
Less unearned income.................................... (10,909) (22,589)
------- --------
Investment in direct finance leases, net................ $52,964 $112,465
======= ========
</TABLE>
SCHEDULE OF MINIMUM LEASE PAYMENTS RECEIVABLE
AS OF DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<S> <C>
1998............................................................... $ 36,592
1999............................................................... 32,395
2000............................................................... 25,136
2001............................................................... 15,132
2002............................................................... 6,144
Thereafter......................................................... 122
--------
Total minimum lease payments receivable.......................... $115,521
========
</TABLE>
F-10
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. LOANS RECEIVABLE
As of December 31, 1997, the Company had loans receivable outstanding with
three customers, totaling $5.9 million with interest rates ranging from 8.70%
to 10.81%, secured by commercial and industrial equipment and related leases.
Future payments receivable on the notes as of December 31, 1997 are as follows
(in thousands of dollars):
<TABLE>
<S> <C>
1998................................................................. $2,824
1999................................................................. 2,816
2000................................................................. 221
------
Total loans receivable............................................. $5,861
======
</TABLE>
As of December 31, 1997, the Company estimates, based on recent
transactions, that the fair market value of the $5.9 million loans receivable
approximates book value.
4. COMMERCIAL AND INDUSTRIAL EQUIPMENT HELD FOR OPERATING LEASES
Commercial and industrial equipment, at cost, held for operating leases as
of December 31, 1997, is represented by the following types (in thousands of
dollars):
<TABLE>
<S> <C> <C>
Materials handling............................................. $ 7,356 26%
Manufacturing.................................................. 6,735 23
Communications................................................. 5,419 19
Point of sale.................................................. 4,259 15
Computers and peripherals...................................... 2,219 8
Medical........................................................ 1,010 3
Construction and mining........................................ 701 2
Other.......................................................... 1,107 4
------- ---
28,806 100%
===
Less accumulated depreciation.................................. (5,061)
-------
Net equipment held for operating leases...................... $23,745
=======
</TABLE>
During 1996, the Company purchased $74.9 million in commercial and
industrial equipment, which was placed on operating lease. During 1996, the
Company sold to third parties commercial and industrial equipment that was on
operating lease with an original cost of $40.7 million, for net gain of $1.0
million. During 1997, the Company purchased $52.9 million in commercial and
industrial equipment, which was placed on operating lease. During 1997, the
Company sold to third parties commercial and industrial equipment that was on
operating lease with an original cost of $58.3 million, for a net gain of $2.4
million.
Future minimum rentals receivable under noncancellable operating leases as
of December 31, 1997 are approximately $6.3 million in 1998, $4.6 million in
1999, $3.2 million in 2000, $1.5 million in 2001, $1.0 million in 2002, and $0
thereafter.
F-11
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. OTHER ASSETS, NET
Other assets net, consist of the following as of December 31 (in thousands
of dollars):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Intangibles, net of accumulated amortization of $343 and $685
in 1996 and 1997, respectively.............................. $2,399 $2,055
Loan fees, net of accumulated amortization of $47 and $207 in
1996 and 1997, respectively................................. 884 725
Software, net of accumulated depreciation of $80 and $214 in
1996 and 1997, respectively................................. 320 646
Furniture, fixtures and equipment, net of accumulated
depreciation of $35 and $83 in 1996 and 1997, respectively.. 170 201
Prepaid expenses and deposits................................ 143 138
Lease origination costs, net of accumulated amortization of
$10 and $33 in 1996 and 1997, respectively.................. 66 93
------ ------
Total other assets, net.................................... $3,982 $3,858
====== ======
</TABLE>
6. WAREHOUSE CREDIT FACILITY
The Company maintains a $50.0 million warehouse credit facility to be used
to acquire assets on an interim basis prior to placement in the Company's
nonrecourse securitization facility, sale to institutional programs or
syndication to unaffiliated third parties. This facility is shared with
another subsidiary of the Parent and various investment programs managed by an
affiliate of the Parent. Borrowings under this facility by the other eligible
borrowers reduce the amount available to be borrowed by the Company. All
borrowings under this facility are guaranteed by the Parent.
The Company amended this facility during 1997 to extend the availability of
the facility until November 2, 1998. The facility provides for 100% of the
present value of the lease stream plus 100% of the guaranteed residual value
of commercial and industrial equipment, up to 90% of the original equipment
cost of the assets held on this facility.
Borrowings secured by investment-grade lessees can be held under this
facility until the facility's expiration. Borrowings secured by noninvestment-
grade lessees may be outstanding for 120 days. Interest accrues at prime or
LIBOR plus 162.5 basis points, at the option of the Company. The weighted-
average interest rates on the Company's short-term secured debt were 8.41% and
7.60% for 1996 and 1997, respectively. Repayment of the borrowings matches the
terms of the underlying leases. As of December 31, 1996 and 1997, the Company
had $26.9 million and $23.0 million in borrowings on this facility,
respectively. As of December 31, 1996, there was a total of $9.8 million in
additional borrowings on this facility by another subsidiary of the Parent and
various investment programs managed by an affiliate of the Parent. There were
no other borrowings on this facility as of December 31, 1997 by any of the
other eligible borrowers.
As of December 31, 1997, the Company believes that the fair market value of
the $23.0 million short-term secured debt approximated the outstanding balance
due to the floating rate of interest on this facility.
7. NONRECOURSE DEBT
The Company has available a nonrecourse securitization facility to be used
to acquire assets secured by direct finance leases, operating leases and loans
on commercial and industrial equipment that generally have terms from one 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.
F-12
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. NONRECOURSE DEBT (CONTINUED)
Repayment of the facility matches the terms of the underlying leases. The
securitized debt bears interest equivalent to the lender's cost of funds based
on commercial paper market rates for the determined period of borrowing plus
an interest rate spread and fees (7.03% and 7.16% as of December 31, 1996 and
1997, respectively). As of December 31, 1996 and 1997, borrowings under this
facility were $45.4 million and $71.3 million, respectively.
The Company also had $10.0 million in nonrecourse notes payable outstanding
as of December 31, 1997, bearing interest at 9.16% per annum. Principal and
interest on the notes are due monthly beginning November 1, 1997 and ending
October 1, 2001. The notes are secured by direct finance leases for commercial
and industrial equipment that have terms corresponding to the repayment of the
notes.
Scheduled principal payments on long-term nonrecourse debt are (in thousands
of dollars):
<TABLE>
<S> <C>
1998................................................................. $28,944
1999................................................................. 25,606
2000................................................................. 16,301
2001................................................................. 8,904
2002................................................................. 1,481
Thereafter........................................................... 66
-------
Total............................................................. $81,302
=======
</TABLE>
As of December 31, 1997, the Company believes that the fair market value of
the $71.3 million debt on the nonrecourse debt facility approximates the
outstanding balance due to the floating rate of interest. As of December 31,
1997, the Company believes that the fair market value of the $10.0 million
fixed-rate 9.16% nonrecourse notes payable is $10.4 million.
8. INCOME TAXES
The provision for (benefit from) income taxes attributable to income from
operations consists of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1995 1996
----------------------- -----------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL
------- ----- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Current....................... $(1,117) $(131) $(1,248) $(1,754) $(207) $(1,961)
Deferred...................... 723 83 806 1,347 157 1,504
------- ----- ------- ------- ----- -------
$ (394) $ (48) $ (442) $ (407) $ (50) $ (457)
======= ===== ======= ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------
FEDERAL STATE TOTAL
------- ----- -------
<S> <C> <C> <C>
Current................................................ $(3,240) $(381) $(3,621)
Deferred............................................... 4,361 519 4,880
------- ----- -------
$ 1,121 $ 138 $ 1,259
======= ===== =======
</TABLE>
Amounts for the current year are based on estimates and assumptions as of
the date of this report and could vary significantly from amounts shown on the
tax returns ultimately filed. Accordingly, the variances in classification, if
any, from the amounts previously reported for prior years are primarily the
result of adjustments to conform to the tax returns as filed.
F-13
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES (CONTINUED)
The difference between the effective rate and the expected federal statutory
rate is reconciled below:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax expense rate........................ (34)% (34)% 34%
State income tax.......................................... (3) (2) 2
Nondeductible expenses.................................... 1 1 1
--- --- ---
Effective tax expense (benefit) rate.................... (36)% (35)% 37%
=== === ===
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities as of December 31 are presented below
(in thousands of dollars):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Lease classification........................................ $ -- $ 2,282
Federal benefit of state taxes.............................. -- 13
Bad debt reserve............................................ -- 9
------- -------
Total deferred tax assets................................. -- 2,304
------- -------
Deferred tax liabilities:
Equipment, principally differences in depreciation.......... 2,088 9,469
Lease classification........................................ 137 --
Federal benefit of state taxes.............................. 33 --
Other....................................................... 52 25
------- -------
Total deferred tax liabilities............................ 2,310 9,494
------- -------
Net deferred tax liabilities............................ $ 2,310 $ 7,190
======= =======
</TABLE>
Management has reviewed all established tax interpretations of items
reflected in its consolidated tax returns and believes that these
interpretations do not require valuation allowances as described in SFAS No.
109.
Current taxes receivable for 1995, 1996, and 1997, were paid to the Company
by the Parent in the respective years. Amounts reported by the Company and its
subsidiaries are included in the consolidated and combined tax returns filed
by PLMI. The above amounts have been computed on a separate company basis.
The Company believes that future operations will generate sufficient taxable
income to realize the deferred tax assets.
9. TRANSACTIONS WITH AFFILIATES
PLMI and its various subsidiaries, including the Company, incur costs
associated with management, accounting, legal, data processing, and other
general and administrative activities. Direct expenses are charged directly to
the Company as incurred. Indirect expenses are allocated among the Company,
PLMI, and other subsidiaries of PLMI using an allocation method that
management believes is reasonable when compared to business activities.
General and administrative expenses allocated from the Parent to the Company
during 1995, 1996 and 1997 were $0.9 million, $1.2 million, and $1.3 million,
respectively.
F-14
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. TRANSACTIONS WITH AFFILIATES (CONTINUED)
During 1996 and 1997, the Parent typically made capital contributions to the
Company for the equity required for the purchase of equipment and for loan
fundings. In 1997, the Company periodically borrowed cash from the Parent in
lieu of borrowing on the short-term secured debt facility. The Parent charged
interest expense to the Company at market rates for these loans. Total
interest charged by the Parent for these loans was $0.5 million in 1997. As of
December 31, 1997, the Company had $6.5 million in outstanding borrowings from
the Parent.
10. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company has entered into operating leases for office space. The
Company's total net rent expense was $0.1 million in 1996, and $0.2 million in
1997. Annual lease commitments for the Company's locations are $0.1 million in
1998, $0.1 million in 1999, $0.1 million in 2000, $33,000 in 2001, and $0
thereafter.
PURCHASE COMMITMENTS
As of December 31, 1997, the Company had committed to purchase $153.8
million of equipment for its lease and finance receivable portfolio of which
$10.6 million had been received by lessees and accrued for as of December 31,
1997. This includes equipment that will be held by the Company and equipment
that will be sold to institutional programs or other unaffiliated third
parties.
From January 1, 1998 through March 31, 1998, the Company funded $47.2
million of commitments outstanding for its commercial and industrial lease and
finance receivable portfolio as of December 31, 1997 and entered into new
commitments for $69.5 million.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings and is not
aware of any pending or threatening legal proceedings that would have a
material adverse affect upon its financial condition or results of operations.
11. STOCKHOLDER'S EQUITY
The Company had 1,000 shares of common stock at $0.01 par value, authorized,
issued, and outstanding as of the years ended December 31, 1996 and 1997. All
1,000 shares were owned by the Parent.
During 1995 and 1996, the Company received capital contributions from the
Parent of $2.6 million and $16.9 million, respectively.
12. OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of receivables from loans and leases.
Concentrations of credit risk with respect to lease and finance receivables
are limited due to the large number of customers comprising the Company's
customer base and their dispersion across different business and geographic
areas. Currently, none of the Company's equipment is leased internationally.
F-15
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK (CONTINUED)
CONCENTRATIONS OF CREDIT RISK (CONTINUED)
As of December 31, 1996 and 1997, management believes the Company had no
significant concentrations of credit risk that could have a material adverse
effect on the Company's business, financial condition or results of
operations.
INTEREST-RATE RISK MANAGEMENT
The Company has entered into interest-rate swap agreements in order to
manage the interest-rate exposure associated with its nonrecourse debt
facility. As of December 31, 1997, the swap agreements had a weighted-average
duration of 1.0 year, corresponding to the terms of the remaining debt. As of
December 31, 1997, a notional amount of $72.5 million of interest-rate swap
agreements effectively fixed interest rates at an average of 6.70% on such
obligations. Interest expense was increased by $0.1 million and $0.3 million
due to these arrangements in 1996 and 1997, respectively. The fair value to
the Company of interest-rate swap agreements as of December 31, 1997 was
approximately $0.1 million, taking into account interest rates in effect at
the time.
13. PRO FORMA DISCLOSURE (UNAUDITED)
PRO FORMA NET INCOME (LOSS)
Since September 1, 1996 (as discussed in Note 6), the Company has had
available a warehouse credit facility used to acquire assets on an interim
basis prior to placement in the Company's nonrecourse securitization facility,
sale to institutional programs or syndication to unaffiliated third parties.
Prior to the Company's becoming a borrower under this facility, the Company
arranged for the purchase of commercial and industrial equipment by TEC
AcquiSub, Inc., another subsidiary of the Parent ("TEC AcquiSub"). All costs
related to arranging these transactions are included in the Company's results;
however, the revenue earned from these transactions are not included in the
Company's results. As of September 1, 1996, all equipment owned by TEC
AcquiSub was sold to the Company at its net book value, which approximated its
fair market value. A pro forma adjustment to reflect the income and expenses
to TEC AcquiSub related to these transactions has been reflected in the
accompanying 1996 statement of operations. Income taxes have been provided at
an effective rate of 35%.
F- 16
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. PRO FORMA DISCLOSURE (CONTINUED)
The following pro forma unaudited statement of operations is presented to
reflect the transactions discussed above for the year ended December 31, 1996
(in thousands of dollars):
<TABLE>
<CAPTION>
PRO FORMA 1996
1996 ADJUSTMENTS PRO FORMA
------- ------------ ---------
<S> <C> <C> <C>
REVENUES
Finance lease.............................. $ 1,763 $ 996 $ 2,759
Operating lease............................ 5,020 2,449 7,469
Financing income........................... 92 -- 92
Management fees............................ 485 -- 485
Revenue from sale of leases and related as-
sets...................................... 2,188 353 2,541
------- ----- -------
Total revenues........................... 9,548 3,798 13,346
COSTS AND EXPENSES
Operations support......................... 3,509 6 3,515
Depreciation and amortization.............. 4,292 1,891 6,183
General and administrative................. 1,178 -- 1,178
------- ----- -------
Total costs and expenses................. 8,979 1,897 10,876
------- ----- -------
Operating income........................... 569 1,901 2,470
Interest expense........................... (2,019) (605) (2,624)
Interest income............................ 176 -- 176
Other expense.............................. (19) -- (19)
------- ----- -------
Income (loss) before income taxes.......... (1,293) 1,296 3
Provision for (benefit from) income taxes.. (457) 458 1
------- ----- -------
Net income (loss)........................ $ (836) $ 838 $ 2
======= ===== =======
</TABLE>
14. MANAGEMENT OF EQUIS INVESTOR PROGRAMS
In January 1995, PLMI entered into an agreement to obtain and manage certain
operations of Equis. During 1995, the Company provided management services for
Equis investor programs, for which the Company earned management fees and
other revenues. In December 1995, the agreement was modified to exclude the
management of the Equis investor programs. Under the modified agreement, the
Company hired certain Equis lease origination and servicing employees and
acquired from Equis certain customer lists, master lease agreements and the
rights to originate and service equipment leases sold to an institutional
program. Additionally, the agreement provided for the Company to purchase
certain software, computers and furniture from Equis.
As a result of the modifications to the management agreement in December
1995, management fees and other revenues related to the management services
provided by the Company for the Equis investor programs in 1995 are shown as
revenues from the management of certain of the Equis investor programs for the
year ended December 31, 1995 in the statement of operations.
F-17
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. PROFIT SHARING AND 401(K) PLAN
Since February 1996, the Company has participated in the PLM International,
Inc. Profit Sharing and 401(k) Plan (the "Plan"). The Plan provides for
deferred compensation as described in Section 401(k) of the Internal Revenue
Code. The Plan is a contributory plan available to essentially all full-time
employees of the Company. In 1997, employees who participated in the Plan
could elect to defer and contribute to the trust established under the Plan up
to 9% of pretax salary or wages up to $9,600. The Company matched up to a
maximum of $4,000 of employees' 401(k) contributions in 1996 and 1997 to vest
in four equal installments over a four-year period. The Company's total 401(k)
contributions were $42,000 and $58,000 for 1996 and 1997, respectively.
During 1996 and 1997, the Parent accrued discretionary profit-sharing
contributions equal to $100,000 plus approximately 2% of pretax profit.
Profit-sharing contributions are allocated equally among the number of
eligible Plan participants. The Company's portion of the total profit-sharing
contributions was $21,000 for 1996 and $37,000 for 1997.
16. CONCENTRATION
Revenues related to the institutional programs accounted for 24%, 19% and
11% of the Company's revenues in 1995, 1996 and 1997, respectively.
F-18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFOR-
MATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY, THE SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION
WHERE IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 13
The Company.............................................................. 14
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial and Operating Data....................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 26
Management............................................................... 35
Certain Transactions..................................................... 43
Principal and Selling Stockholders....................................... 45
Description of Capital Stock............................................. 46
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 49
Legal Matters............................................................ 51
Experts.................................................................. 51
Additional Information................................................... 51
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,150,000 SHARES
[LOGO]
AMERICAN FINANCE GROUP, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
LEGG MASON WOOD WALKER
INCORPORATED
FURMAN SELZ
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the Offering are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 10,941
NASD filing fee.................................................... 4,209
Nasdaq listing fee................................................. 31,925
Legal fees and expenses............................................ 300,000
Blue Sky fees and expenses......................................... 5,000
Accounting fees and expenses....................................... 250,000
Printing expenses.................................................. 100,000
Transfer Agent fees................................................ 4,500
Miscellaneous...................................................... 18,425
--------
Total............................................................ $725,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company, a Delaware corporation, is empowered by Section 145 of the
Delaware General Corporation Law (the "DGCL"), subject to the procedures and
limitations stated therein, to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding by reason of the fact that such person is or was a
director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee or agent of
another corporation or other enterprise, against reasonable expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually incurred by him in connection with such action, suit or proceeding,
if such director, officer, employee or agent acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Company is required
by Section 145 to indemnify any person against reasonable expenses (including
attorneys' fees) actually incurred by him in connection with an action, suit
or proceeding in which he is a party because he is or was a director, officer,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or
other enterprise, if he has been successful, on the merits or otherwise, in
the defense of the action, suit or proceeding. Section 145 also allows a
corporation to purchase and maintain insurance on behalf of any such person
against any liability asserted against him in any such capacity, or arising
out of his status as such, whether or not the corporation would have the power
to indemnify him against such liability under the provisions of Section 145.
In addition, Section 145 provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise.
Article SEVENTH of the Company's Amended and Restated Certificate of
Incorporation (the "Charter") provides that the Company shall indemnify and
hold harmless any person who was, is, or is threatened to be made a party to a
proceeding by reason of the fact that he or she (i) is or was a director or
officer of the Company or (ii) while a director or officer of the Company, is
or was serving at the request of the Company as a director, officer, employee
or agent of a corporation, partnership, joint venture, trust or other
enterprise, to the fullest extent authorized or permitted under the DGCL. The
right to indemnification under Article SEVENTH of the Charter is a contract
right which includes, with respect to directors and officers, the right to be
paid by the Company the expenses incurred in defending any such proceeding in
advance of its disposition.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception in February 1995, the Company has sold and issued the
following securities which were not registered under the Securities Act:
(1) On Feburary 9, 1995, the Company sold and issued to PLMI 1,000 shares of
Common Stock for an aggregate amount of $10.00 in cash.
The sale and issuance of securities in the transaction described in
paragraph (1) was deemed to be exempt from registration under the Securities
Act by virtue of Section 4(2) thereof as a transaction by an issuer not
involving a public offering. An appropriate legend is affixed to the stock
certificate issued in connection with the aforementioned transaction.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement
3.1 --Certificate of Incorporation of the Company
3.2 --Bylaws of the Company
3.3 --Form of Amended and Restated Certificate of Incorporation of the
Company to be effective upon completion of the Offering
3.4 --Form of Amended and Restated Bylaws of the Company to be made
effective upon completion of the Offering
*4.1 --Specimen Common Stock certificate
*5.1 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1 --1998 Management Stock Compensation Plan
10.2 --Directors' 1998 Nonqualified Stock Option Plan
10.3 --Amended and Restated Warehousing Credit Agreement, dated as of
December 2, 1997, between the Company and First Union
10.4 --Security Agreement, dated as of May 31, 1996, between the Company and
First Union, as amended by the Amendment to Security Agreement, dated
as of December 2, 1997, between the Company and First Union
10.5 --Pooling and Servicing Agreement and Indenture of Trust dated as of
July 1, 1995, between AFG Credit Corporation, the Company and Bankers
Trust Company
10.6 --Asset Purchase Agreement, dated as of July 1, 1995, between the
Company and AFG Credit Corporation
10.7 --Series 1995-1 Supplemental Indenture to Pooling and Servicing
Agreement and Indenture of Trust, dated as of July 1, 1995, between AFG
Credit Corporation, the Company, First Union and Bankers Trust Company
10.8 --Amendment No. 1 to Pooling and Servicing Agreement and Indenture of
Trust, dated as of September 1, 1995, between AFG Credit Corporation,
the Company and Bankers Trust Company
10.9 --Amendment No. 2 to Pooling and Servicing Agreement and Indenture of
Trust, dated as of December 5, 1995, between AFG Credit Corporation,
the Company and Bankers Trust Company
10.10 --Amendment No. 3 to Pooling and Servicing Agreement and Indenture of
Trust, dated as of October 14, 1997, between AFG Credit Corporation,
the Company and Bankers Trust Company
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.11 --Series 1997-1 Supplemental Indenture to Pooling and Servicing
Agreement and Indenture of Trust, dated as of October 14, 1997,
between AFG Credit Corporation, the Company, First Union Capital
Markets Corp. and Bankers Trust Corporation
10.12 --Note Purchase Agreement, dated as of October 14, 1997, between AFG
Credit Corporation, Variable Funding Capital Corporation and Bankers
Trust Corp.
10.13 --Purchase and Sale Agreement dated as of December 30, 1997 between the
Company and Varilease Corporation
10.14 --Form of Intercompany Relationship Agreement, dated as of , 1998,
between the Company and PLMI
21.1 --Subsidiaries of the Company
23.1 --Consent of KPMG Peat Marwick LLP
*23.2 --Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in
Exhibit 5.1 hereto)
24.1 --Powers of Attorney (included on the signature page to this
Registration Statement)
27.1 --Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(b) Consolidated Financial Statement Schedules
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER ----------------------------------------------------------------------
<C> <S>
1.1 --Form of Underwriting Agreement between the Company and the
Underwriters
3.1 --Certificate of Incorporation of the Company
3.2 --Bylaws of the Company
3.3 --Form of Amended and Restated Certificate of Incorporation of the
Company to be effective upon completion of the Offering
3.4 --Form of Amended and Restated Bylaws of the Company to be made
effective upon completion of the Offering
*4.1 --Specimen Common Stock certificate
*5.1 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1 --1998 Management Stock Compensation Plan
10.2 --Directors' 1998 Nonqualified Stock Option Plan
10.3 --Amended and Restated Warehousing Credit Agreement, dated as of
December 2, 1997, between the Company and First Union
10.4 --Security Agreement, dated as of May 31, 1996, between the Company
and First Union, as amended by the Amendment to Security Agreement,
dated as of December 2, 1997, between the Company and First Union
10.5 --Pooling and Servicing Agreement and Indenture of Trust, dated as of
July 1, 1995, between AFG Credit Corporation, the Company and Bankers
Trust Company
10.6 --Asset Purchase Agreement, dated as of July 1, 1995, between the
Company and AFG Credit Corporation
10.7 --Series 1995-1 Supplemental Indenture to Pooling and Servicing
Agreement and Indenture of Trust, dated as of July 1, 1995, between
AFG Credit Corporation, the Company, First Union and Bankers Trust
Company
10.8 --Amendment No. 1 to Pooling and Servicing Agreement and Indenture of
Trust, dated as of September 1, 1995, between AFG Credit Corporation,
the Company and Bankers Trust Company
10.9 --Amendment No. 2 to Pooling and Servicing Agreement and Indenture of
Trust, dated as of December 5, 1995, between AFG Credit Corporation,
the Company and Bankers Trust Company
10.10 --Amendment No. 3 to Pooling and Servicing Agreement and Indenture of
Trust, dated as of October 14, 1997, between AFG Credit Corporation,
the Company and Bankers Trust Company
10.11 --Series 1997-1 Supplemental Indenture to Pooling and Servicing
Agreement and Indenture of Trust, dated as of October 14, 1997,
between AFG Credit Corporation, the Company, First Union Capital
Markets Corp. and Bankers Trust Company
10.12 --Note Purchase Agreement, dated as of October 14, 1997, between AFG
Credit Corporation, Variable Funding Capital Corporation and First
Union Capital Markets Corp.
10.13 --Purchase and Sale Agreement, dated as of December 30, 1997, between
the Company and Varilease Corporation
10.14 --Form of Intercompany Relationship Agreement, dated as of , 1998,
between the Company and PLMI
23.1 --Consent of KPMG Peat Marwick LLP
*23.2 --Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in
Exhibit 5.1 hereto)
24.1 --Powers of Attorney (included on the signature page to this
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston,
State of Massachusetts, on the fifth day of May 1998.
American Finance Group, Inc.
/s/ Donald R. Dugan, Jr.
By ___________________________________
Donald R. Dugan, Jr. President
and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Donald R. Dugan, Jr. and Robert N. Tidball, or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any additional registration
statement pursuant to Rule 462(b), and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Donald R. Dugan, Jr. Director, President May 5, 1998
- ------------------------------------ and Chief
Donald R. Dugan, Jr. Executive Officer
(principal
executive officer
and principal
financial and
accounting
officer)
/s/ Robert N. Tidball Director and May 5 , 1998
- ------------------------------------ Chairman of the
Robert N. Tidball Board
/s/ J. Michael Allgood Director May 5 , 1998
- ------------------------------------
J. Michael Allgood
II-5
<PAGE>
Exhibit 1.1
[_______________] SHARES
American Finance Group, Inc.
Common Stock
UNDERWRITING AGREEMENT
dated [________], 1998
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
Section 1. Representations And Warranties....................................... 2
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLING SHAREHOLDER 2
Compliance With Registration Requirements............................ 2
Offering Materials Furnished To Underwriters......................... 3
Distribution Of Offering Material By The Company..................... 3
The Underwriting Agreement........................................... 3
Authorization Of The Common Shares................................... 3
No Applicable Registration Or Other Similar Rights................... 3
No Material Adverse Change........................................... 3
Independent Accountants.............................................. 4
Preparation Of The Financial Statements.............................. 4
Incorporation And Good Standing Of The Company....................... 4
Capitalization And Other Capital Stock Matters....................... 4
Stock Exchange Listing............................................... 5
Non-Contravention Of Existing Instruments; No Further
Authorizations Or Approvals Required.................................. 5
No Material Actions Or Proceedings................................... 5
Intellectual Property Rights......................................... 5
All Necessary Permits, Etc........................................... 6
Title To Properties.................................................. 6
Tax Law Compliance................................................... 6
Company Not An Investment Company.................................... 6
Insurance............................................................ 6
No Price Stabilization Or Manipulation............................... 6
Related Party Transactions........................................... 7
No Unlawful Contributions Or Other Payments.......................... 7
Company's Accounting System.......................................... 7
Compliance With Environmental Laws................................... 7
Periodic Review Of Costs Of Environmental Compliance................. 8
ERISA Compliance..................................................... 8
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER............ 8
The Underwriting Agreement........................................... 8
The Custody Agreement And Power Of Attorney.......................... 9
Title To Common Shares To Be Sold; All Authorizations Obtained....... 9
Delivery Of The Common Shares To Be Sold............................. 9
Non-Contravention; No Further Authorizations Or
Approvals Required................................................... 9
No Registration Or Other Similar Rights.............................. 9
No Further Consents, Etc............................................. 10
Disclosure Made By The Selling Shareholder In The Prospectus......... 10
No Price Stabilization Or Manipulation............................... 10
Confirmation Of Company Representations And Warranties............... 10
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES...................................... 10
The Firm Common Shares............................................................ 10
The First Closing Date............................................................ 11
The Optional Common Shares; The Second Closing Date............................... 11
Public Offering Of The Common Shares.............................................. 12
Payment For The Common Shares..................................................... 12
Delivery Of The Common Shares..................................................... 12
Delivery Of Prospectus To The Underwriters........................................ 13
SECTION 3. ADDITIONAL COVENANTS.............................................................. 13
A. COVENANTS OF THE COMPANY.......................................................... 13
Representatives' Review Of Proposed Amendments And
Supplements....................................................................... 13
Securities Act Compliance......................................................... 13
Amendments And Supplements To The Prospectus And Other
Securities Act Matters............................................................ 13
Copies Of Any Amendments And Supplements To The Prospectus........................ 14
Blue Sky Compliance............................................................... 14
Use Of Proceeds................................................................... 14
Transfer Agent.................................................................... 14
Earnings Statement................................................................ 14
Periodic Reporting Obligations.................................................... 14
Agreement Not To Offer Or Sell Additional Securities.............................. 15
Future Reports To The Representatives............................................. 15
B. COVENANTS OF THE SELLING SHAREHOLDER.............................................. 15
Agreement Not To Offer Or Sell Additional Securities.............................. 15
Delivery Of Forms W-8 And W-9..................................................... 15
SECTION 4. PAYMENT OF EXPENSES............................................................... 16
Section 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS................................. 16
Accountants' Comfort Letter....................................................... 17
Compliance With Registration Requirements; No Stop Order,
No Objection From NASD............................................................ 17
No Material Adverse Change Or Ratings Agency Change............................... 18
Opinion Of Counsel For The Company................................................ 18
Opinion Of Counsel For The Underwriters........................................... 18
Officers' Certificate............................................................. 18
Bring-Down Comfort Letter......................................................... 18
Opinion Of Counsel For The Selling Shareholder.................................... 18
Selling Shareholder's Certificate................................................. 19
Selling Shareholder's Documents................................................... 19
Lock-Up Agreement From Certain Shareholders Of The Company........................ 19
Additional Documents.............................................................. 19
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES............................................ 19
Section 7. EFFECTIVENESS OF THIS AGREEMENT.................................................... 20
SECTION 8. INDEMNIFICATION.................................................................... 20
Indemnification Of The Underwriters................................................ 20
Indemnification Of The Company, Its Directors And Officers......................... 21
Notifications And Other Indemnification Procedures................................. 22
Settlements........................................................................ 22
SECTION 9. CONTRIBUTION....................................................................... 23
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS................................. 24
SECTION 11. TERMINATION OF THIS AGREEMENT...................................................... 25
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY................................ 25
SECTION 13. NOTICES............................................................................ 25
SECTION 14. SUCCESSORS......................................................................... 26
SECTION 15. PARTIAL UNENFORCEABILITY........................................................... 26
SECTION 16. GOVERNING LAW PROVISIONS........................................................... 26
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDER TO SELL AND DELIVER COMMON SHARES 27
Section 18. GENERAL PROVISIONS................................................................. 28
</TABLE>
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Underwriting Agreement
[______], 1998
LEGG MASON WOOD WALKER, INCORPORATED
FURMAN SELZ LLC
As Representatives of the several Underwriters
c/o LEGG MASON WOOD WALKER, INCORPORATED
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Ladies and Gentlemen:
INTRODUCTORY. American Finance Group, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A attached hereto (the "Underwriters") an aggregate of [___] shares of
- ----------
its Common Stock, par value $.01 per share (the "Common Stock"); and PLM
International, Inc., a Delaware corporation (the "Selling Shareholder") proposes
to sell to the Underwriters an aggregate of [___] shares of Common Stock. The
[___] shares of Common Stock to be sold by the Company and the [___] shares of
Common Stock to be sold by the Selling Shareholder are collectively called the
"Firm Common Shares". In addition, the Company has granted to the Underwriters
an option to purchase up to an additional [___] shares (the "Optional Common
Shares") of Common Stock, as provided in Section 2. The Firm Common Shares and,
if and to the extent such option is exercised, the Optional Common Shares are
collectively called the "Common Shares". Legg Mason Wood Walker, Incorporated
and Furman Selz LLC have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the
<PAGE>
form first used by the Underwriters to confirm sales of the Common Shares, is
called the "Prospectus"; provided, however, if the Company has, with the consent
of Legg Mason Wood Walker, Incorporated, elected to rely upon Rule 434 under the
Securities Act, the term "Prospectus" shall mean the Company's prospectus
subject to completion (each, a "preliminary prospectus") dated [___________],
1998 (such preliminary prospectus is called the "Rule 434 preliminary
prospectus"), together with the applicable term sheet (the "Term Sheet")
prepared and filed by the Company with the Commission under Rules 434 and 424(b)
under the Securities Act and all references in this Agreement to the date of the
Prospectus shall mean the date of the Term Sheet. All references in this
Agreement to the Registration Statement, the Rule 462(b) Registration Statement,
a preliminary prospectus, the Prospectus or the Term Sheet, or any amendments or
supplements to any of the foregoing, shall include any copy thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
The Company and the Selling Shareholder hereby confirm their respective
agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDER. The Company and the Selling Shareholder, jointly and severally,
hereby represent, warrant and covenant to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the Commission
for additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been
instituted or are pending or, to the best knowledge of the Company, are
contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in all
material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common
Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective and at all subsequent times, complied and will comply in all
material respects with the Securities Act and did not and will not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading. The Prospectus, as amended or supplemented, as of its date and at
all subsequent times, did not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the
2
<PAGE>
circumstances under which they were made, not misleading. The representations
and warranties set forth in the two immediately preceding sentences do not
apply to statements in or omissions from the Registration Statement, any Rule
462(b) Registration Statement, or any post-effective amendment thereto, or the
Prospectus, or any amendments or supplements thereto, made in reliance upon
and in conformity with information relating to any Underwriter furnished to
the Company in writing by the Representatives expressly for use therein. There
are no contracts or other documents required to be described in the Prospectus
or to be filed as exhibits to the Registration Statement which have not been
described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to each Representative one complete manually signed copy of the
Registration Statement and of each consent and certificate of experts filed as
a part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as each Representative has
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company and Selling
Shareholder. Neither the Company nor the Selling Shareholder has distributed
and neither will distribute, prior to the later of the Second Closing Date (as
defined below) and the completion of the Underwriters' distribution of the
Common Shares, any offering material in connection with the offering and sale
of the Common Shares other than a preliminary prospectus, the Prospectus or
the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have
been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or
any development that
3
<PAGE>
could reasonably be expected to result in a material adverse change, in the
condition, financial or otherwise, or in the earnings, business, operations or
prospects, whether or not arising from transactions in the ordinary course of
business, of the Company and its subsidiaries, considered as one entity (any
such change is called a "Material Adverse Change"); (ii) neither the Company
nor any of its subsidiaries has incurred any material liability or obligation,
indirect, direct or contingent, not in the ordinary course of business nor
entered into any material transaction or agreement not in the ordinary course
of business; and (iii) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of capital stock or
repurchase or redemption by the Company of any class of capital stock.
(h) Independent Accountants. KPMG Peat Marwick LLP, who have expressed
their opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) and supporting schedules
filed with the Commission as a part of the Registration Statement and included
in the Prospectus, are independent public or certified public accountants as
required by the Securities Act
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results
of its operations and cash flows for the periods specified. The supporting
schedules included in the Registration Statement present fairly the
information required to be stated therein. Such financial statements and
supporting schedules have been prepared in conformity with generally accepted
accounting principles as applied in the United States applied on a consistent
basis throughout the periods involved, except as may be expressly stated in
the related notes thereto. No other financial statements or supporting
schedules are required to be included in the Registration Statement. The
financial data set forth in the Prospectus under the captions "Prospectus
Summary--Summary Consolidated Financial and Operating Data", "Selected
Consolidated Financial and Operating Data" and "Description of Capital Stock"
fairly present the information set forth therein on a basis consistent with
that of the audited financial statements contained in the Registration
Statement.
(j) Incorporation and Good Standing of the Company. The Company does
not own, directly or indirectly, any corporation, association or other entity
other than the subsidiaries listed in Exhibit 21.1 to the Registration
Statement. The Company owns all of the outstanding capital stock of its
subsidiaries free and clear of all claims, liens, charges and encumbrances.
The Company and each of its subsidiaries have been duly incorporated and are
validly existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation and have corporate power and
authority to own, lease and operate their respective properties and to conduct
their respective businesses as described in the Prospectus and to enter into
and perform its obligations under this Agreement. The Company and each of its
subsidiaries are duly qualified as foreign corporations to transact business
and are in good standing in each jurisdiction in which such qualification is
required, whether by
4
<PAGE>
reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a Material
Adverse Change.
(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Description of Capital Stock" (other than for
subsequent issuances, if any, pursuant to employee benefit plans described in
the Prospectus or upon exercise of outstanding options or warrants described
in the Prospectus). The Common Stock (including the Common Shares) conforms
in all material respects to the description thereof contained in the
Prospectus. All of the issued and outstanding shares of Common Stock
(including the shares of Common Stock owned by the Selling Shareholder) have
been duly authorized and validly issued, are fully paid and nonassessable and
have been issued in compliance with federal and state securities laws. None
of the outstanding shares of Common Stock were issued in violation of any
preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities of the Company. There are no authorized
or outstanding options, warrants, preemptive rights, rights of first refusal
or other rights to purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company other than
those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common Shares have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(m) Non-Contravention of Existing Instruments; No Further Authorizations
or Approvals Required. Neither the Company nor any of its subsidiaries are in
violation of their respective charter or by-laws or are in default (or, with
the giving of notice or lapse of time, would be in default) (a "Default")
under any indenture, mortgage, loan or credit agreement, note, contract,
franchise, lease or other instrument to which the Company or any of its
subsidiaries are a party or by which any of them may be bound (including,
without limitation, the Company's warehouse credit facility with
), or to which any of the property or assets of the Company or any of its
subsidiaries is subject (each, an "Existing Instrument"), except for such
Defaults as would not, individually or in the aggregate, result in a Material
Adverse Change. The Company's execution, delivery and performance of this
Agreement and consummation of the transactions contemplated hereby and by the
Prospectus (i) have been duly authorized by all necessary corporate action and
will not result in any violation of the provisions of the charter or by-laws
of the Company, (ii) will not conflict with or constitute a breach of, or
Default or a Debt Repayment Triggering Event (as defined below) under, or
result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or any of its subsidiaries pursuant to,
or require the consent of any other party to, any Existing Instrument, except
for such conflicts, breaches, Defaults, liens, charges or encumbrances as
would not,
5
<PAGE>
individually or in the aggregate, result in a Material Adverse Change and
(iii) will not result in any violation of any law, administrative regulation
or administrative or court decree applicable to the Company or any of its
subsidiaries. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or regulatory
authority or agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been obtained
or made by the Company and are in full force and effect under the Securities
Act, applicable state securities or blue sky laws and from the National
Association of Securities Dealers, Inc. (the "NASD"). As used herein, a "Debt
Repayment Triggering Event" means any event or condition which gives, or with
the giving of notice or lapse of time would give, the holder of any note,
debenture or other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or repayment
of all or a portion of such indebtedness by the Company or any of its
subsidiaries.
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
knowledge of the Company or the Selling Shareholder (as the case may be),
threatened (i) against or affecting the Company or any of its subsidiaries,
(ii) which has as the subject thereof any officer or director of, or property
owned or leased by, the Company or any of its subsidiaries or (iii) relating
to environmental or discrimination matters, where in any such case (A) there
is a reasonable possibility that such action, suit or proceeding might be
determined adversely to the Company or any of its subsidiaries and (B) any
such action, suit or proceeding, if so determined adversely, would reasonably
be expected to result in a Material Adverse Change or adversely affect the
consummation of the transactions contemplated by this Agreement. No material
labor dispute with the employees of the Company or any of its subsidiaries
exists or, to the best of the knowledge of the Company or the Selling
Shareholder (as the case may be), is threatened or imminent.
(o) Intellectual Property Rights. The Company and each of its
subsidiaries own or possess sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals, trade secrets and other similar rights
(collectively, "Intellectual Property Rights") reasonably necessary to conduct
their respective businesses as now conducted; and the expected expiration of
any of such Intellectual Property Rights would not result in a Material
Adverse Change. Neither the Company nor any of its subsidiaries have received
any notice of infringement or conflict with asserted Intellectual Property
Rights of others, which infringement or conflict, if the subject of an
unfavorable decision, would result in a Material Adverse Change.
(p) All Necessary Permits, etc. The Company and each of its
subsidiaries possess such valid and current certificates, authorizations or
permits issued by the appropriate state, federal or foreign regulatory
agencies or bodies necessary to conduct their respective businesses, and
neither the Company nor any of its subsidiaries have received any notice of
proceedings relating to the revocation or modification of, or non-compliance
with, any such certificate, authorization or permit
6
<PAGE>
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could result in a Material Adverse Change.
(q) Title to Properties. The Company has good and marketable title to
all the properties and assets reflected as owned in the financial statements
referred to in Section 1(A) (i) above (or elsewhere in the Prospectus), in
each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such property
by the Company or its subsidiaries. The real property, improvements, equipment
and personal property held under lease by the Company and its subsidiaries are
held under valid and enforceable leases, with such exceptions as are not
material and do not materially interfere with the use made or proposed to be
made of such real property, improvements, equipment or personal property by
the Company or its subsidiaries.
(r) Tax Law Compliance. The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes required to be paid by each of them and, if due and payable,
any related or similar assessment, fine or penalty levied against any of them.
The Company and its subsidiaries have made adequate charges, accruals and
reserves in the applicable financial statements referred to in Section 1 (A)
(i) above in respect of all federal, state and foreign income and franchise
taxes for all periods as to which the tax liability of the Company or any of
its subsidiaries has not been finally determined.
(s) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt
of payment for the Common Shares will not be, an "investment company" within
the meaning of Investment Company Act and will conduct its business in a
manner so that it will not become subject to the Investment Company Act.
(t) Insurance. The Company and each of its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their respective businesses including, but
not limited to, policies covering real and personal property owned or leased
by the Company or any of its subsidiaries against theft, damage, destruction,
acts of vandalism and earthquakes. The Company has no reason to believe that
it will not be able (i) to renew its existing insurance coverage as and when
such policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business as now
conducted and at a cost that would not result in a Material Adverse Change.
The Company has not been denied any insurance coverage which it has sought or
for which it has applied.
(u) No Price Stabilization or Manipulation. Neither the Company nor the
Selling Shareholder have taken and neither will take, directly or indirectly,
any action
7
<PAGE>
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Common Shares.
(v) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any other person required
to be described in the Prospectus which have not been described as required.
(w) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the knowledge of the Company
or the Selling Shareholder (as the case may be), any employee or agent of the
Company or any of its subsidiaries, has made any contribution or other payment
to any official of, or candidate for, any federal, state or foreign office in
violation of any law or of the character required to be disclosed in the
Prospectus.
(x) Company's Accounting System. The Company and each of its
subsidiaries maintain systems of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles as applied in the
United States and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(y) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries are not in violation of any
federal, state, local or foreign law or regulation relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum and petroleum products (collectively, "Materials of Environmental
Concern"), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environment Concern (collectively, "Environmental Laws"), which violation
includes, but is not limited to, noncompliance with any permits or other
governmental authorizations required for the operation of the respective
businesses of the Company or any of its subsidiaries under applicable
Environmental Laws, or noncompliance with the terms and conditions thereof,
nor has the Company or any of its subsidiaries received any written
communication, whether from a governmental authority, citizens group, employee
or otherwise, that alleges that the Company or any of its subsidiaries is in
violation of any Environmental Law; (ii) there is no claim, action or cause of
action filed with a court or governmental authority, no investigation with
respect to which the Company or any of its subsidiaries has received written
notice, and no written
8
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notice by any person or entity alleging potential liability for investigatory
costs, cleanup costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or penalties arising out
of, based on or resulting from the presence, or release into the environment,
of any Material of Environmental Concern at any location owned, leased or
operated by the Company or any of its subsidiaries, now or in the past
(collectively, "Environmental Claims"), pending or, to the best of the
knowledge of the Company or the Selling Shareholder (as the case may be),
threatened against the Company or any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries have retained or
assumed either contractually or by operation of law; and (iii) to the best of
the knowledge of the Company or the Selling Shareholder (as the case may be),
there are no past or present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Material of Environmental Concern, that
reasonably could result in a violation of any Environmental Law or form the
basis of a potential Environmental Claim against the Company or any of its
subsidiaries or against any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries has retained or
assumed either contractually or by operation of law.
(z) Periodic Review of Costs of Environmental Compliance. In the
ordinary course of its business, the Company conducts a periodic review of the
effect of Environmental Laws on the business, operations and properties of the
Company and its subsidiaries, in the course of which it identifies and
evaluates associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of properties
or compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review and the amount of its established
reserves, the Company has reasonably concluded that such associated costs and
liabilities would not, individually or in the aggregate, result in a Material
Adverse Change.
(aa) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained
by the Company or its subsidiaries, or their respective "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company, any member of any group of
organizations described in Sections 414(b),(c),(m) or (o) of the Internal
Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such
subsidiary is a member. No "reportable event" (as defined under ERISA) has
occurred or is reasonably expected to occur with respect to any "employee
benefit plan" established or maintained by the Company or any of its
subsidiaries or any of their respective ERISA Affiliates. No "employee
benefit plan" established or maintained by the Company or any of its
subsidiaries or any of their respective ERISA Affiliates, if such "employee
benefit plan" were terminated, would have any "amount of unfunded benefit
liabilities" (as defined under ERISA). Neither
9
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the Company nor any of its subsidiaries nor any of their respective ERISA
Affiliates have incurred or reasonably expect to incur any liability under (i)
Title IV of ERISA with respect to termination of, or withdrawal from, any
"employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code.
Each "employee benefit plan" established or maintained by the Company or any
of its subsidiaries or any of their respective ERISA Affiliates that is
intended to be qualified under Section 401(a) of the Code is so qualified and
nothing has occurred, whether by action or failure to act, which would cause
the loss of such qualification.
(bb) Year 2000 Compliance. All computer hardware and software and
related materials currently used by the Company or its subsidiaries, whether
owned by the Company, the Selling Shareholder or others, are Year 2000
compliant. Neither the failure by the Company, its subsidiaries or the
vendors of the Company or its subsidiaries to address the Year 2000 issue, nor
the impact of any such failure, nor any costs required to address the Year
2000 issue, will result in a Material Adverse Change.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER. The Selling
Shareholder represents, warrants and covenants to each Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of the Selling Shareholder
and is a valid and binding agreement of the Selling Shareholder, enforceable
in accordance with its terms, except as rights to indemnification hereunder
may be limited by applicable law and except as the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by the Selling Shareholder and ________, as custodian
(the "Custodian"), relating to the deposit of the Common Shares to be sold by
the Selling Shareholder (the "Custody "Agreement") and (ii) Power of Attorney
appointing certain individuals named therein as the Selling Shareholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth
therein relating to the transactions contemplated hereby and by the Prospectus
(the "Power of Attorney"), of the Selling Shareholder has been duly
authorized, executed and delivered by the Selling Shareholder and is a valid
and binding agreement of the Selling Shareholder, enforceable in accordance
with its terms, except as rights to indemnification thereunder may be limited
by applicable law and except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
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(c) Title to Common Shares to be Sold; All Authorizations Obtained. The
Selling Shareholder has, and on the First Closing Date and the Second Closing
Date (as defined below) will have, good and valid title to all of the Common
Shares which may be sold by the Selling Shareholder pursuant to this Agreement
on such date and the legal right and power, and all authorizations and
approvals required by law and under its charter or by-laws, partnership
agreement, trust agreement or other organizational documents to enter into
this Agreement and its Custody Agreement and Power of Attorney, to sell,
transfer and deliver all of the Common Shares which may be sold by the Selling
Shareholder pursuant to this Agreement and to comply with its other
obligations hereunder and thereunder.
(d) Delivery of the Common Shares to be Sold. Delivery of the Common
Shares which are sold by the Selling Shareholder pursuant to this Agreement
will pass good and valid title to such Common Shares, free and clear of any
security interest, mortgage, pledge, lien, encumbrance or other claim.
(e) Non-Contravention; No Further Authorizations or Approvals Required.
The execution and delivery by the Selling Shareholder of, and the performance
by the Selling Shareholder of its obligations under, this Agreement, the
Custody Agreement and the Power of Attorney will not contravene or conflict
with, result in a breach of, or constitute a Default under, or require the
consent of any other party to, the charter or by-laws, partnership agreement,
trust agreement or other organizational documents of the Selling Shareholder
or any other agreement or instrument to which the Selling Shareholder is a
party or by which it is bound or under which it is entitled to any right or
benefit, any provision of applicable law or any judgment, order, decree or
regulation applicable to the Selling Shareholder of any court, regulatory
body, administrative agency, governmental body or arbitrator having
jurisdiction over the Selling Shareholder. No consent, approval,
authorization or other order of, or registration or filing with, any court or
other governmental authority or agency, is required for the consummation by
the Selling Shareholder of the transactions contemplated in this Agreement,
except such as have been obtained or made and are in full force and effect
under the Securities Act, applicable state securities or blue sky laws and
from the NASD.
(f) No Registration or Other Similar Rights. The Selling Shareholder
does not have any registration or other similar rights to have any equity or
debt securities registered for sale by the Company under the Registration
Statement or included in the offering contemplated by this Agreement, except
for such rights as are described in the Prospectus under "Shares Eligible for
Future Sale".
(g) No Further Consents, etc. No consent, approval or waiver is
required under any instrument or agreement to which the Selling Shareholder is
a party or by which it is bound or under which it is entitled to any right or
benefit, in connection with the offering, sale or purchase by the Underwriters
of any of the Common Shares which may be sold by the Selling Shareholder under
this Agreement or the consummation by the Selling Shareholder of any of the
other transactions contemplated hereby.
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(h) Disclosure Made by Selling Shareholder in the Prospectus. All
information furnished by or on behalf of the Selling Shareholder in writing
expressly for use in the Registration Statement and Prospectus is, and on the
First Closing Date and the Second Closing Date will be, true, correct, and
complete in all material respects, and does not, and on the First Closing Date
and the Second Closing Date will not, contain any untrue statement of a
material fact or omit to state any material fact necessary to make such
information not misleading. The Selling Shareholder confirms as accurate the
number of shares of Common Stock set forth opposite the Selling Shareholder's
name in the Prospectus under the caption "Principal and Selling Shareholder"
(both prior to and after giving effect to the sale of the Common Shares).
(i) No Price Stabilization or Manipulation. The Selling Shareholder has
not taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
Any certificate signed by or on behalf of the Selling Shareholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Selling Shareholder to each
Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(a) The Firm Common Shares. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate of
[___] Firm Common Shares and (ii) the Selling Shareholder agrees to sell to
the several Underwriters an aggregate of [___] Firm Common Shares. On the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company
and the Selling Shareholder the respective number of Firm Common Shares set
forth opposite their names on Schedule A. The purchase price per Firm Common
----------
Share to be paid by the several Underwriters to the Company and the Selling
Shareholder shall be $[___] per share.
(b) The First Closing Date. Delivery of certificates for the Firm
Common Shares to be purchased by the Underwriters and payment therefor shall
be made at the offices of Legg Mason Wood Walker, Incorporated, 1747
Pennsylvania Avenue, N.W., Washington, D.C. 20006 (or such other place as may
be agreed to by the Company and the Representatives) at 9:00 a.m. Washington
D.C. time, on [_____], 1998, or such other time and date not later than 10:30
a.m. Washington D.C. time, on [_____], 1998, as the Representatives shall
designate by notice to the Company (the time and date of such closing are
called the "First Closing Date"). The Company and the Selling Shareholder
hereby acknowledge that circumstances under which the Representatives may
provide notice to postpone the First Closing Date as originally
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scheduled include, but are in no way limited to, any determination by the
Company, the Selling Shareholder or the Representatives to recirculate to the
public copies of an amended or supplemented Prospectus or a delay as
contemplated by the provisions of Section 11.
(c) The Optional Common Shares; the Second Closing Date. In addition,
on the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set forth,
the Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of [___] Optional Common Shares
from the Company at the purchase price per share to be paid by the
Underwriters for the Firm Common Shares. The option granted hereunder is for
use by the Underwriters solely in covering any over-allotments in connection
with the sale and distribution of the Firm Common Shares. The option granted
hereunder may be exercised at any time (but not more than once) upon notice by
the Representatives to the Company, which notice may be given at any time
within 30 days from the date of this Agreement. Such notice shall set forth
(i) the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, (ii) the names and denominations in
which the certificates for the Optional Common Shares are to be registered and
(iii) the time, date and place at which such certificates will be delivered
(which time and date may be simultaneous with, but not earlier than, the First
Closing Date; and in such case the term "First Closing Date" shall refer to
the time and date of delivery of certificates for the Firm Common Shares and
the Optional Common Shares). Such time and date of delivery, if subsequent to
the First Closing Date, is called the "Second Closing Date" and shall be
determined by the Representatives and shall not be earlier than three nor
later than five full business days after delivery of such notice of exercise.
If any Optional Common Shares are to be purchased, each Underwriter agrees,
severally and not jointly, to purchase the number of Optional Common Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Optional Common Shares to be purchased as the number of Firm Common
Shares set forth on Schedule A opposite the name of such Underwriter bears to
----------
the total number of Firm Common Shares. The Representatives may cancel the
option at any time prior to its expiration by giving written notice of such
cancellation to the Company.
(d) Public Offering of the Common Shares. The Representatives hereby
advise the Company and the Selling Shareholder that the Underwriters intend to
offer for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed
and the Registration Statement has been declared effective as the
Representatives, in their sole judgment, have determined is advisable and
practicable.
(e) Payment for the Common Shares. Payment for the Common Shares to be
sold by the Company shall be made at the First Closing Date (and, if
applicable, at the Second Closing Date) by wire transfer of immediately
available funds to the order of the Company. Payment for the Common Shares to
be sold by the Selling Shareholder
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shall be made at the First Closing Date (and, if applicable, at the Second
Closing Date) by wire transfer of immediately available funds to the order of
the Custodian.
It is understood that the Representatives have been authorized, for
their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. Legg Mason Wood Walker, Incorporated, individually and not as
the Representative of the Underwriters, may (but shall not be obligated to)
make payment for any Common Shares to be purchased by any Underwriter whose
funds shall not have been received by the Representative by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any
of its obligations under this Agreement.
The Selling Shareholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Common Shares to be sold by the Selling Shareholder to
the several Underwriters, or otherwise in connection with the performance of
the Selling Shareholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to
the Selling Shareholder hereunder and to hold such amounts for the account of
the Selling Shareholder with the Custodian under the Custody Agreement.
(f) Delivery of the Common Shares. The Company and the Selling
Shareholder shall deliver, or cause to be delivered, to the Representatives
for the accounts of the several Underwriters certificates for the Firm Common
Shares to be sold by them at the First Closing Date, against the irrevocable
release of a wire transfer of immediately available funds for the amount of
the purchase price therefor. The Company shall also deliver, or cause to be
delivered, to the Representatives for the accounts of the several
Underwriters, certificates for the Optional Common Shares the Underwriters
have agreed to purchase at the First Closing Date or the Second Closing Date,
as the case may be, against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price therefor.
The certificates for the Common Shares shall be in definitive form and
registered in such names and denominations as the Representatives shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Representative may designate. Time shall be of the essence, and delivery at
the time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
p.m. on the second business day following the date the Common Shares are
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered copies of the Prospectus in such quantities and at
such places as the Representatives shall request.
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SECTION 3. ADDITIONAL COVENANTS.
A. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) Representative's Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus, the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing of
any post-effective amendment to the Registration Statement or any amendment or
supplement to any preliminary prospectus or the Prospectus, (iii) of the time
and date that any post-effective amendment to the Registration Statement
becomes effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any post-
effective amendment thereto or of any order preventing or suspending the use
of any preliminary prospectus or the Prospectus, or of any proceedings to
remove, suspend or terminate from listing or quotation the Common Stock from
any securities exchange upon which the it is listed for trading or included or
designated for quotation, or of the threatening or initiation of any
proceedings for any of such purposes. If the Commission shall enter any such
stop order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. Additionally, the
Company agrees that it shall comply with the provisions of Rules 424(b), 430A
and 434, as applicable, under the Securities Act and will use its reasonable
efforts to confirm that any filings made by the Company under such Rule 424(b)
were received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall occur
or condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if in the opinion of the Representatives or counsel for the Underwriters it
is otherwise necessary to amend or supplement the Prospectus to comply with
law, the Company agrees to promptly prepare (subject to Section 3(A)(a)
hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to
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the Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the Prospectus
is delivered to a purchaser, be misleading or so that the Prospectus, as
amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the or state securities or blue sky laws or Canadian provincial securities
laws of those jurisdictions designated by the Representatives, shall comply
with such laws and shall continue such qualifications, registrations and
exemptions in effect so long as required for the distribution of the Common
Shares. The Company shall not be required to qualify as a foreign corporation
or to take any action that would subject it to general service of process in
any such jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. The Company will advise the
Representatives promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares for
offering, sale or trading in any jurisdiction or any initiation or threat of
any proceeding for any such purpose, and in the event of the issuance of any
order suspending such qualification, registration or exemption, the Company
shall use its best efforts to obtain the withdrawal thereof at the earliest
possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Common Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, but in any event not
later than 45 days after the end of the Company's first quarter ending after
one year following the "effective date of the Registration Statement" (as
defined in Rule 158(a) of the Rules and Regulations), the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering a period of twelve
consecutive months beginning after the effective date of the Registration
Statement that satisfies the provisions of Section 11(a) of the Securities
Act.
(i) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under
the Exchange
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Act. Additionally, the Company shall file with the Commission all reports on
Form SR as may be required under Rule 463 under the Securities Act.
(j) Agreement Not To Offer or Sell Additional Securities. During the
period of 180 days following the date of the Prospectus, the Company will not,
without the prior written consent of Legg Mason Wood Walker, Incorporated
(which consent may be withheld at the sole discretion of Legg Mason Wood
Walker, Incorporated), directly or indirectly, sell, offer, contract or grant
any option to sell, pledge, transfer or establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act, or
otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares of
Common Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of
Common Stock (other than as contemplated by this Agreement with respect to the
Common Shares); provided, however, that the Company may issue shares of its
Common Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or other stock
plan or arrangement described in the Prospectus, but only if the holders of
such shares, options, or shares issued upon exercise of such options, agree in
writing not to sell, offer, dispose of or otherwise transfer any such shares
or options during such 180 day period without the prior written consent of
Legg Mason Wood Walker, Incorporated (which consent may be withheld at the
sole discretion of Legg Mason Wood Walker, Incorporated).
(k) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives at Legg Mason
Wood Walker, Incorporated, 1747 Pennsylvania Avenue, N.W., Washington, D.C.
20006 Attention: [ ] and Furman Selz LLC, 230 Park Avenue,
New York, New York 10169 Attention: [ ]: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of
such fiscal year and statements of income, stockholders' equity and cash flows
for the year then ended and the opinion thereon of the Company's independent
public or certified public accountants; (ii) as soon as practicable after the
filing thereof, copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, the NASD or any securities exchange;
and (iii) as soon as available, copies of any report or communication of the
Company mailed generally to holders of its capital stock.
B. COVENANTS OF THE SELLING SHAREHOLDER. The Selling Shareholder
further covenants and agrees with each Underwriter:
(a) To comply with the terms and provisions of the "lock-up
agreement" delivered by the Selling Shareholder pursuant to Section 5(k).
(b) Delivery of Forms W-8 and W-9. To deliver to the Representatives
prior to the First Closing Date a properly completed and executed United
States
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Treasury Department Form W-8 (if the Selling Shareholder is a non-United
States person) or Form W-9 (if the Selling Shareholder is a United States
person).
(c) To cause the Company to comply with the covenants contained in
Section 3.A. above.
Legg Mason Wood Walker, Incorporated, on behalf of the several
Underwriters, may, in its sole discretion, waive in writing the performance by
the Company or the Selling Shareholder of any one or more of the foregoing
covenants or extend the time for their performance.
SECTION 4. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company and the Selling Shareholder, jointly and severally,
agree to pay all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limitation (i) all expenses
incident to the issuance and delivery of the Common Shares (including all
printing and engraving costs), (ii) all fees and expenses of the registrar and
transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common Shares
to the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified public accountants and other advisors, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and the Prospectus, and all amendments and
supplements thereto, and this Agreement, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the state securities or blue sky laws or the provincial securities laws of
Canada, and, if requested by the Representatives, preparing and printing a "Blue
Sky Survey" or memorandum, and any supplements thereto, advising the
Underwriters of such qualifications, registrations and exemptions, (vii) the
filing fees incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with listing the Common Stock on
the Nasdaq National Market, and (ix) all other fees, costs and expenses referred
to in Item 13 of Part II of the Registration Statement. Except as provided in
this Section 4, Section 6, Section 8 and Section 9 hereof, the Underwriters
shall pay their own expenses, including the fees and disbursements of their
counsel (excluding those relating to qualification, registration or exemption
under the Blue Sky laws and the Blue Sky memorandum referred to above).
The Selling Shareholder and Company further agree, jointly and
severally, with each Underwriter to pay (directly or by reimbursement) all fees
and expenses incident to the performance of the Selling Shareholder's
obligations under this Agreement which are not otherwise specifically provided
for herein, including but not limited to (i) fees and expenses of counsel and
other advisors for the Selling Shareholder,
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(ii) fees and expenses of the Custodian and (iii) expenses and taxes incident to
the sale and delivery of the Common Shares to be sold by the Selling Shareholder
to the Underwriters hereunder (which taxes, if any, may be deducted by the
Custodian under the provisions of Section 2 of this Agreement).
This Section 4 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the Company,
on the one hand, and the Selling Shareholder, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Shareholder set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Shareholder
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the Representatives
shall have received from KPMG Peat Marwick LLP, independent public or
certified public accountants for the Company, a letter dated the date hereof
addressed to the Underwriters, in form and substance satisfactory to the
Representative, containing statements and information of the type ordinarily
included in accountant's "comfort letters" to underwriters, delivered
according to Statement of Auditing Standards No. 72 (or any successor
bulletin), with respect to the audited and unaudited financial statements and
certain financial information contained in the Registration Statement and the
Prospectus (and the Representatives shall have received an additional [___]
conformed copies of such accountants' letter for each of the several
Underwriters).
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the Commission
(including the information required by Rule 430A under the Securities Act)
in the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective amendment
to the Registration Statement containing the information required by such
Rule 430A, and such post-effective amendment shall have become effective;
or, if the Company elected to rely upon Rule 434 under the Securities Act
and obtained the Representative's consent thereto, the Company shall have
filed a Term Sheet with the Commission in the manner and within the time
period required by such Rule 424(b);
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(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement, shall be in effect and no
proceedings for such purpose shall have been instituted or threatened by
the Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For the period
from and after the date of this Agreement and prior to the First Closing Date
and, with respect to the Optional Common Shares, the Second Closing Date:
(i) in the judgment of the Representatives there shall not have
occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of the Company by
any "nationally recognized statistical rating organization" as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received the
favorable opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Company, dated as of such Closing Date, the form of which is attached as
Exhibit A (and the Representatives shall have received an additional [___]
---------
conformed copies of such counsel's legal opinion for each of the several
Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Mintz, Levin, Cohn Ferris, Glovsky and
Popeo, P.C., counsel for the Underwriters, dated as of such Closing Date, with
respect to the matters set forth in paragraphs (i), (v) (with respect to
subparagraph (i) only), (vi), (vii), (viii) (ix) and (xi) (with respect to the
captions "Description of Capital Stock" and "Underwriting" under subparagraph
(i) only), and the next-to-last paragraph of Exhibit A (and the
---------
Representatives shall have received an additional [___] conformed copies of
such counsel's legal opinion for each of the several Underwriters).
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsections (b)(ii) and (c)(ii) of this Section 5, and further to the
effect that:
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(i) for the period from and after the date of this Agreement and prior
to such Closing Date, there has not occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of the Company set
forth in Section 1(A) of this Agreement are true and correct with the same
force and effect as though expressly made on and as of such Closing Date;
and
(iii) the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to
such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received from KPMG
Peat Marwick LLP, independent public or certified public accountants for
the Company, a letter dated such date, in form and substance satisfactory
to the Representatives, to the effect that they reaffirm the statements
made in the letter furnished by them pursuant to subsection (a) of this
Section 5, except that the specified date referred to therein for the
carrying out of procedures shall be no more than three business days
prior to the First Closing Date or Second Closing Date, as the case may
be (and the Representatives shall have received an additional [___]
conformed copies of such accountants' letter for each of the several
Underwriters).
(h) Opinion of Counsel for the Selling Shareholder. On the First
Closing Date the Representatives shall have received the favorable
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Selling Shareholder, dated as of such Closing Date, the form of which is
attached as Exhibit B (and the Representatives shall have received an
---------
additional [___] conformed copies of such counsel's legal opinion for
each of the several Underwriters).
(i) Selling Shareholder's Certificate. On the First Closing Date the
Representative shall received a written certificate executed by the
Attorney-in-Fact of the Selling Shareholder, dated as of such Closing
Date, to the effect that:
(i) the representations, warranties and covenants of the Selling
Shareholder set forth in Section 1(B) of this Agreement are true and
correct with the same force and effect as though expressly made by the
Selling Shareholder on and as of such Closing Date; and
(ii) the Selling Shareholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(j) Selling Shareholder's Documents. On the date hereof, the Company and
the Selling Shareholder shall have furnished for review by the
Representatives copies of the Powers of Attorney and Custody Agreements
executed by the Selling Shareholder and such further information,
certificates and documents as the Representatives may reasonably
request.
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(k) Lock-Up Agreements. On the date hereof, the Company shall have
furnished to the Representatives an agreement in the form of Exhibit C
---------
attached hereto from each director, officer and each beneficial owner of
Common Stock (as defined and determined according to Rule 13d-3 under the
Exchange Act), and such agreement shall be in full force and effect on each of
the First Closing Date and the Second Closing Date. Additionally, on the date
hereof, the Company shall have furnished to the Representatives an agreement
in the form of Exhibit D attached hereto from the Selling Shareholder, and
---------
such agreement shall be in full force and effect on each of the First Closing
Date and the Second Closing Date.
(l) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Common Shares as contemplated herein, or in order to
evidence the accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Shareholder at any time
on or prior to the First Closing Date and, with respect to the Optional Common
Shares, at any time prior to the Second Closing Date, which termination shall be
without liability on the part of any party to any other party, except that
Section 4, Section 6, Section 8 and Section 9 shall at all times be effective
and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this
Agreement is terminated by the Representative pursuant to Section 5, Section 7,
Section 10 or Section 11 or Section 17, or if the sale to the Underwriters of
the Common Shares on the First Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Shareholder to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Common Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, facsimile and telephone
charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall not
become effective until the later of (i) the execution of this Agreement by the
parties hereto and (ii) notification by the Commission to the Company and the
Representatives of the effectiveness of the Registration Statement under the
Securities Act.
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Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company or the Selling
Shareholder to any Underwriter, except that the Company and the Selling
Shareholder shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter
to the Company or the Selling Shareholder, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company and the Selling
Shareholder, jointly and severally, agree to indemnify and hold harmless each
Underwriter, its officers and employees, and each person, if any, who controls
any Underwriter within the meaning of the Securities Act and the Exchange Act
against any loss, claim, damage, liability or expense, as incurred, to which
such Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based
(i) upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or any amendment thereto, including
any information deemed to be a part thereof pursuant to Rule 430A or Rule 434
under the Securities Act, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; or (iii) in whole or in part upon any
inaccuracy in the representations and warranties of the Company or the Selling
Shareholder contained herein; or (iv) in whole or in part upon any failure of
the Company or the Selling Shareholder to perform their respective obligations
hereunder or under law; or (v) any act or failure to act or any alleged act or
failure to act by any Underwriter in connection with, or relating in any
manner to, the Common Stock or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon any matter covered by clause (i) or (ii)
above, provided that the Company shall not be liable under this clause (v) to
the extent that a court of competent jurisdiction shall have determined by a
final judgment that such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act undertaken or omitted to be
taken by such Underwriter through its bad faith or willful misconduct; and to
reimburse each Underwriter and each such controlling person for any and all
expenses (including the fees and disbursements of counsel chosen by Legg Mason
Wood Walker, Incorporated) as such expenses are reasonably incurred by such
Underwriter
23
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or such controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action; provided, however, that the foregoing indemnity agreement
shall not apply to any loss, claim, damage, liability or expense to the
extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company and the Selling Shareholder by the Representatives expressly for use
in the Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto). The indemnity agreement set forth in
this Section 8(a) shall be in addition to any liabilities that the Company and
the Selling Shareholder may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Shareholder and each person, if any, who
controls the Company or any Selling Shareholder within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage, liability
or expense, as incurred, to which the Company, or any such director, officer,
Selling Shareholder or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated below)
arises out of or is based upon any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or
arises out of or is based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in
reliance upon and in conformity with written information furnished to the
Company and the Selling Shareholder by the Representative expressly for use
therein; and to reimburse the Company, or any such director, officer , Selling
Shareholder or controlling person for any legal and other expense reasonably
incurred by the Company, or any such director, officer, Selling Shareholder or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. The Company and the Selling Shareholder, hereby acknowledges that the
only information that the Underwriters have furnished to the Company and the
Selling Shareholder expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) are the statements set forth (A) as the last paragraph on the inside
front cover page of the Prospectus concerning stabilization by the
Underwriters and (B) in the table in the first paragraph and as the second and
seventh paragraphs under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such
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<PAGE>
statements are correct. The indemnity agreement set forth in this Section 8(b)
shall be in addition to any liabilities that each Underwriter may otherwise
have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8,
notify the indemnifying party in writing of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section 8 or to
the extent it is not prejudiced as a proximate result of such failure. In
case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it shall elect, jointly with all other indemnifying parties
similarly notified, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that a conflict may arise
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of such indemnifying party's
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with local counsel),
approved by the indemnifying party (Legg Mason Wood Walker, Incorporated in
the case of Section 8(b) and Section 9), representing the indemnified parties
who are parties to such action) or (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall be at
the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
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<PAGE>
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by Section 8(c) hereof, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed
the indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement, compromise or consent to the
entry of judgment in any pending or threatened action, suit or proceeding in
respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION. If the indemnification provided for in
Section 8 is for any reason held to be unavailable to or otherwise insufficient
to hold harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholder, on the
one hand, and the Underwriters, on the other hand, from the offering of the
Common Shares pursuant to this Agreement or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Shareholder, on
the one hand, and the Underwriters, on the other hand, in connection with the
statements or omissions or inaccuracies in the representations and warranties
herein which resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Shareholder, on the one hand, and the
Underwriters, on the other hand, in connection with the offering of the Common
Shares pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Common Shares
pursuant to this Agreement (before deducting expenses) received by the Company
and the Selling Shareholder, and the total underwriting discount received by the
Underwriters, in each case as set forth on the front cover page of the
Prospectus (or, if Rule 434 under the Securities Act is used, the corresponding
location on the Term Sheet) bear to the aggregate initial public offering price
of the Common Shares as set forth on such cover. The relative fault of the
Company and the Selling Shareholder, on the one hand, and the Underwriters, on
the other hand, shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact or any such inaccurate or alleged
inaccurate representation or warranty relates to information supplied by the
Company or the Selling Shareholder, on the one hand, or the Underwriters, on the
other hand, and the parties'
26
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relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Shareholder and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names
in Schedule A. For purposes of this Section 9, each officer and employee of an
----------
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If,
on the First Closing Date or the Second Closing Date, as the case may be, any
one or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
----------
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representative with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
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<PAGE>
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination.
In any such case either the Representatives or the Company shall have the right
to postpone the First Closing Date or the Second Closing Date, as the case may
be, but in no event for longer than seven days in order that the required
changes, if any, to the Registration Statement and the Prospectus or any other
documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement maybe terminated by the Representatives by notice given to
the Company and the Selling Shareholder if at any time (i) trading or quotation
in any of the Company's securities shall have been suspended or limited by the
Commission or by the Nasdaq Stock Market, or trading in securities generally on
either the Nasdaq Stock Market or the New York Stock Exchange shall have been
suspended or limited, or minimum or maximum prices shall have been generally
established on any of such stock exchanges by the Commission or the NASD; (ii) a
general banking moratorium shall have been declared by any of federal, New York,
Delaware or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 11 shall be without liability on the part of (a) the Company or the
Selling Shareholder to any Underwriter, except that the Company and the Selling
Shareholder shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to
the Company or the Selling
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Shareholder, or (c) of any party hereto to any other party except that the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholder and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Shareholder, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION. 13 NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representative:
Legg Mason Wood Walker, Incorporated
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Facsimile: (202) 452-4000
Attention: [ ]
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Facsimile: (617) 542-2241
Attention: Lewis J. Geffen, Esq.
If to the Company:
American Finance Group, Inc.
24 School Street, 7th Floor
Boston, Massachusetts 02108
Facsimile: (617) 557-9300
Attention: Donald R. Dugan, Jr., President
If to the Selling Shareholder:
PLM International, Inc.
One Market
Steuart Street Tower
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Suite 800
San Francisco, CA 94105-1301
Attention: Robert N. Tidball, Chairman, President and CEO
Any party hereto may change the address for receipt of communications by
giving written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit
of and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. (A) GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of New York or the
courts of the State of New York in each case located in the City and County of
New York (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. Each party not
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<PAGE>
located in the United States irrevocably appoints CT Corporation System, which
currently maintains a New York office at [ ], United States of
America, as its agent to receive service of process or other legal summons for
purposes of any such suit, action or proceeding that may be instituted in any
state or federal court in the City and County of New York.
(c) Waiver of Immunity. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
SECTION 17. FAILURE OF THE SELLING SHAREHOLDER TO SELL AND DELIVER
COMMON SHARES. If the Selling Shareholder shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Shareholder at the First Closing Date pursuant to this Agreement, then the
Underwriters may at their option, by written notice from the Representative to
the Company and the Selling Shareholder, either (i) terminate this Agreement
without any liability on the part of any Underwriter or, except as provided in
Sections 4, 6, 8 and 9 hereof, the Company or the Selling Shareholder, or (ii)
purchase the shares which the Company has agreed to sell and deliver in
accordance with the terms hereof. If the Selling Shareholder shall fail to sell
and deliver to the Underwriters the Common Shares to be sold and delivered by
the Selling Shareholder pursuant to this Agreement at the First Closing Date,
then the Underwriters shall have the right, by written notice from the
Representatives to the Company and the Selling Shareholder, to postpone the
First Closing Date, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
31
<PAGE>
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
32
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company and the Custodian the enclosed copies
hereof, whereupon this instrument, along with all counterparts hereof, shall
become a binding agreement in accordance with its terms.
Very truly yours,
AMERICAN FINANCE GROUP, INC.
By:__________________________
Donald R. Dugan, Jr.
President
PLM INTERNATIONAL, INC.
By:__________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives in Washington, D.C. as of the date first above written.
LEGG MASON WOOD WALKER, INCORPORATED
FURMAN SELZ LLC
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
----------
By: LEGG MASON WOOD WALKER, INCORPORATED
By: -----------------------------------
Mark Micklem
Authorized Signatory
33
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
NUMBER OF
FIRM COMMON SHARES
UNDERWRITERS TO BE PURCHASED
- ------------------------------------------------ ------------------
<S> <C>
Legg Mason Wood Walker, Incorporated............ [___]
Furman Selz LLC................................. [___]
[___]........................................... [___]
[___]........................................... [___]
[___]........................................... [___]
Total......................................... [___]
</TABLE>
34
<PAGE>
EXHIBIT A
---------
Opinion of counsel for the Company to be delivered pursuant to Section 5(d)
of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
---------
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of The State of Delaware
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing
would not, individually or in the aggregate, result in a Material Adverse
Change.
(iv) The authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conform to the descriptions thereof
set forth in the Prospectus. All of the outstanding shares of Common Stock
(including the shares of Common Stock owned by Selling Shareholder) have
been duly authorized and validly issued, are fully paid and nonassessable
and, to the best of such counsel's knowledge (without independent
investigation), have been issued in compliance with the registration and
qualification requirements of federal and state securities laws. The form
of certificate used to evidence the Common Stock is in due and proper form
and complies with all applicable requirements of the charter and by-laws
of the Company and the Delaware General Corporation Law. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
(v) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the Delaware General
Corporation Law or (ii) to the best knowledge of such counsel, otherwise.
(vi) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable
35
<PAGE>
in accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(vii) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the consideration
set forth therein, will be validly issued, fully paid and nonassessable.
(viii) The Registration Statement and the Rule 462(b) Registration
Statement, if any, has been declared effective by the Commission under the
Securities Act. To the best knowledge of such counsel, no stop order
suspending the effectiveness of either of the Registration Statement or the
Rule 462(b) Registration Statement, if any, has been issued under the
Securities Act and no proceedings for such purpose have been instituted or
are pending or are contemplated or threatened by the Commission. Any
required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) under the Securities Act has been made in the manner and within
the time period required by such Rule 424(b).
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or supplement to
the Registration Statement and the Prospectus, as of their respective
effective or issue dates (other than the financial statements and
supporting schedules included therein or in exhibits to or excluded from
the Registration Statement, as to which no opinion need be rendered) comply
as to form in all material respects with the applicable requirements of the
Securities Act.
(x) The Common Shares have been approved for listing on the Nasdaq
National Market.
(xi) The statements (i) in the Prospectus under the captions
"Capitalization", "Management's Discussion and Analysis and Results of
Operations--Liquidity", "Business--Litigation", "Business--Proprietary
Rights", "Certain Transactions", "Shares Eligible for Future Sale" and
"Underwriting" and (ii) in Item 14 and Item 15 of the Registration
Statement, insofar as such statements constitute matters of law, summaries
of legal matters, the Company's charter or by-law provisions, documents or
legal proceedings, or legal conclusions, has been reviewed by such counsel
and fairly present and summarize, in all material respects, the matters
referred to therein.
(xii) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
36
<PAGE>
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xiii) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits
thereto; and the descriptions thereof and references thereto are correct in
all material respects.
(xiv) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance
of the Underwriting Agreement and consummation of the transactions
contemplated thereby and by the Prospectus, except as required under the
Securities Act, applicable state securities or blue sky laws and from the
NASD.
(xv) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder
(other than performance by the Company of its obligations under the
indemnification section of the Underwriting Agreement, as to which no
opinion need be rendered) (i) have been duly authorized by all necessary
corporate action on the part of the Company; (ii) will not result in any
violation of the provisions of the charter or by-laws of the Company; (iii)
will not constitute a breach of, or Default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to, (A) the
Company's working capital line of credit with Silicon Valley Bank, as
lender, or (B) to the best knowledge of such counsel, any other material
Existing Instrument; or (iv) to the best knowledge of such counsel, will
not result in any violation of any law, administrative regulation or
administrative or court decree applicable to the Company or any subsidiary.
(xvi) The Company is not, and after receipt of payment for the
Common Shares will not be, an "investment company" within the meaning of
Investment Company Act.
(xvii) Except as disclosed in the Prospectus under the caption
"Shares Eligible for Future Sale", to the best knowledge of such counsel,
there are no persons with registration or other similar rights to have any
equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by the Underwriting
Agreement, other than the Selling Shareholder, except for such rights as
have been duly waived.
(xviii) To the best knowledge of such counsel, the Company is not in
violation of its charter or by-laws or any law, administrative regulation
or administrative or court decree applicable to the Company or is in
Default in the performance or observance of any obligation, agreement,
covenant or condition contained in any material Existing Instrument, except
in each such case for such
37
<PAGE>
violations or Defaults as would not, individually or in the aggregate,
result in a Material Adverse Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included in the Registration Statement or the Prospectus or
any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the States of
California and New York, the General Corporation Law of the State of Delaware,
or the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the First
Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Representatives) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state that they
believe that they and the Underwriters are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials.
In addition, such counsel shall permit Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C. to rely upon such opinion for purposes of delivering its opinion
pursuant to Section 5(e) of the Underwriting Agreement.
38
<PAGE>
EXHIBIT B
---------
The opinion of such counsel pursuant to Section 5(h) shall be rendered to
the Representatives at the request of the Company and shall so state therein.
References to the Prospectus in this Exhibit B include any supplements thereto
---------
at the Closing Date.
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of, the
Selling Shareholder, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ii) The execution and delivery by the Selling Shareholder of, and the
performance by the Selling Shareholder of its obligations under, the
Underwriting Agreement and its Custody Agreement and its Power of Attorney
will not contravene or conflict with, result in a breach of, or constitute
a default under, the charter or by-laws, partnership agreement, trust
agreement or other organizational documents, as the case may be, of the
Selling Shareholder, or, to the best of such counsel's knowledge, violate
or contravene any provision of applicable law or regulation, or violate,
result in a breach of or constitute a default under the terms of any other
agreement or instrument to which the Selling Shareholder is a party or by
which it is bound, or any judgment, order or decree applicable to the
Selling Shareholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the Selling
Shareholder.
(iii) The Selling Shareholder has good and valid title to all of the
Common Shares which may be sold by the Selling Shareholder under the
Underwriting Agreement and has the legal right and power, and all
authorizations and approvals required under its charter and by-laws,
partnership agreement, trust agreement or other organizational documents,
as the case may be, to enter into the Underwriting Agreement and its
Custody Agreement and its Power of Attorney, to sell, transfer and deliver
all of the Common Shares which may sold by the Selling Shareholder under
the Underwriting Agreement and to comply with its other obligations under
the Underwriting Agreement, its Custody Agreement and its Power of
Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of the
Selling Shareholder has been duly authorized, executed and delivered by the
Selling Shareholder and is a valid and binding agreement of the Selling
Shareholder, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
39
<PAGE>
(v) Assuming that the Underwriters purchase the Common Shares which
are sold by the Selling Shareholder pursuant to the Underwriting Agreement
for value, in good faith and without notice of any adverse claim, the
delivery of such Common Shares pursuant to the Underwriting Agreement will
pass good and valid title to such Common Shares, free and clear of any
security interest, mortgage, pledge, lieu encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court
or governmental authority or agency, is required for the consummation by
the Selling Shareholder of the transactions contemplated in the
Underwriting Agreement, except as required under the Securities Act,
applicable state securities or blue sky laws, and from the NASD.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the States of
California and New York, the General Corporation Law of the State of Delaware,
or the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the First
Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Representatives) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state that they
believe that they and the Underwriters are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of the Selling Shareholder and public officials.
40
<PAGE>
EXHIBIT C
---------
[form of lock-up letter]
41
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
AMERICAN FINANCE GROUP, INC.
1. The name of this corporation is American Finance Group, Inc.
(hereinafter the "Corporation").
2. Its registered office and place of business in the State of
Delaware is to be located at 1209 Orange Street, City of
Wilmington, County of New Castle. The Registered Agent in
charge thereof is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for
which corporations may be organized under the General
Corporation Law of Delaware.
4. The total number of shares of stock which the Corporation
shall have authority to issue is one thousand (1,000)
shares, of which one thousand (1,000) shares, par value $.01
per share, shall be of a class designated "Common Stock".
5. The name and mailing address of the Sole Incorporator is as
follows:
Carolyn Kuehn One Market, Steuart Street Tower, Suite 900
San Francisco, California 94105-1301
5A. The name and mailing address of each person who is to serve
as a director until the first annual meeting of the members
or until a successor is elected and qualified, are as
follows:
Gary Engle Exchange Place
Boston, Massachusetts 02109
Robert N. Tidball One Market, Steuart Street Tower, Suite 900
San Francisco, California 94105-1301
Stephen Peary One Market, Steuart Street Tower, Suite 900
San Francisco, California 94105-1301
Allen V. Hirsch One Market, Steuart Street Tower, Suite 900
San Francisco, California 94105-1301
<PAGE>
6. The corporation shall have perpetual existence.
7. In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
8. Election of directors need not be by written ballot unless
the by-laws of the corporation shall so provide.
Meetings of members may be held within or without the State
of Delaware, as the by-laws may provide. The books of the
corporation may be kept (subject to any provision of law)
outside the State of Delaware at such place or places as may
be designated from time to time by the Board of Directors or
in the by-laws of the corporation.
I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation
Law of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this ___ day of January, 1995.
- ---------------------------------
Carolyn Kuehn
Sole Incorporator
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
AMERICAN FINANCE GROUP CORPORATION
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Tallahassee, County of Leon, State of
Florida.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Florida as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and place, either within or without the State of Florida, as shall be
designated from time to time by the Board of Directors and stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meeting of Stockholders
shall be held on such date and at such time and place as may be fixed by the
Board and stated in the notice of the meeting for the purpose of electing
directors and for the transaction of only such other business as is properly
brought before the meeting in accordance with these By-laws. To be properly
brought before the Annual Meeting or any other meeting, business must be
either (i)
<PAGE>
specified in the notice of Annual Meeting or such other meeting (or any
supplement thereto) given by or at the direction of the Board, (ii) otherwise
properly brought before the Annual Meeting or such other meeting by or at the
direction of the Board, or (iii) otherwise properly brought before the Annual
Meeting or such other meeting by a stockholder. In addition to any other
applicable requirements for business to be properly brought before an Annual
Meeting or such other meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation, not less than 50 days
nor more than 75 days prior to the meeting; provided, however, that in the
event that less than 65 days' notice or prior public disclosure of the date of
the Annual Meeting or such other meeting is given or made to stockholders,
notice by the stockholders to be timely must be so received not later than the
close of business on the fifteenth day following the day on which such notice
of the date of the meeting was mailed or such public disclosure was made,
whichever first occurs. A stockholder's notice to the Secretary shall set
forth each matter the stockholder proposes to bring before the meeting (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (ii) the name and
record address of the stockholder proposing such business, (iii) the class,
series and number of shares of the Corporation which are beneficially owned by
the stockholder, and (iv) any material interest of the stockholder in such
business. Notwithstanding anything in the By-laws to the contrary, no business
shall be conducted at the Annual Meeting or any other meeting except in
accordance with the procedures set forth in this Article II, Section 2,
provided, however, that nothing in this Article II, Section 2 shall be deemed
to preclude discussion by any stockholder of any business properly brought
before the Annual Meeting. The Chairman of any meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Article
II, Section 2; and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall
not be transacted. Written notice of the Annual Meeting or any other meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
<PAGE>
Section 3. Special Meeting. Unless otherwise prescribed by
law or by the Articles of Incorporation, special meetings of stockholders, for
any purpose or purposes, may only be called by a majority of the Board of
Directors. Special meetings of stockholders may not be called by any other
person or persons. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting.
Section 4. Quorum. Except as otherwise provided by law or
by the Articles of Incorporation, the holders of a majority of the capital
stock issued and outstanding and entitled to vote thereat, present in person
or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
presented or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting.
Section 5. Voting. Unless otherwise required by law, the
Articles of Incorporation or these By-laws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Unless otherwise
provided in the Articles of Incorporation, each stockholder represented at a
meeting of stockholders shall be entitled to cast one vote for each share of the
capital stock entitled to vote thereat held by such stockholder. Such votes may
be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
Section 6. No Written Consent in Lieu of Meeting. Any action
required or permitted to be taken by the stockholders of the Corporation must
be effected at a duly called Annual or Special Meeting of Stockholders of the
Corporation and may not be effected by any consent in writing by such holders.
Section 7. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder of the Corporation who
is present.
<PAGE>
Section 8. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 6 of the Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 9. Inspectors of Election. Before any meeting of
stockholders, the Board of Directors may appoint any person or persons other
than nominees for office to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the officer of the
Corporation presiding at a meeting of stockholders may, and on the request of
any stockholder or stockholder's proxy shall, appoint inspectors of election at
the meeting. The number of inspectors shall be either one or three. If
inspectors are appointed at a meeting on the request of one or more stockholders
or proxies, the holders of a majority of the stock represented and entitled to
vote thereat shall determine whether one or three inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the officer of the Corporation presiding at a meeting may, and
upon the request of any stockholder or a stockholder's proxy shall, appoint a
person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares of capital stock outstanding
and the voting power of each, the stock represented at the
meeting, the existence of a quorum, and the authenticity,
validity, and effect of proxies; (b) Receive votes, ballots, or
consents; (c) Hear and determine all challenges and questions
in any way arising in connection with the right to vote; (d)
Count and tabulate all votes or consents; (e) Determine and
report to the Corporation the results of the voting; and (f) Do
any other acts that may be proper to conduct the election or
vote with fairness to all stockholders. Section 10. Conduct of
Meetings of Stockholders. Meetings of stockholders shall
generally follow reasonable and fair procedure. Subject to the
foregoing, the conduct of any meeting and the determination of
procedure and rules shall be within the absolute discretion of
the officer of the Corporation designated by the Board of
Directors to conduct the meeting (the "Presiding Officer"), and
there shall be no appeal from any ruling of the Presiding
Officer with respect to procedure or rules. Accordingly, in any
meeting of stockholders or part thereof, the Presiding Officer
shall have the absolute power to determine appropriate rules or
to dispense with theretofore prevailing rules. The Presiding
Officer shall serve as Chairman of the Meeting and preside at
the meeting. Without limiting the foregoing the following rules
shall apply:
(a) Within his sole discretion, the Presiding Officer may
adjourn such meeting by declaring such meeting adjourned. Upon
his doing so, the meeting is immediately adjourned.
(b) The Presiding Officer may ask or require that anyone not a
bona fide stockholder or proxy leave the meeting.
(c) A resolution or motion shall be considered for vote only if
proposed by a stockholder or duly authorized proxy and seconded
by an individual who is a stockholder or a duly authorized
proxy, other than the individual who proposed the resolution or
motion. The Presiding Officer may propose any motion for vote.
(d) The Presiding Officer may impose any reasonable limits with
respect to participation in the meeting by stockholders,
including, but not limited to, limits on the amount of time at
the meeting taken up by the remarks or questions of any
stockholders, limits on the number of questions per
stockholder, and limits as to the subject matter and timing of
questions and remarks by stockholders.
<PAGE>
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. Subject to the
rights, if any, of holders of preferred stock of the Corporation to elect
directors of the Corporation, the Board of Directors shall consist of not less
than 3 nor more than 15 members with the exact number of directors to be
determined from time to time by resolution duly adopted by the Board of
Directors. Directors shall be elected by a plurality of the votes cast at the
Annual Meeting of stockholders, and, unless otherwise provided by the Articles
of Incorporation, each director so elected shall hold office until the Annual
Meeting for the year in which his term expires and until his successor is duly
elected and qualified, or until his earlier death, registration, retirement,
disqualification or removal. Any director may resign at any time effective upon
giving written notice to the Corporation, unless the notice specifies a later
time for the effectiveness of such resignation. Directors need not be
stockholders.
Section 2. Nomination of Directors. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of the
Corporation at the Annual Meeting may be made at such meeting by or at the
direction of the Board of Directors, by any committee or persons appointed by
the Board or by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures
set forth in this Article III, Section 2. Such nominations, other than those
made by or at the direction of the Board, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 50 days or more
than 75 days prior to the meeting; provided, however, that in the event that
less than 65 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the
fifteenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made, whichever first occurs.
Such stockholder's notice to the Secretary shall set forth (i) as to each
person whom the shareholder proposes to nominate for election or reelection as
a director, (a) the name, age, business address and residence address of the
person, (b) the principal occupation or employment of the person, (c) the
class and number of shares of capital stock of the Corporation which are
beneficially owned by the person, and (d) any other information relating to
the person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to the Rules and Regulations of the Securities
and Exchange Commission under Section 14 of the Securities Exchange Act of
1934, as amended; and (ii) as to the stockholder giving the notice (a) the
name and record address of the stockholder and (b) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
stockholder. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as a director of
the Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth
herein. The Presiding Officer of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
<PAGE>
Section 3. Vacancies. Any vacancy on the Board of
Directors, however created, may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole remaining director. Any
director elected to fill a newly created directorship resulting from an
increase in any class of directors shall hold office for a term that shall
coincide with the remaining term of the other directors of that class. Any
director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same term as the remaining term of his
predecessor.
Section 4. Duties and Powers. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
By-laws directed or required to be exercised or done by the stockholders.
Section 5. Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the
State of Florida. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as may from time to time be
determined by the Board of Directors. Special meetings of the Board of
Directors may be called by the Chairman, if there be one, the President, or
any three directors. Notice thereof, stating the place, date and hour of the
meeting, shall be given to each director either by mail not less than forty-
eight (48) hours before the date of the meeting, by telephone or telegram on
twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 6. Quorum. Except as may be otherwise specifically
provided by law, the Articles of Incorporation or these By-laws, at all meetings
of the Board of Directors, a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors. If a quorum shall not be present at any meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 7. Actions of Board. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 8. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Articles of Incorporation or these By-laws, members of
the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 8 shall
constitute presence in person at such meeting.
<PAGE>
Section 9. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any absent or disqualified member. Any
committee, to the extent allowed by law and provided in the resolution
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and any such committee which is denominated an
"Executive Committee" shall have the power and authority to declare a
dividend, to authorize the issuance of stock and to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law of
the State of Florida. Each committee shall keep regular minutes and report to
the Board of Directors when required.
Section 10. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings. Section 11.
Interested Directors. No contract or transaction between the Corporation and
one or more of its directors or officers, or between the Corporation and any
other corporation, partnership, association, or other organization in which
one or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof which authorizes the
contract or transaction, or solely because his or their votes are counted for
such purpose if (i) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the Board of Directors or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (ii) the material facts
as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good
faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
<PAGE>
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be either a Chairman of the Board
(who must be a director), or a President, or both, and a Secretary and a
Treasurer. The Board of Directors, in its sole discretion, may also choose one
or more Vice Chairmen of the Board of Directors (who must be directors) and one
or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other
officers. Any number of offices may be held by the same person, unless otherwise
prohibited by law, the Articles of Incorporation or these By-laws. The officers
of the Corporation need not be stockholders of the Corporation nor, except in
the case of the Chairman of the Board of Directors, need such officers be
directors of the Corporation.
Section 2. Election. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors.
Section 3. Remuneration. The Board of Directors shall have the
exclusive power to fix and determine the salaries and other remuneration, and
the terms and conditions thereof, of all officers of the Corporation.
Section 4. Chairman of the Board of Directors. The Chairman of
the Board of Directors, if so designated by the Board of Directors, shall be the
Chief Executive Officer of the Corporation. Otherwise, the Chief Executive
Officer of the Corporation shall be the President or such other person or
persons as shall be designated by the Board of Directors to act as Chief
Executive Officer of the Corporation. Except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
preside at all meetings of the Board of Directors and shall perform such other
duties and may exercise such other powers as from time to time may be assigned
to him by these By-laws or by the Board of Directors.
<PAGE>
Section 5. President. The President shall, subject to the
control of the Board of Directors and the Chief Executive Officer (if not the
President), have general supervision of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President, if a director, shall preside at
all meetings of the Board of Directors. If so designated, the President shall be
the Chief Executive Officer of the Corporation. The President shall also perform
such other duties and may exercise such other powers as from time to time may be
assigned to him by these By-laws or by the Board of Directors.
Section 6. Vice Presidents. At the request of the President or
in his absence or in the event of his inability or refusal to act (and if there
be no Chairman of the Board of Directors), the Vice President or the Vice
Presidents if there is more than one (in the order designated by the Board of
Directors) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Chairman of the Board of Directors and no Vice President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
<PAGE>
Section 9. Assistant Secretaries. Except as may be otherwise
provided in these By-laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary, or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 11. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other office of the Corporation the power to
choose such other officers and to prescribe their respective duties and
powers.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by
(i) a transfer agent other than the Corporation or its employee, or (ii) a
registrar other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
<PAGE>
Section 3. Lost Certificates. The Board of Directors may direct
a new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
<PAGE>
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law,
the Articles of Incorporation or these By-laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex, cable or facsimile transmission.
Section 2. Waivers of Notice. Whenever any notice is required
by law, the Articles of Incorporation or these By-laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Articles of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting, and
may be paid in cash, in property, or in shares of the capital stock. Before
payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for any proper purpose, and the
Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 4. Voting Securities Owned by the Corporation. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
<PAGE>
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceed-
ings Other Than Those by or in The Right of The Corporation. Subject to Section
3 of this Article VIII, the Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceed-
ings by or in The Right of The Corporation. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Authorization of Indemnification. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 1 or Section 2 of this Article VIII, as the case
may be. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) if the Board of
Directors so directs by the stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
<PAGE>
Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The Provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be.
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director, officer, employee or agent may apply to any court of competent
jurisdiction in the State of Florida for indemnification to the extent otherwise
permissible under Sections 1 and 2 of this Article VIII. The basis of such
indemnification by a court shall be a determination by such court that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standards of conduct set forth
in Sections 1 or 2 of this Article VIII, as the case may be. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application.
Section 6. Expenses Payable in Advance. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article VIII.
<PAGE>
Section 7. Non-exclusivity and Survival of Indemnification.
The indemnification and advancement of expenses provided by or granted
pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may
be entitled under any By-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of
any court of competent jurisdiction or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to
the fullest extent permitted by law. The provisions of this Article VIII shall
not be deemed to preclude the indemnification of any person who is not
specified in Sections 1 or 2 of this Article VIII but whom the Corporation has
the power or obligation to indemnify under the provisions of the General
Corporation Law of the State of Florida, or otherwise. The indemnification
provided by this Article VIII shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such person.
Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have
the power or the obligation to indemnify him against such liability under the
provisions of this Article VIII.
Section 9. Meaning of "Corporation" for Purposes of Article
VIII. For purposes of this Article VIII, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees or agents,
so that any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Article VIII with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
ARTICLE IX
AMENDMENTS
Section 1. These By-laws may be altered, amended or
repealed, in whole or in part, or new By-laws may be adopted by the
stockholders or by the Board of Directors, provided, however, that notice of
such alteration, amendment, repeal or adoption of new By-laws be contained in
the notice of such meeting of stockholders or Board of Directors as the case
may be. All such amendments must be approved by either the holders of eighty
percent (80%) of the outstanding capital stock entitled to vote thereon or by
a majority of the entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this
Article IX and in these By-laws generally, the term "entire Board of
Directors" means the total number of directors which the Corporation would
have if there were no vacancies.
<PAGE>
CERTIFICATE OF SECRETARY
OF
AMERICAN FINANCE GROUP CORPORATION
----------------------------------------
I, Stephen Peary, Secretary of AMERICAN FINANCE GROUP
CORPORATION hereby certify that the attached is a true and correct copy of the
Articles of Incorporation, as amended, of this corporation as adopted by the
Board of Directors, and that said Articles of Incorporation are in full force
and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and corporate
seal.
Date:_____________________ _______________________________
Stephen Peary
SEAL:
<PAGE>
EXHIBIT 3.3
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF AMERICAN FINANCE GROUP, INC.
American Finance Group, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"GCL"), does hereby certify as follows:
(1) The name of the Corporation is American Finance Group, Inc. The
Corporation was originally incorporated under the name American Finance Group,
Inc. The original certificate of incorporation of the Corporation was filed
with the office of the Secretary of State of the State of Delaware on February
9, 1995.
(2) This Amended and Restated Certificate of Incorporation (this
"Restated Certificate") was duly adopted by the Board of Directors of the
Corporation (the "Board of Directors") and by the sole stockholder of the
Corporation in accordance with Sections 228, 242 and 245 of the GCL.
(3) This Restated Certificate restates and integrates and further
amends the certificate of incorporation of the Corporation, as heretofore
amended or supplemented.
(4) The text of the Certificate of Incorporation is amended and
restated in its entirety as follows:
FIRST: The name of the Corporation is American Finance Group, Inc.
-----
(the "Corporation").
SECOND: The address of the registered office of the Corporation in
------
the State of Delaware is at 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at that address is The
Corporation Trust Company.
<PAGE>
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware (the "GCL").
FOURTH: (a) Authorized Capital Stock. The total number of shares of
------ ------------------------
stock which the Corporation shall have authority to issue is 35,000,000 shares
of capital stock, consisting of 30,000,000 shares of common stock, par value $
0.01 per share (the "Common Stock"), and 5,000,000 shares of preferred stock,
par value $0.01 per share (the "Preferred Stock"). Effective upon the filing of
this Restated Certificate, each issued and outstanding share of Common Stock of
the Corporation shall be subdivided into 4,200 shares of Common Stock.
(b) Preferred Stock. The Board of Directors of the Corporation
---------------
(the "Board of Directors") is hereby expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issuance of such class or series.
FIFTH: The following provisions are inserted for the management of
-----
the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
(b) The number of directors of the Corporation shall be as from
time to time fixed by, or in the manner provided in, the By-Laws of the
Corporation. Election of directors need not be by written ballot unless the By-
Laws so provide.
(c) A director shall hold office until the annual meeting for the
year in which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualifica tion or removal from office.
2
<PAGE>
(d) Subject to the terms of any one or more classes or series of
Preferred Stock, any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is present, and any other
vacancy occurring on the Board of Directors may be filled by a majority of the
Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Any director elected to fill a vacancy shall have the same
remaining term as that of his predecessor. Subject to the rights, if any, of
the holders of shares of Preferred Stock then outstanding, any or all of the
directors of the Corporation may be removed from office at any time, but only
for cause and only by the affirmative vote of the holders of at least a majority
of the voting power of the Corporation's then outstanding capital stock entitled
to vote generally in the election of directors.
(e) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors of the Corporation are
hereby empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, subject, however, to the provisions
of the GCL, this Restated Certificate and any By-Laws adopted by the
stockholders; provided, however, that no By-Laws hereafter adopted by the
-------- -------
stockholders shall invalidate any prior act of the directors that would have
been valid if such By-Laws had not been adopted.
SIXTH: No director shall be personally liable to the Corporation or
-----
any of its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the GCL as the same exists or may hereafter be
amended. If the GCL is amended hereafter to authorize the further elimination
or limitation of the liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent authorized
by the GCL, as so amended. Any repeal or modification of this Article SIXTH by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification with respect to acts or omissions occurring prior to such repeal
or modification.
SEVENTH: The Corporation shall indemnify its directors and officers
-------
to the fullest extent authorized or permitted by law, as now or hereafter in
effect, and such right to indemnification shall continue as to a person who has
ceased to be a director or officer of the Corporation and shall inure to the
benefit of his or her heirs, executors and personal and legal representatives;
provided, however, that, except for
- -------- -------
3
<PAGE>
proceedings to enforce rights to indemnification, the Corporation shall not be
obligated to indemnify any director or officer (or his or her heirs, executors
or personal or legal representatives) in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the Board of Directors. The right to
indemnification conferred by this Article SEVENTH shall include the right to be
paid by the Corporation the expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation similar to those conferred
in this Article SEVENTH to directors and officers of the Corporation.
The rights to indemnification and to the advance of expenses conferred
in this Article SEVENTH shall not be exclusive of any other right that any
person may have or hereafter acquire under this Restated Certificate, the By-
Laws of the Corpora tion, any statute, agreement, vote of stockholders or
disinterested directors or otherwise.
Any repeal or modification of this Article SEVENTH by the stockholders
of the Corporation shall not adversely affect any rights to indemnification and
to the advancement of expenses of a director or officer of the Corporation
existing at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
EIGHTH: Meetings of stockholders may be held within or without the
------
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
NINTH: Following the consummation of an initial public offering of
-----
Common Stock or any transaction or event as a result of which any Common Stock
is listed on a national securities exchange or registered under Section 12 of
the Securities Exchange Act of 1934, as amended, the ability of the stockholders
to consent in writing pursuant to Section 228 of the GCL to the taking of any
action with respect to any of the following is hereby specifically denied: (i)
any consolidation or merger of the Corporation with or into any person, or of
any person with or into the Corporation, requiring the approval of stockholders
of the Corporation, (ii) any sale, lease, exchange or other disposition by the
Corporation or any subsidiary of the Corporation of all or substantially all of
the assets of the Corporation requiring the approval of stockholders of the
Corporation, (iii) any dissolution, liquidation or winding up of the Corporation
requiring the approval of stockholders of the Corporation, (iv) any election of
directors pursuant to Section 211(b) of the GCL and (v) any amendment,
alteration, change or repeal of this Article NINTH.
4
<PAGE>
TENTH: Except as otherwise required by law, special meetings of
-----
stockholders of the Corporation may be called only by the Board of Directors or
by the holders of a majority in voting power of the shares of capital stock of
the Corporation entitled to vote in the election of directors.
ELEVENTH: In furtherance and not in limitation of the powers
--------
conferred upon it by the laws of the State of Delaware, the Board of Directors
shall have the power to adopt, amend, alter or repeal the By-Laws of the
Corporation. The affirmative vote of at least eighty percent (80%) of the entire
Board of Directors shall be required to adopt, amend, alter or repeal the By-
Laws of the Corporation. The By-Laws of the Corporation also may be adopted,
amended, altered or repealed by the affirmative vote of the holders of at least
a majority in voting power of the shares of capital stock of the Corporation
entitled to vote in an election of directors.
TWELFTH: The Corporation reserves the right to amend, alter, change
-------
or repeal any provision contained in this Restated Certificate in the manner now
or hereafter prescribed in this Restated Certificate, the By-Laws of the
Corporation or the GCL, and all rights herein conferred upon stockholders are
granted subject to such reservation.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate to be executed on its behalf this ___ day of _____ 1998.
American Finance Group, Inc.
By:________________________
Name: Donald R. Dugan, Jr.
Title: President and Chief Executive Officer
5
<PAGE>
EXHIBIT 3.4
FORM OF
AMENDED AND RESTATED
BY-LAWS
of
AMERICAN FINANCE GROUP, INC.
A Delaware Corporation
Effective ___, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I - OFFICES............................................... 2
Section 1. Registered Office..................................... 2
Section 2. Other Offices......................................... 2
ARTICLE II - MEETINGS OF STOCKHOLDERS.............................. 2
Section 1. Place of Meetings..................................... 2
Section 2. Annual Meetings....................................... 3
Section 3. Special Meetings...................................... 3
Section 4. Quorum................................................ 4
Section 5. Proxies............................................... 4
Section 6. Voting................................................ 6
Section 7. Nature of Business at Meetings of Stockholders........ 6
Section 8. List of Stockholders Entitled to Vote................. 8
Section 9. Stock Ledger.......................................... 9
Section 10. Record Date........................................... 9
Section 11. Inspectors of Election................................ 10
ARTICLE III - DIRECTORS............................................. 11
Section 1. Number and Election of Directors...................... 11
Section 2. Nomination of Directors............................... 11
Section 3. Vacancies............................................. 15
Section 4. Duties and Powers..................................... 16
Section 5. Organization.......................................... 16
Section 6. Resignations and Removals of Directors................ 16
Section 7. Meetings.............................................. 17
Section 8. Quorum................................................ 17
Section 9. Actions of Board...................................... 18
Section 10. Meetings by Means of Conference Telephone............. 18
Section 11. Committees............................................ 18
Section 12. Compensation.......................................... 20
Section 13. Interested Directors.................................. 20
ARTICLE IV - OFFICERS.............................................. 21
Section 1. General............................................... 21
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 2. Election.............................................. 22
Section 3. Voting Securities Owned by the Corporation............ 22
Section 4. Chairman of the Board of Directors.................... 23
Section 5. President............................................. 23
Section 6. Vice Presidents....................................... 24
Section 7. Secretary............................................. 25
Section 8. Treasurer............................................. 26
Section 9. Assistant Secretaries................................. 26
Section 10. Assistant Treasurers.................................. 27
Section 11. Other Officers........................................ 27
ARTICLE V - STOCK................................................. 28
Section 1. Form of Certificates.................................. 28
Section 2. Signatures............................................ 28
Section 3. Lost, Destroyed, Stolen or Mutilated Certificates..... 28
Section 4. Transfers............................................. 29
Section 5. Transfer and Registry Agents.......................... 30
Section 6. Beneficial Owners..................................... 30
ARTICLE VI - NOTICES............................................... 30
Section 1. Notices............................................... 30
Section 2. Waivers of Notice..................................... 31
ARTICLE VII - GENERAL PROVISIONS.................................... 31
Section 1. Dividends............................................. 32
Section 2. Disbursements......................................... 32
Section 3. Fiscal Year........................................... 32
Section 4. Corporate Seal........................................ 32
ARTICLE VIII - INDEMNIFICATION....................................... 33
Section 1. Power to Indemnify in Actions, Suits or
Proceedings Other than Those by or in the
Right of the Corporation.............................. 33
Section 2. Power to Indemnify in Actions, Suits or
Proceedings by or in the Right of
the Corporation....................................... 34
Section 3. Authorization of Indemnification...................... 35
Section 4. Good Faith Defined.................................... 35
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 5. Indemnification by a Court............................ 36
Section 6. Expenses Payable in Advance........................... 37
Section 7. Nonexclusivity of Indemnification and
Advancement of Expenses............................... 37
Section 8. Insurance............................................. 38
Section 9. Certain Definitions................................... 39
Section 10. Survival of Indemnification and Advancement
of Expenses........................................... 40
Section 11. Limitation on Indemnification......................... 40
Section 12. Indemnification of Employees and Agents............... 40
ARTICLE IX - AMENDMENTS............................................ 41
Section 1. Amendments............................................ 41
Section 2. Entire Board of Directors............................. 41
ARTICLE X - INVESTMENT COMMITTEE
Section 1. Special Corporate Committee........................... 41
Section 2. Duties and Powers..................................... 42
Section 3. Organization.......................................... 42
Section 4. Resignations and Removals of Members.................. 42
Section 5. Meetings.............................................. 43
Section 6. Quorum................................................ 43
Section 7. Actions of Committee.................................. 43
Section 8. Meetings by Means of Conference Telephone............. 44
Section 9. Financial Transaction................................. 44
Section 10. Subsidiary............................................ 44
</TABLE>
iii
<PAGE>
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
AMERICAN FINANCE GROUP, INC.
(hereinafter called the "Corporation")
<PAGE>
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of the
--------- -----------------
Corporation shall be in the City of New Castle, County of Wilmington, State of
Delaware.
Section 2. Other Offices. The Corporation may also have offices at
--------- -------------
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders for the
--------- -----------------
election of directors or for any other purpose shall be held at such time and
place, either
2
<PAGE>
within or without the State of Delaware, as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meetings of stockholders
--------- ---------------
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect directors, and transact such other
business as may properly be brought before the meeting. Written notice of the
annual meeting stating the place, date and hour of the meeting shall be given to
each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or
--------- ----------------
by the certificate of incorporation of the Corporation, as amended and restated
from time to time (the "Certificate of Incorporation"), special meetings of
stockholders, for any purpose or purposes, may be called exclusively by the
Board of Directors or by holders of a majority in voting power of the shares of
capital stock of the Corporation entitled to vote in the election of directors.
At a special meeting of the stockholders, only such business shall be conducted
as shall be specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
3
<PAGE>
Section 4. Quorum. Except as otherwise required by law or by the
--------- ------
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 5. Proxies. Any stockholder entitled to vote may do so in
--------- -------
person or by his or her proxy appointed by an instrument in writing subscribed
by such stockholder or by his or her attorney thereunto authorized, delivered to
the Secretary of the meeting; provided, however, that no proxy shall be voted or
-------- -------
acted upon after three years from its date, unless said proxy provides for a
longer period. Without limiting the
4
<PAGE>
manner in which a stockholder may authorize another person or persons to act
for him or her as proxy, either of the following shall constitute a valid
means by which a stockholder may grant such authority:
(i) A stockholder may execute a writing authorizing another person or
persons to act for him or her as proxy. Execution may be accomplished by
the stockholder or his or her authorized officer, director, employee or
agent signing such writing or causing his or her signature to be affixed
to such writing by any reasonable means, including, but not limited to,
by facsimile signature.
(ii) A stockholder may authorize another person or persons to act
for him or her as proxy by transmitting or authorizing the transmission
of a telegram or other means of electronic transmission to the person who
will be the holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the person
who will be the holder of the proxy to receive such transmission,
provided that any such telegram or other means of electronic transmission
must either set forth or be submitted with information from which it can
be determined that the telegram or other electronic transmission was
authorized by the stockholder.
5
<PAGE>
Any copy, facsimile telecommunication or other reliable reproduction of the
writing or transmission authorizing another person or persons to act as proxy
for a stockholder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used; provided that such copy, facsimile telecommunication
--------
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
Section 6. Voting. At all meetings of the stockholders at which a
--------- ------
quorum is present, except as otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the affirmative vote of the holders of a
majority of the total number of votes of the capital stock present in person or
represented by proxy and entitled to vote on such question, voting as a single
class. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his or her discretion,
may require that any votes cast at such meeting shall be cast by written ballot.
Section 7. Nature of Business at Meetings of Stockholders. No
--------- ----------------------------------------------
business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (c) otherwise properly
6
<PAGE>
brought before the annual meeting by any stockholder of the Corporation (i)
who is a stockholder of record on the date of the giving of the notice
provided for in this Section 7 and on the record date for the determination of
stockholders entitled to vote at such annual meeting and (ii) who complies
with the notice procedures set forth in this Section 7.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
-------- -------
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting
7
<PAGE>
and the reasons for conducting such business at the annual meeting, (ii) the
name and record address of such stockholder, (iii) the class or series and
number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 7, provided, however, that, once business
-------- -------
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 7 shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
Section 8. List of Stockholders Entitled to Vote. The officer of the
--------- -------------------------------------
Corporation who has charge of the stock ledger of the Corporation shall prepare
and
8
<PAGE>
make, at least ten days before every meeting of stockholders, a complete list
of the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder of the Corporation who
is present.
Section 9. Stock Ledger. The stock ledger of the Corporation shall
--------- ------------
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 8 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 10. Record Date. In order that the Corporation may
---------- -----------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon
9
<PAGE>
which the resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall not be more than sixty nor less than ten days before the date
of such meeting; and (2) in the case of any other action, shall not be more
than sixty days prior to such other action. If no record date is fixed: (1)
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; and (2) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
-------- -------
that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 11. Inspectors of Election. In advance of any meeting of
---------- ----------------------
stockholders, the Board by resolution or the Chairman or President shall appoint
one or more inspectors of election to act at the meeting and make a written
report thereof. One or more other persons may be designated as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is present, ready and willing to act at a meeting of stockholders, the
Chairman of the meeting shall appoint one or more
10
<PAGE>
inspectors to act at the meeting. Unless otherwise required by law, inspectors
may be officers, employees or agents of the Corporation. Each inspector,
before entering upon the discharge of his or her duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his or her ability. The inspector shall have the
duties prescribed by law and shall take charge of the polls and, when the vote
is completed, shall make a certificate of the result of the vote taken and of
such other facts as may be required by law.
ARTICLE III
DIRECTORS
---------
Section 1. Number and Election of Directors. The Board of Directors
--------- --------------------------------
shall consist of six members. Except as provided in Section 3 of this Article
III, directors shall be elected by a plurality of the votes cast at the annual
meetings of stockholders, and each director so elected shall hold office until
such director's successor is duly elected and qualified, or until such
director's death, or until such director's earlier resignation or removal.
Directors need not be stockholders.
Section 2. Nomination of Directors. Only persons who are nominated
--------- -----------------------
in accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of preferred
stock of the Corporation
11
<PAGE>
to nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board of Directors
may be made at any annual meeting of stockholders, or at any special meeting
of stockholders called for the purpose of electing directors, (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any stockholder of the Company (i) who is a stockholder of record on
the date of the giving of the notice provided for in this Section 2 and on the
record date for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set forth in this
Section 2. Notwithstanding anything to the contrary set forth in this Section
2, until the earlier to occur of (a) the date on which PLM International,
Inc., a Delaware corporation ("PLMI"), together with all of its direct and
indirect subsidiaries other than the Corporation and the Corporation's
subsidiaries (collectively, the "PLMI Affiliated Group"), shall cease to own,
in the aggregate, at least 35% of the voting power of all of the issued and
outstanding shares of common stock, par value $0.01 per share, of the
Corporation ("Common Stock") and (b) the date on which the members of the PLMI
Affiliated Group shall cease to own, in the aggregate, at least 35% of all of
the issued and outstanding shares of Common Stock (not including, for purposes
of determining such percentages, any shares of Common Stock held as treasury
stock by the Corporation or held by any subsidiary of the Corporation), the
Board of Directors shall, at each annual meeting of stockholders and at any
special meeting of stockholders called
12
<PAGE>
for the purpose of electing directors, nominate two persons designated by PLMI
for election to the Board of Directors.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
-------- -------
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
13
<PAGE>
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and
14
<PAGE>
regulations promulgated thereunder. Such notice must be accompanied by a
notarized written consent of each proposed nominee to being named as a nominee
and to serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 2. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Section 3. Vacancies. Subject to the terms of any one or more
--------- ---------
classes or series of preferred stock, any vacancy on the Board of Directors that
results from an increase in the number of directors may be filled by a majority
of the directors then in office, provided that a quorum is present, and any
other vacancy occurring on the Board of Directors may be filled by a majority of
the Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Notwithstanding the foregoing, whenever the holders of any
one or more class or classes or series of preferred stock of the Corporation
shall have the right, voting separately as a class, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
Certificate of Incorporation.
15
<PAGE>
Section 4. Duties and Powers. The business of the Corporation shall
--------- -----------------
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws required to be exercised or done by the stockholders.
Section 5. Organization. At each meeting of the Board of Directors,
--------- ------------
the Chairman of the Board of Directors, or, in his or her absence, a director
chosen by a majority of the directors present, shall act as Chairman. The
Secretary of the Corporation shall act as Secretary at each meeting of the Board
of Directors. In case the Secretary shall be absent from any meeting of the
Board of Directors, an Assistant Secretary shall perform the duties of Secretary
at such meeting; and in the absence from any such meeting of the Secretary and
all the Assistant Secretaries, the Chairman of the meeting may appoint any
person to act as Secretary of the meeting.
Section 6. Resignations of Directors. Any director of the
--------- -------------------------
Corporation may resign at any time, by giving written notice to the Chairman
of the Board of Directors, the President or the Secretary of the Corporation.
Such resignation shall take effect at the time therein specified or, if no time
is specified, immediately; and, unless otherwise specified in such notice, the
acceptance of such resignation shall not be necessary to make it effective.
16
<PAGE>
Section 7. Meetings. The Board of Directors of the Corporation may
--------- --------
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may from time to time be determined by the Board of
Directors and, unless required by resolution of the Board of Directors, without
notice. Special meetings of the Board of Directors may be called by the
Chairman of the Board of Directors, the Vice Chairman, if there be one, or a
majority of the directors then in office. Notice thereof stating the place,
date and hour of the meeting shall be given to each director either by mail not
less than forty-eight (48) hours before the date of the meeting, by telephone,
facsimile or telegram on twenty-four (24) hours' notice, or on such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances.
Section 8. Quorum. Except as may be otherwise required by law, the
--------- ------
Certificate of Incorporation or these By-Laws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which
17
<PAGE>
there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting of the time and place of the adjourned
meeting, until a quorum shall be present.
Section 9. Actions of Board. Unless otherwise provided by the
--------- ----------------
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 10. Meetings by Means of Conference Telephone. Unless
---------- -----------------------------------------
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 10 shall
constitute presence in person at such meeting.
18
<PAGE>
Section 11. Committees. The Board of Directors may, by
---------- ----------
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member; provided, however, that in the case of any of
-------- -------
the Standing Committees (as defined below), any such appointee shall meet the
nomination qualification, if any, of the absent or disqualified member. Any
committee, to the extent permitted by law and provided in the resolution
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation. Each committee shall keep regular minutes and
report to the Board of Directors when required. Notwithstanding anything to the
contrary set forth in this Section 11, the committees of the Board of Directors
shall consist of at least an Audit Committee, a Compensation Committee and a
Nominating Committee (each, a "Standing Commit-
19
<PAGE>
tee"). A majority of the members of each of the Standing Committees shall be
members of the Board of Directors nominated by PLMI (the "PLMI Members"). The
combined act of at least 11abhalf of the PLMI Members of a Standing Committee
and such number, if any, of additional members as is necessary to constitute a
majority of the members present at any meeting at which there is a quorum
present shall be the act of a Standing Committee.
Section 12. Compensation. The directors may be paid their
---------- ------------
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary, or such other emoluments as the Board of Directors shall
from time to time determine. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 13. Interested Directors. No contract or transaction
---------- --------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such person's or their
20
<PAGE>
votes are counted for such purpose if (i) the material facts as to such person's
or their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to such person's or their relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
ARTICLE IV
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be chosen
--------- -------
by the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries,
21
<PAGE>
Assistant Treasurers and other officers. Any number of offices may be held by
the same person, unless otherwise prohibited by law, the Certificate of
Incorporation or these By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors at its first meeting
--------- --------
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
--------- ------------------------------------------
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer
22
<PAGE>
may deem advisable to vote in person or by proxy at any meeting of security
holders of any corporation in which the Corporation may own securities and at
any such meeting shall possess and may exercise any and all rights and power
incident to the ownership of such securities and which, as the owner thereof,
the Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the
--------- ----------------------------------
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. Except where by law the signature
of the President is required, the Chairman of the Board of Directors shall
possess the same power as the President to sign all contracts, certificates and
other instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him or her by these By-Laws or by the Board of
Directors.
Section 5. President. The President shall, subject to the control of
--------- ---------
the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. The President shall execute
23
<PAGE>
all bonds, mortgages, contracts and other instruments of the Corporation
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except that the other
officers of the Corporation may sign and execute documents when so authorized
by these By-Laws, the Board of Directors or the President. In the absence or
disability of the Chairman of the Board of Directors, or if there be none, the
President shall preside at all meetings of the stockholders and the Board of
Directors. The President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him or her
by these By-Laws or by the Board of Directors.
Section 6. Vice Presidents. At the request of the President or in
--------- ---------------
his or her absence or in the event of his or her inability or refusal to act
(and if there be no Chairman of the Board of Directors), the Vice President or
the Vice Presidents if there is more than one (in the order designated by the
Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Vice President shall perform such other duties and have
such other powers as the Board of Directors from time to time may prescribe. If
there be no Chairman of the Board of Directors and no Vice President, the Board
of Directors shall designate the officer of the Corporation who, in the absence
of the President or in the event of the inability or refusal of the President to
act, shall
24
<PAGE>
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of the
--------- ---------
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision the Secretary shall be. If the Secretary
shall be unable or shall refuse to cause to be given notice of all meetings of
the stockholders and special meetings of the Board of Directors, and if there be
no Assistant Secretary, then either the Board of Directors or the President may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his or her signature. The
Secretary shall see that all books, reports, statements, certificates and
25
<PAGE>
other documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
--------- ---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of Treasurer and for the restoration to the Corporation, in case of the
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Treasurer's
possession or under control of the Treasurer belonging to the Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise
--------- ---------------------
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties
26
<PAGE>
and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his or her
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there
---------- --------------------
be any, shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of the office of Assistant Treasurer and for the restoration to the
Corporation, in case of the Assistant Treasurer's death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in the Assistant Treasurer's possession or under control of the
Assistant Treasurer belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board of
---------- --------------
Directors may choose shall perform such duties and have such powers as from time
to time may
27
<PAGE>
be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such
other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
-----
Section 1. Form of Certificates. Every holder of stock in the
--------- --------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation, (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such holder of stock in the Corporation.
Section 2. Signatures. Any or all of the signatures on a certificate
--------- ----------
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 3. Lost, Destroyed, Stolen or Mutilated Certificates. The
--------- -------------------------------------------------
Board of Directors may direct a new certificate to be issued in place of any
certificate
28
<PAGE>
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing
such issue of a new certificate, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of
such lost, stolen or destroyed certificate, or such person's legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable
--------- ---------
in the manner prescribed by law and in these By-Laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, properly endorsed for transfer
and payment of all necessary transfer taxes; provided, however, that such
-------- -------
surrender and endorsement or payment of taxes shall not be required in any case
in which the officers of the Corporation shall determine to waive such
requirement. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked "Cancelled," with the date of cancellation, by the
Secretary or Assistant Secretary of the Corporation or the transfer agent
thereof. No transfer of stock shall be valid as against the Corporation for any
purpose until it shall have been
29
<PAGE>
entered in the stock records of the Corporation by an entry showing from and
to whom transferred.
Section 5. Transfer and Registry Agents. The Corporation may from
--------- ----------------------------
time to time maintain one or more transfer offices or agencies and registry
offices or agencies at such place or places as may be determined from time to
time by the Board of Directors.
Section 6. Beneficial Owners. The Corporation shall be entitled to
---------- -----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
--------- -------
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears
30
<PAGE>
on the records of the Corporation, with postage thereon prepaid, and such
notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given
personally or by telegram, facsimile, telex or cable.
Section 2. Waivers of Notice.
--------- -----------------
(a) Whenever any notice is required by law, the Certificate of
Incorporation or these By-Laws, to be given to any director, member of a
committee or stockholder, a waiver thereof in writing, signed, by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting, present by person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
(b) Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice unless
so required by law, the Certificate of Incorporation or these By-Laws.
31
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Subject to the requirements of the Delaware
--------- ---------
General Corporation Law (the "GCL") and the provisions of the Certificate of
Incorporation, dividends upon the capital stock of the Corporation may be
declared by the Board of Directors at any regular or special meeting of the
Board of Directors, and may be paid in cash, in property, or in shares of the
Corporation's capital stock. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
deems proper as a reserve or reserves to meet contingencies, or for purchasing
any of the shares of capital stock, warrants, rights, options, bonds,
debentures, notes, scrip or other securities or evidences of indebtedness of the
Corporation, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any other proper purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes
--------- -------------
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
--------- -----------
fixed by resolution of the Board of Directors.
32
<PAGE>
Section 4. Corporate Seal. The corporate seal shall have inscribed
--------- --------------
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other
--------- ---------------------------------------------------------
than Those by or in the Right of the Corporation. Subject to Section 3 of this
- ------------------------------------------------
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, such person had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that such person did not
act in good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interests of the Corporation, and,
33
<PAGE>
with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or
--------- ---------------------------------------------------------
in the Right of the Corporation. Subject to Section 3 of this Article VIII,
- -------------------------------
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall
34
<PAGE>
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification
--------- --------------------------------
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
To the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith, without
the necessity of authorization in the specific case.
35
<PAGE>
Section 4. Good Faith Defined. For purposes of any determination
--------- ------------------
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his or
her conduct was unlawful, if such person's action is based on the records or
books of account of the Corporation or another enterprise, or on information
supplied to such person by the officers of the Corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the
Corporation or another enterprise or on information or records given or reports
made to the Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Section 1 or
2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
--------- --------------------------
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding
36
<PAGE>
the absence of any determination thereunder, any director or officer may apply
to the Court of Chancery of the State of Delaware or any other court of
competent jurisdiction in the State of Delaware for indemnification to the
extent otherwise permissible under Sections 1 and 2 of this Article VIII. The
basis of such indemnification by a court shall be a determination by such
court that indemnification of the director or officer is proper in the
circumstances because such person has met the applicable standards of conduct
set forth in Section 1 or 2 of this Article VIII, as the case may be. Neither
a contrary determination in the specific case under Section 3 of this Article
VIII nor the absence of any determination thereunder shall be a defense to
such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to
the Corporation promptly upon the filing of such application. If successful,
in whole or in part, the director or officer seeking indemnification shall
also be entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
--------- ---------------------------
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director
37
<PAGE>
or officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation as authorized in
this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
--------- ----------------------------------------------------
Expenses. The indemnification and advancement of expenses provided by or
- --------
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation or any By-Law, agreement,
contract, vote of stockholders or disinterested directors or pursuant to the
direction (howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Section 1 and 2 of
this Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Section 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the GCL, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
--------- ---------
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership,
38
<PAGE>
joint venture, trust, employee benefit plan or other enterprise against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power or the obligation to indemnify such person
against such liability under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
--------- -------------------
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or
39
<PAGE>
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in
good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests
of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of
---------- ----------------------------------------------
Expenses. The indemnification and advancement of expenses provided by, or
- --------
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding
---------- -----------------------------
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer (or his or her heirs, executors or personal or legal representatives) or
advance expenses in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The
---------- ---------------------------------------
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the
40
<PAGE>
Corporation similar to those conferred in this Article VIII to directors and
officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. These By-Laws may be altered, amended or
--------- ----------
repealed, in whole or in part, or new By-Laws may be adopted by the Board of
Directors or by the stockholders as provided in the Certificate of
Incorporation.
Section 2. Entire Board of Directors. As used in this Article IX and
--------- -------------------------
in these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
ARTICLE X
INVESTMENT COMMITTEE
Section 1. Special Corporate Committee. The Corporation shall have
--------- ---------------------------
an Investment Committee whose duties will include the review and approval of all
financial transactions entered into by the Corporation or any of its
subsidiaries. The Investment Committee shall consist of seven members. Until
the earlier to occur of (a) the date on which the members of the PLMI Affiliated
Group shall cease to own, in the aggregate, at least 35% of the voting power of
all of the issued and outstanding shares
41
<PAGE>
of Common Stock and (b) the date on which the members of the PLMI Affiliated
Group shall cease to own, in the aggregate, at least 35% of all of the issued
and outstanding shares of Common Stock (not including, for purposes of
determining such percentages, any shares of Common Stock held as treasury
stock by the Corporation or held by any subsidiary of the Corporation), four
members of the Investment Committee shall be designated by PLMI, and the
remaining three members shall be designated by the Board of Directors of the
Corporation. Each of such members shall serve until such member's successor is
duly designated in accordance with the foregoing, or until such member's
death, or until such member's earlier resignation. Members of the Investment
Committee need not be stockholders nor members of the Board of Directors of
the Corporation.
Section 2. Duties and Powers. The Company shall not enter into a
--------- -----------------
financial transaction without the approval of at least four members of the
Investment Committee, including at least two members designated by PLMI and one
member designated by the Board of Directors of the Corporation.
Section 3. Organization. The members of the Investment Committee
--------- ------------
shall designate a Chairman of the Investment Committee from among such members,
who shall serve until his successor is duly designated. The Chairman of the
Investment Committee shall also act as Secretary of all meetings of the
Investment Committee. The
42
<PAGE>
Investment Committee shall keep regular minutes of all meetings and report to
the Board of Directors of the Corporation when required.
Section 4. Resignations and Removals of Members. Any member of the
--------- ------------------------------------
Investment Committee may resign at any time, by giving written notice to the
Chairman of the Investment Committee or the Chairman of the Board of Directors.
Such resignation shall take effect at the time therein specified or, if no time
is specified, immediately; and, unless otherwise specified in such notice, the
acceptance of such resignation shall not be necessary to make it effective.
Section 5. Meetings. Meetings of the Investment Committee may be held
--------- --------
either within or without the State of Delaware and shall be called by the
Chairman of the Investment Committee, who shall act at the direction of the
Board of Directors. Notice thereof stating the place, date and hour of the
meeting shall be given to each director either by mail not less than forty-eight
(48) hours before the date of the meeting, by telephone, facsimile or telegram
on twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 6. Quorum. At all meetings of the Investment Committee, four
--------- ------
members of such committee shall constitute a quorum for the transaction of
business. If a quorum shall not be present at any meeting of the Investment
Committee, the members present thereat may adjourn the meeting from time to
time, without notice
43
<PAGE>
other than announcement at the meeting of the time and place of the adjourned
meeting, until a quorum shall be present.
Section 7. Actions of Committee. Any action required or permitted to
--------- --------------------
be taken at any meeting of the Investment Committee may be taken without a
meeting, if all the members of the committee consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Investment
Committee.
Section 8. Meetings by Means of Conference Telephone. Members of the
--------- -----------------------------------------
Investment Committee may participate in a meeting of the Investment Committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 8 shall constitute presence
in person at such meeting.
Section 9. Financial Transaction. As used in this Article X, the
--------- ---------------------
term "financial transaction" means [DEFINITION TO COME].
Section 10. Subsidiary. As used in this Article X and in these
---------- ----------
By-Laws generally, the term "subsidiary" (when used with reference to a
particular person) means all corporations, partnerships, joint ventures, limited
liability companies, associations and other entities (a) in which such person
owns (directly or indirectly) fifty percent or more of the outstanding voting
stock, voting power, partnership interests or similar ownership interests, (b)
which such person otherwise directly or indirectly controls or whose policies or
operations such person directs or (c) that would be considered
44
<PAGE>
subsidiaries of such person within the meaning of Regulation S-K or Regulation
S-X of the Securities and Exchange Commission.
45
<PAGE>
EXHIBIT 10.1
AMERICAN FINANCE GROUP, INC.
----------------------------
1998 MANAGEMENT STOCK COMPENSATION PLAN
---------------------------------------
1. Purpose
-------
The purpose of this 1998 Management Stock Compensation Plan (the "Plan") is to
attract, retain, and motivate certain management and key employees of American
Finance Group, Inc. (the "Company"), or any subsidiary of the Company, by giving
such employees (as defined below) an opportunity to acquire stock, or to be
granted, shares of the Company's common stock, par value $.01 per share ("Common
Shares"). The Company may grant options under this Plan that (a) are intended
to be "incentive stock options" ("ISOs") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), (b) are not intended
to be ISOs (such nonqualified options, "NQSOs"). In addition, the Company may
grant under this Plan awards of Common Shares which may be subject to such
restrictions as the Board may determine at the time of grant. Such options and
any other awards granted under this Plan are hereinafter referred to
collectively as "Awards." For the purposes of this Plan, an individual shall be
considered to be an "employee" for such period of time as the Company is
required to withhold federal income tax from the compensation paid by the
Company to such individual because the individual constitutes an "employee"
under Section 3401(c) of the Code.
2. Effective Date
--------------
This Plan was adopted by the Company's board of directors (the "Board"), and
was approved by the Company's sole shareholder, PLM International, Inc. ("PLM"),
on ____________, 1998.
3. Shares Subject to Plan
----------------------
Subject to the other provisions of this Plan, the total number of Common
Shares that may be made subject to Awards under this Plan shall not exceed in
the aggregate 865,500, subject to adjustment in accordance with Paragraph 12(b).
Common Shares delivered to a grantee or optionee by the Company as the result of
the grant, vesting or exercise of an Award may be previously unissued shares or
repurchased shares, including shares repurchased under the terms of this Plan,
or under the terms of any agreement (an "Award Agreement") evidencing the grant
of an Award under this Plan. Common Shares covered by expired, lapsed,
terminated or surrendered Awards shall again become available for the grant of
Awards. All Common Shares issued under this Plan, whatever their source, shall
be counted against the 865,500-share limitation.
4. Administration
--------------
(a) Board to Administer. The Plan and all Awards shall be administered by
-------------------
1
<PAGE>
the Board; provided, however, that notwithstanding any other provision of
this Plan, (i) Awards granted to executive directors of the Company shall be
made and administered by a committee of the Board consisting of two or more
directors who are "outside directors" within the meaning of Section 162(m) of
the Code, and (ii) Awards granted to participants in the Plan who are subject
to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") with respect to the Company shall, if the Board determines
that such committee administration is necessary, be made and administered by a
committee of the Board consisting of two or more directors who are "non-
employee directors" within the meaning of Rule 16b-3 under the Exchange Act.
(b) Voting. A majority of the Board shall constitute a quorum for the
------
purposes of this Plan. Provided a quorum is present, the Board may take action
by consent of a majority of its members present at a meeting. Meetings may be
held telephonically as long as all parties are able to hear one another, and a
member of the Board shall be "present" for purposes of the preceding sentence if
he or she is in simultaneous communication by telephone with the other members,
provided, again, that all parties are able to hear one another.
(c) Tasks of Administering Plan. The Board shall have full and final
---------------------------
authority, in its sole discretion, subject to the express provisions of this
Plan, to (i) determine the management and key employees of the Company to
whom, and the times or times at which, Awards shall be granted, the number of
shares to be subject to any Award, and the exercise or purchase price of any
Award; (ii) determine the terms and provisions of each Award (which terms and
provisions may differ from those of other Awards) and, but only with the
consent of the holder thereof where such consent is required under Paragraph
17, terminate, cancel, modify or amend the terms of any Award; (iii) authorize
any person to execute on behalf of the Company an Award agreement; (iv)
interpret the Plan and any Award; (v) accelerate or extend the permissible
exercise date of, or the lapse of any restrictions with respect to any Award;
and (vi) make all other determinations deemed necessary or advisable for the
administration of the Plan. The Board may also make whatever rules and
regulations it deems useful to administer the Plan. Any decision or action of
the Board in connection with the Plan or any Award granted, or shares
purchased pursuant to an Award, shall be final and binding.
(d) Reports. Unless otherwise decided by the Board, the Board shall
-------
cause written summaries of Awards to be maintained, including descriptions of
all restrictions thereon, as follows: (i) from time to time, all recent Awards
that have not previously been included in such a summary shall be summarized;
(ii) annually within 60 days after the end of the calendar year Awards made
during such preceding calendar year shall be summarized; (iii) annually within
60 days of the end of the calendar year, and at other times within the Board's
discretion, all outstanding Awards shall be summarized; and (iv) at any
additional time, within the Board's discretion, all Awards ever made under the
Plan shall be reported.
(e) Delegation. The Board may delegate non-discretionary administrative
----------
duties to such employees of the Company as it deems proper.
2
<PAGE>
5. Eligibility.
-----------
(a) Only Employees May Receive Awards. Awards may be granted under this
---------------------------------
Plan only to persons who are management employees and other key employees of
the Company or any subsidiary of the Company selected by the Board to
participate in this Plan (such individuals and, where appropriate, such
individual's legal representative or beneficiary, "Participants"); provided,
however, that an ISO may be granted only to a Participant who is at the time
of grant an employee of the Company or a "subsidiary corporation" of the
Company, within the meaning of Section 424 (f) of the Code.
(b) Selection of Participants. In selecting the Participants, and in
-------------------------
determining the size, terms and conditions of an Award, the Board shall take
into consideration such factors as it deems relevant in accomplishing the
Plan's purposes. A Participant who has been granted an Award may later, if he
or she is otherwise eligible, be granted additional Awards.
6. Grant of Awards; Limitations
----------------------------
(a) General Rules. Subject to the rules and restrictions contained
-------------
elsewhere in this Plan, the Company may grant Awards at any time, and from
time to time, until the Plan expires or otherwise terminates. The Board shall
specify the date of grant or, if it fails to, the date of grant shall be the
date of the action taken by the Board to grant the Award; provided, however,
that in the case of any Award that is approved in anticipation of employment,
the date of grant with respect to such Award shall be the date the intended
Participant first becomes an employee of the Company or a parent or subsidiary
of the Company. Notice of the determination shall be given to each person to
whom an Award is granted. Within a reasonable time after the date of grant of
any Award that is subject to restrictions, the Participant and the Company
shall enter into a written agreement (the "Award Agreement") that shall
specify the date of grant, the number of shares covered by the Award, and the
other terms and conditions of the Award.
(b) Special ISO Limit. To the extent that the aggregate fair market
-----------------
value (within the meaning of Section 422(b)(4) of the Code) of Common Shares
with respect to which ISOs are exercisable for the first time by a Participant
during any calendar year under the Plan and any other stock option plan of the
Company (or any "parent corporation" or "subsidiary corporation" of the
Company, as such terms are defined in Section 424(f) of the Code) exceeds
$100,000, such options shall be treated as NQSOs.
(c) Identification of Option as ISO or NQSO. The determination of
---------------------------------------
whether any option granted under this Plan is intended to be an ISO or an NQSO
shall be made by the Board at the time the Board acts to grant the option, and
shall be clearly reflected in the Award Agreement.
(d) Special Limitation on Amounts Paid for Common Shares. In the case
----------------------------------------------------
of any Award of Common Shares, whether or not subject to restrictions at the
time of grant or
3
<PAGE>
thereafter, the Company shall receive no consideration for such grant in
excess of any minimum price required to be paid for such shares under the
General Corporation Law of the State of Delaware, the California Corporate
Securities Rules, or any other state corporation or securities law, if
applicable, including, but not by way of limitation, a requirement that shares
not be sold for less than their par value.
(e) Notwithstanding anything to the contrary contained herein, the
maximum number of shares that may be made subject to Awards to any one
individual shall not exceed, in the aggregate, 33.33% of the shares that may
be made subject to Awards under this Plan.
7. Terms and Conditions of Options
-------------------------------
Options granted under this Plan shall be subject to the following terms and
conditions, and to any other terms and conditions, not inconsistent with this
Plan, that the Board imposes when the option is granted;
(a) Time of Exercise. Unless earlier terminated under the terms of
----------------
this Plan and the applicable Award Agreement, options granted under this Plan
shall become exercisable as to one-third of the Common Shares covered thereby
on each of the first, second and third anniversaries of the date of grant.
(b) Exercise Price of Options Generally. Unless otherwise decided by the
-----------------------------------
Board, except as provided in paragraph (c) below, with respect to any option
granted under this Plan, the price to be paid by the option holder for Common
Shares issued pursuant to such option shall be equal to 100% of the closing
price of such shares on NASDAQ or such other national stock exchange on which
the Common Shares are traded as of the date as of which such option is
granted, which price shall be specified in the applicable Award Agreement.
(c) Exercise Price of Options Granted at IPO. Notwithstanding paragraph
----------------------------------------
(b) above, with respect to options granted under this Plan as of the
consummation of the IPO, the price to paid by the option holder for Common
Shares issued pursuant to such option shall be the offering price of the
Common Shares in such IPO, which price shall be specified in the applicable
Award Agreement.
(d) Option Term. The term of any option granted under the Plan shall
-----------
commence and expire on the date specified in the applicable Award Agreement
(such date, the "Expiration Date"); provided, however, that in the case of any
ISO the Expiration Date shall not be later than the date that is 10 years
after the date the option is granted, or, in the case of an ISO that is
granted to a Participant who, as of the date such ISO is granted, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of any "subsidiary corporation" (as such term is
defined in Section 424(f) of the Code) of the Company (a "10% Owner"), the
Expiration Date of such ISO may not be later than 5 years after such date.
Options may be terminated earlier than their original Expiration Date, in the
Board's discretion, and the Board also may extend the term of any option,
except that in no event may an ISO's term be extended beyond that date that is
10 years after the date
4
<PAGE>
it was granted, or in the case of 10% Owner, 5 years after the date of grant.
(e) Method of Exercise. Unless otherwise determined by the Board,
------------------
options may be exercised, in whole or in part, from time to time, by written
notice from the Participant to the Company stating the number of shares being
purchased and accompanied by payment in full of the exercise price for the
shares. Unless the Award Agreement provides otherwise, or in the discretion of
the Board exercised at the time the option is exercised, payment may be made
in cash, by check, by delivery to the Company of whole Common Shares owned by
the Participant (duly endorsed in favor of the Company or accompanied by a
duly endorsed stock power), by the Participant's interest-bearing full
recourse promissory note (subject to any applicable restrictions, limitations,
or conditions imposed by General Corporation Law of the State of Delaware,
[the [Massachusetts] Corporations Code,] or any other state law, if
applicable), by non-cash exercise methods permitted by law, including, without
limitation, methods whereby a broker sells shares of Common Stock to which an
exercise relates or holds such shares as collateral for a margin loan,
delivers the aggregate exercise price to the Company, and delivers the
remaining proceeds to the Participant (and in conjunction therewith the
Company may establish a non-cash exercise program including a program where
the commissions on the sale of shares of Common Stock to which the exercise
relates are paid by the Company), or by a combination of the above having a
combined fair market value equal to the aggregate exercise of the option,
determined in the same manner as the option price under Paragraph 7(b).
(f) Nontransferability of Options. An option granted under this Plan
-----------------------------
shall not be transferable other than (i) by will or by the laws of descent and
distribution or (ii) by gratuitous transfer to any of the Participant's
immediate family members or a trust established for the benefit of such family
member, and an option may be exercised, during the lifetime of the holder of
the option, only by such holder. An option may not be assigned, transferred
(except as provided in the preceding sentence), pledged or hypothecated in any
way (whether by operation of law or otherwise), and will not be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation, or other disposition of any option contrary to the
provisions of this Plan, and any levy of any attachment or similar process
upon an option, will be null and void, and otherwise without effect, and the
Board may, in its sole discretion, upon the happening of any such event,
terminate such option forthwith.
(g) Optionee Not a Stockholder Until Exercise. A Participant shall not
-----------------------------------------
have any of the rights of a stockholder with respect to the Common Shares
covered by his or her option until such option (or any portion thereof) shall
have been exercised and such shares shall have been issued to him or her (as
evidenced by an appropriate entry on the books of a duly authorized transfer
agent of the Company) pursuant to the exercise of the option.
(h) Exercise After Termination of Employment. If a Participant ceases
----------------------------------------
to be employed by the Company, or a subsidiary of the Company, for any reason
other than death, options held by such Participant at the effective date of
termination of employment may, to the extent exercisable immediately before
the termination of employment, be exercised, in whole
5
<PAGE>
or in part, within, in the case of an ISO, three months (12 months if the
termination of employment results from such Participant's permanent and total
disability) following the effective date of such termination and, in the case
of an NQSO, six months (12 months if the termination of employment results
from the Optionee's permanent and total disability) after the effective date
of such termination of employment, or within such lesser period as may be
specified in the Award Agreement; provided, however, that in no case may an
option be exercised after its Expiration Date, if that occurs first. A
Participant shall be considered permanently and totally disabled if he or she
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to
result in death, or that has lasted or can be expected to last for a
continuous period of not less than 12 months, but in either case only as
evidenced by the such Participant's receipt of disability benefits under
Social Security.
(i) Exercise Following Death. If a Participant dies while employed by
------------------------
the Company or a subsidiary of the Company, or within the period that the
option remains exercisable after termination of employment, those options held
by such Participant at the date of his or her death, to the extent then
exercisable by him or her, may be exercised in whole or in part the holder of
such option (whether such option was transferred prior to the Participant's
death or by will or the laws of descent distribution), at any time prior to
the earliest of their Expiration Date or within 12 months after the death of
such Participant, or within any lesser period specified in the Award
Agreement.
(j) Sick Leaves and Leaves of Absence. A Participant's employment shall
---------------------------------
not be deemed to terminated by reason of sick leave, military leave, or other
leave of absence approved by the Company, if the period of any such leave does
not exceed a period approved by the Company, or, if longer, if such
Participant's right to reemployment by the Company (or any parent or
subsidiary) of the Company is guaranteed either contractually or by statute.
Individual Award Agreements may contain such other (additional or different)
provisions with respect to leaves of absence as the Board may approve, either
at the time of grant or later.
(k) Discretionary Transfers. Notwithstanding anything herein to the
-----------------------
contrary, the Board may, in its sole discretion, permit lifetime or death
transfers to the extent permitted by Rule 16b-3 under the Exchange Act.
8. Compliance with Securities Laws
-------------------------------
The Company shall not be obligated to offer or sell any shares upon exercise
of an option unless the shares are at that time effectively registered or exempt
from registration under the federal securities laws and the offer and sale of
the shares are otherwise in compliance with all applicable securities laws,
including, without limitation, the Securities Act of 1933, as amended, the
Securities and Exchange Act of 1934, as amended, and the General Rules and
Regulations promulgated thereunder. The grant of any shares under this Plan, or
the offer or sale of any shares upon exercise of an option, shall further be
subject to approval by the Company's counsel with respect to such compliance.
The Company shall have no obligation to register under the federal securities
laws any shares granted under this Plan, or to
6
<PAGE>
take any other steps necessary to enable shares to be offered and sold under
federal or other securities laws. Prior to the transfer by the Company of any
shares to a Participant, or upon the exercise of all or any portion of an
option, such Participant may be required to furnish representations or
undertakings deemed appropriate by the Board to enable the offer and sale of
the option shares, or subsequent transfers of any interest in the shares, to
comply with applicable securities laws. Stock certificates evidencing Common
Shares acquired pursuant to an Award shall bear any legend required by, or
useful for compliance with, applicable securities laws, this Plan, or any
Award Agreement.
9. Restrictions on Shares
----------------------
(a) Repurchase Rights. At the time an Award is granted, the Board may
-----------------
determine that the Company shall retain, for itself or others, such rights to
repurchase, rights of first refusal, and other transfer restrictions
applicable to Common Shares acquired pursuant to such Award, or may impose
such other restrictions as the Board, in is complete discretion, may
determine, which Company rights or other restrictions shall be set forth in
the applicable Award Agreement.
(b) Financial Covenants. The Company may be precluded from paying
-------------------
dividends on Common Shares which may be acquired pursuant to an Award by the
terms of financial covenants with any person that has purchased preferred
equity or debt securities of, or loaned money to, the Company or any parent or
subsidiary of the Company.
(c) Escrow Agreement. In order to enforce restrictions which may be
----------------
imposed upon Common Shares which may be acquired pursuant to an Award
hereunder, the Board may require any Participant to enter into an escrow
agreement providing that the certificates representing shares shall remain in
the physical custody of an escrow holder until any or all of the restrictions
imposed pursuant to the Plan or applicable Award Agreement shall have lapsed
or otherwise been terminated.
(d) Legending Share Certificates. In order to enforce restrictions
----------------------------
which may be imposed upon Common Shares which may be acquired pursuant to an
Award hereunder, the Board may cause a legend or legends to be placed on any
certificates representing such shares, which legend or legends shall make
appropriate reference to the restrictions imposed hereunder, including, but
not limited to (i) the Company's repurchase rights, if any, under Paragraph
9(a) and (ii) a restriction against sale of such shares for any period of time
as may be required by an appropriate law or regulation. If any restriction
with respect to which a legend was placed on any certificate ceases to apply
to Common Shares represented by such certificate, the owner of the Common
Shares represented by such certificate may require the Company to cause the
issuance of a new certificate not bearing the legend.
(e) Additional Restrictions. Additionally, and not by way of
-----------------------
limitation, the Board may impose such restrictions on any Common Shares issued
pursuant to this Plan as it may deem advisable, including, without limitation,
restrictions under the Securities Act of 1933, as amended, under the
requirements of any stock exchange upon which the shares of the
7
<PAGE>
same class are then listed, and under any blue sky or other securities laws
applicable to such shares.
10. Taxes. The issuance of Common Shares pursuant to the grant, vesting or
-----
exercise of an Award shall be conditioned upon payment by the Participant to the
Company of amounts sufficient to enable the Company to pay all applicable
federal, state and local withholding taxes. Such payment to the Company by the
Participant may be effected through (i) the Company's withholding from the
number of Common Shares that would otherwise be delivered a number of whole
shares having a fair market value equal to or less than the aggregate
withholding taxes; (ii) payment by the Participant to the Company of the
aggregate withholding taxes in cash; (iii) withholding by the Company from other
amounts contemporaneously owed by the Company to the Participant; or (iv) any
combination of the three preceding methods.
11. Use of Proceeds
---------------
Proceeds realized from the sale of Common Shares of pursuant to the grant,
vesting or exercise of an Award shall constitute general funds of the Company.
12. Acquisitions and Other Transactions
-----------------------------------
Upon the occurrence of a Change in Control (as defined below), the Board may
in its absolute discretion do any one or more of the following: (i) shorten
the period during which options are exercisable (provided they remain
exercisable, to the extent otherwise exercisable, for at least 10 days after the
date the notice of such modification is given to the Participants); (ii)
accelerate any vesting schedule to which an Award is subject, or cause to lapse
any repurchase or other rights the Company may have with respect to Common
Shares acquired by a Participant pursuant to the grant, vesting or exercise of
an Award; (iii) arrange for the grant of replacement Awards with appropriate
adjustments in the number and kind of securities and option prices; or (iv)
cancel outstanding Awards or Common Shares acquired by a Participant which are
subject to restrictions, for which each such Participant shall be entitled to
receive in consideration of such cancellation an amount in cash that, in the
absolute discretion of the Board, is determined to be equivalent to the fair
market value (at the effective time of the Change in Control) of such Award or
Shares. In considering the advisability, or the terms and conditions, of any
action it may take in connection with a Change in Control, the Board shall take
into account the penalties that may result directly or indirectly from such
action to either the Company or the Participant, or both, under Section 280G of
the Code, and may decide to limit such action to the extent necessary to avoid
or mitigate such penalties or their effects.
A "Change in Control" shall be deemed to have occurred if the event set forth
in any one of the following paragraphs shall have occurred:
(a) any Person (other than PLM) becomes the Beneficial Owner of
securities of the Company representing 35% or more of the combined voting power
of the
8
<PAGE>
Company's then outstanding securities, unless at any time during which such
Person Beneficially Owns 35% or more of such combined voting power of the
Company's then outstanding securities, PLM Beneficially owns a percentage of the
combined voting power of the Company's then outstanding securities that is
greater than the percentage Beneficially Owned by such Person;
(b) there is consummated a merger or consolidation of the Company or
any direct or indirect subsidiary of the Company with any other corporation,
other than (i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
subsidiary of the Company, at least 40% of the combined voting power of the
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger of consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no Person increases its Beneficial Ownership,
directly or indirectly, of securities of the Company by more than 15% of the
combined voting power of the Company's then outstanding securities;
(c) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets, other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least 40% of the
combined voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale; or
(d) a change in the Board, which change is the result of a proxy
solicitation or other action to influence voting at a stockholders' meeting of
the Company (other than by voting one's own stock) by a Person or group of
Persons which causes the Continuing Directors to cease to be a majority of the
Board; provided, however, that none of the foregoing events shall be deemed to
be a Change in Control if the event or election cuasing such change shall have
been approved specifically for purposes of this Agreement by the affirmative
vote of at least a majority of the members of the Continuing Directors.
13. Changes in Capital Structure
----------------------------
(a) No Impediment to Corporate Transactions. The fact that Common
---------------------------------------
Shares are subject to Awards shall not affect the Company's right to effect
adjustments, recapitalizations, reorganizations, or other changes in its or any
other corporations' capital structure or business, or merger or consolidation,
any issuance of bonds, debentures, preferred or prior preference stock ahead of
or affecting Common Shares, the dissolution or liquidation
9
<PAGE>
of the Company's or any other corporation's assets or business, or any other
corporate act, whether similar to the events described above or otherwise.
(b) Adjustments. Subject to Paragraph 12, which shall, when applicable,
-----------
take precedence over this Paragraph 13(b), if the outstanding Common Shares are
increased or decreased in number, or changed into, or exchanged for, a different
number or kind of securities of the Company or any other corporation by reason
of a recapitalization, reclassification, stock split, combination of shares,
stock dividend or other event, or if any other dilutive event occurs, the number
and kind of securities that may be issued pursuant to the grant, vesting or
exercise of any outstanding or future Award, and the purchase price with respect
to any outstanding or future Awards, shall be adjusted by the Board if and to
the extent the Board determines in its sole discretion that such an adjustment
is necessary or desirable.
14. Disqualifying Dispositions of ISOs
----------------------------------
If any Common Share acquired upon exercise of any ISO is disposed of in a
disposition that, under Section 422 of the Code, disqualifies such portion of
such ISO from the application of Section 421(a) of the Code, the holder of such
Common Shares at the time of such disposition shall notify the Company in
writing of the date and terms of the disposition and shall comply with any other
requirements imposed by the Company in order to enable the Company to secure the
related income tax deduction to which it is entitled.
15. No Representations.
------------------
Neither the Company nor the Board shall at any time make, and at no time shall
be deemed to have made, any representations to any Participant or beneficiary
thereof concerning the specific legal, vesting or exercise of any Award or tax
effect surrounding such Award, it being a condition of each Award that the
recipient thereof shall be subject to all applicable federal and state laws and
regulations.
16. Limitation on Right of Action.
-----------------------------
Any and all rights of action by the Company or any stockholder or stockholders
of the Company against any past, present, or future members of the Board, or
against any past or present employee of the Company or any parent or subsidiary
of the Company, arising out of or in connection with the Plan, any Award
Agreement or any act or omissions related thereto, shall be limited to acts or
omissions only that are the result of gross negligence or willful misconduct.
Any such right of action shall terminate and forever be barred unless action is
brought within one year of the time of the occurrence of the act or omission
upon which liability is claimed.
10
<PAGE>
17. Amendment/Termination of Plan
-----------------------------
The Board may, without stockholder approval, alter, suspend or terminate
this Plan at any time or from time to time; provided, however, that stockholder
approval shall be required if and to the extent the Board determines that such
approval is appropriate for purposes of satisfying applicable law, including but
not limited to the Exchange Act or Sections 162(m) or 422 of the Code. The Board
may amend or modify the terms of any outstanding Award at any time and from time
to time; provided, however, that no such amendment shall, without the prior
written consent of the Participant, adversely affect the rights of such
Participant under a then outstanding Award.
This Plan shall automatically expire on the tenth anniversary of the date of
its adoption, and no options may be granted under this Plan following the such
date. The expiration or other termination of this Plan shall not, without the
prior written consent of the Participant, adversely affect the rights of any
Participant under a then outstanding Award.
18. Interpretation; Severability.
----------------------------
This Plan is designed and intended to comply with all applicable law,
including but not limited to Sections 162(m) and 422 of the Code and federal and
state securities laws, and all provisions hereof shall be construed in a manner
so to comply.
If any provision of this Plan is or becomes illegal, invalid or unenforceable
in any jurisdiction or as to any Participant or Award, such provision shall be
construed or deemed amended to conform to applicable law, or if it cannot be
construed or deemed amended without, in the determination of the Board,
materially altering the intent of the Plan or Award, such provision shall be
stricken as to such jurisdiction, Participant or Award and the other provisions
of this Plan shall remain in full force and effect.
19. No Effect on Terms of Employment.
--------------------------------
Neither the establishment of this Plan and the granting of Awards hereunder,
nor the inclusion in any Award of a right of the Company to repurchase Common
Shares issued to a Participant shall have any effect on the terms and conditions
of employment of any Participant. Subject to the terms of any employment
contract to the contrary, the Company, or any parent or subsidiary of the
Company, shall have the right to terminate or change the terms of employment of
any Participant at any time, for any reason whatsoever, without regard to the
impact, if any, that such termination or change may have with respect to such
Participant's rights under this Plan, or under any Award Agreement, immediately
before such change or termination, and without regard to any resulting tax
consequences to such Participant.
11
<PAGE>
EXHIBIT 10.2
AMERICAN FINANCE GROUP, INC.
DIRECTORS' 1998 NONQUALIFIED STOCK OPTION PLAN
----------------------------------------------
1. Purpose
-------
The purpose of this Directors' 1998 Nonqualified Stock Option Plan (the
"Plan") is to motivate and reward those directors of American Finance Group,
Inc. (the "Company") who are not employees of the Company or any subsidiary (as
defined below) of the Company eligible for participation in the American Finance
Group, Inc. 1998 Management Stock Compensation Plan (the "Management Plan"), by
granting each such director options to purchase shares of the Company's common
stock, par value $.01 per share ("Common Shares"). For purposes of this Plan,
the term "subsidiary" shall, with respect to the Company, have the meaning
ascribed to the term "subsidiary corporation" under Section 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Effective Date
--------------
This Plan was adopted by the Company's Board of Directors (the "Board") and
was approved by the Company's sole shareholder, PLM International, Inc. ("PLM"),
on ____________, 1998.
3. Shares Subject to Plan
----------------------
Subject to the other provisions of this Plan, the total number of Common
Shares with respect to which options may be granted under this Plan shall be
100,000, subject to adjustment in accordance with paragraph 12(b). Shares
delivered to an optionee by the Company upon exercise of all or any portion of
an option may be previously unissued shares or repurchased shares. All Common
Shares issued upon the exercise of any option granted under this Plan, whatever
their source, shall be counted against the 100,000-share limit, provided,
however, that shares subject to options that lapse, expire or otherwise
terminate, or shares that are surrendered pursuant to the terms of this Plan
shall be available for reissue under the Plan.
4. Administration
--------------
(a) Board to Administer. This Plan shall be administered by the Board.
-------------------
(b) Voting. A majority of the Board shall constitute a quorum for the
------
purposes of this Plan. Provided a quorum is present, the Board may take action
by consent of a majority of its members present at a meeting. Meetings may be
held telephonically as long as all parties are able to hear one another, and a
member of the Board shall be "present" for purposes of the preceding sentence
if he or she is in simultaneous communication by telephone with the other
members, provided, again, that all parties are able to hear one another.
(c) Tasks of Board in Administering Plan. The Board shall have full and
------------------------------------
final authority, in its sole discretion, subject to the express provisions of
this Plan, to: (i) authorize any person to execute on behalf
1
<PAGE>
of the Company an agreement evidencing the grant of an option; (ii) interpret
the Plan and any option; and (iii) make all other determinations deemed by the
Board necessary or advisable for the administration of the Plan. The Board may
also make whatever rules and regulations it deems useful to administer the
Plan. Any decision or action of the Board in connection with the Plan or any
options granted, or shares purchased, under the Plan, shall be final and
binding.
(d) Reports. Unless otherwise decided by the Board, the Board shall
-------
cause written summaries of stock option grants under this Plan to be
maintained as follows: (i) all grants shall be summarized into a single
schedule; (ii) annually within 60 days of the end of the calendar year, all
outstanding options shall be summarized in a single schedule; and (iii) at any
additional time, within the Board's discretion, all stock option grants and
exercises shall be summarized.
(e) Delegation. The Board may delegate nondiscretionary administrative
-----------
duties to such employees of the Company as it deems proper.
5. Eligibility
-----------
(a) Only Non-employee Directors May Receive Options. Stock options
------------------------------------------------
shall be granted under this Plan only to persons who at the time of grant are
directors of the Company but not employees of the Company or of any subsidiary
of the Company.
(b) All Non-Employee Directors to Receive Options on a Non-discretionary
--------------------------------------------------------------------
Basis. Each of the Company's directors who is eligible under paragraph 5(a)
- ------
above to participate in this Plan shall be granted upon the consummation of the
IPO an option under this Plan to purchase 10,000 Common Shares. In addition,
each such director shall be granted on each of February 1, 1999 and February 1,
2000 an option under this Plan to purchase 5,000 Common Shares. If on the grant
date the number of Common Shares available for grant under this Plan is
insufficient to provide each eligible director an option to purchase the number
of Common Shares set forth above, options shall be granted pro rata to each
eligible director to the extent Common Shares are available under the Plan.
6. Grant of Options and Limitations
--------------------------------
(a) General Rules. As soon as practical after the date of the grant of
--------------
each option, the optionee and the Company shall enter into a written agreement
(the "Option Agreement") that shall specify the date of the grant, the number
of Common Shares covered by the option, the option price, and the other terms
and conditions of the option grant.
(b) Non-qualified Stock Options. All of the options granted under this
----------------------------
Plan shall be options not qualifying for the benefits, and not subject to the
requirements, of "incentive stock options" within the meaning of Section 422
of the Code.
2
<PAGE>
7. Terms and Conditions of Option.
-------------------------------
Options granted under this Plan shall be subject to the following terms
and conditions, and to any other terms and conditions, not inconsistent with
this Plan, that the Board imposes when the option is granted:
(a) Time of Exercise. Options shall be exercisable as follows:
-----------------
If the optionee continues
to be a director of the
Company or of a parent or
subsidiary of the Company With respect to each
on such date, the option grant of shares as
shall become exercisable on shown below
------------------------------------------------------------
first anniversary of grant date 1/3 of shares granted
second anniversary of grant date 1/3 of shares granted
third anniversary of grant date 1/3 of shares granted
(b) Price. With respect to options granted under this Plan as of the
------
consummation of the IPO, the price to be paid by the option holder for Common
Shares issued pursuant to such option shall be the offering price of the
Common Shares in such IPO, which price shall be specified in the Option
Agreement. With respect to any other option granted under this Plan, the price
to be paid by the option holder for Common Shares issued pursuant to such
option shall be equal to the average of the high and low prices, as reported
in the Wall Street Journal, of such shares on NASDAQ or such other national
-------------------
stock exchange on which the Common Shares are traded on the day immediately
preceding the date as of which such option is granted, which price shall be
specified in the Option Agreement.
(c) Option Term. The term of any option granted under the Plan shall
------------
be from the date of grant through a date no later than the tenth anniversary
of the grant date (such date, the "Expiration Date").
(d) Method of Exercise. Options may be exercised, in whole or in part,
-------------------
from time to time, by written notice from the optionee to the Company stating
the number of Common Shares being purchased and accompanied by payment in full
of the exercise price for such shares. Payment may be in cash, by check, or by
delivery to the Company of Common Shares previously owned by such optionee
(duly endorsed in favor of the Company or accompanied by a duly endorsed stock
power), or by a combination of the above. (Any Common Share used by the
optionee to exercise an option shall be valued at fair market value as of the
date of exercise of the option.)
(e) Nontransferability of Options. An option granted under this Plan
------------------------------
shall not be transferable other than (i) by will or by the laws of descent and
distribution or (ii) by gratuitous transfer to any of
3
<PAGE>
optionee's immediate family members or a trust established for the benefit of
such family member, and an option may be exercised, during the lifetime of the
holder of the option, only by such holder. An option may not be assigned,
transferred (except as provided in the preceding sentence), pledged, or
hypothecated in any way (whether by operation of law or otherwise), and will
not be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation, or other disposition of any
option contrary to the provisions of this Plan, and any levy of any attachment
or similar process upon an option, will be null and void, and otherwise
without effect, and the Board may, in its sole discretion, upon the happening
of any such event, terminate such option forthwith.
(f) Optionee Not a Stockholder Until Issuance of Shares. An optionee
----------------------------------------------------
shall not have any of the rights of a stockholder with respect to the Common
Shares covered by his or her option until such option (or any portion thereof)
shall have been exercised and such shares shall have been issued to him or her
(as evidenced by the appropriate entry on the books of a duly authorized
transfer agent of the Company) pursuant to such exercise.
(g) Exercise After Ceasing to be a Director. If an optionee ceases to
---------------------------------------
be a director of the Company for any reason other than death, options held by
the optionee at the effective date of such cessation of service may, be
exercised, in whole or in part, within six months (12 months if the optionee
ceases to be a director of the Company due to the optionee's permanent and
total disability) after the effective date of such cessation of service;
provided, however, that in no case may an option be exercised after its
Expiration Date, if that occurs first. An optionee shall be considered
permanently and totally disabled if he or she is unable to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment that can be expect to result in death, or that has lasted
or can be expected to last for a continuous period of not less than 12 months,
but in either case only as evidenced by the optionee's receipt of disability
under Social Security.
(h) Exercise Following Death. If an optionee dies while a director of
------------------------
the Company or of a parent or subsidiary of the Company, or within the period
that the option remains exercisable after ceasing to be a director, any option
held by the optionee at the date of his or her death, to the extent then
exercisable, may be exercised in whole or in part by the holder of such option
(whether such option was transferred prior to the director's death or by will
or the laws of descent or distribution), at any time prior to their Expiration
Date or, if earlier, within one year after the death of the optionee.
8. Compliance with Securities Laws
-------------------------------
The Company shall not be obligated to offer or sell any Common Shares
upon exercise of an option unless the such shares are at that time effectively
registered or exempt from registration under the federal securities laws and
the offer and sale of the shares are otherwise in compliance with all
applicable securities laws, including, without limitation, the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the
General Rules and Regulations promulgated thereunder. The offer or sale of
Common Shares upon exercise of an option shall further be subject to approval
by the Company's counsel with respect to such compliance. The Company shall
have no obligation to register under the federal securities laws any Common
Shares acquired upon exercise of any option granted under this Plan, or to
take any other steps
4
<PAGE>
necessary to enable such shares to be offered and sold under federal or other
securities laws. Prior to the transfer by the Company of any Common Shares
upon the exercise of all or any portion of an option, an optionee may be
required to furnish representations or undertakings deemed appropriate by the
Board to enable the offer and sale of such shares, or subsequent transfers of
any interest in such shares, to comply with applicable securities laws. Stock
certificates evidencing Common Shares acquired upon exercise of options
granted under this Plan shall bear any legend required by, or useful for
compliance with, applicable securities laws, this Plan, or the Option
Agreement.
9. Restrictions on Shares
----------------------
(a) Financial Covenants. The Company may be precluded from paying
-------------------
dividends on shares issued with respect to the exercise of any option granted
under this Plan by the terms of financial covenants with any person that has
purchased preferred equity or debt securities of, or loaned money to, the
Company or any parent or subsidiary of the Company.
(b) Legending Share Certificates. In order to enforce the restrictions
----------------------------
which may be imposed upon Common Shares acquired hereunder, the Board may
cause a legend or legends to be placed on any certificates representing Common
Shares issued upon the exercise of an option granted under this Plan, which
legend may also include such references to the restriction against sale of the
shares for any period of time as may be determined by the Board to be
necessary or desirable. If any such restriction ceases to apply to Common
Shares represented by such certificate, the owner of such shares may require
the Company to cause the issuance of a new certificate not bearing the legend.
(c) Additional Restrictions. Additionally, the Board may impose
-----------------------
restrictions under the Securities Act of 1933, as amended, under the
requirements of any stock exchange upon which the Common Shares or shares of
the same class are then listed, and under any blue sky or other securities
laws applicable to such shares.
10. Use of Proceeds
---------------
Proceeds realized pursuant to the exercise of options granted under this
Plan shall constitute general funds of the Company.
11. Change in Control.
-----------------
Upon the occurrence of a Change in Control (as defined below), the Board
may in its absolute discretion do any one or more of the following: (i)
shorten the period during which options are exercisable (provided they remain
exercisable, to the extent otherwise exercisable, for at least 10 days after
the date the notice of such modification is given to the optionees); (ii)
accelerate any vesting schedule to which an option is subject, or cause to
lapse any restrictions applicable to Common Shares acquired pursuant to the
exercise of an option; (iii) arrange for the grant of replacement options with
appropriate adjustments in the number and kind of securities and option
prices; or (iv) cancel outstanding options, for which each such optionee shall
be entitled to receive in consideration of such cancellation an amount in cash
that, in the absolute discretion of the Board, is determined
5
<PAGE>
to be equivalent to the fair market value (at the time of the Change in
Control) of such option. In considering the advisability, or the terms and
conditions, of any action it may take in connection with a Change in Control,
the Board shall take into account the penalties that may result directly or
indirectly from such action to either the Company or the optionee, or both,
under Section 280G of the Code, and may decide to limit such action to the
extent necessary to avoid or mitigate such penalties or their effects.
A "Change in Control" shall be deemed to have occurred if the event
set forth in any one of the following paragraphs shall have occurred:
(a) any Person (other than PLM) becomes the Beneficial Owner of
securities of the Company representing 35% or more of the combined voting
power of the Company's then outstanding securities, unless at any time
during which such Person Beneficially Owns 35% or more of such combined
voting power of the Company's then outstanding securities, PLM
Beneficially owns a percentage of the combined voting power of the
Company's then outstanding securities that is greater than the percentage
Beneficially Owned by such Person;
(b) there is consummated a merger or consolidation of the Company or
any direct or indirect subsidiary of the Company with any other
corporation, other than (i) a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any subsidiary of the Company, at least 40% of the
combined voting power of the securities of the Company or such surviving
entity or any parent thereof outstanding immediately after such merger of
consolidation, or (ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
Person increases its Beneficial Ownership, directly or indirectly, of
securities of the Company by more than 15% of the combined voting power
of the Company's then outstanding securities;
(c) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least 40% of the combined voting power of the
voting securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale; or
(d) a change in the Board, which change is the result of a proxy
solicitation or other action to influence voting at a stockholders'
meeting of the Company (other than by voting one's own stock) by a Person
or group of Persons which causes the Continuing Directors to cease to be
a majority of the Board; provided, however, that none of the foregoing
events shall be deemed to be a Change in Control if the event or election
causing such change shall have been approved
6
<PAGE>
specifically for purposes of this Agreement by the affirmative vote of at
least a majority of the members of the Continuing Directors.
12. Changes in Capital Structure
----------------------------
(a) No Impediment to Corporate Transactions. The fact that Common
---------------------------------------
Shares are subject to options granted under this Plan shall not affect the
Company's right to effect adjustments, recapitalizations, reorganizations, or
other changes in its or any other corporation's capital structure or business,
any merger or consolidation, any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Shares, the dissolution or
liquidation of the Company's or any other corporation's assets or business, or
any other corporate act, whether similar to the events described above or
otherwise.
(b) Adjustments. Subject to Paragraph 11, which shall, when applicable,
-----------
take precedence over this Paragraph 12(b), if the outstanding Common Shares
are increased or decreased in number, or changed into, or exchanged for, a
different number or kind of securities of the Company or any other corporation
by reason of a recapitalization, reclassification, stock split, combination of
shares, stock dividend or other event, the number and kind of securities that
may be issued pursuant to outstanding or future options granted under this
Plan and/or the option price at which outstanding options may be exercised,
shall be adjusted by the Board if and to the extent the Board determines in
its sole discretion that such an adjustment is necessary or desirable.
13. No Representations
------------------
Neither the Company nor the Board shall at any time make, and at no
time shall be deemed to have made, any representations to any optionee or
beneficiary thereof concerning the specific legal or tax effects surrounding
the grant or exercise of options to such optionee or beneficiary thereof, it
being a condition of each such individual's right to exercise any option that
said individual shall be subject to all applicable federal and state laws and
regulations.
14. Amendment/Termination of Plan
-----------------------------
The Board may, without stockholder approval, alter, suspend or terminate
this Plan at any time and from time to time; provided, however, that
stockholder approval shall be required if and to the extent the Board
determines that such approval is appropriate for purposes of satisfying
applicable law, including but not limited to federal securities laws. The
Board may amend or modify any outstanding option at any time and from time to
time; provided, however, that no such amendment shall, without the prior
written consent of the optionee, adversely affect the rights of such optionee
under a then outstanding option granted under this Plan.
This Plan shall automatically expire on the [tenth] anniversary of the
date of its adoption, and no options may be granted under this Plan following
such date. The Board may earlier terminate this Plan at any time for any
reason. The expiration or other termination of this Plan shall not, without
the prior written consent of the optionee, adversely affect the rights of any
optionee under a then outstanding option granted under this Plan.
7
<PAGE>
15. Interpretation; Severability.
----------------------------
This Plan is designed and intended to comply with all applicable law,
including but not limited to federal and state securities laws, and all
provisions hereof shall be construed in a manner so to comply.
If any provision of this Plan is or becomes illegal, invalid or
unenforceable in any jurisdiction or as to any optionee or option, such
provision shall be construed or deemed amended to conform to applicable law,
or if it cannot be construed or deemed amended without, in the determination
of the Board, materially altering the intent of the Plan or option, such
provision shall be stricken as to such jurisdiction, optionee or option and
the other provisions of this Plan shall remain in full force and effect.
16. Limitation on Right of Action
-----------------------------
Any and all rights of action by the Company or any stockholder or
stockholders of the Company against any past, present, or future members of
the Board, or against any past or present employee of the Company or any
parent or subsidiary of the company, arising out of or in connection with the
Plan, any Option Agreement or any act or omission related thereto, shall be
limited to acts or omissions only that are the result of gross negligence or
willful misconduct. Any such right of action shall terminate and forever be
barred unless action is brought within one year of the time of the occurrence
of the act or omission upon which liability is claimed.
8
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED
WAREHOUSING CREDIT AGREEMENT
AMONG
AMERICAN FINANCE GROUP, INC.
and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
BANK OF MONTREAL
and Such Other Financial Institutions
as Shall Become LENDERS Hereunder
and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Agent
December 2, 1997
<PAGE>
WAREHOUSING CREDIT AGREEMENT
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS........................................... 2
1.1 Defined Terms......................................... 2
1.2 Accounting Terms...................................... 20
1.3 Other Terms........................................... 20
1.4 Schedules and Exhibits................................ 20
SECTION 2. AMOUNT AND TERMS OF CREDIT............................ 20
2.1 Commitment to Lend.................................... 20
2.1.1 Revolving Facility.......................... 20
(a) Facility Commitments................ 21
(b) Each Loan........................... 22
2.1.2 Funding..................................... 22
2.1.3 Utilization of the Loans.................... 22
2.2 Repayment and Prepayment.............................. 22
2.2.1 Repayment................................... 22
2.2.2 Voluntary Prepayment........................ 23
2.3 Calculation of Interest; Post-Maturity Interest....... 23
2.4 Manner of Payments.................................... 23
2.5 Payment on Non-Business Days.......................... 23
2.6 Application of Payments............................... 24
2.7 Procedure for the Borrowing of Loans.................. 24
2.7.1 Notice of Borrowing......................... 24
2.7.2 Unavailability of LIBOR Loans............... 24
2.8 Conversion and Continuation Elections................. 24
2.8.1 Election.................................... 24
2.8.2 Notice of Conversion........................ 25
2.8.3 Interest Period............................. 25
2.8.4 Unavailability of LIBOR Loans............... 25
2.9 Discretion of Lenders as to Manner of Funding......... 25
2.10 Distribution of Payments.............................. 26
2.11 Agent's Right to Assume Funds Available for Advances.. 26
2.12 Agent's Right to Assume Payments Will be Made by
Borrower.............................................. 26
2.13 Capital Requirements.................................. 27
2.14 Taxes................................................. 27
2.14.1 No Deductions............................... 27
2.14.2 Miscellaneous Taxes......................... 27
2.14.3 Indemnity................................... 27
<PAGE>
2.14.4 Required Deductions......................... 28
2.14.5 Evidence of Payment......................... 28
2.14.6 Foreign Persons............................. 28
2.14.7 Income Taxes................................ 29
2.14.8 Reimbursement of Costs...................... 29
2.14.9 Jurisdiction................................ 29
2.15 Illegality............................................ 30
2.15.1 LIBOR Loans................................. 30
2.15.2 Prepayment.................................. 30
2.15.3 Prime Rate Borrowing........................ 30
2.16 Increased Costs....................................... 30
2.17 Inability to Determine Rates.......................... 30
2.18 Prepayment of LIBOR Loans............................. 31
SECTION 3. CONDITIONS PRECEDENT.................................. 31
3.1 Effectiveness of this Agreement....................... 31
3.1.1 Corporate Documents......................... 31
3.1.2 Notes....................................... 32
3.1.3 Security Documents.......................... 32
3.1.4 Opinion of Counsel.......................... 32
3.1.5 Reaffirmation of Guaranty................... 32
3.1.6 Growth Fund Agreement....................... 32
3.1.7 TEC AcquiSub Agreement...................... 32
3.1.8 Bringdown Certificate....................... 32
3.1.9 Fees........................................ 33
3.1.10 Other Documents............................. 33
3.2 All Loans............................................. 33
3.2.1 Notice of Borrowing......................... 33
3.2.2 No Event of Default......................... 33
3.2.3 Officer's Certificate....................... 33
3.2.4 Officer's Certificate - Leases.............. 33
3.2.5 Insurance................................... 34
3.2.6 Other Instruments........................... 34
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES............. 35
4.1 Existence and Power................................... 35
4.2 Loan Documents and Note Authorized; Binding
Obligations........................................... 35
<PAGE>
4.3 No Conflict; Legal Compliance......................... 35
4.4 Financial Condition................................... 35
4.5 Executive Offices..................................... 36
4.6 Litigation............................................ 36
4.7 Consents and Approvals................................ 36
4.8 Other Agreements...................................... 36
4.9 ERISA................................................. 36
4.10 Labor Matters......................................... 37
4.11 Margin Regulations.................................... 37
4.12 Taxes................................................. 37
4.13 Environmental Quality................................. 37
4.14 Trademarks, Patents, Copyrights, Franchises and
Licenses.............................................. 38
4.15 Full Disclosure....................................... 38
4.16 Other Regulations..................................... 38
4.17 Solvency.............................................. 38
4.18 Survival of Representations and Warranties............ 38
4.19 Eligible Leases....................................... 38
SECTION 5. BORROWER'S AFFIRMATIVE COVENANTS...................... 39
5.1 Records and Reports................................... 39
5.1.1 Quarterly Statements........................ 39
5.1.2 Annual Statements........................... 40
5.1.3 Borrowing Base Certificate.................. 40
5.1.4 Compliance Certificate...................... 40
5.1.5 Reports..................................... 40
5.1.6 Lease Receivables Aging Reports............. 40
5.1.7 AFG Equipment Residual Value Reports........ 41
5.1.8 Master Trust Equipment Residual Value
Reports..................................... 41
5.1.9 Insurance Reports........................... 41
5.1.10 Certificate of Responsible Officer.......... 41
5.1.11 Employee Benefit Plans...................... 41
5.1.12 ERISA Notices............................... 42
5.1.13 Pension Plans............................... 42
5.1.14 SEC Reports................................. 42
5.1.15 Tax Returns................................. 42
5.1.16 Additional Information...................... 42
5.2 Existence; Compliance with Law........................ 42
5.3 Insurance............................................. 43
<PAGE>
5.4 Taxes and Other Liabilities........................... 43
5.5 Inspection Rights; Assistance......................... 43
5.6 Maintenance of Facilities; Modifications;
Performance of Leases................................ 44
5.6.1 Maintenance of Facilities................... 44
5.6.2 Performance of Leases....................... 44
5.7 Supplemental Disclosure............................... 44
5.8 Further Assurances.................................... 44
5.9 Lockbox............................................... 44
5.10 Environmental Laws.................................... 44
SECTION 6. BORROWER'S NEGATIVE COVENANTS......................... 44
6.1 Liens; Negative Pledges; and Encumbrances............. 44
6.2 Limitations on Indebtedness........................... 45
6.3 Disposition of Assets................................. 45
6.4 Restricted Payments................................... 45
6.5 Restriction on Fundamental Changes.................... 45
6.6 Transactions with Affiliates.......................... 46
6.7 No Loans to Affiliates................................ 46
6.8 No Investment......................................... 46
6.9 Maintenance of Business............................... 46
6.10 No Subsidiaries....................................... 46
6.11 Events of Default..................................... 46
6.12 ERISA................................................. 46
6.13 No Use of Any Lender's Name........................... 47
6.14 Certain Accounting Changes............................ 47
SECTION 7. FINANCIAL COVENANT OF BORROWER........................ 47
7.1 Minimum Consolidated Tangible Net Worth............... 47
SECTION 8. EVENTS OF DEFAULT AND REMEDIES........................ 47
8.1 Events of Default..................................... 47
8.1.1 Failure to Make Payments.................... 47
8.1.2 Other Agreements............................ 48
8.1.3 Breach of Covenants......................... 48
8.1.4 Breach of Representations or Warranties..... 48
8.1.5 Failure to Cure............................. 48
<PAGE>
8.1.6 Insolvency.................................. 48
8.1.7 Bankruptcy Proceedings...................... 49
8.1.8 Material Adverse Effect..................... 49
8.1.9 Judgments, Writs and Attachments............ 49
8.1.10 Legal Obligations............................. 49
8.1.11 Growth Fund Agreement......................... 49
8.1.12 TEC AcquiSub Agreement...................... 49
8.1.13 Criminal Proceedings.......................... 50
8.1.14 Action by Governmental Authority.............. 50
8.1.15 Governmental Decrees.......................... 50
8.2 Waiver of Default..................................... 50
8.3 Remedies.............................................. 50
8.4 Set-Off............................................... 51
8.5 Rights and Remedies Cumulative........................ 52
SECTION 9. AGENT................................................. 52
9.1 Appointment........................................... 52
9.2 Delegation of Duties.................................. 52
9.3 Exculpatory Provisions................................ 52
9.4 Reliance by Agent..................................... 53
9.5 Notice of Default..................................... 53
9.6 Non-Reliance on Agent and Other Lenders............... 53
9.7 Indemnification....................................... 54
9.8 Agent in Its Individual Capacity...................... 54
9.9 Resignation and Appointment of Successor Agent........ 54
SECTION 10. EXPENSES AND INDEMNITIES.................................... 55
10.1 Expenses.............................................. 55
10.2 Indemnification....................................... 55
10.2.1 General Indemnity........................... 55
10.2.2 Environmental Indemnity..................... 56
10.2.3 Survival; Defense........................... 57
SECTION 11. MISCELLANEOUS............................................... 57
11.1 Survival.............................................. 57
11.2 No Waiver by Agent or Lenders......................... 57
<PAGE>
11.3 Notices............................................... 57
11.4 Headings.............................................. 57
11.5 Severability.......................................... 57
11.6 Entire Agreement; Construction; Amendments and Waivers 58
11.7 Reliance by Lenders................................... 58
11.8 Marshalling; Payments Set Aside....................... 58
11.9 No Set-Offs by Borrower............................... 59
11.10 Binding Effect, Assignment............................ 59
11.11 Counterparts.......................................... 60
11.12 Equitable Relief...................................... 60
11.13 Written Notice of Claims; Claims Bar.................. 60
11.14 Waiver of Punitive Damages............................ 61
11.15 Governing Law......................................... 61
11.16 Consent to Jurisdiction............................... 61
11.17 Waiver of Jury Trial.................................. 61
11.18 BMO as Lender......................................... 62
<PAGE>
INDEX OF EXHIBITS
Exhibit A Form of Revolving Promissory Note
Exhibit B Form of Borrowing Base Certificate
Exhibit C Form of Compliance Certificate
Exhibit D Form of Opinion of Counsel
Exhibit E Form of Notice of Borrowing
Exhibit F Form of Notice of Conversion/Continuation
Exhibit G Form of Assignment and Acceptance
<PAGE>
INDEX OF SCHEDULES
Schedule A Commitments
Schedule 1.1 Amendments to Schedule A
Schedule 4.5 Executive Offices and Principal Places of Business
Schedule 4.6 Litigation
Schedule 4.7 Material Contracts
Schedule 4.8 Consent and Approvals
Schedule 4.10 Employment and Labor Agreements
Schedule 4.11 Employee Benefit Plans
Schedule 4.15 Environmental Disclosures
Schedule 6.1 Existing Liens
Schedule 6.11 Subsidiaries
<PAGE>
AMENDED AND RESTATED
WAREHOUSING CREDIT AGREEMENT
THIS AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT is entered into
as of December 2, 1997, by and among AMERICAN FINANCE GROUP, INC., a Delaware
corporation ("Borrower"), FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("FUNB")
and BANK OF MONTREAL ("BMO") and each other financial institution which may
hereafter execute and deliver an instrument of assignment with respect to this
Agreement pursuant to Section 11.10 (any one individually, a "Lender," and
collectively, "Lenders"), and FUNB, as agent on behalf of Lenders (not in its
individual capacity, but solely as agent, "Agent"). This Agreement amends,
restates and supersedes the AFG Credit Agreement (as defined below).
RECITALS
A. Borrower, FUNB and Fleet Bank, N.A. (the "Prior Lenders") and Agent,
as agent for the Prior Lenders, entered into that Warehousing Credit Agreement
dated as of May 31, 1996, by and among Borrower, FUNB (as the sole Lender party
thereto) and Agent, as amended by that Amendment No. 1 to Warehousing Credit
Agreement dated as of November 5, 1996, that Amendment No. 2 to Warehousing
Credit Agreement dated as of October 3, 1997 and that Amendment No. 3 to
Warehousing Credit Agreement dated as of November 3, 1997 (as so amended, the
"AFG Credit Agreement"), pursuant to which the Prior Lenders have agreed to
extend and make available to Borrower certain advances of credit.
B. Borrower and FUNB, as the sole remaining Prior Lender having a
Commitment under the AFG Credit Agreement, desire to amend and restate the AFG
Credit Agreement to, among other things, increase the aggregate Commitments set
forth on Schedule A of the AFG Credit Agreement, extend the Commitment
Termination Date, reduce the Applicable Margin and amend the calculation of the
Borrowing Base, as more fully set forth herein.
C. On the terms and conditions set forth below, BMO desires, as of and
from the Closing Date, to become a Lender under the Credit Agreement.
D. Lenders have agreed to make such credit available to Borrower, but
only upon the terms and subject to the conditions hereinafter set forth and in
reliance on the representations and warranties set forth herein.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants hereinafter set forth, and intending to be legally bound, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS.
1.1 Defined Terms. As used herein, the following terms have the
following meanings:
"Acquisition" means any transaction, or any series of related
transactions, by which Borrower directly or indirectly (a) acquires any ongoing
business or all or substantially all of the assets of any Person or any division
thereof, whether through a purchase of assets, merger or otherwise, or (b)
acquires (in one transaction or as the most recent transaction in a series of
transactions) control of at least a majority of the stock of a corporation
having ordinary voting power for the election of directors, or (c) acquires
control of at least a majority of the ownership interests in any partnership,
limited liability company or joint venture.
[OBJECT OMITTED]
"Adjustable LIBOR" means, for each Interest Period in respect of
LIBOR Loans, an interest rate per annum (rounded upward to the nearest 1/16th
of one percent (0.0625%)) determined pursuant to the following formula:
The Adjusted LIBOR shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Administrative Lease" means any Investment Grade Lease which would
otherwise constitute an Eligible Lease but for the fact that payments thereunder
are more than ninety (90) days delinquent, but no more than one hundred eighty
(180) days delinquent, for reasons determined by Borrower to be unrelated to the
lessee's financial ability to make scheduled lease payments. For purposes of
this Agreement, Administrative Leases shall be considered Eligible Leases,
except as specifically provided under the definition of Borrowing Base.
"Advance" means any Advance made or to be made by any Lender to
Borrower as set forth in Section 2.1.1.
"Affiliate" means, with respect to any Person, (a) each Person that,
directly or indirectly, through one or more intermediaries, owns or controls,
whether beneficially or as a trustee, guardian or other fiduciary, five percent
(5.0%) or more of the stock having ordinary voting power in the election of
directors of such Person or of the ownership interests in any partnership or
joint venture, (b) each Person that controls, is controlled by or is under
common control with such Person or any Affiliate of such Person, or (c) each of
such Person's officers, directors, joint venturers and partners; provided,
however, that in no case shall any Lender or Agent be deemed to be an Affiliate
of Borrower for purposes of this Agreement. For the purpose of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
<PAGE>
"AFG Allocated Residual Amount" means, as at and for any date of
determination, as to those items of Eligible Equipment then owned of record by
Borrower and subject to an Eligible Lease, an amount equal to the present value
of the aggregate of Insured Residual Values of such items of Eligible Equipment,
computed for a period equal to the sum of the original lease term of the
applicable Eligible Lease plus thirty (30) days and discounted at the Discount
Rate, not to exceed, in any event, an amount equal to the difference between (a)
an amount equal to ninety percent (90.0%) of the aggregate Invoice Price of such
items of Eligible Equipment and (b) an amount equal to one hundred percent
(100.0%) of the Discounted Present Value of the subject Eligible Lease (provided
that for purposes of this clause (b), the Discounted Present Value of such
Eligible Lease shall be calculated for the entire original lease term rather
than the remaining lease term).
"AFG Insured Residual Value" means, as at and for any date of
determination, as to any item of Eligible Equipment then owned of record by
Borrower and subject to an Eligible Lease, an amount equal to one hundred
percent (100.0%) of the insured residual value of such item of Equipment that is
covered under a residual value insurance policy in form and substance
satisfactory to Agent, as such insured residual value is confirmed in writing by
a residual value insurance company satisfactory to Agent.
"AFG Master Trust" means the trust established by and under the AFG
Master Trust Agreement.
"AFG Master Trust Agreement" means the Pooling and Servicing Agreement
and Indenture of Trust dated as of July 1, 1995, as amended from time to time,
by and among AFG Credit Corporation, as transferor, Borrower, as servicer, and
Bankers Trust Company, as trustee and collateral trustee.
"AFG Master Trust Program" means the program for the sale of Leases
under the AFG Master Trust Agreement.
"Agent" means FUNB solely when acting in its capacity as the Agent
under this Agreement or any of the other Loan Documents, and any successor
Agent.
"Agent's Side Letter" means the side letter agreement dated November
31, 1997, by and among Borrower, TEC AcquiSub, each of the Growth Funds and
Agent.
"Agreement" means this Amended and Restated Warehousing Credit
Agreement dated as of November 3, 1997, including all amendments, modifications
and supplements hereto, renewals, extensions or restatements hereof, and all
appendices, exhibits and schedules to any of the foregoing, and shall refer to
the Agreement as the same may be in effect from time to time.
"Applicable Margin" means:
(a) with respect to Prime Rate Loans, zero percent (0.00%);
and
<PAGE>
(b) with respect to LIBOR Loans, one and five-eighths percent
(1.625%).
"Assignment and Acceptance" has the meaning set forth in Section
11.10.2.
"Bank Affiliate" means a Person engaged primarily in the business of
commercial banking and that is an Affiliate of a Lender or of a Person of which
a Lender is an Affiliate.
"Bankruptcy Code" means the Bankruptcy Code of 1978, as amended, as
codified under Title 11 of the United States Code, and the Bankruptcy Rules
promulgated thereunder, as the same may be in effect from time to time.
"Borrowing Base" means, as at and for any date of determination, an
amount not to exceed the sum of:
(a) an amount equal to the sum of:
(i) an amount equal to one hundred percent (100.0%)
of the aggregate Discounted Present Value of all Eligible Leases then owned of
record by Borrower, computed (1) with respect to any requested Loan, as of the
requested Funding Date (and shall include the aggregate Discounted Present Value
of all Eligible Leases to be acquired with the proceeds of the requested Loan),
and (2) with respect to the delivery of any monthly Borrowing Base Certificate
to be furnished pursuant to Section 5.1.3, as of the last day of the calendar
month for which such Borrowing Base Certificate is furnished; provided, however,
that there shall be excluded from the calculation under this clause (i), (x) as
to any lessee under Leases which are not Investment Grade Leases but which are
otherwise Eligible Leases, the amount by which the aggregate Discounted Present
Value of such Leases exceeds $2,000,000, (y) Leases which are not Investment
Grade Leases but which are otherwise Eligible Leases to the extent such Leases
have otherwise been eligible for inclusion within the Borrowing Base beyond a
period of 120 days, and (z) the aggregate Discounted Present Value in excess of
$1,000,000 of Administrative Leases (the Eligible Leases, or the ratable portion
thereof, the Discounted Present Value of which are excluded from the Borrowing
Base under the foregoing clauses (x), (y) and (z) shall similarly be excluded
from the Borrowing Base for purposes of the calculations of AFG Insured Residual
Value and AFG Allocated Residual Amount); plus
(ii) an amount equal to one hundred percent (100.0%)
of the aggregate AFG Allocated Residual Amount of all Eligible Equipment,
computed as of the last day of each quarterly accounting period of Borrower;
plus
(b) an amount equal to one hundred percent (100.0%) of the
aggregate Master Trust Allocated Residual Amount of all Master Trust Pooled
Equipment, computed as of the last day of each quarterly accounting period of
the AFG Master Trust.
"Borrowing Base Certificate" means a certificate with appropriate
insertions setting forth the components of the Borrowing Base as of the last day
of the month for which such certificate is submitted or as of a requested
Funding Date, as the case may be, which certificate shall be substantially in
the form set forth in Exhibit B and certified by a Responsible Officer of
Borrower.
<PAGE>
"Business Day" means any day which is not a Saturday, Sunday or a legal
holiday under the laws of the States of California or North Carolina or is not a
day on which banking institutions located in the States of California or North
Carolina are authorized or permitted by law or other governmental action to
close and, with respect to LIBOR Loans, means any day on which dealings in
foreign currencies and exchanges may be carried on by Agent and Lenders in the
London interbank market.
"Cash Equivalents" means:
(a) securities issued or unconditionally guaranteed or insured
by the United States Government or any agency or any State thereof and backed by
the full faith and credit of the United States or such State having maturities
of not more than six (6) months from the date of acquisition;
(b) certificates of deposit, time deposits, Eurodollar time
deposits, repurchase agreements, reverse repurchase agreements, or bankers'
acceptances, having in each case a tenor of not more than six (6) months, issued
by any Lender, or by any nationally or state chartered commercial bank or any
branch or agency of a foreign bank licensed to conduct business in the United
States having combined capital and surplus of not less than $100,000,000 whose
short-term securities are rated at least A-1 by Standard & Poor's Corporation
and P-1 by Moody's Investors Service, Inc.; and
(c) commercial paper of an issuer rated at least A-1 by
Standard & Poor's Corporation or P-1 by Moody's Investor Service, Inc., and in
either case having a tenor of not more than six (6) months.
"Casualty Loss" means any of the following events with respect to any
item of Equipment: (a) the actual total loss or compromised total loss of such
item of Equipment; (b) such item of Equipment shall become lost, stolen,
destroyed, damaged beyond repair or permanently rendered unfit for use for any
reason whatsoever; (c) the seizure of such item of Equipment for a period
exceeding sixty (60) days or the condemnation or confiscation of such item of
Equipment; or (d) such item of Equipment shall be deemed under its Lease to have
suffered a casualty loss as to the entire item of Equipment.
"Charges" means all federal, state, county, city, municipal, local,
foreign or other governmental taxes, levies, assessments, charges or claims, in
each case then due and payable, upon or relating to (a) the Loans hereunder, (b)
Borrower's employees, payroll, income or gross receipts, (c) Borrower's
ownership or use of any of its Properties or assets, or (d) any other aspect of
Borrower's business.
<PAGE>
"Closing" means the time at which each of the conditions precedent set
forth in Section 3 to the making of the first Loan hereunder shall have been
duly fulfilled or satisfied by Borrower.
"Closing Date" means the date on which Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended, the
Treasury Regulations adopted thereunder and the Treasury Regulations proposed
thereunder (to the extent Requisite Lenders, in their sole discretion,
reasonably determine that such proposed regulations set forth the regulations
that apply in the circumstances), as the same may be in effect from time to
time.
"Collateral" means the Collateral described in the Security Agreement.
"Commitment" means with respect to each Lender the amounts set forth on
Schedule A and "Commitments" means all such amounts collectively, as each may be
amended from time to time upon the execution and delivery of an instrument of
assignment pursuant to Section 11.10, which amendments shall be evidenced on
Schedule 1.1.
"Commitment Termination Date" means November 2, 1998.
"Compliance Certificate" means a certificate signed by a Responsible
Officer of Borrower, substantially in the form set forth in Exhibit C, with such
changes therein as the Requisite Lenders may from time to time reasonably
request for the purpose of having such certificate disclose the matters
certified therein and the method of computation thereof.
"Consolidated Intangible Assets" means, for any Person, as measured at
any date of determination on a consolidated basis, all intangible assets of such
Person.
"Consolidated Net Worth" means, for any Person, as measured at any date
of determination, the difference between Consolidated Total Assets and
Consolidated Total Liabilities.
"Consolidated Tangible Net Worth" means, for any Person, as measured at
any date of determination, the difference between Consolidated Net Worth and
Consolidated Intangible Assets.
"Consolidated Total Assets" means, for any Person, as measured at any
date of determination on a consolidated basis, all assets of such Person.
"Consolidated Total Liabilities" means, for any Person, as measured at
any date of determination on a consolidated basis, all liabilities of such
Person.
"Contingent Obligation" means, as to any Person, (a) any Guaranty
Obligation of that Person and (b) any direct or indirect obligation or
liability, contingent or otherwise, of that Person, (i) in respect of any letter
of credit or similar instrument issued for the account of that
<PAGE>
Person or as to which that Person is otherwise liable for reimbursement of
drawings, (ii) with respect to the Indebtedness of any partnership or joint
venture of which such Person is a partner or a joint venturer, (iii) to
purchase any materials, supplies or other property from, or to obtain the
services of, another Person if the relevant contract or other related document
or obligation requires that payment for such materials, supplies or other
property, or for such services, shall be made regardless of whether delivery
of such materials, supplies or other property is ever made or tendered, or
such services are ever performed or tendered, or (iv) in respect of any
interest rate protection contract that is not entered into in connection with
a bona fide hedging operation that provides offsetting benefits to such
Person. The amount of any Contingent Obligation shall (subject, in the case of
Guaranty Obligations, to the last sentence of the definition of "Guaranty
Obligation") be deemed equal to the maximum reasonably anticipated liability
in respect thereof, and shall, with respect to clause (b)(iv) of this
definition, be marked to market on a current basis.
"Default Rate" has the meaning set forth in Section 2.3.
"Designated Deposit Account" means a demand deposit account maintained
by Borrower with FUNB designated by written notice from Borrower to Agent.
"Discount Rate" means, as at and for any date of determination, the
then effective two-year U.S. Treasury Bill rate plus two percent (2.00%),
calculated on the basis of a 360 day year and actual number of days elapsed.
"Discounted Present Value" means, with respect to any Lease or any
Master Trust Pooled Lease, the present value of the unpaid balance of the total
rent to be paid under such Lease or Master Trust Pooled Lease calculated for the
period from the applicable date of determination through the remaining lease
term (provided that for Leases having original lease terms exceeding eighty-four
(84) months, such period of calculation shall only extend through the end of the
eighty-fourth (84th) month of such original lease term), in each case discounted
at the Discount Rate.
"Dollars" and the sign "$" means lawful money of the United States of
America.
"EGF" means PLM Equipment Growth Fund, a California limited
partnership.
"EGF II" means PLM Equipment Growth Fund II, a California limited
partnership.
"EGF III" means PLM Equipment Growth Fund III, a California limited
partnership.
"EGF IV" means PLM Equipment Growth Fund IV, a California limited
partnership.
"EGF V" means PLM Equipment Growth Fund V, a California limited
partnership.
"EGF VI" means PLM Equipment Growth Fund VI, a California limited
partnership.
<PAGE>
"EGF VII" means PLM Equipment Growth & Income Fund VII, a California
limited partnership.
"Eligible Assignee" means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $100,000,000, (b) a commercial bank organized under the
laws of any other country which is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such country, and
having a combined capital and surplus of at least $100,000,000, provided that
such bank is acting through a branch or agency located in the United States, and
(c) any Bank Affiliate.
"Eligible Equipment" means any item of Equipment other than commercial
jet aircraft designed to carry more than fifty (50) passengers or self-powered
ocean-going vessels.
"Eligible Lease" means any Lease in respect of which the lessee and
Lease terms (including, without limitation, as to credit quality, rental rate,
maturity and insurance coverage) are acceptable to Agent, in its sole
discretion, and otherwise comply with the following requirements:
(a) the original term shall be at least six (6) months;
(b) the lessee shall not be a Governmental Authority;
(c) Lease payments shall be due in United States Dollars;
(d) the lessee shall not be in default under the Lease (except
as permitted by clause (f), below) or subject to bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy or similar insolvency law;
(e) neither the Lease nor the Equipment leased thereunder
shall be subject to any Lien of any nature other than the Lien granted in favor
of Agent on behalf of Lenders under the Security Agreement and the other
Security Documents;
(f) amounts due under the Lease shall be less than thirty (30)
days delinquent at the time of the Funding Date related to the Lease and remain
at all times less than four (4) scheduled payments past due, unless such Lease
is an Administrative Lease;
(g) the Lease shall contain a "hell or highwater" provision
which unconditionally obligates the lessee to maintain the Equipment in good
working order, bear all costs of operating such Equipment and make periodic
Lease payments, including, without limitation, taxes, notwithstanding damage to
or destruction of the Equipment leased thereunder or any other event;
<PAGE>
(h) the Lease shall not be subject to cancellation by the
lessee and shall not permit early termination unless the lessee pays an amount
not less than the Discounted Present Value of the Lease;
(i) payments under the Lease shall be absolute, unconditional
obligations of the lessee without the right to offset for any reason;
(j) the Lease shall require the lessee to maintain the
Equipment in good working order and to bear the costs of operating and
maintaining the Equipment, including, without limitation, taxes and insurance;
(k) the Lease shall permit the lessor to accelerate all Lease
payments in the event of the lessee's default;
(l) payments under the Lease shall be made no less frequently
than quarterly;
(m) the Lease shall provide that in the event of a Casualty
Loss, the lessor shall have the option, at the lessee's sole cost and expense,
to
(i) repair the Equipment to good condition and
working order,
(ii) replace the Equipment with like Equipment of
the same or later model in good repair, condition and working order, or
(iii) require the lessee to pay to the lessor the
Stipulated Loss Value of the Equipment;
(n) the Equipment subject to the Lease shall be Eligible
Equipment; and
(o) the lessee shall have a minimum rating by Moody's
Investors Service, Inc. of B3, Standard & Poor's Corporation of B- or the
equivalent under the Alcar Debt Rater System.
Any Lease which is an Eligible Lease will cease to be an Eligible Lease at any
time it no longer meets all of the foregoing requirements.
"Employee Benefit Plan" means any Pension Plan and any employee welfare
benefit plan, as defined in Section 3(1) of ERISA, that is maintained for the
employees of Borrower or any ERISA Affiliate of Borrower.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise),
<PAGE>
cleanup, removal, remedial or response costs, restitution, civil or criminal
penalties, injunctive relief, or other type of relief, resulting from or based
upon (a) the presence, placement, discharge, emission or release (including
intentional and unintentional, negligent and non-negligent, sudden or non-
sudden, accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from Property,
whether or not owned by Borrower, or (b) any other circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means all foreign, federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and land use
matters, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control
Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and
Recovery Act, the Toxic Substances Control Act and the Emergency Planning and
Community Right-to-Know Act.
"Environmental Permit" has the meaning set forth in Section 4.15.2.
"Equipment" means the assets (including office or other equipment)
leased to a lessee pursuant to a Lease.
"Equipment Growth Funds" means any and all of EGF, EGF II, EGF III, EGF
IV, EGF V, EGF VI, EGF VII and Income Fund I.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, as the same may be in effect from time to time, and any successor
statute.
"ERISA Affiliate" means, as applied to any Person, any trade or
business (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control within the meaning of
the regulations promulgated under Section 414 of the Code.
"Eurodollar Reserve Percentage" means the maximum reserve percentage
(expressed as a decimal, rounded upward to the nearest 1/100th of one percent
(0.01%)) in effect from time to time (whether or not applicable to any Lender)
under regulations issued by the Federal Reserve Board for determining the
maximum reserve requirement (including any emergency, supplemental or other
marginal reserve requirement) with respect to Eurocurrency liabilities having a
term comparable to such Interest Period.
"Event of Default" means any of the events set forth in Section 8.1.
"Facility" means the total Commitments described in Schedule A, as such
Schedule A may be amended from time to time as set forth on Schedule 1.1, for
the revolving credit facility described in Section 2.1.1 to be provided by
Lenders to Borrower according to each Lender's Pro Rata Share.
<PAGE>
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotation") for such day under the caption "Federal Funds Effective Rate". If on
any relevant day the appropriate rate for such previous day is not yet published
in either H.15(519) or the Composite 3:30 p.m. Quotation, the rate for such day
will be the arithmetic mean of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m. (New York time) on that day by each of
three leading brokers of Federal funds transactions in New York City selected by
Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System and any successor thereto.
"Form 1001" has the meaning set forth in Section 2.14.6.
"Form 4224" has the meaning set forth in Section 2.14.6.
"FSI" means PLM Financial Services, Inc., a Delaware corporation.
"Funding Date" means with respect to any proposed borrowing hereunder,
the date funds are advanced to Borrower for any Loan.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar function of comparable stature and authority within the accounting
profession), or in such other statements by such other entity as may be in
general use by significant segments of the U.S. accounting profession, which are
applicable to the circumstances as of the date of determination.
"Governmental Authority" means (a) any federal, state, county,
municipal or foreign government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, (c) any court or administrative
tribunal or (d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to whose jurisdiction that Person has consented.
"Growth Funds" means any and all of EGF V, EGF VI, EGF VII and Income
Fund I.
<PAGE>
"Growth Fund Agreement" means the Third Amended and Restated
Warehousing Credit Agreement dated as of November 3, 1997, by and among each of
the Growth Funds, Lenders and Agent, as the same may from time to time be
amended, modified, supplemented, renewed, extended or restated.
"Guarantor" means any Person who executes a written guaranty of the
Obligations, including, without limitation, PLMI under the Guaranty.
"Guaranty" means that certain Guaranty dated as of November 5, 1996,
executed by PLMI in favor of Lenders and Agent.
"Guaranty Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease for
capital equipment other than Equipment under an Eligible Lease, dividend, letter
of credit or other obligation (the "primary obligations") of another Person (the
"primary obligor"), including any obligation of that Person, whether or not
contingent, (a) to purchase, repurchase or otherwise acquire such primary
obligations or any property constituting direct or indirect security therefor,
or (b) to advance or provide funds (i) for the payment or discharge of any such
primary obligation, or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the holder of any such primary obligation against
loss in respect thereof. The amount of any Guaranty Obligation shall be deemed
equal to the stated or determinable amount of the primary obligation in respect
of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect thereof.
"Hazardous Materials" means all those substances which are regulated
by, or which may form the basis of liability under, any Environmental Law,
including all substances identified under any Environmental Law as a pollutant,
contaminant, hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.
"Income Fund I" means Professional Lease Management Income Fund I,
L.L.C., a Delaware limited liability company.
"Indebtedness" means, as to any Person, (a) all indebtedness of such
Person for borrowed money, (b) all leases of equipment of such Person as lessee,
(c) to the extent not included in clause (b), above, all capital leases of such
Person as lessee, (d) any obligation of such Person for the deferred purchase
price of Property or services (other than trade or other accounts payable in the
ordinary course of business and not more than ninety (90) days past due), (e)
any obligation of such Person that is secured by a Lien on assets of such
Person, whether or not that Person has assumed such obligation or whether or not
such obligation is non-recourse to the credit of such Person, (f) obligations of
such Person arising under acceptance facilities or under facilities for the
discount of accounts receivable of such Person and (g) any obligation of such
Person to reimburse the issuer of any letter of credit issued for the account of
such Person upon which a draw has been made.
<PAGE>
"Indemnified Liability" has the meaning set forth in Section 10.2.1.
"Indemnified Person" has the meaning set forth in Section 10.2.1.
"Interest Differential" means, with respect to any prepayment of a
LIBOR Loan on a day other than an Interest Payment Date on which such LIBOR Loan
matures, the difference between (a) the per annum interest rate payable with
respect to such LIBOR Loan as of the date of the prepayment and (b) the Adjusted
LIBOR on, or as near as practicable to, the date of the prepayment for a LIBOR
Loan commencing on such date and ending on the last day of the applicable
Interest Period. The determination of the Interest Differential by Agent shall
be conclusive in the absence of manifest error.
"Interest Payment Date" means, with respect to any LIBOR Loan, the last
day of each Interest Period applicable to such Loan and, with respect to Prime
Rate Loans, the first Business Day of each calendar month following the Funding
Date of such Prime Rate Loan.
"Interest Period" means, with respect to any LIBOR Loan, the one-month,
two-month or three-month period selected by the Borrower pursuant to Section 2,
in each instance commencing on the applicable Funding Date of the Loan;
provided, however, that any Interest Period which would otherwise end on a day
that is not a Business Day shall end on the next succeeding Business Day except
that in the instance of any LIBOR Loan, if such next succeeding Business Day
falls in the next calendar month, the Interest Period shall end on the next
preceding Business Day.
"Investment" means, when used in connection with any Person, any
investment by or of that Person, whether by means of purchase or other
acquisition of stock or other securities of any other Person or by means of loan
or advance (other than advances to employees for moving or travel expenses,
drawing accounts and similar expenditures in the ordinary course of business),
capital contribution, guaranty or other debt or equity participation or
interest, or otherwise, in any other Person, including any partnership and joint
venture interests of such Person in any other Person or in any item of
transportation-related equipment, owned by a Person unaffiliated with Borrower
and on lease to another third party, in which Borrower acquires a right to
share, directly or indirectly.
"Investment Company Act" means the Investment Company Act of 1940, as
amended (15 U.S.C. ss. 80a-1 et seq.), as the same may be in effect from time to
time, or any successor statute thereto.
"Investment Grade Lease" means an Eligible Lease under which the lessee
has a minimum investment grade rating by Moody's Investors Service, Inc. of
Baa3, Standard & Poor's Corporation of BBB- or the equivalent under the Alcar
Debt Rater System.
<PAGE>
"Invoice Price" means the sum of the purchase price (including
modifications, as applicable), delivery charges, third party brokerage fees and
other reasonable closing costs, if any (provided that delivery charges, third
party brokerage fees and closing costs shall be included in the computation of
the "Invoice Price" only to the extent that they do not, in the aggregate,
exceed five percent (5.0%) of the total purchase price), and all applicable
taxes, paid by Borrower for or with respect to any item of Equipment.
"IRS" means the Internal Revenue Service and any successor thereto.
"Lease" means each and every item of chattel paper, installment sales
agreement, equipment lease or rental agreement (including progress payment
authorizations) relating to an item of Equipment of which Borrower is the
lessor. The term "Lease" includes (a) all payments to be made thereunder, (b)
all rights of Borrower therein, and (c) any and all amendments, renewals,
extensions or guaranties thereof.
"Lease Sale Program" means any lease sale program established by a
Subsidiary of Borrower, so long as any debt incurred by such Subsidiary is
non-recourse to Borrower, including, without limitation, the AFG Master Trust
Program and the United Bank of Kuwait Program.
"Lender's Side Letter" means the side letter agreement dated November
3, 1997, by and among Borrower, TEC AcquiSub, each of the Growth Funds and BMO.
"Lending Office" means, with respect to any Lender, the office or
offices of the Lender specified as its lending office opposite its name on the
applicable signature page hereto, or such other office or offices of the Lender
as it may from time to time notify Borrower and Agent.
"LIBOR" means, with respect to any Loan to be made, continued as or
converted into a LIBOR Loan, the London Inter-Bank Offered Rate (determined
solely by Agent), rounded upward to the nearest 1/16th of one percent (0.0625%),
at which Dollar deposits are offered to Agent by major banks in the London
interbank market at or about 11:00 a.m., London time, on the second Business Day
prior to the first day of the related Interest Period with respect to such Loan
in an aggregate amount approximately equal to the amount of such Loan and for a
period of time comparable to the number of days in the applicable Interest
Period. The determination of LIBOR by Agent shall be conclusive in the absence
of manifest error.
"LIBOR Loan" means a Loan that bears interest based on Adjusted LIBOR.
"Lien" means any mortgage, pledge, hypothecation, assignment for
security, security interest, encumbrance, levy, lien or charge of any kind,
whether voluntarily incurred or arising by operation of law or otherwise,
affecting any Property, including any agreement to grant any of the foregoing,
any conditional sale or other title retention agreement, any lease in the nature
of a security interest, and the filing of or agreement to file or deliver any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
<PAGE>
"Loan" has the meaning set forth in Section 2.1.1(a)(i).
"Loan Document" when used in the singular and "Loan Documents" when
used in the plural means any and all of this Agreement, the Note, the Security
Agreement, the Lockbox Agreement and the Guaranty and any and all other
agreements, documents and instruments executed and delivered by or on behalf or
support of Borrower to Agent or any Lender or any of their respective authorized
designees evidencing or otherwise relating to the Advances and the Liens granted
to Agent, on behalf of Lenders, with respect to the Advances, as the same may
from time to time be amended, modified, supplemented or renewed.
"Lockbox" has the meaning set forth in Section 5.9.
"Lockbox Agreement" means the Lockbox Agreement dated May 31, 1996,
among Borrower, FUNB and Agent on behalf of Lenders, relating to the Lockbox.
"Master Trust Allocated Residual Amount" means, as at and for any date
of determination, as to those items of Master Trust Equipment then owned of
record by Borrower and subject to an Master Trust Pooled Lease, an amount equal
to the present value of the aggregate of Master Trust Insured Residual Values of
such items of Master Trust Equipment, computed for a period equal to the sum of
the original lease term and thirty (30) days and discounted at the Discount
Rate, not to exceed, in any event, an amount equal to the difference between (a)
an amount equal to ninety percent (90.0%) of the aggregate Invoice Price of such
items of Master Trust Equipment and (b) an amount equal to one hundred percent
(100.0%) of the Discounted Present Value of the subject Master Trust Pooled
Lease (provided that for purposes of this clause (b), the Discounted Present
Value of such Master Trust Pooled Lease shall be calculated for the entire
original lease term rather than the remaining lease term).
"Master Trust Equipment" means the assets (including office or other
equipment) leased to a lessee pursuant to a Master Trust Pooled Lease.
"Master Trust Insured Residual Value" means, as at and for any date of
determination, as to any item of Master Trust Equipment then owned of record by
the AFG Master Trust and subject to a Master Trust Pooled Lease, an amount equal
to one hundred percent (100.0%) of the insured residual value of such item of
Master Trust Equipment that is covered under a residual value insurance policy
in form and substance satisfactory to Agent, as such insured residual value is
confirmed in writing by a residual value insurance company satisfactory to
Agent.
"Master Trust Pooled Lease" means each and every item of chattel paper,
installment sales agreement, equipment lease or rental agreement (including
progress payment authorizations) included within the "Aggregate Net Pool
Balance", as such term is defined as of the Closing Date in the AFG Master Trust
Agreement.
<PAGE>
"Material Adverse Effect" means any set of circumstances or events
which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of any Loan Document, (b)
is or could reasonably be expected to be material and adverse to the condition
(financial or otherwise) or business operations of Borrower or Guarantor, (c)
materially impairs or could reasonably be expected to materially impair the
ability of Borrower or Guarantor to perform its Obligations, or (d) materially
impairs or could reasonably be expected to materially impair the ability of
Agent or any Lender to enforce any of its or their legal remedies pursuant to
the Loan Documents.
"Maximum Availability" has the meaning set forth in Section 2.1.1.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA, and to which Borrower or any ERISA Affiliate of Borrower is
making, or is obligated to make, contributions or has made, or been obligated to
make, contributions within the preceding five (5) years.
"Note" has the meaning set forth in Section 2.1.1(a)(i), and any and
all replacements, extensions, substitutions and renewals thereof.
"Notice of Borrowing" means a notice given by Borrower to Agent in
accordance with Section 2.7, substantially in the form of Exhibit E, with
appropriate insertions.
"Notice of Conversion/Continuation" means a notice given by Borrower to
Agent in accordance with Section 2.8, substantially in the form of Exhibit F,
with appropriate insertions.
"Obligations" means all loans, advances, liabilities and obligations
for monetary amounts owing by Borrower to any Lender or Agent, whether due or to
become due, matured or unmatured, liquidated or unliquidated, contingent or
non-contingent, and all covenants and duties regarding such amounts, of any kind
or nature, arising under any of the Loan Documents. This term includes, without
limitation, all principal, interest (including interest that accrues after the
commencement of a case or proceeding against Borrower under the Bankruptcy
Code), fees, including, without limitation, any and all prepayment fees,
facility fees, commitment fees, arrangement fees, agent fees and attorneys' fees
and any and all other fees, expenses, costs or other sums chargeable to Borrower
under any of the Loan Documents.
"Opinion of Counsel" means the favorable written legal opinion of Susan
Santo, general counsel of Borrower and Guarantor, substantially in the form of
Exhibit D.
"Other Taxes" has the meaning set forth in Section 2.14.2.
"Overadvance" has the meaning set forth in Section 2.1.1(a)(iii).
"PBGC" means the Pension Benefit Guaranty Corporation and any successor
thereto.
<PAGE>
"Pension Plan" means any employee pension benefit plan, as defined in
Section 3(2) of ERISA, that is maintained for the employees of Borrower or any
ERISA Affiliate of Borrower, other than a Multiemployer Plan.
"Permitted Liens" has the meaning set forth in Section 6.1.
"Permitted Rights of Others" means, as to any Property in which a
Person has an interest, (a) an option or right to acquire a Lien that would be a
Permitted Lien, (b) the reversionary interest of a lessor under a lease of such
Property, and (c) an option or right of the lessee under a lease of such
Property to purchase such Property at fair market value.
"Person" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or Governmental Authority.
"PLMI" means PLM International, Inc., a Delaware corporation, of which
Borrower is a wholly owned subsidiary.
"Potential Event of Default" means a condition or event which, after
notice or lapse of time or both, will constitute an Event of Default.
"Prepayment Date" has the meaning set forth in Section 2.2.2.
"Prime Rate" means, at any time, the rate of interest per annum
publicly announced from time to time by FUNB as its prime rate. Each change in
the Prime Rate shall be effective as of the opening of business on the day such
change in the Prime Rate occurs. The parties hereto acknowledge that the rate
announced publicly by FUNB as its Prime Rate is an index or base rate and shall
not necessarily be its lowest rate charged to FUNB's customers or other banks.
"Prime Rate Loan" means any borrowing which bears interest at a rate
determined with reference to the Prime Rate.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, whether tangible or intangible.
"Pro Rata Share" means, for any Lender, the proportion such Lender's
Commitment with respect to the Facility has to the aggregate of all Commitments
with respect to the Facility.
"Public Utility Holding Company Act" means the Public Utility Holding
Company Act of 1935, as amended (15 U.S.C. ss. 79 et seq.) as the same shall be
in effect from time to time, and any successor statute thereto.
"Reaffirmation of Guaranty" means the Acknowledgment and Reaffirmation
of Guaranty, dated as of November 3, 1997, executed by PLMI in favor of Lenders
reaffirming its obligations under the Guaranty.
<PAGE>
"Regulations G, T, U and X" means, collectively, Regulations G, T, U
and X adopted by the Federal Reserve Board (12 C.F.R. Parts 207, 220, 221 and
224, respectively) and any other regulation in substance substituted therefor.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule, regulation, guideline or determination of an arbitrator
or of a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property is
subject.
"Requisite Lenders" means any combination of Lenders whose combined Pro
Rata Share (and voting interest with respect thereto) of all amounts outstanding
under this Agreement, or, in the event there are no amounts outstanding, the
Commitments, is greater than sixty-six and two-thirds percent (66 2/3%) of all
such amounts outstanding or the total Commitments, as the case may be; provided,
however, that in the event there are only two (2) Lenders, Requisite Lenders
means both Lenders.
"Responsible Officer" means any of the President, Executive Vice
President, Chief Financial Officer, Secretary or Corporate Controller of
Borrower having authority to request Loans or perform other duties required
hereunder.
"SEC" means the Securities and Exchange Commission and any successor
thereto.
"Security Agreement" means that certain Security Agreement dated as of
May 31, 1996, between Borrower and Agent, on behalf of Lenders, including all
amendments, modifications and supplements thereto and all appendices, exhibits
and schedules to any of the foregoing, and shall refer to the Security Agreement
as the same may be in effect from time to time.
"Security Documents" means the Security Agreement, each chattel
mortgage, ship mortgage or similar security agreement, mortgage or other
agreement or document entered into with respect to this Agreement, each UCC-1
financing statement delivered pursuant hereto and any and all other related
documents.
"Solvent" means, as to any Person at any time, that (a) the fair value
of the Property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code; (b) the present fair saleable value of the
Property in an orderly liquidation of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured; (c) such Person is able to realize upon its
Property and pay its debts and other liabilities (including disputed, contingent
and unliquidated liabilities) as they mature in the normal course of business;
(d) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute unreasonably small capital.
<PAGE>
"Stipulated Loss Value" means, with respect to any Lease, the amount
payable by the lessee after a Casualty Loss with respect to the Equipment
subject thereto.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, limited liability company (other than Equipment Growth
Funds) or other business entity of which an aggregate of fifty percent (50.0%)
or more of the beneficial interest (in the case of a partnership) or fifty
percent (50.0%) or more of the outstanding stock, units, or other voting
interest having ordinary voting power to elect a majority of the directors,
managers or trustees of such Person (irrespective of whether, at the time, the
stock, units or other voting interest of any other class or classes of such
Person shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned legally or
beneficially by such Person and/or one or more Subsidiaries of such Person.
"Taxes" has the meaning set forth in Section 2.14.1.
"TEC" means PLM Transportation Equipment Corporation, a California
corporation and a wholly-owned Subsidiary of FSI and of which TEC AcquiSub is a
special purpose Subsidiary.
"TEC AcquiSub" means TEC AcquiSub, Inc., a California special purpose
corporation and a wholly-owned Subsidiary of TEC.
"TEC AcquiSub Agreement" means the Second Amended and Restated
Warehousing Credit Agreement dated as of November 3, 1997, by and among TEC
AcquiSub, Lenders and Agent, and as the same from time to time may be further
amended, modified, supplemented, renewed, extended or restated.
"Termination Event" means (a) a "reportable event" described in Section
4043 of ERISA and the regulations issued thereunder (other than a reportable
event not subject to the provision for 30-day notice to the PBGC under such
regulations), or (b) the withdrawal of Borrower, FSI or any of FSI's other
Subsidiaries or any of their ERISA Affiliates from a Pension Plan during a plan
year in which any of them was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate a
Pension Plan or the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA, or (d) the institution of proceedings to terminate a
Pension Plan by the PBGC, or (e) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of North Carolina; provided, however, in the
event that, by reason of mandatory provisions of law, any and all of the
attachment, perfection or priority of the Lien of Agent, on behalf of Lenders,
in and to the Collateral is governed by the Uniform Commercial Code as in effect
in a jurisdiction other than the State of North Carolina, the term "UCC" shall
mean the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.
<PAGE>
"United Bank of Kuwait Program" means, collectively, the programs for
the sale of Leases under (a) the Master Purchase Agreement dated as of January
30, 1996, by and between Borrower and AFG/Eireann Limited Partnership II, a
limited partnership organized under the laws of the Commonwealth of
Massachusetts, and (b) the Master Purchase Agreement dated as of November [___],
19997, by and between Borrower and AFG/Eireann Limited Partnership III, a
limited partnership organized under the laws of the Commonwealth of
Massachusetts.
1.2 Accounting Terms 1.2 Accounting Terms. Any accounting term used
in this Agreement shall have, unless otherwise specifically provided herein,
the meaning customarily given such term in accordance with GAAP, and all
financial data required to be submitted by this Agreement shall be prepared
and computed, unless otherwise specifically provided herein, in accordance
with GAAP. That certain terms or computations are explicitly modified by the
phrase "in accordance with GAAP" shall in no way be construed to limit the
foregoing.
1.3 Other Terms 1.3 Other Terms. All other undefined terms contained
in this Agreement shall, unless the context indicates otherwise, have the
meanings provided for by the UCC to the extent the same are used or defined
therein. The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole, including the Exhibits and
Schedules hereto, all of which are by this reference incorporated into this
Agreement, as the same may from time to time be amended, modified or
supplemented, and not to any particular section, subsection or clause
contained in this Agreement. The term "including" shall not be limiting or
exclusive, unless specifically indicated to the contrary. The term "or" is
disjunctive; the term "and" is conjunctive. The term "shall" is mandatory; the
term "may" is permissive. Wherever from the context it appears appropriate,
each term stated in either the singular or plural shall include the singular
and plural, and pronouns stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and the neuter.
1.4 Schedules and Exhibits 1.4 Schedules and Exhibits. Any reference
to a "Sections," "Subsection," "Exhibit," or "Schedule" shall refer to the
relevant Section or Subsection of or Exhibit or Schedule to this Agreement,
unless specifically indicated to the contrary.
SECTION 2. AMOUNT AND TERMS OF CREDIT.
2.1 Commitment to Lend.
2.1.1 Revolving Facility. Subject to the terms and conditions
of this Agreement and in reliance upon the representations and warranties of
Borrower set forth herein, Lenders hereby agree to make Advances (as defined
below) of immediately available funds to Borrower, on a revolving basis, from
the Closing Date until the Business Day immediately preceding the Commitment
Termination Date, in the aggregate principal amount outstanding at any time not
to exceed the lesser of (a) the total Commitments for the Facility less the
aggregate principal amount then outstanding under the Growth Fund Agreement and
the TEC AcquiSub Agreement or (b) the Borrowing Base (such lesser amount being
the "Maximum Availability"), as more fully set forth in this Section 2.1.1.
<PAGE>
(a) Facility Commitments.
(i) On the Funding Date requested by Borrower, after
Borrower shall have satisfied all applicable conditions precedent set forth in
Section 3, each Lender shall advance immediately available funds to Agent (each
such advance being an "Advance") evidencing such Lender's Pro Rata Share of a
loan ("Loan"). Agent shall immediately advance such immediately available funds
to Borrower at the Designated Deposit Account (or such other deposit account at
FUNB or such other financial institution as to which Borrower and Agent shall
agree at least three (3) Business Days prior to the requested Funding Date) on
the Funding Date with respect to such Loan. Borrower shall pay interest accrued
on the Loan at the rates and in the manner set forth in Section 2.1.1(b).
Subject to the terms and conditions of this Agreement, the unpaid principal
amount of each Loan and all unpaid interest accrued thereon, together with all
other fees, expenses, costs and other sums chargeable to Borrower incurred in
connection therewith shall be due and payable no later than the Commitment
Termination Date. Each Loan advanced hereunder by each Lender shall be evidenced
by Borrower's revolving promissory note, substantially in the form of Exhibit A
(each, a "Note").
(ii) The obligation of Lenders to make any Loan
from time to time hereunder shall be limited to the then applicable Maximum
Availability. For the purpose of determining the amount of the Borrowing Base
available at any one time, the amount available shall be the total amount of
the Borrowing Base as set forth in the Borrowing Base Certificate delivered to
Agent pursuant to Section 3.2.1 with respect to each requested Loan. Nothing
contained in this Agreement shall under any circumstance be deemed to require
any Lender to make any Advance under the Facility which, in the aggregate
principal amount, either (1), taking into account such Lender's Pro Rata Share
of the principal amounts outstanding under this Agreement and the making of
such Advance, exceeds the lesser of (A) such Lender's Commitment for the
Facility and (B) such Lender's Pro Rata Share of the Borrowing Base, or (2),
taking into account such Lender's Pro Rata Share of the principal amounts
outstanding under this Agreement, under the Growth Fund Agreement and under
the TEC AcquiSub Agreement and the making of such Advance, exceeds such
Lender's Commitment for the Facility.
(iii) If at any time and for any reason the
aggregate principal amount of the Loan(s) then outstanding shall exceed the
Maximum Availability (the amount of such excess, if any, being an
"Overadvance"), Borrower shall immediately, and in no event more than two (2)
Business Days thereafter, repay the full amount of such Overadvance, together
with all interest accrued thereon.
(iv) Amounts borrowed by Borrower under this
Facility may be repaid and, prior to the Commitment Termination Date and
subject to the applicable terms and conditions precedent to borrowings
hereunder, reborrowed; provided, however, that no Loan shall mature later than
the Commitment Termination Date.
(v) Each request for a Loan hereunder shall
constitute a reaffirmation by Borrower and the Responsible Officer requesting
the same that the representations and warranties contained in this Agreement
are true, correct and complete in all material respects to the same extent as
though made on and as of the date of the request, except to the extent such
representations and warranties specifically relate to an earlier date, in
which event they shall be true, correct and complete in all material respects
as of such earlier date.
<PAGE>
(b) Each Loan. Each Loan made by Lenders hereunder
shall, at Borrower's option in accordance with the terms of this Agreement, be
either in the form of a Prime Rate Loan or a LIBOR Loan. Subject to the terms
and conditions of this Agreement, each Loan shall bear interest on the sum of
the unpaid principal balance thereof outstanding on each day from the date when
made, continued or converted until such Loan shall have been fully repaid at a
rate per annum equal to the Prime Rate, as the same may fluctuate on a daily
basis, or the Adjusted LIBOR, plus, in each case, the Applicable Margin.
Interest on each Loan funded hereunder shall be due and payable in arrears on
each Interest Payment Date, with all accrued but unpaid interest on such Loan
being due and payable on the date such Loan is repaid, whether by prepayment or
at maturity, and with all accrued but unpaid interest being due and payable on
the Commitment Termination Date.
Each Advance made by a Lender as part of a Loan hereunder and all
repayments of principal with respect to such Advance shall be evidenced by
notations made by such Lender on the books and records of such Lender; provided,
however, that the failure by such Lender to make such notations shall not limit
or otherwise affect the obligations of Borrower with respect to the repayments
of principal or payments of interest on any Advance or Loan. The aggregate
unpaid amount of each Advance set forth on the books and records of a Lender
shall be presumptive evidence of such Lender's portion of the principal amount
owing and unpaid under the Note.
2.1.2 Funding. Promptly following the receipt of such
documents required pursuant to Section 3.2.1 and approval of a Loan by the
Agent, Agent shall notify by telephone, telecopier, facsimile or telex each
Lender of the principal amount (including Lender's Pro Rata Share thereof) and
Funding Date of the Loan requested by Borrower. Not later than 1:00 p.m., North
Carolina time, on the Funding Date for any Loan, each Lender shall make an
Advance to Agent for the account of Borrower in the amount of its Pro Rata Share
of the Loan being requested by Borrower. Upon satisfaction of the applicable
conditions precedent set forth in Section 3, all Advances shall be credited in
immediately available funds to the Designated Deposit Account.
2.1.3 Utilization of the Loans. The Loans made under the
Facility may be used solely for the purpose of acquiring the specific Eligible
Leases pending the sale of such Leases under a Lease Sale Program.
2.2 Repayment and Prepayment.
2.2.1 Repayment. Unless prepaid pursuant to Section
2.1.1.(a)(iii) or Section 2.2.2, the principal amount of each Loan hereunder
shall be repaid by Borrower to Lenders not later than the Commitment Termination
Date.
<PAGE>
2.2.2 Voluntary Prepayment. Subject to Section 2.18, Borrower
may in the ordinary course of Borrower's business, upon at least three (3)
Business Days' written notice, or telephonic notice promptly confirmed in
writing to Agent, which notice shall be irrevocable, prepay any Loan in whole or
in part. Such notice of prepayment shall specify the date and amount of such
prepayment and whether such prepayment is of Prime Rate Loans or LIBOR Loans, or
any combination thereof. Such prepayment of Loans, together with any amounts
required pursuant to Section 2.18, shall be in immediately available funds and
delivered to Agent not later than 1:00 p.m., North Carolina time, on the date
for prepayment stated in such notice (the "Prepayment Date"). With respect to
any prepayment under this Section 2.2.2, all interest on the amount prepaid
accrued up to but excluding the date of such prepayment shall be due and payable
on the Prepayment Date.
2.3 Calculation of Interest; Post-Maturity Interest 2.3 Calculation
of Interest; Post-Maturity Interest. Interest on the Loans shall be computed
on the basis of a 365/366-day year for all Prime Rate Loans and a 360-day year
for all LIBOR Loans and the actual number of days elapsed in the period during
which such interest accrues. In computing interest on any Loan, the date of
the making of such Loan shall be included and the date of payment shall be
excluded. Each change in the interest rate of the Prime Rate Loans based on
changes in the Prime Rate and each change in the Adjusted LIBOR based on
changes in the Eurodollar Reserve Percentage shall be effective on the
effective date of such change and to the extent of such change. Agent shall
give Borrower notice of any such change in the Prime Rate; provided, however,
that any failure by Agent to provide Borrower with notice hereunder shall not
affect Agent's right to make changes in the interest rate of any Loan based on
changes in the Prime Rate. Upon the occurrence and during the continuation of
any Event of Default under this Agreement, Advances under this Agreement will
at the option of Requisite Lenders bear interest at a rate per annum which is
determined by adding two percent (2.0%) to the Applicable Margin for such Loan
(the "Default Rate"). This may result in the compounding of interest. The
imposition of a Default Rate will not constitute a waiver of any Event of
Default.
2.4 Manner of Payments. All repayments or prepayments of principal and
all payments of interest, fees, costs, expenses and other sums chargeable to
Borrower under this Agreement, the Note or any of the other Loan Documents shall
be in lawful money of the United States of America in immediately available
funds and delivered to Agent, for the account of Lenders, not later than 1:00
p.m., North Carolina time, on the date due at First Union National Bank of North
Carolina, One First Union Center, 301 South College Street, Charlotte, North
Carolina 28288, Attention: Elisha Sabido or such other place as shall have been
designated in writing by Agent.
2.5 Payment on Non-Business Days. Whenever any payment to be made under
this Agreement, the Note or any of the other Loan Documents shall be stated to
be due on a day which is not a Business Day, such payment shall be made on the
next succeeding Business Day and such extension of time shall in such case be
included in the computation of the payment of interest thereon; provided,
however, that no Loan shall have remained outstanding after the Commitment
Termination Date.
<PAGE>
2.6 Application of Payments. All payments to or for the benefit of
Lenders hereunder shall be applied in the following order: (a) at the
direction of Borrower or upon prior notice given to Borrower by Agent, then
due and payable fees, expenses and costs; (b) then due and payable interest
payments and mandatory prepayments; and (c) then due and payable principal
payments and optional prepayments; provided that if an Event of Default shall
have occurred and be continuing, Lenders shall have the exclusive right to
apply any and all such payments against the then due and owing Obligations of
Borrower as Lenders may deem advisable. To the extent Borrower fails to make
payment required hereunder or under any of the other Loan Documents, each
Lender is authorized to, and at its sole option may, make such payments on
behalf of Borrower. To the extent permitted by law, all amounts advanced by
any Lender hereunder or under other provisions of the Loan Documents shall
accrue interest at the same rate as Loans hereunder.
2.7 Procedure for the Borrowing of Loans.
2.7.1 Notice of Borrowing. Each borrowing of Loans shall be
made upon Borrower's irrevocable written notice delivered to Agent in the form
of a Notice of Borrowing, executed by a Responsible Person of Borrower, with
appropriate insertions (which Notice of Borrowing must be received by Lender
prior to 12:00 noon, Charlotte, North Carolina time, three (3) Business Days
prior to the requested Funding Date) specifying:
(a) the amount of the requested borrowing, which, if
a LIBOR Loan is requested, shall be not less than One Million Dollars
($1,000,000);
(b) the requested Funding Date, which shall be a
Business Day;
(c) whether the borrowing is to be comprised of one
or more LIBOR Loans or Prime Rate Loans; and
(d) the duration of the Interest Period applicable to
any such LIBOR Loans included in such Notice of Borrowing. If the Notice of
Borrowing shall fail to specify the duration of the Interest Period for any
borrowing comprised of LIBOR Loans, such Interest Period shall be one (1) month.
2.7.2 Unavailability of LIBOR Loans2.7.2 Unavailability of
LIBOR Loans. Unless Agent shall otherwise consent, during the existence of an
Event of Default or Potential Event of Default, Borrower may not elect to have a
Loan made as a LIBOR Loan.
2.8 Conversion and Continuation Elections.
2.8.1 Election. Borrower may, upon irrevocable written notice
to Agent:
<PAGE>
(a) elect to convert on any Business Day, any Prime
Rate Loan (or any portion thereof in an amount equal to at least One Million
Dollars ($1,000,000) into a LIBOR Loan; or
(b) elect to convert on any Interest Payment Date any
LIBOR Loan maturing on such Interest Payment Date (or any portion thereof) into
a Prime Rate Loan; or
(c) elect to continue on any Interest Payment Date
any LIBOR Loan maturing on such Interest Payment Date (or any portion thereof in
an amount equal to at least One Million Dollars ($1,000,000); provided, that if
the aggregate amount of LIBOR Loans outstanding to Borrower shall have been
reduced, by payment, prepayment, or conversion of portion thereof, to be less
than $1,000,000, such LIBOR Loans shall automatically convert into Prime Rate
Loans, and on and after such date the right of Borrower to continue such Loans
as, and convert such Loans into, LIBOR Loans shall terminate.
2.8.2 Notice of Conversion. Each conversion or continuation of
Loans shall be made upon Borrower's irrevocable written notice delivered to
Agent in the form of a Notice of Conversion/Continuation, executed by a
Responsible Person of Borrower, with appropriate insertions (which Notice of
Conversion/Continuation must be received by Lender prior to 12:00 noon,
Charlotte, North Carolina time, at least three (3) Business Days in advance of
the proposed conversion date or continuation date specifying:
(a) the proposed conversion date or continuation
date;
(b) the aggregate amount of Loans to be converted or
continued;
(c) the nature of the proposed conversion or
continuation; and
(d) the duration of the requested Interest Period.
2.8.3 Interest Period. If upon the expiration of any Interest
Period applicable to any LIBOR Loan, Borrower has failed to select a new
Interest Period to be applicable to such LIBOR Loan, Borrower shall be deemed to
have elected to convert such LIBOR Loan into a Prime Rate Loan effective as of
the last day of such current Interest Period. 2.8.4 Unavailability of LIBOR
Loans2.8.4 Unavailability of LIBOR Loans. Unless Agent shall otherwise consent,
during the existence of an Event of Default or Potential Event of Default,
Borrower may not elect to have a Loan converted into or continued as a LIBOR
Loan.
2.9 Discretion of Lenders as to Manner of Funding 2.9 Discretion
of Lenders as to Manner of Funding. Notwithstanding any provision of this
Agreement to the contrary, each Lender shall be entitled to fund and maintain
its funding of all or any part of its LIBOR Loans in any manner it elects, it
being understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if such Lender actually funded and
maintained each LIBOR Loan through the purchase of deposits having a maturity
corresponding to the maturity of the LIBOR Loan and bearing an interest rate
equal to the LIBOR rate (whether or not, in any instance, Lender shall have
granted any participations in such Loan). Each Lender may, if it so elects,
fulfill any commitment to make LIBOR Loans
<PAGE>
by causing a foreign branch or affiliate to make or continue such LIBOR Loans;
provided, however, that in such event such Loans shall be deemed for the
purposes of this Agreement to have been made by such Lender, and the
obligation of Borrower to repay such Loans shall nevertheless be to such
Lender and shall be deemed held by such Lender, to the extent of such Loans,
for the account of such branch or affiliate.
2.10 Distribution of Payments. Agent shall immediately distribute to
each Lender, at such address as each Lender shall designate, its respective
interest in all repayments and prepayments of principal and all payments of
interest and all fees, expenses and costs received by Agent on the same day and
in the same type of funds as payment was received. In the event Agent does not
distribute such payments on the same day received, if such payments are received
by Agent by 1:00 p.m., North Carolina time, or if received after such time, on
the next succeeding Business Day, such payment shall accrue interest at the
Federal Funds Rate.
2.11 Agent's Right to Assume Funds Available for Advances. Unless Agent
shall have been notified by any Lender no later than the Business Day prior to
the respective Funding Date of a Loan that such Lender does not intend to make
available to Agent an Advance in immediately available funds equal to such
Lender's Pro Rata Share of the total principal amount of such Loan, Agent may
assume that such Lender has made such Advance to Agent on the date of the Loan
and Agent may, in reliance upon such assumption, make available to Borrower a
corresponding Advance. If Agent has made funds available to Borrower based on
such assumption and such Advance is not in fact made to Agent by such Lender,
Agent shall be entitled to recover the corresponding amount of such Advance on
demand from such Lender. If such Lender does not promptly pay such corresponding
amount upon Agent's demand, Agent shall notify Borrower and Borrower shall repay
such Advance to Agent. Agent also shall be entitled to recover from such Lender
interest on such Advance in respect of each day from the date such Advance was
made by Agent to Borrower to the date such corresponding amount is recovered by
Agent at the Federal Funds Rate. Nothing in this Section 2.11 shall be deemed to
relieve any Lender from its obligation to fulfill its Commitment or to prejudice
any rights which Agent or Borrower may have against such Lender as a result of
any default by such Lender under this Agreement.
2.12 Agent's Right to Assume Payments Will be Made by Borrower. Unless
Agent shall have been notified by Borrower prior to the date on which any
payment to be made by Borrower hereunder is due that Borrower does not intend to
remit such payment, Agent may, in its sole discretion, assume that Borrower has
remitted such payment when so due and Agent may, in its sole discretion and in
reliance upon such assumption, make available to each Lender on such payment
date an amount equal to such Lender's Pro Rata Share of such assumed payment. If
Borrower has not in fact remitted such payment to Agent, each Lender shall
forthwith on demand repay to Agent the amount of such assumed payment made
available to such Lender, together with interest thereon in respect of each date
from and including the date such amount was made available by Agent to such
Lender to the date such amount is repaid to Agent at the Federal Funds Rate.
<PAGE>
2.13 Capital Requirements. If any Lender determines that compliance
with any law or regulation or with any guideline or request from any central
bank or other Governmental Authority (whether or not having the force of law)
has or would have the effect of reducing the rate of return on the capital of
such Lender or any corporation controlling such Lender as a consequence of, or
with reference to, such Lender's Commitment or its making or maintaining its Pro
Rata Share of the Loans below the rate which such Lender or such other
corporation could have achieved but for such compliance (taking into account the
policies of such Lender or corporation with regard to capital), then Borrower
shall from time to time, upon written demand by such Lender (with a copy of such
demand to Agent), immediately pay to such Lender such additional amounts as
shall be sufficient to compensate such Lender or other corporation for such
reduction. A certificate submitted by such Lender to Borrower, stating that the
amounts set forth as payable to such Lender are true and correct, shall be
conclusive and binding for all purposes, absent manifest error. Each Lender
agrees promptly to notify Borrower and Agent of any circumstances that would
cause Borrower to pay additional amounts pursuant to this section, provided that
the failure to give such notice shall not affect Borrower's obligation to pay
any such additional amounts.
2.14 Taxes.
2.14.1 No Deductions. Subject to Subsection 2.14.7, any and
all payments by Borrower to each Lender or Agent under this Agreement shall be
made free and clear of, and without deduction or withholding for, any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of each Lender
and Agent, such taxes (including income taxes or franchise taxes) as are imposed
on or measured by each Lender's net income (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes").
2.14.2 Miscellaneous Taxes. In addition, Borrower shall pay
any present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement or any other Loan Documents (hereinafter referred to as "Other
Taxes").
2.14.3 Indemnity. Subject to Subsection 2.14.7, Borrower shall
indemnify and hold harmless each Lender and Agent for the full amount of Taxes
or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction
on amounts payable under this Section 2.14) paid by such Lender or Agent and any
liability (including penalties, interest, additions to tax and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. Payment under this indemnification shall be made
within thirty (30) days from the date any Lender or Agent makes written demand
therefor.
<PAGE>
2.14.4 Required Deductions. If Borrower shall be required by
law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum
payable hereunder to any Lender or Agent, then, subject to Subsection 2.14.7:
(a) the sum payable shall be increased as necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.14) such Lender or Agent, as the
case may be, receives an amount equal to the sum it would have received had no
such deductions been made;
(b) Borrower shall make such deductions, and
(c) Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law.
2.14.5 Evidence of Payment. Within thirty (30) days after the
date of any payment by Borrower of Taxes or Other Taxes, Borrower shall furnish
to Agent the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to Agent.
2.14.6 Foreign Persons. Each Lender which is a foreign person
(i.e., a person other than a United States person for United States Federal
income tax purposes) shall:
(a) No later than the date upon which such Lender
becomes a party hereto deliver to Borrower through Agent two (2) accurate and
complete signed originals of IRS Form 4224 or any successor thereto ("Form
4224"), or two accurate and complete signed originals of IRS Form 1001 or any
successor thereto ("Form 1001"), as appropriate, in each case indicating that
such Lender is on the date of delivery thereof entitled to receive payments of
principal, interest and fees under this Agreement free from withholding of
United States Federal income tax;
(b) If at any time such Lender makes any changes
necessitating a new Form 4224 or Form 1001, with reasonable promptness deliver
to Borrower through Agent in replacement for, or in addition to, the forms
previously delivered by it hereunder, two accurate and complete signed originals
of Form 4224; or two accurate and complete signed originals of Form 1001, as
appropriate, in each case indicating that the Lender is on the date of delivery
thereof entitled to receive payments of principal, interest and fees under this
Agreement free from withholding of United States Federal income tax;
(c) Before or promptly after the occurrence of any
event (including the passing of time but excluding any event mentioned in (ii)
above) requiring a change in or renewal of the most recent Form 4224 or Form
1001 previously delivered by such Lender, deliver to Borrower through Agent two
accurate and complete original signed copies of Form 4224 or Form 1001 in
replacement for the forms previously delivered by the Lender; and
<PAGE>
(d) Promptly upon Borrower's or Agent's reasonable
request to that effect, deliver to Borrower or Agent (as the case may be) such
other forms or similar documentation as may be required from time to time by any
applicable law, treaty, rule or regulation in order to establish such Lender's
tax status for withholding purposes.
2.14.7 Income Taxes. Borrower will not be required to pay any
additional amounts in respect of United States Federal income tax pursuant to
Subsection 2.14.4 to Lender for the account of any Lending Office of such
Lender:
(a) If the obligation to pay such additional amounts
would not have arisen but for a failure by such Lender to comply with its
obligations under Subsection 2.14.6 in respect of such Lending Office;
(b) If such Lender shall have delivered to Borrower a
Form 4224 in respect of such Lending Office pursuant to Subsection 2.14.6 and
such Lender shall not at any time be entitled to exemption from deduction or
withholding of United States Federal income tax in respect of payments by
Borrower hereunder for the account of such Lending Office for any reason other
than a change in United States law or regulations or in the official
interpretation of such law or regulations by any Governmental Authority charged
with the interpretation or administration thereof (whether or not having the
force of law) after the date of delivery of such Form 4224; or
(c) If such Lender shall have delivered to Borrower a
Form 1001 in respect of such Lending Office pursuant to Subsection 2.14.6, and
such Lender shall not at any time be entitled to exemption from deduction or
withholding of United States Federal income tax in respect of payments by
Borrower hereunder for the account of such Lending Office for any reason other
than a change in United States law or regulations or any applicable tax treaty
or regulations or in the official interpretation of any such law, treaty or
regulations by any Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law) after the date
of delivery of such Form 1001.
2.14.8 Reimbursement of Costs. If, at any time, Borrower
requests any Lender to deliver any forms or other documentation pursuant to
Subsection 2.14.6(d), then Borrower shall, on demand of such Lender through
Agent, reimburse such Lender for any costs and expenses (including reasonable
attorney fees) reasonably incurred by such Lender in the preparation or delivery
of such forms or other documentation.
2.14.9 Jurisdiction. If Borrower is required to pay additional
amounts to any Lender or Agent pursuant to Subsection 2.14.4, then such Lender
shall use its reasonable good faith efforts (consistent with legal and
regulatory restrictions) to change the jurisdiction of its Lending Office so as
to eliminate any such additional payment by Borrower which may thereafter accrue
if such change in the judgment of such Lender is not otherwise disadvantageous
to such Lender.
<PAGE>
2.15 Illegality.
2.15.1 LIBOR Loans. If any Lender shall determine that the
introduction of any Requirement of Law, or any change in any Requirement of
Law or in the interpretation or administration thereof, has made it unlawful,
or that any central bank or other Governmental Authority has asserted that it
is unlawful, for such Lender or its Lending Office to make LIBOR Loans, then,
on notice thereof by Lender to Borrower, the obligation of such Lender to make
LIBOR Loans shall be suspended until such Lender shall have notified Borrower
that the circumstances giving rise to such determination no longer exists.
2.15.2 Prepayment. If a Lender shall determine that it is
unlawful to maintain any LIBOR Loan, Borrower shall prepay in full all LIBOR
Loans of such Lender then outstanding, together with interest accrued thereon,
either on the last day of the Interest Period thereof if such Lender may
lawfully continue to maintain such LIBOR Loans to such day, or immediately, if
such Lender may not lawfully continue to maintain such LIBOR Loans, together
with any amounts required to be paid in connection therewith pursuant to Section
2.18.
2.15.3 Prime Rate Borrowing. If Borrower is required to
prepay any LIBOR Loan immediately as provided in Section 2.2.3, then
concurrently with such prepayment, Borrower shall borrow, in the amount of
such prepayment, a Prime Rate Loan.
2.16 Increased Costs. If any Lender shall determine that, due to either
(a) the introduction of or any change (other than any change by way of
imposition of or increase in reserve requirements included in the calculation of
the LIBOR) in or in the interpretation of any Requirement of Law or (b) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to such Lender of agreeing to make or making, funding
or maintaining any LIBOR Loans, then Borrower shall be liable, and shall from
time to time, upon demand therefor by such Lender, pay to such Lender such
additional amounts as are sufficient to compensate such Lender for such
increased costs.
2.17 Inability to Determine Rates. If Agent shall have determined that
for any reason adequate and reasonable means do not exist for ascertaining the
LIBOR for any requested Interest Period with respect to a proposed LIBOR Loan or
that the LIBOR applicable for any requested Interest Period with respect to a
proposed LIBOR Loan does not adequately and fairly reflect the cost to Lenders
of funding such Loan, Agent will forthwith give notice of such determination to
Borrower and each Lender. Thereafter, the obligation of Lenders to make or
maintain LIBOR Loans, as the case may be, hereunder shall be suspended until
Agent, upon instruction from the Requisite Lenders, revokes such notice in
writing. Upon receipt of such notice, Borrower may revoke any Notice of
Borrowing or Notice of Conversion/Continuation then submitted. If Borrower does
not revoke such notice, Lenders shall make, convert or continue the Loans, as
proposed by Borrower, in the amount specified in the applicable notice submitted
by Borrower, but such Loans shall be made, converted or continued as Prime Rate
Loans instead of LIBOR Loans, as the case may be.
<PAGE>
2.18 Prepayment of LIBOR Loans. Borrower agrees that in the event that
Borrower prepays or is required to prepay any LIBOR Loan by acceleration or
otherwise or fails to draw down or convert to a LIBOR Loan after giving notice
thereof, it shall reimburse each Lender for its funding losses due to such
prepayment or failure to draw. Borrower and Lenders hereby agree that such
funding losses shall consist of the sum of the discounted monthly differences
for each month during the applicable or requested Interest Period, calculated as
follows for each such month:
2.18.1 Principal amount of such LIBOR Loan times (number of
days between the date of prepayment and the last day in the applicable Interest
Period divided by 360), times the applicable Interest Differential, plus
2.18.2 all actual out-of-pocket expenses (other than those
taken into account in the calculation of the Interest Differential) incurred by
Lenders and Agent (excluding allocation of any expense internal to Lenders and
Agent) and reasonably attributable to such payment, prepayment or failure to
draw down or convert as described above; provided that no prepayment fee shall
be payable (and no credit or rebate shall be required) if the product of the
foregoing formula is not a positive number.
SECTION 3. CONDITIONS PRECEDENT.
3.1 Effectiveness of this Agreement. The effectiveness of this amended
and restated Agreement is subject to the satisfaction of the following
conditions precedent:
3.1.1 Corporate Documents. Agent shall have received, in form
and substance satisfactory to Lenders and their respective counsel, the
following:
(a) A certified copy of the records of all actions
taken by each of Borrower and Guarantor, including all corporate resolutions of
each of Borrower and Guarantor authorizing or relating to the execution,
delivery and performance of the Loan Documents and the consummation of the
transactions contemplated hereby and thereby;
(b) A certificate of a Responsible Officer each of
Borrower and Guarantor, respectively, certifying that (i) the certified copies
of the Certificate of Incorporation and Bylaws of Borrower or Guarantor, as the
case may be, attached as Exhibits A and B to the Certificate of Assistant
Secretary of American Finance Group, Inc. dated as of May 30, 1996, and the
Certificate of Assistant Secretary of PLM International, Inc. dated as of
November 5, 1996, as the case may be, are true and accurate, remain in full
force and effect and have not been amended since the respective date thereof,
and (ii) each of Borrower and Guarantor are in good standing under the laws of
the state of its formation and each other jurisdiction where its ownership of
Property and assets or conduct of its business requires such qualification;
(c) A certificate of the secretary or assistant
secretary of AFG Credit Corporation, certifying that (i) the certified copies of
the Certificate of Incorporation and Bylaws of AFG Credit Corporation, attached
as Exhibits A and B thereto, are true and accurate, remain
<PAGE>
in full force and effect and have not been amended since the respective date
thereof, and (ii) AFG Credit Corporation is in good standing under the laws of
the state of its formation and each other jurisdiction where its ownership of
Property and assets or conduct of its business requires such qualification;
(d) A certificate of Borrower (executed by a
Responsible Officer thereof), as the servicer for and behalf of the AFG Master
Trust, and by AFG Credit Corporation (executed by the secretary or assistant
secretary thereof) as the transferor for and on behalf of the AFG Master Trust,
certifying that attached to such certificate is a true and accurate copy of the
AFG Master Trust Agreement, as amended through the Closing Date, which remains
in full force and effect; and
(e) Such other documents relating to Borrower or
Guarantor as Lenders reasonably may request.
3.1.2 Notes. Agent shall have received the Notes, in form and
substance satisfactory to Lenders, duly executed and delivered by Borrower,
which Notes shall replace and supersede the existing Notes dated as of November
5, 1996, issued by Borrower to FUNB and Fleet.
3.1.3 Security Documents. Agent shall have received the
Security Documents in form and substance satisfactory to Lenders, duly executed
and delivered by Borrower.
3.1.4 Opinion of Counsel. Agent shall have received an
originally executed Opinion of Counsel on behalf of Borrower and Guarantor, in
form and substance satisfactory to Lenders, dated as of the Closing Date and
addressed to Lenders, together with copies of any officer's certificate or legal
opinion of other counsel or law firm specifically identified and expressly
relied upon by such counsel.
3.1.5 Reaffirmation of Guaranty. Agent shall have received the
Reaffirmation of Guaranty, in form and substance satisfactory to Lenders, duly
executed and delivered by Guarantor.
3.1.6 Growth Fund Agreement. Agent shall have received the
Growth Fund Agreement, duly executed and delivered by each of the Growth Funds
and all conditions precedent to the effectiveness of the Growth Fund Agreement
shall have been satisfied.
3.1.7 TEC AcquiSub Agreement. Agent shall have received the
TEC AcquiSub Agreement, executed and delivered by TEC AcquiSub and all
conditions precedent to the effectiveness of the TEC AcquiSub Agreement shall
have been satisfied.
3.1.8 Bringdown Certificate. A certificate or certificates,
dated as of the Closing Date, of the Chief Financial Officer or Corporate
Controller of Borrower to the effect that (i) the representations and
warranties of Borrower contained in Section 4 are true, accurate and complete
in all material respects as of the Closing Date as though made on such date
and (ii) no Event of Default or Potential Event of Default under this
Agreement has occurred.
<PAGE>
3.1.9 Fees. Agent shall have received the Agent's Side Letter
and BMO shall have received the Lender's Side Letter, each duly executed by
Borrower, Guarantor, each of the Growth Funds and TEC AcquiSub, and Agent and
BMO shall have received the fees described in the Agent's Side Letter and the
Lender's Side Letter, respectively.
3.1.10 Other Documents. Agent shall have received such other
documents, information and items from Borrower and Guarantor as reasonably
requested by Agent.
3.2 All Loans. Unless waived in writing by Requisite Lenders, the
obligation of any Lender to make any Advance is subject to the satisfaction of
the following further conditions precedent:
3.2.1 Notice of Borrowing. At least three (3) Business Days
before each Loan hereunder with respect to any acquisition of Leases by
Borrower, Agent shall have received (a) a Notice of Borrowing; (b) a Borrowing
Base Certificate; and (c) other information as may be requested by the Agent to
confirm that such Lease satisfies the criteria for Eligible Leases.
3.2.2 No Event of Default. No event shall have occurred and be
continuing or would result from the making of any Loan on such Funding Date
which constitutes an Event of Default or Potential Event of Default under this
Agreement or under (and as separately defined in) the Growth Fund Agreement or
under (and as separately defined in) the TEC AcquiSub Agreement, or which with
notice or lapse of time or both would constitute an Event of Default or
Potential Event of Default under this Agreement or under the Growth Fund
Agreement or under the TEC AcquiSub Agreement.
3.2.3 Officer's Certificate. Agent shall have received a
certificate, dated as of the Funding Date, of the Chief Financial Officer or
Corporate Controller of Borrower to the effect that all representations and
warranties contained in the Loan Documents are true, accurate and complete in
all material respects with the same effect as though such representations and
warranties had been made on and as of such Funding Date (except to the extent
such representations and warranties specifically relate to an earlier date, in
which case they shall be true, accurate and complete in all material respects
as of such earlier date).
3.2.4 Officer's Certificate - Leases. Agent shall have
received a certificate, dated as of the Funding Date of the Chief Financial
Officer or Corporate Controller of Borrower with respect to each Eligible
Lease being financed with such Loan to the effect that:
(a) Borrower has in its possession each of the
following: (i) valid lease documentation, including, without limitation, the
original master lease agreement, or a copy thereof and original lease schedules,
including all amendments, modifications, supplements or addenda made thereto;
(ii) the purchase agreement and assignment of lease, or bill of sale, as
<PAGE>
applicable; (iii) invoices with respect to the Equipment subject to the Lease
against which the Loan is to be made, together with evidence of payment to the
vendor or supplier of the Equipment; (iv) the original equipment acceptance
executed by the obligor under the Lease; and (v) certificates of title for the
Equipment subject to the Lease, if applicable;
(b) The Lease constitutes the entire agreement of the
parties thereto and no party thereto shall be bound except in accordance
therewith, and no amendments, modifications, supplements or addenda have been
made to, or schedules attached to, the Lease except as disclosed in such
certificate;
(c) No material default exists under the Lease as of
the date of the Loan; provided that a payment delinquency under the Lease of
less than sixty (60) days shall not constitute a material default;
(d) The Lease constitutes the valid contract of
Borrower and each lessee that is a party to the Lease, and shall at all times be
enforceable against each such lessee in accordance with its terms, subject to
the limitations on enforceability imposed by bankruptcy and creditors' rights
laws and the general principles of equity, and each party thereto has executed
the Lease with full power, authority and capacity to contract;
(e) Upon delivery of the purchase price and the
executed bill of sale or similar instrument of title, a true and correct copy of
which is to be attached, Borrower shall acquire good title to the Equipment
subject to the Eligible Lease against which the Loan is to be made, free and
clear of all Liens and other encumbrances on title (other than Permitted Liens);
(f) The lessee is responsible for the payment of all
taxes, insurance and similar charges so that all Lease payments will be net to
Borrower; and
(g) No rentals, fees, costs, expenses or charges paid
or payable by any lessee under the Lease violate any known statute, rule,
regulation, court ruling or other regulation or limitation relating to the
maximum fees, costs, expenses or charges permitted in any state in which the
Equipment is located or in which the lessee is located, resides or is domiciled,
or in which the transaction was consummated, or in any other state which has
jurisdiction of the Equipment, Lease or lessee.
3.2.5 Insurance. The insurance required to be maintained by
Borrower pursuant to the Loan Documents shall be in full force and effect.
3.2.6 Other Instruments. Agent shall have received such other
instruments and documents as it may have reasonably requested from Borrower in
connection with the Loans to be made on such date.
<PAGE>
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES.
Borrower hereby warrants and represents to Agent and each Lender as
follows, and agrees that each of said warranties and representations shall be
deemed to continue until full, complete and indefeasible payment and performance
of the Obligations and shall apply anew to each borrowing hereunder:
4.1 Existence and Power. Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified and licensed as a foreign corporation and authorized to do
business in each jurisdiction within the United States where its ownership of
Property and assets or conduct of business requires such qualification. Borrower
has the corporate power and authority, rights and franchises to own its Property
and assets and to carry on its business as now conducted. Borrower has the
corporate power and authority to execute, deliver and perform the terms of the
Loan Documents (to the extent either is a party thereto) and all other
instruments and documents contemplated hereby or thereby.
4.2 Loan Documents and Note Authorized; Binding Obligations. The
execution, delivery and performance of this Agreement and each of the other Loan
Documents to which Borrower is a party and payment of the Note have been duly
authorized by all necessary and proper corporate action on the part of Borrower.
The Loan Documents constitute legally valid and binding obligations of Borrower,
enforceable against Borrower, to the extent Borrower is a party thereto, in
accordance with their respective terms, except as enforcement thereof may be
limited by bankruptcy, insolvency or other laws affecting the enforcement of
creditors' rights generally.
4.3 No Conflict; Legal Compliance. The execution, delivery and
performance of this Agreement, and each of the other Loan Documents and the
execution, delivery and payment of the Note will not: (a) contravene any
provision of Borrower's certificate of incorporation or bylaws; (b) contravene,
conflict with or violate any applicable law or regulation, or any order, writ,
judgment, injunction, decree, determination or award of any Governmental
Authority, which contravention, conflict or violation, in the aggregate, may
have a Material Adverse Effect; or (c) violate or result in the breach of, or
constitute a default under any indenture or other loan or credit agreement, or
other agreement or instrument to which Borrower is a party or by which Borrower,
or its Property and assets may be bound or affected. Borrower is not in
violation or breach of or default under any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or any contract, agreement,
lease, license, indenture or other instrument to which it is a party, the
non-compliance with, the violation or breach of or the default under which
would, with reasonable likelihood, have a Material Adverse Effect.
4.4 Financial Condition. Borrower's and Guarantor's audited
consolidated financial statements as of December 31, 1996, and Borrower's and
Guarantor's unaudited consolidated financial statements as of June 30, 1997,
copies of which heretofore have been delivered to Agent by Borrower, and all
other financial statements and other data submitted in writing by Borrower to
Agent or any Lender in connection with the request for credit granted by this
<PAGE>
Agreement, are true, accurate and complete in all material respects, and said
financial statements and other data fairly present the consolidated financial
condition of Guarantor, as of the date thereof, and have been prepared in
accordance with GAAP, subject to fiscal year-end audit adjustments. There has
been no material adverse change in the business, properties or assets,
operations, prospects, profitability or financial or other condition of Borrower
or Guarantor since December 31, 1996.
4.5 Executive Offices. The current location of Borrower's chief
executive offices and principal places of business is set forth on Schedule 4.5.
4.6 Litigation. Except as set forth in Schedule 4.6, there are no
claims, actions, suits, proceedings or other litigation pending or, to the best
of Borrower's knowledge, after due inquiry, threatened against Borrower, at law
or in equity before any Governmental Authority or, to the best of Borrower's
knowledge, after due inquiry, any investigation by any Governmental Authority of
Borrower's Properties or assets. Borrower has no Contingent Obligations.
4.7 Consents and Approvals. No approval, authorization or consent of
any trustee or holder of any indebtedness or obligation of Borrower or of any
other Person under any such material agreement, contract, lease or license or
similar document or instrument to which Borrower is a party or by which Borrower
is bound, is required to be obtained by Borrower in order to make or consummate
the transactions contemplated under the Loan Documents. Except as set forth in
Schedule 4.7, all consents and approvals of, filings and registrations with, and
other actions in respect of, all Governmental Authorities required to be
obtained by Borrower in order to make or consummate the transactions
contemplated under the Loan Documents have been, or prior to the time when
required will have been, obtained, given, filed or taken and are or will be in
full force and effect.
4.8 Other Agreements. Borrower is not a party to and is not bound by
any agreement, contract, lease, license or instrument, and is not subject to any
restriction under its respective charter or formation documents, which has, or
is likely in the foreseeable future to have, a Material Adverse Effect. Borrower
has not entered into and, as of the Closing Date does not contemplate entering
into, any material agreement or contract with any Affiliate of Borrower on terms
that are less favorable to Borrower than those that might be obtained at the
time from Persons who are not such Affiliates.
4.9 ERISA. All Employee Benefit Plans of Borrower are listed on
Schedule 4.9. All Pension Plans of Borrower, including terminated Pension Plans,
that are intended to be qualified under Section 401(a) of the Code have been
determined by the IRS to be qualified. All Pension Plans existing as of the date
hereof continue to be so qualified. No "reportable event" (as defined in Section
4043 of ERISA) has occurred and is continuing with respect to any Pension Plan
for which the thirty-day notice requirement may not be waived other than those
of which the appropriate Governmental Authority has been notified. All Employee
Benefit Plans of the Borrower have been operated in all material respects in
accordance with their terms and applicable law, including ERISA, and no
"prohibited transaction" (as defined in ERISA and the Code) that would result in
any material liability to the Borrower has occurred with respect to any such
Employee Benefit Plan.
<PAGE>
4.10 Labor Matters. There are no strikes or other labor disputes
against or threatened against Borrower. All payments due from Borrower on
account of employee health and welfare insurance which would, with reasonable
likelihood, have a Material Adverse Effect if not paid have been paid or, if not
due, accrued as a liability on the books of Borrower.
4.11 Margin Regulations. Borrower does not own any "margin security",
as that term is defined in Regulations G and U of the Federal Reserve Board, and
the proceeds of the Loans under this Agreement will be used only for the
purposes contemplated hereunder. None of the Loans will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security, for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose which
might cause any of the Loans under this Agreement to be considered a "purpose
credit" within the meaning of Regulations G, T, U and X. Borrower will not take
or permit any agent acting on its behalf to take any action which might cause
this Agreement or any document or instrument delivered pursuant hereto to
violate any regulation of the Federal Reserve Board.
4.12 Taxes. All federal, state, local and foreign tax returns, reports
and statements required to be filed by Borrower have been filed with the
appropriate Governmental Authorities where failure to file would, with
reasonable likelihood, have a Material Adverse Effect, and all material Charges
and other impositions shown thereon to be due and payable by Borrower have been
paid prior to the date on which any fine, penalty, interest or late charge may
be added thereto for nonpayment thereof, or any such fine, penalty, interest,
late charge or loss has been paid, or Borrower is contesting its liability
therefore in good faith and has fully reserved all such amounts according to
GAAP in the financial statements provided to Agent pursuant to Section 5.1.
Borrower has paid when due and payable all material Charges upon the books of
Borrower and no Government Authority has asserted any Lien against Borrower with
respect to unpaid Charges. Proper and accurate amounts have been withheld by
Borrower from its employees for all periods in full and complete compliance with
the tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective Governmental Authorities.
4.13 Environmental Quality.
4.13.1 Except as specifically disclosed in Schedule 4.13, the
on-going operations of Borrower comply in all material respects with all
Environmental Laws.
4.13.2 Except as specifically disclosed in Schedule 4.13,
Borrower has obtained all licenses, permits, authorizations and registrations
required under any Environmental Law ("Environmental Permits") and necessary for
its ordinary course operations, all such Environmental Permits are in good
standing, and Borrower is in compliance with all material terms and conditions
of such Environmental Permits.
<PAGE>
4.13.3 Except as specifically disclosed in Schedule 4.13,
neither Borrower nor any of its present Property or operations is subject to any
outstanding written order from or agreement with any Governmental Authority nor
subject to any judicial or docketed administrative proceeding, respecting any
Environmental Law, Environmental Claim or Hazardous Material.
4.13.4 There are no Hazardous Materials or other conditions or
circumstances existing with respect to any Property, or arising from operations
prior to the Closing Date, of Borrower that would reasonably be expected to give
rise to any Environmental Claim with a potential liability of Borrower in excess
of $100,000 in the aggregate from any such condition, circumstance or Property.
4.14 Trademarks, Patents, Copyrights, Franchises and Licenses. Borrower
possesses and owns all necessary trademarks, trade names, copyrights, patents,
patent rights, franchises and licenses which are material to the conduct of its
business as now operated.
4.15 Full Disclosure. As of the Closing Date, no information contained
in this Agreement, the other Loan Documents or any other documents or written
materials furnished by or on behalf of Borrower to Agent or any Lender pursuant
to the terms of this Agreement or any of the other Loan Documents contains any
untrue or inaccurate statement of a material fact or omits to state a material
fact necessary to make the statement contained herein or therein not misleading
in light of the circumstances under which made.
4.16 Other Regulations. Borrower is not: (a) a "public utility company"
or a "holding company," or an "affiliate" or a "subsidiary company" of a
"holding company," or an "affiliate" of such a "subsidiary company," as such
terms are defined in the Public Utility Holding Company Act or (b) an
"investment company," or an "affiliated person" of, or a "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act. The making of the Loans hereunder and the
application of the proceeds and repayment thereof by Borrower and the
performance of the transactions contemplated by this Agreement and the other
Loan Documents will not violate any provision of the Investment Company Act or
the Public Utility Holding Company Act, or any rule, regulation or order issued
by the SEC thereunder.
4.17 Solvency. Borrower is Solvent.
4.18 Survival of Representations and Warranties. So long as any of the
Commitments shall be available and until payment and performance in full of the
Obligations, the representations and warranties contained herein shall have a
continuing effect as having been true when made.
4.19 Eligible Leases. With respect to each Eligible Lease financed by a
Loan:
<PAGE>
4.19.1 Borrower maintains in its possession each of the
following: (a) valid lease documentation, including, without limitation, the
original master lease agreement, or a copy thereof and original lease schedules,
together with all amendments, modifications, supplements or addenda made, or
schedules attached, thereto; (b) the purchase agreement and assignment of lease,
or bill of sale, as applicable; (c) invoices with respect to Equipment subject
to the Lease, together with evidence of payment to the vendor or supplier of the
Equipment; (d) the original equipment acceptance executed by the obligor under
the Lease; and (e) certificates of title for the Equipment subject to the Lease,
if applicable;
4.19.2 No material default exists under the Lease; provided
that a payment delinquency under the Lease of less than sixty (60) days shall
not constitute a material default;
4.19.3 The Lease constitutes the valid contract of Borrower
and each lessee that is a party to the Lease, and shall at all times be
enforceable against each such lessee in accordance with its terms, subject to
the limitations on enforceability imposed by bankruptcy and creditors' rights
laws and the general principles of equity, and each party thereto has executed
the Lease with full power, authority and capacity to contract;
4.19.4 Borrower has good title to the Equipment subject to the
Eligible Lease, free and clear of all Liens and other encumbrances on title
(other than Permitted Liens);
4.19.5 The lessee is responsible for the payment of all taxes,
insurance and similar charges so that all Lease payments will be net to
Borrower; and
4.19.6 No rentals, fees, costs, expenses or charges paid or
payable by any lessee under the Lease violate any known statute, rule,
regulation, court ruling or other regulation or limitation relating to the
maximum fees, costs, expenses or charges permitted in any state in which the
Equipment is located or in which the lessee is located, resides or is domiciled,
or in which the transaction was consummated, or in any other state which has
jurisdiction of the Equipment, Lease or lessee.
SECTION 5. BORROWER'S AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any of the Commitments
shall be available and until full, complete and indefeasible payment and
performance of the Obligations, unless Requisite Lenders shall otherwise consent
in writing, Borrower shall do or cause to have done all of the following:
5.1 Records and Reports. Maintain a system of accounting administered
in accordance with sound business practices to permit preparation of financial
statements in conformity with GAAP, and deliver to Agent or caused to be
delivered to Agent:
5.1.1 Quarterly Statements. As soon as practicable and in any
event within sixty (60) days after the end of each quarterly accounting period
of Borrower, Guarantor and PLMI, except with respect to the final fiscal quarter
of each fiscal year, in which case as soon as practicable and in any event
within one hundred twenty (120) days after the end of such fiscal quarter,
consolidating balance sheets of Guarantor and Borrower as at the end of such
period and
<PAGE>
the related consolidated statements of income, stockholders' equity and cash
flows of PLMI (and, as to statements of income only, consolidating) for such
quarterly accounting period, setting forth in each case in comparative form
the consolidated figures for the corresponding periods of the previous year,
all in reasonable detail and certified by the Chief Financial Officer or
Corporate Controller of Borrower, Guarantor and PLMI that they (i) are
complete and fairly present the financial condition of Borrower, Guarantor and
PLMI as at the dates indicated and the results of their operations and changes
in their cash flow for the periods indicated, (ii) disclose all liabilities of
Borrower, Guarantor and PLMI that are required to be reflected or reserved
against under GAAP, whether liquidated or unliquidated, fixed or contingent,
and (iii) have been prepared in accordance with GAAP, subject to changes
resulting from audit and normal year-end adjustment;
5.1.2 Annual Statements. As soon as practicable and in any
event within one hundred twenty (120) days after the end of each fiscal year of
Guarantor and PLMI, consolidated and consolidating balance sheets of Guarantor
and PLMI and the related consolidated (and, as to statements of income only for
Guarantor and PLMI, consolidating) statements of income, stockholders' equity
and cash flows of Guarantor and PLMI for such fiscal year, setting forth in each
case, in comparative form the consolidated figures for the previous year, all in
reasonable detail and (i) in the case of such consolidated financial statements,
accompanied by a report thereon of an independent public accountant of
recognized national standing selected by Guarantor and PLMI and satisfactory to
Agent, which report shall contain an opinion which is not qualified in any
manner or which otherwise is satisfactory to Requisite Lenders, in their sole
discretion, and (ii) in the case of such consolidating financial statements,
certified by the Chief Financial Officer or Corporate Controller of Guarantor
and PLMI;
5.1.3 Borrowing Base Certificate. As soon as practicable, and
in any event not later than fifteen (15) days after the end of each calendar
month in which a Loan has been, or is outstanding, a Borrowing Base Certificate
dated as of the last day of such month, duly executed by a Chief Financial
Officer or Corporate Controller of Borrower, with appropriate insertions;
5.1.4 Compliance Certificate. As soon as practicable, and in
any event not later than sixty (60) days after the end of each fiscal quarter of
Borrower, a Compliance Certificate dated as of the last day of such fiscal
quarter, duly executed by the Chief Financial Officer or Corporate Controller of
Borrower, with appropriate insertions;
5.1.5 Reports. At Agent's request, promptly upon receipt
thereof, copies of all reports submitted to Borrower, Guarantor or PLMI by
independent public accountants in connection with each annual, interim or
special audit of the financial statements of Borrower, Guarantor or PLMI made by
such accountants;
5.1.6 Lease Receivables Aging Reports. As soon as practicable
and in any event within sixty (60) days after the end of each quarterly
accounting period of Borrower, a Lease receivables aging report as at the end of
such period, all in reasonable detail and certified by the Chief Financial
Officer or Corporate Controller of Borrower that they are complete and fairly
present the Lease receivables aging of Borrower as at the dates indicated.
<PAGE>
5.1.7 . As soon as practicable, and in any event within sixty
(60) days after the end of each quarterly accounting period of Borrower, an
equipment residual value report as of the end of such period for each item of
Eligible Equipment and Master Trust Pooled Equipment for which the AFG Allocated
Residual Amount or Master Trust Allocated Residual Amount, as applicable, is
included within the Borrowing Base, as calculated as of the end of such period,
setting forth for each such item of equipment (i) the Invoice Price, (ii) the
GAAP book residual value, (iii) the insured residual value and (iv) on a
trailing basis, the total residual proceeds, including re-leasing and sales
proceeds, all in reasonable detail and certified by the Chief Financial Officer
or Corporate Controller of Borrower.
5.1.8 [Intentionally Omitted.]
5.1.9 Insurance Reports. (i) On the date six (6) months after
the Closing Date and thereafter upon Agent's reasonable request, which request
shall not be made more than once during any calendar year (unless an Event of
Default shall have occurred and be continuing, in which event such limitation
shall not apply), a report from Borrower's insurance broker, in such detail as
Agent may reasonably request, as to the insurance maintained or caused to be
maintained by Borrower pursuant to this Agreement, demonstrating compliance with
the requirements hereof and thereof, and (ii) as soon as possible and in no
event later than fifteen (15) days prior to the expiration date of any insurance
policy of Borrower, a written confirmation that such policy is in process of
renewal and is not terminated or subject to a notice of non-renewal from such
Borrower's insurance broker; provided, however, that Borrower shall give Agent
prompt written notice if changes affecting risk coverage will be made to such
policy or if the policy will be canceled;
5.1.10 Certificate of Responsible Officer. Promptly upon any
officer of Borrower obtaining knowledge (i) of any condition or event which
constitutes an Event of Default or Potential Event of Default under this
Agreement, (ii) that any Person has given any notice to Borrower, Guarantor or
PLMI or taken any other action with respect to a claimed default or event or
condition of the type referred to in Section 8.1.2, (iii) of the institution of
any litigation or of the receipt of written notice from any Governmental
Authority as to the commencement of any formal investigation involving an
alleged or asserted liability of Borrower of any amount and of Guarantor or PLMI
equal to or greater than $500,000 or any adverse judgment in any litigation
involving a potential liability of Borrower of any amount and of Guarantor or
PLMI equal to or greater than $500,000, or (iv) of a material adverse change in
the business, operations, properties, assets or condition (financial or
otherwise) of Borrower, Guarantor or PLMI, a certificate of a Responsible
Officer of Borrower, specifying the notice given or action taken by such Person
and the nature of such claimed default, Event of Default, Potential Event of
Default, event or condition and what action Borrower, Guarantor or PLMI has
taken, is taking and proposes to take with respect thereto;
<PAGE>
5.1.11 Employee Benefit Plans 5.1.11 Employee Benefit
Plans. Promptly upon becoming aware of the occurrence of any (i) Termination
Event in connection with any Pension Plan or (ii) "prohibited transaction" (as
such term is defined in ERISA and the Code) in connection with any Employee
Benefit Plan or any trust created thereunder, a written notice specifying the
nature thereof, what action Borrower or any of its ERISA Affiliates has taken,
is taking or proposes to take with respect thereto, and, when known, any
action taken or threatened by the IRS or the PBGC with respect thereto;
5.1.12 ERISA Notices. With reasonable promptness, copies of
(i) all notices received by Borrower or any of its ERISA Affiliates of the
PBGC's intent to terminate any Pension Plan or to have a trustee appointed to
administer any Pension Plan, (ii) each Schedule B (Actuarial Information) to the
annual report (Form 5500 Series) filed by Borrower or any of its ERISA
Affiliates with the IRS with respect to each Pension Plan covering employees of
Borrower, and (iii) all notices received by Borrower or any of its ERISA
Affiliates from a Multiemployer Plan sponsor concerning the imposition or amount
of withdrawal liability pursuant to Section 4202 of ERISA;
5.1.13 Pension Plans. Promptly upon receipt by Borrower any
challenge by the IRS to the qualification under Section 401 or 501 of the Code
of any Pension Plan;
5.1.14 SEC Reports. As soon as available and in no event
later than five (5) days after the same shall have been filed with the SEC, a
copy of each Form 8-K Current Report, Form 10-K Annual Report, Form 10-Q
Quarterly Report, Annual Report to Shareholders, Proxy Statement and
Registration Statement of PLMI;
5.1.15 Tax Returns. Upon the request of Agent, copies of all
federal, state, local and foreign tax returns and reports in respect of
income, franchise or other taxes on or measured by income (excluding sales,
use or like taxes) filed by or on behalf of Borrower, Guarantor and PLMI; and
5.1.16 Additional Information. Such other information
respecting the condition or operations, financial or otherwise, of Borrower and
PLMI and its Subsidiaries as Agent or any Lender may from time to time
reasonably request, and such information regarding the lessees under Leases as
Borrower from time to time receives or Agent or any Lender reasonably requests.
All financial statements of Borrower, Guarantor and PLMI to be
delivered by Borrower, Guarantor and PLMI to Agent pursuant to this Section 5.1
will be complete and correct and present fairly the financial condition of
Borrower, Guarantor and PLMI as of the date thereof; will disclose all
liabilities of Borrower, Guarantor and PLMI that are required to be reflected or
reserved against under GAAP, whether liquidated or unliquidated, fixed or
contingent; and will have been prepared in accordance with GAAP. All tax returns
submitted to Agent by Borrower, Guarantor and PLMI will, to the best of
Borrower's, Guarantor's and PLMI's knowledge, after due inquiry, be true and
correct. Borrower, Guarantor and PLMI hereby agree that each time either submits
a financial statement or tax return to Agent, Borrower, Guarantor and PLMI shall
be deemed to represent and warrant to Lenders that such financial statement or
tax return complies with all of the preceding requirements set forth in this
paragraph.
<PAGE>
5.2 Existence; Compliance with Law. Borrower shall preserve and
maintain its existence and all of its licenses, permits, governmental approvals,
rights, privileges and franchises necessary or desirable in the normal conduct
of its business as now conducted or presently proposed to be conducted
(including, without limitation, its qualification to do business in each
jurisdiction in which such qualification is necessary or desirable in view of
its business); to conduct its business in an orderly and regular manner; and
comply with (a) the provisions of its articles of incorporation and bylaws and
(b) the requirements of all applicable laws, rules, regulations or orders of any
Governmental Authority and requirements for the maintenance of Borrower's
insurance, licenses, permits, governmental approvals, rights, privileges and
franchises, except, in either case, to the extent that the failure to comply
therewith would not, in the aggregate, with reasonable likelihood, have a
Material Adverse Effect.
5.3 Insurance. Borrower shall maintain and keep in force insurance of
the types and in amounts then customarily carried in lines of business similar
to that of Borrower including, but not limited to, property insurance coverage
for Borrower under the existing blanket policies of insurance for PLMI and its
Subsidiaries, and all such policies of property insurance shall carry
endorsements naming Agent as principal loss payee as to any property owned by
Borrower; and public liability insurance, which shall carry endorsements naming
Agent and each Lender as an additional insured, and in each case indicating that
(i) any loss thereunder shall be payable to Agent or Lenders, as the case may
be, notwithstanding any action, inaction or breach of representation or warranty
by Borrower; (ii) there shall be no recourse against any Lender for payment of
premiums or other amounts with respect thereto, and (iii) at least fifteen (15)
days' prior written notice of cancellation, lapse or material change in coverage
shall be given to Agent by the insurer. In addition, Borrower shall require each
lessee under each Eligible Lease that is not an Investment Grade Lease to
maintain and keep in force property insurance covering the Equipment subject to
such Eligible Lease.
5.4 Taxes and Other Liabilities. Promptly pay and discharge all
material Charges when due and payable, except (a) such as may be paid thereafter
without penalty or (b) such as may be contested in good faith by appropriate
proceedings and for which an adequate reserve has been established and is
maintained in accordance with GAAP. Borrower shall promptly notify Agent of any
material challenge, contest or proceeding pending by or against Borrower or
against PLMI or any of its other Subsidiaries before any taxing authority.
5.5 Inspection Rights; Assistance. At any reasonable time and from time
to time during normal business hours, permit Agent or any Lender or any agent,
representative or employee thereof, to examine and make copies of and abstracts
from the financial records and books of account of Borrower and other documents
in the possession or under the control of Borrower relating to any obligation of
Borrower arising under or contemplated by this Agreement, and to visit the
offices of Borrower to discuss the affairs, finances and accounts of Borrower
with any of the officers of Borrower, and, upon reasonable notice and during
normal business hours (unless an Event of Default or Potential Event of Default
shall have occurred and be continuing, in which event no notice is required) to
conduct audits of and appraise the Equipment. Such audits and appraisals shall
be subject to the lessee's right to quiet enjoyment as set forth in the
respective Lease.
<PAGE>
5.6 Maintenance of Facilities; Modifications; Performance of Leases.
5.6.1 Maintenance of Facilities. Borrower shall keep its
Properties which are useful or necessary to Borrower in good repair and
condition, normal wear and tear excepted, and from time to time make necessary
repairs thereto, and renewals and replacements thereof so that Borrower's
Properties shall be fully and efficiently preserved and maintained.
5.6.2 Performance of Leases. Borrower shall timely perform
in all material respects each of its covenants and obligations under the
Eligible Leases to which it is a party.
5.7 Supplemental Disclosure. From time to time as may be necessary
(in the event that such information is not otherwise delivered by Borrower to
Agent or Lenders pursuant to this Agreement), so long as there are Obligations
outstanding hereunder, disclose to Agent in writing any material matter
hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described by Borrower
in this Agreement or any of the other Loan Documents (including all Schedules
and Exhibits hereto or thereto) or which is necessary to correct any
information set forth or described by Borrower hereunder or thereunder or in
connection herewith which has been rendered inaccurate thereby.
5.8 Further Assurances. In addition to the obligations and documents
which this Agreement expressly requires Borrower to execute, deliver and
perform, Borrower shall execute, deliver and perform any and all further acts or
documents which Agent or Lenders may reasonably require to effectuate the
purposes of this Agreement or any of the other Loan Documents.
5.9 Lockbox. Borrower shall unless otherwise directed in writing by
Agent, cause all remittances made by the obligor under any Lease to be made to a
lock box (the "Lockbox") maintained with FUNB pursuant to the Lockbox Agreement.
Unless otherwise directed by Agent in writing, all invoices and other
instructions submitted by Borrower to the obligor relating to Lease payments
shall designate the Lockbox as the place to which such payments shall be made.
5.10 Environmental Laws5.10 Environmental Laws. Borrower shall conduct
its operations and keep and maintain its Property in material compliance with
all Environmental Laws.
SECTION 6. BORROWER'S NEGATIVE COVENANTS.
So long as any of the Commitments shall be available and until full,
complete and indefeasible payment and performance of the Obligations, unless
Requisite Lenders shall otherwise consent in writing, Borrower covenants and
agrees as follows:
<PAGE>
6.1 Liens; Negative Pledges; and Encumbrances. Borrower shall not
create, incur, assume or suffer to exist any Lien of any nature upon or with
respect to any of their respective Property, whether now or hereafter owned,
leased or acquired, except (collectively, the "Permitted Liens"):
6.1.1 Liens granted in favor of Agent on behalf of Lenders
under the Security Agreement and the other Security Documents;
6.1.2 Liens for Charges if payment shall not at the time be
required to be made in accordance with Section 5.4;
6.1.3 Liens in respect of pledges, obligations or deposits (i)
under workers' compensation laws, unemployment insurance and other types of
social security or similar legislation, (ii) in connection with surety, appeal
and similar bonds incidental to the conduct of litigation, (iii) in connection
with bid, performance or similar bonds and mechanics', laborers' and
materialmen's and similar statutory Liens not then delinquent, or (iv)
incidental to the conduct of the business of Borrower and which were not
incurred in connection with the borrowing of money or the obtaining of advances
or credit; provided that the Liens permitted by this Section 6.1.3 do not in the
aggregate materially detract from the value of any assets or property of or
materially impair the use thereof in the operation of the business of Borrower;
and provided further that the adverse determination of any claim or liability,
contingent or otherwise, secured by any of such Liens would not either
individually or in the aggregate, with reasonable likelihood, have a Material
Adverse Effect; and
6.1.4 Permitted Rights of Others.
6.2 Limitations on Indebtedness. Borrower shall not create, incur,
assume or suffer to exist, any Indebtedness or Contingent Obligation; provided,
however, that this Section 6.2 shall not be deemed to prohibit the Obligations
to Lenders and Agent arising under this Agreement and the other Loan Documents.
6.3 Disposition of Assets. Borrower shall not sell, assign or otherwise
dispose of any of its assets, except for full, fair and reasonable
consideration, or enter into any sale and leaseback agreement covering any of
its fixed or capital assets.
6.4 Restricted Payments. Borrower shall not make any dividend payment
or other distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of its capital stock, or
purchase, redeem or otherwise acquire for value any shares of its capital stock
or any warrants, rights or options to acquire such shares, now or hereafter
outstanding, if such payment would cause an Event of Default or a prospective
Event of Default to occur.
6.5 Restriction on Fundamental Changes. Borrower shall not enter into
any transaction of Acquisition, merger, consolidation or recapitalization,
directly or indirectly, whether by operation of law or otherwise, or liquidate,
wind up or dissolve itself (or suffer any
<PAGE>
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or
any part of its business, Property or assets, whether now owned or hereafter
acquired, or acquire by purchase or otherwise all or substantially all the
business, Property or assets of, or stock or other evidence of beneficial
ownership of, any Person, except for the acquisition or resale of Leases and
Equipment in the ordinary course of business and as contemplated by this
Agreement.
6.6 Transactions with Affiliates. Borrower shall not directly or
indirectly, enter into or permit to exist any transaction (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with any of its Affiliates on terms that are less
favorable to Borrower than those that might be obtained at the time from Persons
who are not such Affiliates.
6.7 No Loans to Affiliates. Borrower shall not make any loans to any of
its Affiliates.
6.8 No Investment. Borrower shall not make or suffer to exist any
Investments, except for:
(a) Investments in Cash Equivalents;
(b) subject to Section 6.10, Investments in new
Subsidiaries for the purpose of capitalizing Lease Sale Programs; and
(c) extensions of credit in the nature of accounts
receivable or notes receivable arising form the sale or lease of goods or
services in the ordinary course of Borrower's business.
6.9 Maintenance of Business. Borrower shall not engage in any
business other than the originating and purchase of leases of equipment and
the operation, remarketing and resale of such leases and equipment.
6.10 No Subsidiaries. Except for such existing Subsidiaries listed in
Schedule 6.10, and such future Subsidiaries as Borrower may create after
providing the Agent with prior written notice of its intention to do so and so
long as any Indebtedness or other obligations or liabilities of any Subsidiary
shall be non-recourse to Borrower, Borrower shall not create any Subsidiaries.
6.11 Events of Default. Borrower shall not take or omit to take any
action, which act or omission would, with the lapse of time, or otherwise
constitute (a) a default, event of default or Event of Default under any of the
Loan Documents or (b) a default or an event of default under any other material
agreement, contract, lease, license, mortgage, deed of trust or instrument to
which it is a party or by which it or any of its Properties or assets is bound,
which default or event of default would, with reasonable likelihood, have a
Material Adverse Effect.
<PAGE>
6.12 ERISA.
6.12.1 Borrower shall not incur any obligation to contribute
to a Pension Plan required by a collective bargaining agreement or as a
consequence of the acquisition of an ERISA Affiliate, unless (i) Borrower shall
notify Agent in writing that it intends to incur such obligation and (ii) after
Agent's receipt of such notice, Requisite Lenders consent to the establishment
or maintenance of, or Borrower's incurring an obligation to contribute to, the
Pension Plan, which consent may not unreasonably be withheld but may be subject
to such reasonable conditions as Requisite Lenders may require.
6.12.2 If Borrower or any ERISA Affiliate of Borrower incurs
any obligation to contribute to any Pension Plan, then Borrower shall not (i)
terminate, or permit such ERISA Affiliate to terminate, any Pension Plan so as
to result in any liability that would, with reasonable likelihood, have a
Material Adverse Effect or (ii) make or permit such ERISA Affiliate to make a
complete or partial withdrawal (within the meaning of Section 4201 of ERISA)
from any Multiemployer Plan so as to result in any liability that would, with
reasonable likelihood, have a Material Adverse Effect.
6.13 No Use of Any Lender's Name. Borrower shall not use or authorize
others to use any Lender's name or marks in any publication or medium,
including, without limitation, any prospectus, without such Lender's advance
written authorization.
6.14 Certain Accounting Changes. Borrower shall not change its fiscal
year end from December 31, nor make any change in its accounting treatment and
reporting practices except as permitted by GAAP.
SECTION 7. FINANCIAL COVENANT OF BORROWER.
Borrower covenants and agrees that, so long as the Commitment hereunder
shall be available, and until full, complete and indefeasible payment and
performance of the Obligations, including, without limitation, all Loans
evidenced by the Note, unless Requisite Lenders shall otherwise consent in
writing, Borrower shall perform the following financial covenant. Borrower
agrees and understands that (except as expressly provided herein) the covenant
under this Section 7 shall be subject to quarterly compliance or compliance as
of the date of any request for a Loan pursuant to Section 3.2.1 (as measured on
the last day of each fiscal quarter of Borrower or as of the date of any request
for a Loan pursuant to Section 3.2.1), and in each case review by Lenders of the
respective fiscal quarter's consolidated financial statements delivered to Agent
by Borrower pursuant to Section 5.1.
7.1 Minimum Consolidated Tangible Net Worth. Borrower shall maintain a
Consolidated Tangible Net Worth of not less than $6,000,000.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
8.1 Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default:
<PAGE>
8.1.1 Failure to Make Payments. Borrower or Guarantor fails to
pay any sum due to Lenders or Agent arising under this Agreement, the Note or
any of the other Loan Documents when and as the same shall become due and
payable, whether by acceleration or otherwise and such failure shall not have
been cured to Lenders' satisfaction within five (5) calendar days; or
8.1.2 Other Agreements. (a) Borrower defaults in the repayment
of any principal of or the payment of any interest on any Indebtedness of
Borrower, or breaches any term of any evidence of such Indebtedness or defaults
in any payment in respect of any Contingent Obligation, (b) Guarantor defaults
in the repayment of any principal of or the payment of any interest on any
Indebtedness of Guarantor, or breaches any term of any evidence of such
Indebtedness or defaults in any payment in respect of any Contingent Obligations
(excluding, as to Guarantor, any Contingent Obligations of Guarantor arising
solely as a result of Guarantor's status as a general partner of any Person), in
each case exceeding, in the aggregate outstanding principal amount, $2,000,000,
(c) Borrower or Guarantor breaches or violates any term or provision of any
evidence of such Indebtedness or Contingent Obligation or of any such loan
agreement, mortgage, indenture, guaranty or other agreement relating thereto if
the effect of such breach is to permit acceleration under the applicable
instrument, loan agreement, mortgage, indenture, guaranty or other agreement and
such failure shall not have been cured within the applicable cure period, or
there is an acceleration under the applicable instrument, loan agreement,
mortgage, indenture, guaranty or other agreement, or (d) PLMI defaults in the
repayment of any principal of or the payment of any interest on any Indebtedness
or defaults in any payment in respect of any Contingent Obligation, in each case
exceeding, in the aggregate outstanding principal amount, $2,000,000, or PLMI
breaches or violates any term or provision of any evidence of such Indebtedness
or Contingent Obligation or of any such loan agreement, mortgage, indenture,
guaranty or other agreement relating thereto with the result that such
Indebtedness or Contingent Obligation becomes or is caused to become then due
and payable in its entirety, whether by acceleration of otherwise; or
8.1.3 Breach of Covenants. Borrower fails or neglects to
perform, keep or observe any of the covenants contained in Sections 2.1.3, 5.2,
5.3, 5.9, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10 and 7.1 of this
Agreement; or
8.1.4 Breach of Representations or Warranties. Any
representation or warranty made by or on behalf of Borrower or Guarantor in this
Agreement or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false, misleading or incomplete in any
material respect when made; or
8.1.5 Failure to Cure. Except as provided in Sections 8.1.1
and 8.1.3, Borrower or Guarantor fails or neglects to perform, keep or observe
any covenant or provision of this Agreement or of any of the other Loan
Documents or any other document or agreement executed by Borrower or Guarantor
in connection therewith and the same has not been cured to Requisite Lenders'
satisfaction within thirty (30) calendar days after Borrower or Guarantor shall
become aware thereof, whether by written notice from Agent or any Lender or
otherwise; or
<PAGE>
8.1.6 Insolvency. Borrower, Guarantor, PLMI or any other
guarantor of any of Borrower's or Guarantor's obligations to Lenders shall (i)
cease to be Solvent, (ii) admit in writing its inability to pay its debts as
they mature, (iii) make an assignment for the benefit of creditors, or (iv)
apply for or consent to the appointment of a receiver, liquidator, custodian or
trustee for it or for a substantial part of its Properties or business, or such
a receiver, liquidator, custodian or trustee otherwise shall be appointed and
shall not be discharged within sixty (60) days after such appointment; or
8.1.7 Bankruptcy Proceedings. Bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors shall be instituted by
or against Borrower, Guarantor, PLMI or any other guarantor of any of Borrower's
or Guarantor's obligations to Lenders or any order, judgment or decree shall be
entered against Borrower, Guarantor, PLMI or any other guarantor of any of
Borrower's or Guarantor's obligations to Lenders decreeing its dissolution or
division; provided, however, with respect to an involuntary petition in
bankruptcy, such petition shall not have been dismissed within sixty (60) days
after the filing of such petition; or
8.1.8 Material Adverse Effect. There shall have been a change
in the assets, liabilities, financial condition, operations, affairs or
prospects of Borrower, Guarantor, PLMI or any other guarantor of any of
Borrower's or Guarantor's obligations to Lenders which, in the reasonable
determination of Requisite Lenders has, either individually or in the aggregate,
had a Material Adverse Effect; or
8.1.9 Judgments, Writs and Attachments. There shall be a money
judgment, writ or warrant of attachment or similar process entered or filed
against Borrower or Guarantor which (net of insurance coverage) remains
unvacated, unbonded, unstayed or unpaid or undischarged for more than sixty (60)
days (whether or not consecutive) or in any event later than five (5) calendar
days prior to the date of any proposed sale thereunder, which, together with all
such other unvacated, unbonded, unstayed, unpaid and undischarged judgments or
attachments against Borrower in any amount; against Guarantor exceeds in the
aggregate $500,000; or against any combination of the foregoing Persons exceeds
in the aggregate $1,000,000; or
8.1.10 Legal Obligations. Any of the Loan Documents shall for
any reason other than the full, complete and indefeasible satisfaction of the
Obligations thereunder cease to be, or be asserted by Borrower or Guarantor, not
to be, a legal, valid and binding obligation of Borrower or Guarantor,
respectively, enforceable against such Person in accordance with its terms; or
8.1.11 Growth Fund Agreement. Without limiting the generality
of, and in addition to the events described in this Section 8.1, the occurrence
of any "Event of Default" as defined under the Growth Fund Agreement or any
other loan or security document related to the Growth Fund Agreement; or
<PAGE>
8.1.12 TEC AcquiSub Agreement. Without limiting the generality
of, and in addition to the events described in this Section 8.1, the occurrence
of any "Event of Default" as defined in the TEC AcquiSub Agreement or any other
loan or security document related to the TEC AcquiSub Agreement; or
8.1.13 Criminal Proceedings. A criminal proceeding shall have
been filed in any court naming Borrower as a defendant for which forfeiture is a
potential penalty under applicable federal or state law which, in the reasonable
determination of Requisite Lenders, may have a Material Adverse Effect; or
8.1.14 Action by Governmental Authority. Any Governmental
Authority enters a decree, order or ruling ("Government Action") which will
materially and adversely affect Borrower's, Guarantor's or PLMI's financial
condition, operations or ability to perform or pay such party's obligations
arising under this Agreement or any instrument or agreement executed pursuant to
the terms of this Agreement. Borrower or Guarantor shall have thirty (30) days
from the earlier of the date (a) Borrower or Guarantor, as applicable, first
discovers it is the subject of Government Action or (b) a Lender or any agency
gives notice of Government Action to take such steps as are necessary to obtain
relief from the Government Action. For the purpose of this paragraph, "relief
from Government Action" means to discharge or to obtain a dismissal of or
release or relief from (i) any Government Action so that the affected party or
parties do not incur (v) any monetary liability in the case of Borrower, (x)
monetary liability of more than $500,000 in the case of Guarantor, (y) monetary
liability of more than $250,000 in the case of TEC AcquiSub, (y) monetary
liability of more than $1,000,000 in the case of PLMI, or (z) monetary liability
of more than $1,000,000, in the aggregate, in the case of any combination of the
foregoing Persons, or (ii) any disqualification of or other limitation on the
operation of Borrower, Guarantor and PLMI, or any of them, which in the
reasonable determination of the Requisite Lenders may have a Material Adverse
Effect; or
8.1.15 Governmental Decrees. Any Governmental Authority,
including, without limitation, the SEC, shall enter a decree, order or ruling
prohibiting the Equipment Growth Funds from releasing or paying to Guarantor any
funds in the form of management fees, profits or otherwise which, in the
reasonable determination of Requisite Lenders, may have a Material Adverse
Effect.
8.2 Waiver of Default. An Event of Default may be waived only with the
written consent of Requisite Lenders, or if expressly provided, of all Lenders.
Any Event of Default so waived shall be deemed to have been cured and not to be
continuing; but no such waiver shall be deemed a continuing waiver or shall
extend to or affect any subsequent like default or impair any rights arising
therefrom.
8.3 Remedies. Upon the occurrence and continuance of any Event of
Default or Potential Event of Default, Lenders shall have no further obligation
to advance money or extend credit to or for the benefit of Borrower.
<PAGE>
In addition, upon the occurrence and during the continuance of an Event
of Default, Lenders or Agent, on behalf of Lenders, may, at the option of
Requisite Lenders, do any one or more of the following, all of which are hereby
authorized by Borrower:
8.3.1 Declare all or any of the Obligations of Borrower under
this Agreement, the Note, the other Loan Documents and any other instrument
executed by Borrower pursuant to the Loan Documents to be immediately due and
payable, and upon such declaration such obligations so declared due and payable
shall immediately become due and payable; provided that if such Event of Default
is under Section 8.1.6 or 8.1.7, then all of the Obligations shall become
immediately due and payable forthwith without the requirement of any notice or
other action by Lenders or Agent;
8.3.2 Terminate this Agreement as to any future liability or
obligation of Agent or Lenders; and
8.3.3 Exercise in addition to all other rights and remedies
granted hereunder, any and all rights and remedies granted under the Loan
Documents or otherwise available at law or in equity.
8.4 Set-Off.
8.4.1 During the continuance of an Event of Default, any
deposits or other sums credited by or due from any Lender to Borrower or
Guarantor (exclusive of deposits in accounts expressly held in the name of third
parties or held in trust for benefit of third parties) may be set-off against
the Obligations and any and all other liabilities, direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising, of
Borrower or Guarantor to Lenders. Each Lender agrees to notify promptly Borrower
or Guarantor and Agent of any such set-off; provided, that the failure to give
such notice shall not affect the validity of any such set-off.
8.4.2 Each Lender agrees that if it shall, whether by right of
set-off, banker's lien or similar remedy pursuant to Section 8.4.1, obtain any
payment as a result of which the outstanding and unpaid principal portion of the
Commitments of such Lender shall be less than such Lender's Pro Rata Share of
the outstanding and unpaid principal portion of the aggregate of all
Commitments, such Lender receiving such payment shall simultaneously purchase
from each other Lender a participation in the Commitments held by such Lenders
so that the outstanding and unpaid principal amount of the Commitments and
participations in Commitments of such Lender shall be in the same proportion to
the unpaid principal amount of the aggregate of all Commitments then outstanding
as the unpaid principal amount under the Commitments of such Lender outstanding
immediately prior to receipt of such payment was to the unpaid principal amount
of the aggregate of all Commitments outstanding immediately prior to such
Lender's receipt of such payment; provided, however, that if any such purchase
shall be made pursuant to this Section 8.4.2 and the payment giving rise thereto
shall thereafter be recovered, such purchase shall be rescinded to the extent of
such recovery and the purchase price restored without interest. Borrower
expressly consents to the foregoing arrangements and agrees that any Lender
holding a participation in a Commitment deemed to have been so purchased may
exercise any and all rights of set-off, banker's lien or similar remedy with
respect to any and all moneys owing by Borrower to such Lender as fully as if
such Lender held a Commitment in the amount of such participation.
<PAGE>
8.5 Rights and Remedies Cumulative. The enumeration of the rights and
remedies of Agent and Lenders set forth in this Agreement is not intended to be
exhaustive and the exercise by Agent and Lenders of any right or remedy shall
not preclude the exercise of any other rights or remedies, all of which shall be
cumulative, and shall be in addition to any other right or remedy given
hereunder or under the Loan Documents or that may now or hereafter exist in law
or in equity or by suit or otherwise. No delay or failure to take action on the
part of Agent and Lenders in exercising any right, power or privilege shall
operate as a waiver hereof, nor shall any single or partial exercise of any such
right, power or privilege preclude other or further exercise thereof or the
exercise of any other right, power or privilege or shall be construed to be a
waiver of any Event of Default or Potential Event of Default. No course of
dealing between Borrower, Agent or any Lender or their respective agents or
employees shall be effective to change, modify or discharge any provision of
this Agreement or any of the Loan Documents or to constitute a waiver of any
Event of Default or Potential Event of Default.
SECTION 9. AGENT.
9.1 Appointment. Each of the Lenders hereby irrevocably designates and
appoints First Union National Bank of North Carolina as the Agent of such Lender
under this Agreement and the other Loan Documents, and each such Lender
irrevocably authorizes First Union National Bank of North Carolina as the Agent
for such Lender to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and such other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement or such other Loan Documents, the Agent shall not
have any duties or responsibilities, except those expressly set forth herein and
therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or the other Loan Documents or otherwise exist
against Agent. To the extent any provision of this Agreement permits action by
Agent, Agent shall, subject to the provisions of this Section 9, take such
action if directed in writing to do so by the Requisite Lenders.
9.2 Delegation of Duties. Agent may execute any of its duties under
this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
9.3 Exculpatory Provisions. Neither Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (a)
liable for any action lawfully taken or omitted to be taken
<PAGE>
by it or such Person under or in connection with this Agreement or the other
Loan Documents (except for its or such Person's own gross negligence or
willful misconduct), or (b) responsible in any manner to any Lender for any
recitals, statements, representations or warranties made by Borrower or any
officer thereof contained in this Agreement or the other Loan Documents or in
any certificate, report, statement or other document referred to or provided
for in, or received by Agent under or in connection with, this Agreement or
the other Loan Documents or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the other Loan
Documents or for any failure of Borrower to perform its obligations hereunder
or thereunder. Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement, or to inspect the
Properties, books or records of Borrower.
9.4 Reliance by Agent. Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to Borrower), independent accountants and other experts
selected by Agent. Agent may deem and treat the payee of any promissory note
issued pursuant to this Agreement as the owner thereof for all purposes unless
such promissory note shall have been transferred in accordance with Section
11.10 hereof. Agent shall be fully justified in failing or refusing to take any
action under this Agreement and the other Loan Documents unless it shall first
receive such advice or concurrence of the Requisite Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action except for its own gross
negligence or willful misconduct. Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement in accordance with a
request of the Requisite Lenders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all Lenders.
9.5 Notice of Default. Agent shall not be deemed to have knowledge or
notice of the occurrence of any Event of Default or Potential Event of Default
hereunder unless Agent has received notice from a Lender or Borrower referring
to this Agreement, describing such Event of Default or Potential Event of
Default and stating that such notice is a "notice of default". In the event that
Agent receives such a notice, Agent shall promptly give notice thereof to
Lenders. The Agent shall take such action with respect to such Event of Default
or Potential Event of Default as shall be reasonably directed by the Requisite
Lenders; provided that unless and until Agent shall have received such
directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of Default or
Potential Event of Default as it shall deem advisable in the best interests of
Lenders.
9.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates has made any representations or
warranties to it and that no act
<PAGE>
by Agent hereinafter taken, including any review of the affairs of Borrower,
shall be deemed to constitute any representation or warranty by Agent to any
Lender. Each Lender represents to Agent that it has, independently and without
reliance upon Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of Borrower and Guarantor and made its own
decision to make its Loans hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon
Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement
and the other Loan Documents, and to make such investigation as it deems
necessary to inform itself as to the business, operations, property, financial
and other condition and creditworthiness of Borrower and Guarantor. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by Agent hereunder or by the other Loan Documents, Agent shall not
have any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, financial and other
condition or creditworthiness of Borrower and Guarantor which may come into
the possession of Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
9.7 Indemnification. Each Lender agrees to indemnify Agent in its
capacity as such (to the extent not reimbursed by Borrower and without limiting
the obligation of Borrower to do so), ratably according to the respective
amounts of their Pro Rata Share of the Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Loans)
be imposed on, incurred by or asserted against Agent in any way relating to or
arising out of this Agreement or the other Loan Documents, or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by Agent under or
in connection with any of the foregoing; provided that no Lender shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from Agent's bad faith, gross negligence or willful misconduct.
The agreements in this Section 9.7 shall survive the repayment of the Loans and
all other amounts payable hereunder.
9.8 Agent in Its Individual Capacity. Agent and its Affiliates may
make loans to, accept deposits from and generally engage in any kind of
business with Borrower or Guarantor as though Agent were not Agent hereunder.
With respect to Advances made or renewed by it, Agent shall have the same
rights and powers under this Agreement and the other Loan Documents as any
Lender and may exercise the same as though it were not Agent, and the terms
"Lender" and "Lenders" shall include Agent in its individual capacity.
9.9 Resignation and Appointment of Successor Agent. Agent may resign at
any time by giving thirty (30) days' prior written notice thereof to Lenders and
Borrower; provided, however, that the retiring Agent shall continue to serve
until a successor Agent shall have been selected and approved pursuant to this
Section 9.9. Upon any such notice, Agent shall have the
<PAGE>
right to appoint a successor Agent; provided, however, that if such successor
shall not be a signatory to this Agreement, such appointment shall be subject
to the consent of Requisite Lenders. Agent may be replaced by the Requisite
Lenders, with or without cause; provided, however, that any successor agent
shall be subject to Borrower's consent, which consent shall not be
unreasonably withheld. Upon the acceptance of any appointment as an Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
SECTION 10.EXPENSES AND INDEMNITIES.
10.1 Expenses. Borrower agrees to pay promptly on demand, and, in any
event, within thirty (30) days of the invoice date therefor, (a) all costs,
expenses, charges and other disbursements (including, without limitation, all
reasonable attorneys' fees and allocated expenses of outside counsel and
in-house legal staff) incurred by or on behalf of Agent or any Lender in
connection with the preparation of the Loan Documents and all amendments and
modifications thereof, extensions thereto or substitutions therefor, and all
costs, expenses, charges or other disbursements incurred by or on behalf of
Agent or any Lender (including, without limitation all reasonable attorney's
fees and allocated expenses of outside counsel and in-house legal staff) in
connection with the furnishing of opinions of counsel (including, without
limitation, any opinions requested by Lenders as to any legal matters arising
hereunder) and of Borrower's performance of and compliance with all agreements
and conditions contained herein or in any of the other Loan Documents on its
part to be performed or complied with; (b) all other costs, expenses, charges
and other disbursements incurred by or on behalf of Agent or any Lender in
connection with the negotiation, preparation, execution, administration,
continuation and enforcement of the Loan Documents, and the making of the Loans
hereunder; (c) all costs, expenses, charges and other disbursements (including,
without limitation, all reasonable attorney's fees and allocated expenses of
outside counsel and in-house legal staff) incurred by or on behalf of Agent or
FUNB in connection with the assignment or attempted assignment to any other
Person of all or any portion of any Lender's interest under this Agreement
pursuant to Section 11.10; and (d) regardless of the existence of an Event of
Default or Potential Event of Default, all legal, appraisal, audit, accounting,
consulting or other fees, costs, expenses, charges or other disbursements
incurred by or on behalf of Agent or any Lender in connection with any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
Lenders, Agent, Borrower or any other Person) seeking to enforce any Obligations
of, or collecting any payments due from, Borrower under this Agreement and the
Note, all of which amounts shall be deemed to be part of the Obligations.
Notwithstanding anything to the contrary contained in this Section 10.1, so long
as no Event of Default or Potential Event of Default shall have occurred and be
continuing, all appraisals of the Eligible Leases shall be at the expense of
Lenders. If an Event of Default or Potential Event of Default shall have
occurred and be continuing, such appraisals shall be at the expense of Borrower.
<PAGE>
10.2 Indemnification. Whether or not the transactions contemplated
hereby shall be consummated:
10.2.1 General Indemnity. Borrower shall pay, indemnify, and
hold each Lender, Agent and each of their respective officers, directors,
employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person")
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, charges, expenses or disbursements
(including reasonable attorney's fees and the allocated cost of in-house
counsel) of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement and any
other Loan Documents, or the transactions contemplated hereby and thereby, and
with respect to any investigation, litigation or proceeding (including any case,
action or proceeding before any court or other Governmental Authority relating
to bankruptcy, reorganization, insolvency, liquidation, dissolution or relief of
debtors or any appellate proceeding) related to this Agreement or the Loans or
the use of the proceeds thereof, whether or not any Indemnified Person is a
party thereto (all the foregoing, collectively, the "Indemnified Liabilities");
provided, that Borrower shall have no obligation hereunder to any Indemnified
Person with respect to Indemnified Liabilities arising from the gross negligence
or willful misconduct of such Indemnified Person.
10.2.2 Environmental Indemnity.
(a) Borrower hereby agrees to indemnify, defend and
hold harmless each Indemnified Person, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses or disbursements (including reasonable attorneys' fees and the
allocated cost of in-house counsel and internal environmental audit or review
services), which may be incurred by or asserted against such Indemnified Person
in connection with or arising out of any pending or threatened investigation,
litigation or proceeding, or any action taken by any Person, with respect to any
Environmental Claim arising out of or related to any Property owned, leased or
operated by Borrower. No action taken by legal counsel chosen by Agent or any
Lender in defending against any such investigation, litigation or proceeding or
requested remedial, removal or response action (except for actions which
constitute fraud, willful misconduct, gross negligence or material violations of
law) shall vitiate or in any way impair Borrower's obligation and duty hereunder
to indemnify and hold harmless Agent and each Lender. Agent and Lenders agree to
use reasonable efforts to cooperate with Borrower respecting the defense of any
matter indemnified hereunder, except insofar as and to the extent that their
respective interests may be adverse to Borrower's, in Agent's and each Lenders'
sole discretion.
(b) In no event shall any site visit, observation, or
testing by Agent or any Lender be deemed a representation or warranty that
Hazardous Materials are or are not present in, on, or under the site, or that
there has been or shall be compliance with any Environmental Law. Neither
Borrower nor any other Person is entitled to rely on any site visit,
observation, or testing by Agent or any Lender. Except as otherwise provided by
law, neither Agent nor any Lender owes any duty of care to protect Borrower or
any other Person against,
<PAGE>
or to inform Borrower or any other party of, any Hazardous Materials or any
other adverse condition affecting any site or Property. Neither Agent nor any
Lender shall be obligated to disclose to Borrower or any other Person any
report or findings made as a result of, or in connection with, any site visit,
observation, or testing by Agent or any Lender.
10.2.3 Survival; Defense. The obligations in this Section 10.2
shall survive payment of all other Obligations. At the election of any
Indemnified Person, Borrower shall defend such Indemnified Person using legal
counsel satisfactory to such Indemnified Person in such Person's sole
discretion, at the sole cost and expense of Borrower. All amounts owing under
this Section 10.2 shall be paid within thirty (30) days after written demand.
SECTION 11. MISCELLANEOUS.
11.1 Survival. All covenants, agreements, representations and
warranties made herein shall survive the execution and delivery of the Loan
Documents and the making of the Loans hereunder.
11.2 No Waiver by Agent or Lenders. No failure or delay on the part of
Agent or any Lender in the exercise of any power, right or privilege under this
Agreement, the Note or any of the other Loan Documents shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
11.3 Notices. Except as otherwise provided in this Agreement, any
notice or other communication herein required or permitted to be given shall be
in writing and may be delivered in person, with receipt acknowledged, or sent by
telex, facsimile, telecopy, computer transmission or by United States mail,
registered or certified, return receipt requested, or by Federal Express or
other nationally recognized overnight courier service, postage prepaid and
confirmation of receipt requested, and addressed as set forth on the signature
pages to this Agreement or at such other address as may be substituted by notice
given as herein provided. The giving of any notice required hereunder may be
waived in writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration or other communication hereunder
shall be deemed to have been duly given or served on the date on which the same
shall have been personally delivered, with receipt acknowledged, or sent by
telex, facsimile, telecopy or computer transmission (with appropriate
answerback), three (3) Business Days after the same shall have been deposited in
the United States mail or on the next succeeding Business Day if the same has
been sent by Federal Express or other nationally recognized overnight courier
service. Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the persons designated
above to receive copies shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.
<PAGE>
11.4 Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
11.5 Severability. Whenever possible, each provision of this Agreement,
the Note and each of the other Loan Documents shall be interpreted in such a
manner as to be valid, legal and enforceable under the applicable law of any
jurisdiction. Without limiting the generality of the foregoing sentence, in case
any provision of this Agreement, the Note or any of the other Loan Documents
shall be invalid, illegal or unenforceable under the applicable law of any
jurisdiction, the validity, legality and enforceability of the remaining
provisions, or of such provision in any other jurisdiction, shall not in any way
be affected or impaired thereby.
11.6 Entire Agreement; Construction; Amendments and Waivers.
11.6.1 This Agreement, the Note and each of the other Loan
Documents dated as of the date hereof, taken together, constitute and contain
the entire agreement among Borrower, Lenders and Agent and supersede any and all
prior agreements, negotiations, correspondence, understandings and
communications between the parties, whether written or oral, respecting the
subject matter hereof.
11.6.2 This Agreement is the result of negotiations between
and has been reviewed by each of Borrower, the Lenders executing this Agreement
as of the Closing Date and Agent and their respective counsel; accordingly, this
Agreement shall be deemed to be the product of the parties hereto, and no
ambiguity shall be construed in favor of or against Borrower, Lenders or Agent.
Borrower, Lenders and Agent agree that they intend the literal words of this
Agreement and the other Loan Documents and that no parol evidence shall be
necessary or appropriate to establish Borrower's, any Lender's or Agent's actual
intentions.
11.6.3 No amendment, modification, discharge or waiver of or
consent to any departure by Borrower or Guarantor from, any provision in this
Agreement or any of the other Loan Documents relating to (i) the definition of
"Borrowing Base" or "Requisite Lenders," (ii) any increase of the amount of any
Commitment, (iii) any reduction of principal, interest or fees payable
hereunder, (iv) any postponement of any date fixed for any payment or prepayment
of principal or interest hereunder or (v) this Section 11.6.3 shall be effective
without the written consent of all Lenders. Any and all other amendments,
modifications, discharges or waivers of, or consents to any departures from any
provision of this Agreement or of any of the other Loan Documents shall not be
effective without the written consent of the Requisite Lenders. Any waiver or
consent with respect to any provision of the Loan Documents shall be effective
only in the specific instance and for the specific purpose for which it was
given. No notice to or demand on Borrower in any case shall entitle Borrower to
any other or further notice or demand in similar or other circumstances. Any
amendment, modification, waiver or consent effected in accordance with this
Section 11.6 shall be binding upon each Lender then party hereto and each
subsequent Lender, and on Borrower.
<PAGE>
11.7 Reliance by Lenders. All covenants, agreements, representations
and warranties made herein by Borrower shall, notwithstanding any investigation
by Lenders or Agent be deemed to be material to and to have been relied upon by
Lenders.
11.8 Marshalling; Payments Set Aside. Lenders shall be under no
obligation to marshall any assets in favor of Borrower or any other person or
against or in payment of any or all of the Obligations. To the extent that
Borrower makes a payment or payments to Lenders or Agent, or Lenders or Agent,
on behalf of Lenders, enforce their or its Liens or exercises their or its
rights of set-off, and such payment or payments or the proceeds of such
enforcement or set-off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid
to a trustee, receiver or any other party under Title 11 of the United States
Code or under any other similar federal or state law, common law or equitable
cause, then to the extent of such recovery the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force and effect as if such payment had not been made or such enforcement or
set-off had not occurred.
11.9 No Set-Offs by Borrower. All sums payable by Borrower pursuant to
this Agreement, the Note or any of the other Loan Documents shall be payable
without notice or demand and shall be payable in United States Dollars without
set-off or reduction of any manner whatsoever.
11.10 Binding Effect, Assignment.
11.10.1 This Agreement, the Note and the other Loan Documents
shall be binding upon and shall inure to the benefit of the parties hereto and
thereto and their respective successors and assigns, except that neither
Borrower nor Guarantor may assign its rights hereunder or thereunder or any
interest herein or therein without the prior written consent of each Lender.
Each Lender shall (i) have the right in accordance with this Section 11.10 to
sell and assign to any Eligible Assignee all or any portion of its interest
(provided that any such partial assignment shall not be for a principal amount
of less than Five Million Dollars ($5,000,000)) under this Agreement, the Note
and the other Loan Documents (as separately described and defined in those
agreements), subject to the prior written consent of Borrower, which consent
shall not be unreasonably withheld, and (ii) to grant any participation or other
interest herein or therein, except that each potential participant to which a
Lender intends to grant any rights under Sections 2.9, 2.10, 5.1 or 10.2 shall
be subject to the prior written consent of Borrower, which consent shall not be
unreasonably withheld; provided, however, that no such sale, assignment or
participation grant shall result in requiring registration under the Securities
Act of 1933, as amended, or qualification under any state securities law.
11.10.2 Subject to the limitations of this Section 11.10.2,
each Lender may sell and assign, from time to time, all or any portion of its
Pro Rata Share of the Commitments to any of its Affiliates or, with the approval
of Borrower (which approval shall not be unreasonably withheld), to any other
financial institution acceptable to Agent, subject to the
<PAGE>
assumption by such assignee of the share of the Commitments so assigned. The
assignment to such Affiliate or other financial institution shall be evidenced
by an instrument of Assignment and Assumption in the form of Exhibit G (the
"Assignment and Acceptance") executed by the assignor Lender (hereinafter from
time to time referred to as the "Assignor Lender") and such Affiliate or other
financial institution (which, upon such assignment shall become a Lender
hereunder (hereinafter from time to time referred to as the "Assignee
Lender")). The Assignment and Assumption need not include any of the economic
or financial terms upon which such Assignee Lender receives the assignment
from the Assignor Lender, and such terms need not be disclosed to or approved
by Borrower; provided only that such terms do not diminish the obligations
undertaken by such Assignee Lender in the Assignment and Assumption or
increase the obligations of Borrower under this Agreement. Upon execution of
an Assignment and Assumption, (i) the definition of "Commitments" in Section 1
hereof and the Pro Rata Shares set forth therein shall be deemed to be amended
to reflect each Lender's share of the Commitments, giving effect to the
assignment and (ii) the Assignee Lender shall, from the effective date of the
Assignment and Assumption, be subject to all of the obligations, and entitled
to all of the rights, of a Lender hereunder, except as may be expressly
provided to the contrary in the Assignment and Assumption. To the extent the
obligations hereunder of the Assignor Lender are assumed by the Assignee
Lender, the Assignor Lender shall be relieved of such obligations. Upon the
assignment of any interest by any Assignor Lender pursuant to this Section
11.10.2, such Assignor Lender agrees to supplement Schedule 1.1 to show the
date of such assignment, the Assignor Lender, the Assignee Lender, the
Assignee Lender's address for notice purposes and the amount of the
Commitments so assigned.
11.10.3 Subject to the limitations of this Section 11.10.3,
any Lender may also grant, from time to time, participation interests in the
interests of such Lender under this Agreement, the Note and the other Loan
Documents to any other financial institution without notice to, or approval of,
Borrower. The grant of such a participation interest shall be on such terms as
the granting Lender determines are appropriate, provided only that (i) the
holder of such participation interest shall not have any of the rights of a
Lender under this Agreement except, if the participation agreement expressly
provides, rights under Sections 2.9, 2.10, 5.1 and 10.2, and (ii) the consent of
the holder of such a participation interest shall not be required for amendments
or waivers of provisions of the Loan Documents other than, if the participation
agreement expressly provides, those which (A) increase the monetary amount of
any Commitment, (B) decrease any fee or any other monetary amount payable to
Lenders, or (C) extend the date upon which any monetary amount is payable to
Lenders.
11.11 Counterparts. This Agreement and any amendments, waivers,
consents or supplements hereto may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. Each such agreement
shall become effective upon the execution of a counterpart hereof or thereof by
each of the parties hereto or thereto, delivery of each such counterpart to
Agent.
11.12 Equitable Relief. Borrower recognize that, in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, the Note or any of the other Loan Agreements, any remedy
at law may prove to be inadequate relief to Lenders or Agent; therefore,
Borrower agrees that Lenders or Agent, if Lenders or Agents so request, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
<PAGE>
11.13 Written Notice of Claims; Claims Bar. BORROWER HEREBY AGREES THAT
IT SHALL GIVE PROMPT WRITTEN NOTICE OF ANY CLAIM OR CAUSE OF ACTION IT BELIEVES
IT HAS, OR MAY SEEK TO ASSERT OR ALLEGE AGAINST ANY LENDER OR AGENT, WHETHER
SUCH CLAIM IS BASED IN LAW OR EQUITY, ARISING UNDER OR RELATED TO THIS
AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS OR TO THE LOANS
CONTEMPLATED HEREBY OR THEREBY OR ANY ACT OR OMISSION TO ACT BY ANY LENDER OR
AGENT WITH RESPECT HERETO OR THERETO, AND THAT IF IT SHALL FAIL TO GIVE SUCH
PROMPT NOTICE TO AGENT WITH REGARD TO ANY SUCH CLAIM OR CAUSE OF ACTION, IT
SHALL BE DEEMED TO HAVE WAIVED, AND SHALL BE FOREVER BARRED FROM BRINGING OR
ASSERTING SUCH CLAIM OR CAUSE OF ACTION IN ANY SUIT, ACTION OR PROCEEDING IN ANY
COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY.
11.14 Waiver of Punitive Damages. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS AGREEMENT, BORROWER HEREBY AGREES THAT IT SHALL NOT
SEEK FROM LENDERS OR AGENT, UNDER ANY THEORY OF LIABILITY, INCLUDING, WITHOUT
LIMITATION, ANY THEORY IN TORTS, ANY PUNITIVE DAMAGES.
11.15 Governing Law. Except as otherwise expressly provided in any of
the Loan Documents, in all respects, including all matters of construction,
validity and performance, this Agreement and the Obligations arising hereunder
shall be governed by, and construed and enforced in accordance with, the laws of
the State of North Carolina applicable to contracts made and performed in such
state, without regard to the principles thereof regarding conflict of laws, and
any applicable laws of the United States of America.
11.16 Consent to Jurisdiction. Borrower hereby irrevocably consents to
the personal jurisdiction of the state and federal courts located in Mecklenburg
County, North Carolina, in any action, claim or other proceeding arising out of
any dispute in connection with this Agreement, the Note and the other Loan
Documents, any rights or obligations hereunder or thereunder, or the performance
of such rights and obligations. Borrower hereby irrevocably consents to the
service of a summons and complaint and other process in any action, claim or
proceeding brought by Agent or any Lender in connection with this Agreement or
the other Loan Documents, any rights or obligations hereunder or thereunder, or
the performance of such rights and obligations, on behalf of itself or its
Property, in the manner specified in Section 11.3. Nothing in this Section 11.16
shall affect the right of the Agent or any Lender to serve legal process in any
other manner permitted by applicable law or affect the right of Agent or any
Lender to bring any action or proceeding against Borrower or its properties in
the courts of any other jurisdictions.
<PAGE>
11.17 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
BORROWER AND GUARANTOR, BY EXECUTION HEREOF, AND THE AGENT AND EACH LENDER, BY
ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS
AGREEMENT, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY WITH RESPECT HERETO. THIS PROVISION IS A MATERIAL
INDUCEMENT TO THE AGENT AND EACH LENDER TO ACCEPT THIS AGREEMENT AND THE NOTES
EXECUTED AND DELIVERED BY BORROWER PURSUANT TO THIS AGREEMENT.
11.18 BMO as Lender. Upon the Closing, BMO shall be a Lender for all
purposes of this Agreement and the other Loan Documents, and shall be entitled
to the rights and benefits and be subject to the obligations of a Lender under
and in accordance with and subject to the terms of this Agreement and the other
Loan Documents.
<PAGE>
WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
BORROWER AMERICAN FINANCE GROUP, INC.
By:
J. Michael Allgood
Chief Financial Officer
Notice to be sent to:
AMERICAN FINANCE GROUP, INC.
One Market
Steuart Street Tower, Suite 900
San Francisco, CA 94105
Attention: J. Michael Allgood,
Chief Financial Officer
Telephone: (415) 905-7228
Facsimile: (415) 905-7256
AGENT FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:
Printed Name:
Title:
Notice to be sent to:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
One First Union Center
301 South College Street
Charlotte, NC 28288
Attention: Milton Anderson,
Director
Telephone: (704) 383-5164
Facsimile: (704) 374-4092
<PAGE>
LENDERS FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:
Printed Name:
Title:
Notice to be sent to:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
One First Union Center
301 South College Street
Charlotte, NC 28288
Attention: Milton Anderson,
Director
Telephone: (704) 383-5164
Facsimile: (704) 374-4092
BANK OF MONTREAL
By:
Printed Name:
Title:
Notice to be sent to:
BANK OF MONTREAL
Attention:
Telephone:
Facsimile:
<PAGE>
ACKNOWLEDGEMENT OF AMENDMENT AND
REAFFIRMATION OF GUARANTY
(AFG Finance Group)
SECTION 1. PLM International, Inc. ("PLMI") hereby acknowledges and
confirms that it has reviewed and approved the terms and conditions of this
Amended and Restated Warehousing Credit Agreement ("Agreement").
SECTION 2. PLMI hereby consents to this Agreement and agrees that its
Guaranty of the Obligations of Borrower under the AFG Credit Agreement shall
continue in full force and effect under this Agreement, shall be valid and
enforceable and shall not be impaired or otherwise affected by the execution of
this Agreement or any other document or instrument delivered in connection
herewith.
SECTION 3. PLMI represents and warrants that, after giving effect to
this Agreement, that 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
<PAGE>
SCHEDULE A
(COMMITMENTS)
Pro
Rata
Lender Commitment Share
First Union National Bank $35,000,000 70%
of North Carolina
Bank of Montreal $15,000,000 30%
<PAGE>
EXHIBIT 10.4
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Security Agreement") dated as of May 31,
1996, is made by AMERICAN FINANCE GROUP, INC., a Delaware corporation
("Grantor"), to FIRST UNION NATIONAL BANK OF NORTH CAROLINA, for itself and as
agent (solely in such capacity, "Agent") for the financial institutions listed
on Schedule A attached hereto and such other financial institutions as shall
from time to time become parties to the Credit Agreement referred to below (such
entities, together with their respective successors and assigns, being
collectively referred to as the "Lenders").
RECITALS
A. Pursuant to that certain Warehousing Credit Agreement dated as
of the date hereof (as the same from time to time may be
amended, modified, supplemented or restated, the "Credit
Agreement") by and among Grantor, Lenders and Agent, Lenders
have agreed to make certain extensions of credit to Grantor in
the amounts and manner set forth in the Credit Agreement
(collectively, the "Loans").
B. Lenders are willing to make the Loans to Grantor, but only
upon the condition, among others, that Grantor shall have
executed and delivered to Lenders this Security Agreement.
C. All capitalized terms used herein without definition shall
have the meanings given to them in the Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and in order
to induce the Lenders to enter into the Credit Agreement, and intending to be
legally bound, Grantor and Agent hereby agree as follows:
Section 1. Grant of Security. As collateral security for the prompt,
complete and indefeasible payment and performance of the Secured Obligations, as
defined in Section 2, below, and in order to induce the Lenders and Agent to
enter into the Credit Agreement and to make the Loans pursuant to and in
accordance with the terms and conditions thereof, Grantor hereby assigns,
pledges and grants to Agent, for itself and for the benefit of the Lenders, a
lien on and security interest in all Grantor's right, title and interest to the
following described Property, whether now existing or owned or hereafter arising
or acquired by Grantor:
(a) All leases, chattel paper, installment sales agreements,
equipment finance agreements, marine vessel or ship charters, management
agreements (including, without limitation, container revenue pooling
arrangements and marine revenue pooling arrangements), contracts, rental
agreements and other agreements, including, without limitation, any and all
related documents, security agreements, schedules, supplements, addenda,
extensions and
<PAGE>
guaranties to any of the foregoing (collectively, the "Leases," which term
shall include all "Leases" as defined in the Credit Agreement) covering any
Equipment, all subsequent, new or renewal Leases, and all rentals thereunder
and all proceeds thereof;
(b) All equipment, as such term is defined in Section 9109(2)
of the UCC, including, without limitation, all machinery, all equipment,
furnishings, airplanes, helicopters and other aircraft of United States
registry, aircraft appliances and rotables relating thereto, aircraft logs,
avionics, aircraft engines and propellers and engine appliances relating
thereto, railcars (including, without limitation, hopper cars, flatbeds, Ortner
cars and tanker cars) and other rolling stock, vehicles, forklifts, tractors,
intermodel trailers, over-the-road trailers, refrigerated trailers, chassis,
generator sets, containers (including, without limitation, marine, intermodel
and over-the-road containers) and marine vessels and ships and related engines,
machinery, boats, tackle, outfits, spare gear, fuels, consumables, and other
stores, belongings and appurtenances, whether on board or ashore, including
those which may hereafter be put on board or become appurtenant to or intended
to be used for such a vessel or ship if on shore, mainframe, personal and other
computers, terminals and printers and related components and accessories, all
copiers, telephonic, video, electronic data-processing and data storage
equipment and all packaging, mailing and other office, production or warehouse
equipment of any nature whatsoever (together with all other inventory, as such
term is defined in Section 94109(4) of the UCC, wherever located, and all
fixtures, as such term is defined in Section 9313(1)(a) of the UCC,
collectively, the "Equipment"), together with all attachments, additions,
components, parts, equipment, accessories and accessions thereto, now existing
or hereafter acquired by Grantor, all replacements and substitutions therefor,
wherever located, and all proceeds thereof, and any interest in any of the
foregoing, including, without limitation, any beneficial interest in any trust,
any partnership interest or any residual interest in the Equipment;
(c) All claims, rights and remedies which Grantor may now or
hereafter have against any Affiliate of Grantor, including, without limitation,
all such rights with respect to the maintenance and storage of the Equipment and
the servicing and administration of the Leases;
(d) All governmental or other approvals, permits, licenses,
franchise agreements, authorities or certificates now or hereafter required or
used in connection with the ownership, operation and maintenance of the
Equipment;
(e) All other personal Property of Grantor, now owned or
hereafter acquired, including, without limitation, all business and farm
equipment, equipment leases, deposit accounts, accounts receivable, cash,
instruments, documents, goods, inventory, securities, chattel paper, contracts,
general intangibles (including, without limitation, any interest in any joint
venture or as a partner or a limited partner in any partnership) and any
beneficial interest of Grantor under any trust created with respect to the
Equipment, or any of it; and
(f) All proceeds and products of the foregoing (and proceeds
and products of proceeds and products) in whatever form and whether such
proceeds arise before or after the commencement of any case under the Bankruptcy
Code, by or against Grantor, including, without limitation, all payments under
insurance whether or not Agent or the Lenders is a loss payee thereof, all
proceeds of any governmental taking, and any indemnity, warranty, letter of
credit
<PAGE>
(including the right to draw on such letter of credit) or guaranty payable by
reason of any default under, loss of, or damage to or otherwise with respect
to any of the foregoing.
All of the Property described in subsections (a) through (f) above is herein
collectively called the "Collateral." However, notwithstanding the foregoing,
there shall be excluded from the definition of Collateral all of Grantor's
right, title and interest in, to and under the property described in the
attached Schedule B.
Section 2. Security for Obligations. This Security Agreement secures
the prompt, complete and indefeasible payment and performance of (a) the entire
principal amount, and all interest accrued thereon, of the Loans extended to
Grantor under the Credit Agreement, (b) all commitment, facility, breakage,
prepayment, legal and other fees, expenses, costs and charges (including,
without limitation, reimbursable amounts and indemnified liabilities) owing by
Grantor to the Lenders or Agent under the Credit Agreement and (c) all other
indebtedness, liabilities and obligations of Grantor to the Lenders or Agent
created or arising under or in connection with the Credit Agreement, this
Security Agreement or any of the other Loan Documents (collectively, the
"Secured Obligations").
Section 3. Liability under Leases. Anything herein to the contrary
notwithstanding, (a) Grantor shall remain liable under the Leases to the extent
set forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Security Agreement had not been executed, (b) the
exercise by Agent of any of the rights hereunder shall not release Grantor from
any of its duties or obligations under the Leases and (c) neither Agent nor any
Lender shall have any obligations or liability under the Leases by reason of
this Agreement, nor shall Agent or any Lender be obligated to perform any of the
obligations or duties of Grantor thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.
Section 4. Representations and Warranties. Grantor hereby represents,
warrants and covenants to Agent, for itself and for the benefit of the Lenders,
as follows:
(a) The principal place of business and chief executive office
of Grantor and the office where Grantor keeps its records and files concerning
the Leases and its copies of the Leases are located at the address specified for
Grantor in Section 16, below. If any Event of Default occurs, at Agent's
request, Grantor shall deliver to Agent the executed original copy of each of
the Leases, and Grantor shall stamp or otherwise mark conspicuously all of
Grantor's photocopies of the Leases with the following legend:
THIS WRITING IS NON-NEGOTIABLE. THIS WRITING AND THE
OBLIGATIONS EVIDENCED HEREBY ARE OWNED BY, OR SUBJECT TO THE SECURITY INTEREST
OF, FIRST UNION NATIONAL BANK OF NORTH CAROLINA, FOR ITSELF AND AS AGENT. NO
INTEREST IN THIS WRITING OR THE OBLIGATIONS EVIDENCED HEREBY MAY BE SOLD,
TRANSFERRED OR ASSIGNED TO ANY OTHER PERSON WITHOUT DELIVERY OF THE EXECUTED
COUNTERPART IN THE POSSESSION OF FIRST UNION NATIONAL BANK OF NORTH CAROLINA.
<PAGE>
(b) Grantor owns the Collateral free and clear of any lien,
security interest, charge or encumbrance, except for the Permitted Liens, (ii)
the interests of the lessees under the Leases, (iii) other liens, security
interests, charges or other encumbrances expressly permitted under the Credit
Agreement. Grantor has paid or caused to be paid all invoice prices,
transportation and delivery costs, taxes and any acquisition or other fees
relating to the Equipment. Grantor has all necessary authority to encumber and
grant a lien on and security interest in the Collateral.
(c) Each item of Equipment the ownership of which, under
applicable law, is or should be evidenced by a certificate of title, is properly
titled in the name of Grantor.
(d) All information furnished or to be furnished Agent or the
Lenders by or on behalf of Grantor in connection with the Collateral and the
Secured Obligations is or will be complete and accurate. Grantor shall defend
and hold harmless Agent and the Lenders, and each of them, against all Persons
whomsoever claiming the Collateral or any part thereof.
(e) This Agreement creates in favor of Agent, for itself and
for the benefit of the Lenders, a valid lien on and security interest in the
Collateral, subject to the Permitted Liens, securing the payment of the Secured
Obligations.
(f) No consent, authorization, approval or other action by,
and no notice to or filing with, any Governmental Agency, regulatory body,
lessee or other person or entity, other than such as have been obtained, is
required either (i) for the grant by Grantor of the lien and security interest
granted hereby or for the execution, delivery or performance of this Agreement
by Grantor or (ii) for the perfection or exercise by Agent of its rights and
remedies hereunder.
(g) The Leases constitute valid and enforceable obligations of
the respective lessees thereunder, enforceable against such lessees in
accordance with their terms, except as the enforceability thereof may be subject
to or limited by bankruptcy, insolvency, reorganization, arrangement, moratorium
or other similar laws relating to or affecting the rights of creditors and by
general principles of equity. Each item of Equipment subject to any Lease has
been delivered to, and accepted by, the lessee under the respective Lease. No
event of default or termination, and no event which with the giving of notice or
lapse of time, or both, would constitute such an event, has occurred on the part
of any party under any of the Leases (except such events which, in the
aggregate, do not constitute an Event of Default or Potential Event of Default).
There does not exist in respect of any Lease any claim, offset, defense or other
right on the part of the lessee thereunder to reduce in any manner the amounts
payable under such Lease.
<PAGE>
Section 5. Documentation.
(a) Grantor shall from time to time, at the expense of
Grantor, promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or desirable that Agent may
request in order to perfect with first priority and otherwise protect the lien
and security interest granted hereby, subject to the Permitted Liens, or to
enable Agent to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Grantor shall execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, and make such
recordings, as may be necessary or desirable, or as Agent may request, in order
to perfect and preserve the lien and security interest granted or purported to
be granted hereby, including, without limitation, execution and filing of such
instruments and recordings as may be necessary under federal law relating to the
creation and perfection of a security interest in any of the Equipment.
(b) Subject to Section 5.1 of the Credit Agreement, Grantor
shall, to the best of its ability, furnish to Agent from time to time statements
and schedules further identifying and describing the Collateral (including,
without limitation, the locations and condition thereof) and such other reports
in connection with the Collateral as Agent may reasonably request, all in
reasonable detail.
Section 6. Equipment. Grantor shall:
(a) Cause the Equipment to be kept in jurisdictions where all
action required by Section 5, above, has been taken with respect to the
Equipment; provided, however, that a lessee under a Lease may use or keep
Equipment in such other locations as are permitted under the Lease delivered to
Agent.
(b) Cause each lessee under the Leases to maintain and
preserve the Equipment covered by its Lease strictly in accordance with the
terms and provisions thereof and otherwise to perform in a timely manner all
obligations of the lessee under its Lease. Without limitation of the foregoing,
Grantor shall cause the Equipment to be maintained and preserved, by the lessee
or otherwise, in the same condition, repair and working order as when delivered
to the lessee, ordinary wear and tear excepted, and in accordance with any
manufacturer's manual and shall forthwith, or in the case of any loss or damage
to any of the Equipment as quickly as practicable after the occurrence thereof,
make or cause to be made, by the lessee or otherwise, all repairs, replacements
and other improvements in connection therewith which are necessary or desirable
to such end. Grantor shall promptly furnish to Agent a statement respecting any
loss or damage to any of the Equipment.
(c) Pay promptly when due, or cause to be so paid in
accordance with the Leases, all property and other taxes, fees, assessments and
governmental charges or levies imposed upon or in respect of the Equipment or
this Agreement and all claims, including claims for labor, materials and
supplies, against the Equipment.
(d) Perform in a timely manner all obligations of Grantor
under the Leases.
<PAGE>
Section 7. Insurance.
(a) Grantor shall cause the lessees under the Leases to
maintain insurance on the Equipment strictly in accordance with the terms and
provisions of the Leases. Without limitation of the foregoing, Grantor shall at
its own expense maintain such additional insurance with respect to the Equipment
in such amounts, against such risks, in such form and with such insurers as set
forth in the Credit Agreement. Each policy, whether obtained in accordance with
the terms and provisions of a Lease or in accordance with this Section 7(a),
shall (i) if for property damage insurance, contain endorsements naming Agent as
principal loss payee as to any property owned by Borrower and (ii) if for
liability insurance, contain endorsements naming Agent and each Lender as an
additional insured. Each such policy shall in addition (A) contain an agreement
by the insurer that any loss thereunder shall be payable to Agent or Lenders, as
the case may be, notwithstanding any action, inaction or breach of
representation or warranty by the Grantor or any lessee under the Leases; (B)
provide that there shall be no recourse against Agent or any Lender for payment
of premiums or other amounts with respect thereto; and (C) provide that at least
fifteen (15) days' prior written notice of cancellation or lapse or material
change in coverage shall be given to Agent by the insurer. Grantor shall, if so
requested by Agent, deliver to Agent original or duplicate policies of such
insurance and, as often as provided under the Credit Agreement, a report of a
reputable insurance broker with respect to such insurance. Further, Grantor
shall, at the request of Agent, duly execute and deliver confirmatory
instruments of assignment of such insurance policies to comply with the
requirements of Section 5, above, and cause the respective insurers to
acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained
pursuant to this Section 7 may be paid directly to the person who incurred
liability covered by such insurance. In case of any loss involving damage to
Equipment when Section 7(c), above, is not applicable, Grantor shall make or
cause to be made, by the lessee or otherwise, the necessary repairs to or
replacements of such Equipment, and any proceeds of insurance maintained
pursuant to this Section 7 shall be paid to Grantor, the lessee or otherwise, as
the case may be, as reimbursement for the costs of such repairs or replacements.
(c) (i) Upon the occurrence and during the continuance of any
event of default (including, without limitation, any Event of Default) under any
document or instrument evidencing or relating to any of the Secured Obligations
or (ii) upon the actual or constructive total loss of any Equipment, all
insurance payments in respect of such Equipment shall be paid to and applied by
Agent as specified in Section 13(d), below, except, with respect only to clause
(i) insofar as the Lease covering such Equipment provides for the insurance
payments to be paid to the lessee for purposes of repairing the Equipment.
<PAGE>
Section 8. Leases.
(a) Grantor shall keep its principal place of business and
chief executive office and the office where it keeps its records and files
concerning the Leases and its copies of the Leases at the location specified in
Schedule C or, upon thirty (30) days' prior written notice to Agent, at another
location in a jurisdiction where all action required by Section 5, above, shall
have been taken with respect to the Leases, Equipment and other Collateral.
Grantor shall hold and preserve such records and files concerning the Leases and
shall permit representatives of Agent at any time during normal business hours
to inspect and make abstracts from such records and files.
(b) Except as otherwise provided in this Section 8(b), Grantor
shall continue to collect, at its own expense, all amounts due or to become due
Grantor under the Leases, and shall direct that all amounts so due or to become
due under the Leases shall be paid directly to the Lockbox Account as provided
in Section 5.9 of the Credit Agreement. In connection with such collections
Grantor may take, and at Agent's direction shall take, such action as Grantor or
Agent may deem necessary or advisable to enforce collection of the Leases. If
any Event of Default shall have occurred and be continuing, Agent shall have the
right at any time, upon written notice to Grantor of its intention to do so, (i)
to direct the lessees under the Leases to make payment of all amounts due or to
become due thereunder directly to Agent and, upon such direction and at the
expense of Grantor, to enforce collection of any of the Leases in the same
manner and to the same extent as Grantor might have done and (ii) to require
that all amounts received by Grantor in respect of the Leases be received in
trust for the benefit of Agent and the Lenders hereunder and be segregated from
other funds of Grantor. Any amounts so segregated shall, at Agent's request, be
forthwith paid over to Agent to be held as cash collateral and either (A)
released to Grantor after the complete and indefeasible payment of all Secured
Obligations, or (B) if any event of default (including, without limitation, any
Event of Default) shall have occurred and be continuing under any document or
instrument evidencing or relating to any of the Obligations, applied as provided
in Section 13(d), below. If Agent notifies Grantor of Agent's intention to
direct lessees to make Lease payments directly to Agent or to require Grantor to
segregate and hold such payments in trust, Grantor shall enter into written
agreements satisfactory to Agent to implement such intention; provided, however,
that failure of Grantor to enter such agreement will not limit Agent's rights
under this Agreement.
(c) Grantor shall accept no prepayment from any lessee of
amounts due under any of the Leases without obtaining the prior written consent
of Agent, except such amounts as are required under any Lease to be paid in
advance (including, without limitation, a security deposit or a maintenance
reserve account).
Section 9. Transfers and Other Liens. Grantor shall not:
(a) Except as expressly permitted by the Credit Agreement, or
except as may be provided in a writing executed in accordance with the
provisions of the Credit Agreement, sell, assign (by operation of law or
otherwise), lease, charter or otherwise dispose of any of the Collateral without
the prior written consent of Agent.
<PAGE>
(b) Create or suffer to exist any lien, security interest or
other charge or encumbrance upon or with respect to any of the Collateral, other
than the Permitted Liens.
Section 10. Attorney-in-Fact. Grantor hereby irrevocably appoints Agent
as the Grantor's attorney-in-fact (which appointment is coupled with an
interest), with full authority in the place and stead of Grantor and in the name
of Grantor, Agent, or otherwise, from time to time in Agent's discretion, to
take any action and to execute any instrument which Agent may deem necessary or
advisable to accomplish the purposes of this Agreement (subject to the rights of
Grantor under Section 8, above), including, without limitation:
(a) to obtain and adjust insurance required to be paid to
Agent, for itself and for the benefit of the Lenders, pursuant to Section 7,
above;
(b) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral;
(c) to receive, indorse and collect any drafts or other
instruments and documents in connection with clauses (a) and (b), above;
(d) to file claims or take any action or institute any
proceedings which Agent may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce the rights of Agent with respect
to any of the Collateral; and
(e) to file one or more financing or continuation statements,
and amendments thereto, relative to all or any part of the Collateral without
the signature of Grantor where permitted by law.
Section 11. Agent May Perform. If Grantor fails to perform any
agreement contained herein, then Agent may perform, or cause performance of,
such agreement, and the expenses of the Agent incurred in connection therewith
shall be payable by Grantor under Section 14(b), below.
Section 12. Agent's Duties. The powers conferred on Agent hereunder are
solely to protect its interests in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, Agent shall have no duty as to any Collateral or as to the taking
of any necessary steps to preserve rights against prior parties or any other
rights pertaining to any Collateral.
Section 13. Remedies. If any Event of Default shall have occurred and
be continuing, in addition to all other rights and remedies as may be granted or
available to Agent or the Lenders under this Security Agreement, the Credit
Agreement or any of the other Loan Documents:
(a) Agent, in lieu of or in addition to exercising any other
power hereby granted, may without notice, demand or declaration of default,
which are hereby waived by
<PAGE>
Grantor, proceed by an action or actions in equity or at law for the seizure
and sale of the Collateral or any part thereof, for the specific performance
of any covenant or agreement herein contained or in aid of the execution of
any power herein granted, for the foreclosure or sale of the Collateral or any
part thereof under the judgment or decree of any court of competent
jurisdiction, for the appointment of a receiver pending any foreclosure
hereunder or the sale of the Collateral or any part thereof or for the
enforcement of any other appropriate equitable or legal remedy; and upon the
commencement of judicial proceedings by Agent to enforce any right under this
Agreement, Agent shall be entitled as a matter of right against Grantor to
such appointment of a receiver, without regard to the adequacy of the security
by virtue of this Agreement or any other collateral or to the solvency of
Grantor.
(b) Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code as adopted in the State of North Carolina, whether or
not the Uniform Commercial Code applies to the affected Collateral, and also may
(i) require Grantor to, and Grantor hereby agrees that at its expense and upon
request of Agent it shall forthwith, assemble all or part of the Collateral as
directed by Agent and make it available to Agent at such places reasonably
convenient to all parties as Agent may designate and (ii) without notice except
as specified below, sell the Collateral or any part thereof in one or more sales
at public or private sales, at any of Agent's offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such other
terms as Agent may deem commercially reasonable. Grantor agrees that, to the
extent notice of sale shall be required by law, at least ten (10) days' notice
to Grantor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Agent may adjourn any public or private sale from time to
time by public announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to be which it was so
adjourned.
(c) All cash proceeds received by Agent in respect of any sale
of, collection from or other realization upon all or any part of the Collateral
shall be applied as follows:
(i) First, to the payment of all costs and
expenses incident to the enforcement of this Agreement, including but not
limited to compensation to the agents, contractors and attorneys of Agent;
(ii) Second, to the payment of all other Secured
Obligations; and
(iii) Third, the remainder, if any, to Grantor or to
whomever may be lawfully entitled to receive such remainder; provided, however,
that Grantor shall remain liable to Agent and the Lenders, as applicable, for
any deficiency in the Obligations remaining after the application of such
proceeds as provided in this Section 13(d); and, provided further, that nothing
herein contained shall in any way limit or restrict the Lenders' rights to
proceed directly against Grantor without first causing Agent to exhaust, or in
any manner to exercise its rights in respect of, the Collateral.
<PAGE>
(d) The Lenders, or any of them, shall have the right to
become the purchaser at any public sale made pursuant to the provisions of this
Section 13 and shall have the right to credit against the amount of the bid made
therefor the amount payable to the purchasing Lender or Lenders out of the net
proceeds of such sale. Recitals contained in any conveyance to any purchaser at
any sale made hereunder shall conclusively establish the truth and accuracy of
the matters therein stated, including, without limitation, nonpayment of the
Secured Obligations and advertisement and conduct of such sale in the manner
provided herein. Grantor does hereby ratify and confirm all legal acts that
Agent may do in carrying out the provisions of this Security Agreement.
(e) Any sale of the Collateral or any part thereof pursuant to
the provisions of this Section 13 shall operate to divest all right, title,
interest, claim and demand of Grantor in and to the Property sold and shall be a
perpetual bar against Grantor. Nevertheless, if requested by Agent so to do,
Grantor shall join in the execution, acknowledgement and delivery of all proper
conveyances, assignments and transfers of the Property so sold. It shall not be
necessary for Agent to have physically present or constructively in its
possession any of the Collateral at any such sale, and Grantor shall deliver all
of the Collateral to the purchaser at such sale on the date of sale and, if it
should be impossible or impracticable then to take actual delivery of the
Collateral, the title and right of possession to the Collateral shall pass to
the purchaser at such sale as completely as if the same had been actually
present and delivered. Grantor agrees that if Grantor retains possession of the
Property or any part thereof subsequent to such sale, Grantor shall be
considered a tenant at sufferance of the purchaser and shall, if Grantor remains
in possession after demand to remove, be guilty of forceful detainer and be
subject to eviction and removal, forcible or otherwise, with or without process
of law, and all damages by reason thereof are hereby expressly waived by
Grantor.
(f) Subject to any requirements of applicable law, Grantor
agrees that neither Grantor nor any of its Affiliates under its control shall at
any time have or assert any right, under any law pertaining to the marshalling
of assets, the sale of Property in the inverse order of alienation, the
administration of estates of decedents, appraisement, valuation, stay, extension
or redemption now or hereafter in force in order to prevent or hinder the rights
of Agent or any purchaser of the Collateral or any part thereof under this
Security Agreement, and Grantor, to the extent permitted by applicable law,
hereby waives the benefit of all such laws.
(g) Upon any sale made under the powers of sale herein granted
and conferred, the receipt of Agent shall be sufficient discharge to the
purchaser or purchasers at any sale for the purchase money, and such purchaser
or purchasers and the heirs, devisees, personal representatives, successors and
assigns thereof shall not, after paying such purchase money and receiving such
receipt of Agent, be obliged to see to the application thereof or be in anywise
answerable for any loss, misapplication or nonapplication thereof.
(h) Each and every right, power or remedy hereby granted to
Agent or the Lenders is in addition to, and not in derogation of, any right,
power or remedy granted by the Credit Agreement or any of the other Loan
Documents and shall be cumulative and not exclusive, and each and every right,
power or remedy, whether specifically hereby granted or otherwise existing, may
be exercised from time to time and as often and in such order as may be deemed
<PAGE>
expedient by Agent, and the exercise of any such right, power or remedy shall
not be deemed a waiver of the right to exercise, at the same time or thereafter,
any other right, power or remedy. No delay or omission by Agent or the Lenders
in the exercise of any right, power or remedy shall impair any such right, power
or remedy or operate as a waiver thereof or of any other right, power or remedy
then or thereafter existing. Any and all covenants in this instrument may from
time to time, by an instrument in writing executed in accordance with the
provisions of the Credit Agreement, be waived to such extent and in such manner
as set forth in such written instrument, but no such waiver shall ever affect or
impair Agent's or any Lender's rights hereunder, except to the extent
specifically stated in such written instrument.
(i) Notwithstanding the foregoing, Agent and the Lenders agree
not to interfere with a lessees's quiet enjoyment of Equipment under a Lease
approved by the Lenders, so long, but only so long, as no event of default or
termination, and no event which with the giving of notice or lapse of time, or
both, would constitute such an event, has occurred under such Lease.
Section 14. Indemnity and Expenses.
(a) Grantor agrees to indemnify Agent and the Lenders, and
each of them, from and against any and all claims, losses and liabilities
growing out of or resulting from this Security Agreement (including, without
limitation, enforcement of this Security Agreement), except claims, losses or
liabilities resulting from such Person's gross negligence or willful misconduct.
(b) Grantor shall upon demand pay to Agent or any Lender, as
the case may be, the amount of any and all reasonable expenses, including the
reasonable fees and disbursements of their counsel and or any experts and
agents, which the Agent or such Lender may incur in connection with (i) the
administration of this Security Agreement, (ii) the custody, preservation, use
or operation of, sale of, collection from or other realization upon any of the
Collateral, (iii) the exercise or enforcement of any of the rights of the Agent
hereunder or (iv) the failure by Grantor to perform or observe any of the
provisions hereof.
Section 15. Amendments; Etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by Grantor herefrom, shall in any
event be effective unless the same shall be in writing and executed in
accordance with the Credit Agreement, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 16. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including facsimile, telecopied or telex
communication) and hand delivered, sent by Federal Express or other nationally
recognized overnight courier with confirmation of receipt, mailed by U.S. Mail
with return receipt requested, or sent by facsimile, telecopy or telex: if to
Grantor, at its address at One Market, Steuart Street Tower, Suite 900, San
Francisco, California 94105, Attention: General Counsel (Facsimile
<PAGE>
No. (415) 905-7256); and if to Agent, at its address at One First Union
Center, 301 South College Street, Charlotte, North Carolina 28288, Attention:
Milton Anderson, Specialized Industries Division (Facsimile No. (704) 374-
4092) or, as to each party, at such other address as shall be designated by
such party in a written notice to the other party complying as to delivery
with the terms of this Section 16. All such notices and communications shall,
when hand delivered be effective upon delivery, when sent by facsimile,
telecopy or telex communication be effective when sent and the appropriate
answerback received, when sent by Federal Express or other nationally
recognized overnight courier be effective on the next succeeding Business Day,
and when mailed by U.S. Mail be effective three (3) Business Days after being
deposited into the U.S. Mails.
Section 17. Continuing Security Interest; Etc. This Security Agreement
shall create a continuing lien and security interest on and in the Collateral
and shall (a) remain in full force and effect until the full and indefeasible
payment of the Secured Obligations and performance in full of all of Grantor's
obligations hereunder and under any documents or instruments evidencing or
relating to any of the Secured Obligations; (ii) be binding upon Grantor, its
successors and assigns; provided, however, that Grantor shall not have the right
to assign its rights or obligations hereunder or any interest herein except as
provided in a writing executed in accordance with the Credit Agreement; and
(iii) inure to the benefit of Agent and the Lenders and their respective
successors, transferees and assigns. Upon the complete and indefeasible payment
of the Secured Obligations and performance in full of all of Grantor's
obligations hereunder and under any documents or instruments evidencing or
relating to any of the Obligations, the lien and security interest granted
hereby shall terminate and all rights to the Collateral shall revert to Grantor.
Upon any such termination, Agent shall, at Grantor's expense, execute and
deliver to Grantor such documents as Grantor shall reasonably request to
evidence such termination.
Section 18. Governing Law; Terms. This Security Agreement shall be
governed by and construed in accordance with the laws of the State of North
Carolina, as applied to contracts entered into by North Carolina residents and
to be performed entirely within North Carolina, except to the extent that the
validity or perfection of the security interest hereunder or remedies hereunder
in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of North Carolina, including federal law.
Unless otherwise defined herein, terms used in Division 9 of the Uniform
Commercial Code as adopted in the State of North Carolina are used herein as
therein defined.
Section 19. Severability. If any provision of this Security Agreement
is held to be unenforceable for any reason, it shall be adjusted rather than
voided, if possible, in order to achieve the intent of the parties to the extent
possible. In any event, all other provisions of this Agreement shall be deemed
valid and enforceable to the full extent possible.
Section 20. Releases. No release from the lien of this Security
Agreement of any part of the Collateral by Agent or the Lenders shall in anywise
alter, vary or diminish the force, effect or lien of this Security Agreement on
the balance of the Collateral.
Section 21. Subrogation. This Security Agreement is made with full
substitution and subrogation of Agent, for the benefit of itself and the other
Lenders, in and to all covenants and warranties by others heretofore given or
made in respect of the Collateral or any part thereof.
<PAGE>
Section 22. Nature of Agreement. This Security Agreement will be deemed
to be and may be enforced from time to time as an assignment, chattel mortgage,
contract, deed of trust, financing statement, or security agreement, and from
time to time as any one or more thereof as is appropriate under applicable state
law.
Section 23. Counterparts. This Security Agreement 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 Security Agreement.
Section 24. Headings. The section headings used in this Security
Agreement are intended principally for convenience and shall not, by themselves,
determine the rights and obligations of the parties to this Security Agreement.
Section 25. Entire Agreement. This Security Agreement, the Credit
Agreement and the other Loan Documents and all documents or instruments
delivered or to be delivered to Agent or the Lenders, hereunder or thereunder,
as the case may be, contain all of the terms and conditions agreed upon by the
parties relating to the subject matter of this Security Agreement and supersede
any and all prior and contemporaneous agreements, negotiations, correspondence,
understandings and communications of the parties, whether oral or written,
respecting that subject matter.
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered as of the date first above written.
GRANTOR AMERICAN FINANCE GROUP, INC.
By
J. Michael Allgood
Chief Financial Officer
AGENT FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
for itself and as Agent on behalf of the Lenders
By
Bill A. Shirley
Vice President
<PAGE>
SCHEDULE A
SECURITY AGREEMENT
(Lenders)
First Union National Bank of North Carolina
<PAGE>
SCHEDULE B
EXCLUDED PROPERTY
1. Pooling and Servicing Agreement and Indenture of Trust dated as of July
1, 1995, among AFG Credit Corporation, a Delaware corporation, as
transferor, American Finance Group, Inc., a Delaware corporation, as
servicer, and Bankers Trust Company, a banking corporation organized
and existing under the laws of the State of New York, as trustee and
collateral trustee
2. Master Purchase Agreement dated as of January 30, 1996, by and between
American Finance Group, Inc., a Delaware corporation, and AFG/Eireann
Limited Partnership II, a limited partnership organized under the laws
of the Commonwealth of Massachusetts
<PAGE>
SCHEDULE C
LOCATION OF LEASES
24 School Street
Boston, Massachusetts 02108
<PAGE>
AMENDMENT TO SECURITY AGREEMENT
THIS AMENDMENT TO SECURITY AGREEMENT dated as of December 2, 1997
("Amendment"), is made by AMERICAN FINANCE GROUP, INC., a Delaware corporation
("Grantor"), to FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("FUNB"), not in its
individual capacity as a "Lender", but solely as agent ("Agent") for the
financial institutions listed on Schedule A attached hereto and such other
financial institutions as shall from time to time become parties to the Amended
and Restated Credit Agreement referred to below (such entities, together with
their respective successors and assigns, being individually referred to as a
"Lender" and collectively referred to as the "Lenders").
RECITALS
A. Grantor, FUNB and Fleet Bank, N.A. (the "Prior Lenders"), and Agent,
as agent for the Prior Lenders, 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, and that Amendment No. 2 to
Warehousing Credit Agreement dated as of October 3, 1997 and that Amendment No.
3 to Warehousing Credit Agreement dated as of November 3, 1997 (as so amended,
the "AFG Credit Agreement"), pursuant to which the Prior Lenders have agreed to
extend and make available to Grantor certain advances of credit (collectively,
the "Loans").
B. Grantor and Agent have also entered into that Security Agreement
dated as of May 31, 1996 (the "Security Agreement"), whereby Grantor has granted
a security interest to Agent in certain personal property of Grantor to secure
the payment and performance of Grantor's obligations under the AFG Credit
Agreement.
C. Grantor and FUNB, as the sole remaining Prior Lender having a
Commitment under the AFG Credit Agreement, desire to amend and restate the AFG
Credit Agreement as set forth in that Amended and Restated Warehousing Credit
Agreement dated as of December 2, 1997 ("Amended and Restated Credit
Agreement").
D. Bank of Montreal ("BMO") desires, as of and from the Closing Date,
to become a Lender under the Amended and Restated Credit Agreement.
E. Lenders have agreed to continue to make the Loans to Grantor under
the Amended and Restated Credit Agreement, but only upon the condition, among
others, that Grantor shall have executed and delivered to Agent this Amendment
to add BMO to the Security Agreement as a Lender thereunder.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and in order
to induce the Lenders to enter into the Amended and Restated Credit Agreement,
and intending to be legally bound, Grantor and Agent hereby agree as follows:
Section 1. Amendment. Schedule A to the Security Agreement is hereby
deleted in its entirety and the attached Schedule A is hereby substituted
therefor.
Section 2. Releases. No release from the lien of the Security
Agreement, as amended by this Amendment, of any part of the Collateral (as
described and defined in the Security Agreement) by Agent or the Lenders shall
in anyway alter, vary or diminish the force, effect or lien of the Security
Agreement, as amended by this Amendment, on the balance of the Collateral.
Section 3. Full Force And Effect; Entire Agreement. Except to the
extent expressly provided in this Amendment, the terms and conditions of the
Security Agreement shall remain in full force and effect. This Amendment and the
Security Agreement constitute and contain the entire agreement of the parties
hereto and supersede any and all prior agreements, negotiations, correspondence,
understandings and communications between the parties, whether written or oral,
respecting the subject matter hereof.
Section 4. Governing Law; Terms. This Amendment shall be governed by
and construed in accordance with the laws of the State of North Carolina, as
applied to contracts entered into by North Carolina residents and to be
performed entirely within North Carolina, except to the extent that the validity
or perfection of the security interest hereunder or remedies hereunder in
respect of any particular Collateral are governed by the laws of a jurisdiction
other than the State of North Carolina, including federal law.
Section 5. 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
duly executed and delivered as of the date first above written.
GRANTOR
AMERICAN FINANCE GROUP, INC.,
a Delaware corporation
By:
J. Michael Allgood
Chief Financial Officer
AGENT
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, for itself and as Agent on behalf
of the Lenders
By:
Printed Name:
Title:
<PAGE>
SCHEDULE A TO
AMENDMENT TO SECURITY AGREEMENT
LENDERS
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
BANK OF MONTREAL
<PAGE>
EXHIBIT 10.5
- ------------------------------------------------------------------------------
AFG CREDIT CORPORATION,
as Transferor,
AMERICAN FINANCE GROUP, INC.,
as Servicer,
and
BANKERS TRUST COMPANY,
as Trustee and as Collateral Trustee
on behalf of the Holders
of the AFG MASTER TRUST
- ----------------------------------------------------------------------------
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
Dated as of July 1, 1995
- ----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS.................................. 1
Section 1.1 Definitions.................................. 1
Section 1.2 Other Definitional Provisions................ 25
ARTICLE II
TRANSFER OF TRUST ASSETS..................... 26
Section 2.1 Transfer of Trust Assets..................... 26
Section 2.2 Acceptance by Trustee; Acknowledgment
by Collateral Trustee...................... 30
Section 2.3 Representations and Warranties of
Transferor Relating to Transferor.......... 31
Section 2.4 Representations and Warranties of
Transferor Relating to the Agreement
and the Included Leases.................... 33
Section 2.5 Covenants of Transferor...................... 36
Section 2.6 Addition of Leases........................... 40
Section 2.7 Substitution or Reallocation of Leases....... 42
Section 2.8 Removal of Leases............................ 44
Section 2.9 Release of Lien on Equipment................. 45
Section 2.10 Hedging of Included Leases After the
Related Addition Date...................... 46
ARTICLE III
ADMINISTRATION AND SERVICING OF
INCLUDED LEASES............................ 46
Section 3.1 Appointment and Acceptance; Duties........... 46
Section 3.2 Collection of Payments....................... 48
Section 3.3 Servicer Advances............................ 50
Section 3.4 Realization Upon Defaulted Lease............. 51
Section 3.5 Maintenance of Insurance Policies............ 51
Section 3.6 Representations and Warranties of
Servicer................................... 52
Section 3.7 Covenants of Servicer........................ 53
Section 3.8 Servicing Compensation....................... 54
Section 3.9 Payment of Certain Expenses by Servicer...... 55
Section 3.10 Monthly Statement; Annual Report............. 55
Section 3.11 Annual Statement as to Compliance............ 55
Section 3.12 Annual Independent Public Accountant's
Servicing Reports.......................... 56
Section 3.13 Tax Treatment................................ 56
Section 3.14 Adjustments.................................. 57
i
<PAGE>
ARTICLE IV
RIGHTS OF NOTEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS............. 57
Section 4.1 Rights of Holders............................ 57
Section 4.2 Establishment of Accounts.................... 58
Section 4.3 Collections and Allocations.................. 61
Section 4.4 Determination of the Amortizing Pools........ 66
Section 4.5 Interest Rate Hedges......................... 67
[THE REMAINDER OF ARTICLE IV IS RESERVED AND
SHALL BE SPECIFIED IN ANY SUPPLEMENT
WITH RESPECT TO ANY SERIES]................. 68
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL
BE SPECIFIED IN ANY SUPPLEMENT
WITH RESPECT TO ANY SERIES]................. 69
ARTICLE VI
THE NOTES.................................... 69
Section 6.1 The Notes and the Transferor Interest........ 69
Section 6.2 Authentication of Notes and Transferor
Interest................................... 69
Section 6.3 Registration of Transfer and Exchange
of Notes................................... 69
Section 6.4 Mutilated, Destroyed, Lost or Stolen
Notes...................................... 71
Section 6.5 Persons Deemed Owners........................ 71
Section 6.6 Appointment of Paying Agent.................. 72
Section 6.7 Access to List of Holders' Names and
Addresses.................................. 72
Section 6.8 Authenticating Agent......................... 73
Section 6.9 Book-Entry Notes............................. 74
Section 6.10 Notices to Clearing Agent.................... 75
Section 6.11 Definitive Notes Initially Issued as
Book-Entry Notes........................... 75
Section 6.12 Exchange of Transferor Interest.............. 76
Section 6.13 Note Transfer Restrictions................... 78
Section 6.14 Constituent Transferor Interests............. 79
ARTICLE VII
OTHER MATTERS RELATING TO TRANSFEROR......... 80
Section 7.1 Liability of Transferor...................... 80
Section 7.2 Merger or Consolidation of, or
Assumption of the Obligations of,
Transferor, etc............................ 80
Section 7.3 Limitation on Liability of Transferor........ 81
ii
<PAGE>
Page
Section 7.4 Liabilities.................................. 81
Section 7.5 Decisions with Respect to the Trust.......... 82
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER....... 82
Section 8.1 Liability of the Servicer.................... 82
Section 8.2 Merger or Consolidation of, or Assumption
of the Obligations of, the Servicer........ 82
Section 8.3 Limitation on Liability of the Servicer
and Others................................. 83
Section 8.4 Indemnification of the Trust, the
Trustee and the Collateral Trustee......... 83
Section 8.5 The Servicer Not to Resign................... 84
Section 8.6 Access to Certain Documentation and
Information Regarding the Included
Leases..................................... 84
Section 8.7 Delegation of Duties......................... 85
Section 8.8 Contents of Records.......................... 85
ARTICLE IX
PAY OUT EVENTS............................... 85
Section 9.1 Pay Out Events............................... 85
Section 9.2 Additional Rights Upon the Occurrence
of Certain Events.......................... 87
ARTICLE X
SERVICER DEFAULTS............................ 88
Section 10.1 Servicer Defaults............................ 88
Section 10.2 Trustee to Act; Appointment of
Successor.................................. 90
Section 10.3 Notification to Holders...................... 92
Section 10.4 Waiver of Past Defaults...................... 92
ARTICLE XI
THE TRUSTEE AND THE COLLATERAL TRUSTEE....... 92
Section 11.1 Duties of Trustee............................ 92
Section 11.2 Certain Matters Affecting the Trustee........ 95
Section 11.3 Trustee Not Liable for Recitals in
Notes...................................... 96
Section 11.4 Trustee May Own Notes........................ 97
Section 11.5 Servicer to Pay Trustee's Fees and
Expenses................................... 97
Section 11.6 Eligibility Requirements for Trustee......... 98
Section 11.7 Resignation or Removal of Trustee............ 98
Section 11.8 Successor Trustee............................ 99
iii
<PAGE>
Section 11.9 Merger or Consolidation of Trustee........99
Section 11.10 Appointment of Co-Trustee or Separate
Trustee................................99
Section 11.11 Tax Returns..............................101
Section 11.12 Trustee May Enforce Claims Without
Possession of Notes...................101
Section 11.13 Suits for Enforcement....................102
Section 11.14 Rights of Holders to Direct Trustee......102
Section 11.15 Representations and Warranties of
Trustee...............................102
Section 11.16 Maintenance of Office or Agency..........103
Section 11.17 Release of Collateral Trustee's Lien.....103
Section 11.18 Requests for Agreement...................103
Section 11.19 Duties of Collateral Trustee.............103
Section 11.20 Certain Matters Affecting the
Collateral Trustee....................105
Section 11.21 Collateral Trustee Not Liable for
Recitals in Notes.....................106
Section 11.22 Collateral Trustee May Own Notes.........107
Section 11.23 Servicer to Pay Collateral Trustee's
Fees and Expenses.....................107
Section 11.24 Eligibility Requirements for Collateral
Trustee...............................108
Section 11.25 Resignation or Removal of Collateral
Trustee...............................108
Section 11.26 Successor Collateral Trustee.............109
Section 11.27 Merger or Consolidation of Collateral
Trustee...............................109
Section 11.28 Appointment of Co-Collateral Trustee or
Separate Collateral Trustee...........110
Section 11.29 Collateral Trustee May Enforce Claims
Without Possession of Notes...........111
Section 11.30 Suits for Enforcement....................111
Section 11.31 Rights of Holders to Direct Collateral
Trustee...............................112
Section 11.32 Representations and Warranties of
Collateral Trustee....................112
Section 11.33 Limitation of Liability..................112
ARTICLE XII
TERMINATION..............................113
Section 12.1 Termination of Trust.....................113
Section 12.2 Optional Purchase and Final Trust
Termination Date of Notes.............114
Section 12.3 Final Distributions......................115
Section 12.4 Termination Rights of the Holder of
the Transferor Interest...............116
iv
<PAGE>
ARTICLE XIII
MISCELLANEOUS PROVISIONS.................116
Section 13.1 Amendment................................116
Section 13.2 Protection of Right, Title and Interest
to Trust..............................118
Section 13.3 Limitation on Rights of Holders..........119
SECTION 13.4 GOVERNING LAW............................120
Section 13.5 Notices..................................120
Section 13.6 Severability of Provisions...............121
Section 13.7 Rule 144A Information....................121
Section 13.8 Notes Nonassessable and Fully Paid.......121
Section 13.9 Further Assurances.......................121
Section 13.10 No Waiver: Cumulative Remedies...........121
Section 13.11 Counterparts.............................121
Section 13.12 Third-Party Beneficiaries................122
Section 13.13 Actions by Holders.......................122
Section 13.14 Merger and Integration...................122
Section 13.15 No Bankruptcy Petition...................123
Section 13.16 Headings.................................123
v
<PAGE>
EXHIBITS
Exhibit A: Form of Custodian Agreement
Exhibit B: Form of Transfer Agreement of Additional Leases
Exhibit C: Form of Opinion of Counsel with Respect to
Additional Leases
Exhibit D: Form of Retransfer Agreement
Exhibit E: Form of Lockbox Agreement
Exhibit F: Form of Monthly Servicer's Certificate
Exhibit G: Form of Annual Independent Auditors' Report
Exhibit H: Form of Monthly Payment Instructions and
Notification
Exhibit I: Form of Opinion with Respect to Amendments
Exhibit J: Form of Annual Opinion of Counsel
SCHEDULES
Schedule 1 List of Leases
Schedule 2 List of Lockboxes
Schedule 3 Portfolio Parameters
Schedule 4 Identification of Accounts
vi
<PAGE>
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST, dated
as of July 1, 1995, among AFG CREDIT CORPORATION, a Delaware corporation, as
Transferor, AMERICAN FINANCE GROUP, INC., a Delaware corporation ("AFG"), as
Servicer, and BANKERS TRUST COMPANY, a banking corporation organized and
existing under the laws of the State of New York, as Trustee (in such capacity,
the "Trustee") and as Collateral Trustee (in such capacity, the "Collateral
Trustee").
In consideration of the mutual agreements herein contained,
each party agrees as follows for the benefit of the other parties and for the
benefit of the Noteholders and the Holder of the Transferor Interest:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used in this
Agreement, the following words and phrases shall have the
following meanings:
"Accelerated Funding Requirement" shall mean, with respect to
any Series, the obligation to prepay the Principal Amount of such
Series to the extent specified in the related Supplement.
"Accelerated Payment Event" shall have for any Series the
meaning, if any, specified in the related Supplement.
"Accrual Period" shall mean the period from and including a
Distribution Date (or in the case of the initial Accrual Period, the
Initial Closing Date) to but excluding the succeeding Distribution
Date.
"Accumulating Series" shall mean, as of a date of
determination, each Series that is then in its Accumulation Period.
"Accumulation Period" shall mean, with respect to any Series,
the period, if any, specified as such in the related Supplement.
"Addition Date" shall mean, with respect to any Additional
Leases, the date on which such Additional Leases are transferred to the
Trust pursuant to Section 2.6.
"Additional Cut Off Date" shall mean each date as of which an
Additional Lease is to be transferred to the Trust, as specified in the
related Assignment.
<PAGE>
"Additional Leases" shall mean the Leases transferred to the
Trust after the Initial Closing Date.
"Additional Selection Criteria" shall have for any Series the
meaning, if any, specified in the related Supplement.
"Adjusted Principal Amount" shall mean on any date of
determination, with respect to any Series, the excess, if any, of the
Principal Amount for such Series over the amount on deposit in the
related Distribution Account for application to reduce the Note
Principal Amount thereof, in each case on such date of determination.
"Advance Payment" means, with respect to any Lease and any
Monthly Period, any Scheduled Payment (or portion thereof) which is due
in a subsequent Monthly Period which the Servicer has received, and
expressly permitted the related Lessee to make, in advance of its
scheduled due date and which will be applied to such Scheduled Payment
on such due date.
"Affiliate" of any specified Person, shall mean any other
Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For
purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the
foregoing.
"Aggregate Adjusted Principal Amount" shall mean, as of any
date of determination, the sum of the Adjusted Principal Amounts of all
Series issued and outstanding on such date of determination.
"Aggregate Net Pool Balance" means, on any date of
determination, the product of (i) the excess of (A) the Aggregate Pool
Balance over (B) the sum of the Excess Concentration Amounts, in each
case as of such date of determination, and (ii) prior to the Crossover
Date, 80% and thereafter, 100%.
"Aggregate Pool Balance" means, on any date of determination,
the sum of the Discounted Lease Balances of all Included Leases on such
date. For purposes of calculating such sum on any date other than the
last day of a Monthly Period, the Discounted Lease Balance of any
Included Lease shall be as of the last day of the preceding Monthly
Period or, with respect to any Lease transferred to the Trust after
such last day, the Discounted Lease Balance on the Cut Off Date for
such Lease.
<PAGE>
"Aggregate Principal Amount" shall mean, as of any date of
determination, the sum of the Principal Amounts of all Series issued
and outstanding on such date of determination.
"Aggregate Principal Percentage" shall mean, as of any date of
determination, the percentage equivalent of a fraction the numerator of
which is the Aggregate Adjusted Principal Amount and the denominator of
which is the Aggregate Net Pool Balance in each case on such date of
determination; provided, however, that the Aggregate Principal
Percentage shall not exceed 100%.
"Agreement" shall mean this Pooling and Servicing Agreement
and Indenture of Trust and all amendments hereof and supplements
hereto, including any Supplement.
"Amortization Commencement Date" shall mean, with respect to
any Series, the first day to occur after the last day of the Revolving
Period for such Series.
"Amortization Period" shall mean, with respect to any Series,
the period, if any, specified as such in the related Supplement.
"Amortizing Pool" shall mean with respect to each Series that
is then in its Amortization Period or Accumulation Period, the Included
Leases (or portions thereof) that have been allocated to such Series
pursuant to Section 4.4 for the purposes of making the calculations
referred to therein.
"Amortizing Series" shall mean each Series in its Amortization
Period as of a date of determination.
"Applicable Discount Rate" shall mean (i) with respect to each
Included Lease that is a Hedged Lease, the sum of (w) the effective per
annum interest rate implicit in the Interest Rate Hedge applicable
thereto, (x) the Servicing Fee Percentage, (y) the Weighted Average
Applicable Margin, and (z) the Weighted Average Applicable Additional
Fees, and (ii) with respect to each Included Lease that is not a Hedged
Lease, a rate per annum equal to the sum of (w) the yield (determined
by the Servicer on the third Business Day prior to the Closing Date or
Addition Date for such Lease, as the case may be) for actively traded
U.S. Treasury securities having a constant maturity equal to the then-
remaining weighted average life to maturity of such Lease (or, if there
is no such security, such yield shall be obtained by interpolation of
such securities having a constant maturity closest to such average
life), (x) 1.60%, (y) the Servicing Fee Percentage and (z) the Weighted
Average Applicable Additional Fees.
<PAGE>
"Applicable Margin" shall mean, with respect to each Series,
or each Class within a Series, that bears interest at a floating rate,
the margin over such rate specified for such Series or Class in the
related Supplement.
"Applicants" shall have the meaning specified in
Section 6.7.
"Asset Base" shall mean as of any date of determination the
sum of (i) the amount on deposit in the Excess Funding Account on such
day and (ii) the Aggregate Net Pool Balance on such day.
"Asset Purchase Agreement" shall mean the Asset Purchase
Agreement, dated as of July 1, 1995, between the Transferor and AFG, as
amended from time to time.
"Authorized Newspaper" shall mean The New York Times or
the Wall Street Journal.
"Available Amount" shall mean, in respect of any Distribution
Date, the sum of (i) all amounts on deposit in the Collection Account
on the immediately preceding Determination Date other than amounts
representing Advance Payments due in a Monthly Period commencing after
the last day of the preceding Monthly Period or that were received by
the Servicer after the last day of the preceding Monthly Period, (ii)
any investment earnings credited to the Collection Account, the Excess
Funding Account or the Tax Escrow Account during the preceding Monthly
Period pursuant to the terms of this Agreement or any Supplement, (iii)
any amount to be received from a Hedging Counterparty on or prior to
the Transfer Date preceding such Distribution Date in respect of the
Accrual Period ending on such Distribution Date, and (iv) any other
amounts received in respect of an Enhancement.
"Available Excess Funding Amount" shall mean as of any date of
determination the lesser of (i) the amount on deposit in the Excess
Funding Account on such day and (ii) an amount that would not, after
giving effect to the application thereof, cause the Asset Base to be
less than the Aggregate Adjusted Principal Amount.
"Book-Entry Notes" shall mean entries evidencing a beneficial
interest in any Notes, ownership and transfers of which shall be made
through book entries by a Clearing Agency as described in Section 6.9,
provided, that after the occurrence of a condition whereupon book-entry
registration and transfer are no longer permitted and Definitive Notes
are to be issued to the Note Owners, such Notes shall no longer be
"Book-Entry Notes".
<PAGE>
"Business Day" shall mean each day which is neither a
Saturday, a Sunday nor any other day on which banking institutions in
Boston, Massachusetts, New York, New York, San Francisco, California
(or, with respect to any Series, any additional city specified in the
related Supplement) are authorized or obligated by law or required by
executive order to be closed.
"Casualty Loss" means, with respect to any item of Equipment,
the loss, theft, damage beyond repair or governmental condemnation or
seizure of such item of Equipment.
"Casualty Payment" means any payment pursuant to the terms of
a Lease in connection with a Casualty Loss.
"Class" shall mean, with respect to any Series, any one or
more of the classes of Notes of such Series as specified in the related
Supplement.
"Clearing Agency" shall mean an organization registered as a
"clearing agency" pursuant to Section 17A of the Securities Exchange
Act of 1934, as amended.
"Clearing Agency Participant" shall mean a broker, dealer,
bank, other financial institution or other Person for whom from time to
time a Clearing Agency effects book-entry transfers and pledges of
securities deposited with the Clearing Agency.
"Closing Date" shall mean, with respect to any Series, the
date specified as such in the related Supplement.
"Collateral Trustee" shall mean the institution executing this
Agreement as Collateral Trustee, or its successor in interest, or any
successor collateral trustee appointed as herein provided.
"Collection Account" shall have the meaning specified
in subsection 4.2(a).
"Collections" means all payments received on or with respect
to the Included Leases or the related Equipment, including, without
limitation, Scheduled Payments, Advance Payments, Liquidation Proceeds,
amounts received in respect of Warranty Purchase Prices, Insurance
Proceeds, Early Termination Lease Proceeds and Expired Lease Proceeds,
all as related to amounts attributable to the Equipment and the
Included Leases, but excluding any Excluded Amounts.
"Corporate Trust Office" shall mean the principal office of
the Trustee at which at any particular time its corporate trust
business shall be administered, which office
<PAGE>
at the date of the execution of this Agreement is located at Four
Albany Street, New York, New York 10006.
"Credit Guidelines" shall mean the Transferor's and
AFG's Standard Credit Underwriting Guidelines as in effect from time to
time.
"Crossover Date" shall mean the first Distribution Date to
occur after the Initial Closing Date on which the Aggregate Net Pool
Balance equals or exceeds $30,000,000.
"Custodian" shall mean initially the party that is designated
as the custodian under the Custodian Agreement and its permitted
successors and assigns, and thereafter any Person appointed as
successor Custodian as therein provided.
"Custodian Agreement" shall have the meaning specified
in Section 2.2(b).
"Cut Off Date" shall mean with respect to each Original Lease,
the date established as such by the Servicer, and with respect to each
Additional Lease, the related Additional Cut Off Date.
"Date of Processing" shall mean, with respect to any
transaction, the date on which such transaction is first recorded on
the Servicer's computer master file of Leases (without regard to the
effective date of such recordation).
"Debtor Relief Laws" shall mean the Bankruptcy Code of the
United States of America and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization, suspension of payments, or similar debtor
relief laws from time to time in effect affecting the rights of
creditors generally.
"Default Amount" shall mean, for any Monthly Period, an amount
(which shall not be less than zero) equal to the Discounted Lease
Balance for each Included Lease that became a Defaulted Lease during
such Monthly Period.
"Defaulted Lease" means an Included Lease as to which (i) the
Servicer has determined in its sole discretion, in accordance with its
customary servicing procedures, that such Lease is not collectible, or
(ii) all or part of a Scheduled Payment thereunder is more than 90 days
delinquent.
"Definitive Notes" shall have the meaning specified in
Section 6.9.
"Delinquent Lease" shall mean, on any date of
determination, each Included Lease with respect to which any
<PAGE>
Scheduled Payment or portion thereof is more than 60 days delinquent as
of such date of determination.
"Depository Agreement" shall mean, with respect to any Series,
the agreement (if any) among the Transferor, the Trustee and the
initial Clearing Agency (if any) with respect to such Series.
"Determination Date" shall mean with respect to any Monthly
Period, the tenth day of the succeeding calendar month or, if such
tenth day is not a Business Day, the next succeeding Business Day.
"Discounted Lease and Residual Balance" means, with respect to
any Included Lease, at any time of determination, the sum of (i) the
Discounted Lease Balance plus (ii) the Equipment Residual Value for the
related Equipment.
"Discounted Lease Balance" means, with respect to any Included
Lease, at any time of determination, the sum of (i) the present value
of all of the remaining Scheduled Payments becoming due under such
Lease after such date of determination (not to exceed the Stipulated
Loss Value thereunder), discounted monthly at the Applicable Discount
Rate in the manner described below and (ii) the aggregate amount of all
Scheduled Payments (due after the applicable Cut Off Date) then due and
payable under such Lease which have not been received by the Servicer;
provided, however, that for purposes of computing the Aggregate Pool
Balance, the Discounted Lease Balance of any Defaulted Lease,
Ineligible Lease, Early Termination Lease or Expired Lease or Removed
Lease shall be equal to zero.
In connection with all calculations required to be made
pursuant to this Agreement with respect to the determination of
Discounted Lease Balances, for any date of determination the
"Discounted Lease Balance" for each Lease shall be calculated assuming:
(i) all payments due in any Monthly Period are
due on the last day of such Monthly Period;
(ii) payments are discounted on a monthly basis
using a 30 day month and a 360 day year;
(iii) payments are discounted to the last day of
the Monthly Period in which the date of determination falls;
and
(iv) all security deposits are applied to
reduce Scheduled Payments in inverse order of the due date
thereof.
<PAGE>
"Distribution Account" shall have the meaning specified
in any applicable Supplement.
"Distribution Date" shall mean the fifteenth day of each month
or, if such fifteenth day is not a Business Day, the next succeeding
Business Day.
"Early Termination Lease" means any Lease that has terminated
prior to its scheduled expiration date (including because of a Casualty
Loss), other than a Defaulted Lease.
"Early Termination Lease Proceeds" means any and all cash
proceeds or rents realized from the sale or re-lease of Equipment under
an Early Termination Lease (net of Liquidation Expenses).
"Eligible Deposit Account" shall mean either (a) a segregated
account with a Qualified Institution or (b) a segregated trust account
with the corporate trust department of a depository institution
organized under the laws of the United States or any one of the states
thereof, including the District of Columbia (or any domestic branch of
a foreign bank), and acting as a trustee for funds deposited in such
account, so long as any of the securities of such depository
institution shall have a credit rating from each Rating Agency in one
of its short-term credit rating categories which signifies investment
grade.
"Eligible Equipment" shall mean any item of Equipment other
than commercial jet aircraft designed to carry more than 50 passengers
or self-powered ocean-going vessels.
"Eligible Lease" shall mean at any date of
determination, each Lease:
(a) which is payable in United States dollars;
(b) the Lessee in respect of which is an Eligible
Lessee and with respect to which the related Equipment is
Eligible Equipment;
(c) which is not a Defaulted Lease as of the
related Cut Off Date, and with respect to which, as of such
date no Scheduled Payment was more than 60 days past due;
(d) which was originated or acquired by the
Transferor in accordance with the Credit Guidelines;
(e) which was created in compliance, in all
material respects, with all Requirements of Law and which
complies, in all material respects, with all Requirements of
Law;
<PAGE>
(f) with respect to which all material consents,
licenses, approvals or authorizations of, or registrations or
declarations with, any Governmental Authority required to be
obtained, effected or given by the Originator thereof or the
Transferor in connection with the creation of such Lease or
the execution, delivery and performance by such Originator or
the Transferor of its obligations under the Lease, have been
duly obtained, effected or given and are in full force and
effect;
(g) as to which and as to the related Equipment,
immediately prior to the transfer of same to the Trust by the
Transferor, the Transferor had good title thereto free and
clear of all Liens arising under or through the Originator
thereof, the Transferor or their respective Affiliates (other
than Permitted Liens and except for the interest of the Lessee
in the related Equipment pursuant to such Lease) and as to
which immediately after the transfer of same to the Trust by
the Transferor, the Trust will have good title thereto free
and clear of all Liens arising under or through the Originator
thereof, the Transferor or their respective Affiliates (other
than Permitted Liens and except for the interest of the Lessee
in the related Equipment pursuant to such Lease);
(h) which is the legal, valid and binding payment
obligation of the Lessee with respect thereto, enforceable
against such Lessee in accordance with its terms, except as
such enforceability may be limited by applicable Debtor Relief
Laws, and except as such enforceability may be limited by
general principles of equity (whether considered in a suit at
law or in equity);
(i) which constitutes an "account," a "general
intangible" or "chattel paper" under and as defined in Article
9 of the UCC as then in effect in the State of California;
(j) no provision of which, at the time of transfer to
the Trust, has been waived, altered or otherwise modified
except by an instrument or document contained in the related
Lease File;
(k) which obligates the Lessee to maintain the
related Equipment in good working order, to bear all costs of
operating such Equipment (including taxes and insurance) and
unconditionally, and without set-off or deduction, to make all
payments thereunder, free and clear of any taxes, including
without limitation withholding taxes, and, without limiting
the foregoing,
<PAGE>
contains provisions requiring the Lessee to assume all
risk of loss or malfunction of the related Equipment;
(l) which provides to the lessor the option, upon a
Casualty Loss, to do one or more of the following: (i) at the
Lessee's expense to repair the Equipment, (ii) to replace the
Equipment with similar Equipment of equal or greater value or
(iii) to require that the Lessee pay to the lessor the
Stipulated Loss Value;
(m) which obligates the Lessee to make Scheduled
Payments thereunder no less frequently than once every six
months and provides that the lessor may accelerate all
remaining Scheduled Payments upon default (and the expiration
of any applicable grace period) by the Lessee thereunder;
(n) which, as of the related Cut Off Date, had a
lease term of not less than 6 months and of not more than 72
months;
(o) which, as of the applicable Cut Off Date and
after giving effect to its transfer to the Trust, did not
cause any of the Portfolio Parameters to be untrue;
(p) which are not and will not be subject to any
claim of rescission, set-off, counterclaim or any other
defense of the Lessee, other than defenses arising out of
applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors'
rights in general; and
(q) as to which, at the time of transfer to the
Trust, the related vendor has been paid in full, and each of
the Transferor and the Originator has satisfied all its
obligations required to be satisfied by such time.
"Eligible Lessee" shall mean at any date of determination, a
Lessee (i) that has provided a billing address for the related Lease in
the United States of America, (ii) that is organized under the laws of
the United States of America or any State thereof, or that is organized
under the laws of Canada or any province thereof, or (iii) with respect
to which the Rating Agency Condition has been satisfied. For purposes
of this definition, any Lessee the obligations of which under the
related Lease are fully and unconditionally guaranteed by an entity
that would be an Eligible Lessee under the preceding sentence, shall be
deemed to be an Eligible Lessee.
"Enhancement" shall mean, with respect to any Series, the cash
collateral account, letter of credit, guaranteed rate agreement,
maturity guaranty facility, tax protection
<PAGE>
agreement, interest rate swap or any other contract, arrangement or
agreement for the benefit of the Noteholders of such Series (or
Noteholders of a Class within such Series), as designated in the
applicable Supplement.
"Enhancement Provider" shall mean, with respect to any Series,
the Person, if any, designated as such in the related Supplement.
"Equipment" means the assets (including office or other
equipment) leased to a Lessee pursuant to a Lease and/or, unless the
context otherwise requires, a security interest in such assets.
"Equipment Excess Concentration Amount" shall have the meaning
specified in Schedule 3.
"Equipment Residual Value" means the anticipated residual
value of the Equipment related to a Lease upon the expiration of such
Lease in accordance with its terms (as such residual value is estimated
by the Servicer on or about the date on which such Lease was created in
accordance with its normal valuation procedures), but not in excess of
any purchase option price with respect thereto set forth in such Lease.
"Excess Concentration Amount" shall mean as of any date of
determination, the sum of the Individual Lessee Excess Concentration
Amount, the Industry Excess Concentration Amount, the Semi-Annual
Lease Excess Concentration Amount and the Equipment Excess
Concentration Amount, in each case as of such date of determination.
"Excess Funding Account" shall have the meaning
specified in subsection 4.2(b).
"Exchange" shall have the meaning specified in
subsection 6.12(b).
"Exchange Date" shall have the meaning specified in
subsection 6.12(b).
"Exchange Notice" shall have the meaning specified in
subsection 6.12(b).
"Excluded Amounts" means any Tax Collections and any payments
received from a Lessee in connection with any insurance premiums or
fees, any indemnity payments made by a Lessee for the benefit of the
lessor under the related Lease or any payments collected from a Lessee
relating to servicing and/or maintenance payments pursuant to the
related Lease or maintenance agreement, as applicable.
<PAGE>
"Expired Lease" means any Lease that has terminated on
its scheduled expiration date.
"Expired Lease Proceeds" means any and all cash proceeds or
rents realized from the sale or re-lease of Equipment under an Expired
Lease (net of Liquidation Expenses).
"FDIC" shall mean the Federal Deposit Insurance
Corporation, or any successor thereto.
"Filing Locations" means the States of California and
Massachusetts.
"Final Trust Termination Date" shall mean December 31,
2015.
"Floating Pool" shall mean on any date of determination, all
Included Leases (or portions thereof) on such date other than Included
Leases (or portions thereof) allocated to an Amortizing Pool as of such
date.
"Governmental Authority" shall mean the United States of
America, any state or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hedge Termination Payment" shall mean with respect to any
Hedged Lease that becomes an Early Termination Lease and for which a
Substitute Lease is not provided, the amount, if any, owing to the
related Hedge Counterparty in respect of the corresponding early
termination of the related Interest Rate Hedge.
"Hedged Lease" shall mean on any date of determination each
Included Lease that is the subject of an Interest Rate Hedge on such
date of determination.
"Hedging Counterparty" shall mean initially, First Union
National Bank of North Carolina in its capacity as obligor under the
Interest Rate Hedge, and any other Person that provides an Interest
Rate Hedge as provided in Section 4.5(a) or if any Replacement Interest
Rate Hedge or Qualified Substitute Arrangement is obtained pursuant to
Section 4.5(b), any obligor with respect to such Replacement Interest
Rate Hedge or Qualified Substitute Arrangement.
"Highest Required Investment Category" shall mean (i) with
respect to ratings assigned by Standard & Poor's, A-1+ for short-term
instruments and AAA for long-term instruments and (ii) with respect to
ratings assigned by Moody's, A-2 or P-1 for one month instruments, A-1
or P-1 for three month
<PAGE>
instruments, AA3 or P-1 for six month instruments and AAA or P-1 for
instruments with a term in excess of six months.
"Holder" shall mean the Person in whose name a Note or the
Transferor Interest is registered in the Register.
"Included Lease" shall mean each Original Lease and each
Additional Lease, but shall exclude any Removed Lease after the Removal
Date with respect thereto.
"Indebtedness" shall mean, with respect to any Person at any
date, (a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than current
liabilities incurred in the ordinary course of business and payable in
accordance with customary trade practices) or which is evidenced by a
note, bond, debenture or similar instrument, (b) all obligations of
such Person under capital leases, (c) all obligations of such Person in
respect of acceptances issued or created for the account of such Person
and (d) all liabilities secured by any Lien on any property owned by
such Person even though such Person has not assumed or otherwise become
liable for the payment thereof.
"Individual Lessee Excess Concentration Amount" shall have the
meaning specified in Schedule 3.
"Industry Excess Concentration Amount" shall have the meaning
specified in Schedule 3.
"Ineligible Lease" shall have the meaning specified in
subsection 2.4(d).
"Initial Closing Date" shall mean the date on which the
initial Series is issued.
"Initial Principal Amount" with respect to any Series, shall
have the meaning specified in the related Supplement.
"Insolvency Event" means, with respect to a specified Person,
(a) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of such Person or any
substantial part of its property in an involuntary case under any
applicable Federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official for such
Person or for any substantial part of its property, or ordering the
winding-up or liquidation of such Person's affairs, and such decree or
order shall remain unstayed and in effect for a period of 60
consecutive days; or (b) the commencement by such Person of a voluntary
case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or the consent by
<PAGE>
such Person to the entry of an order for relief in an involuntary case
under any such law, or the consent by such Person to the appointment of
or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any
general assignment for the benefit of creditors, or the failure by such
Person generally to pay its debts as such debts become due, or the
taking of action by such Person in furtherance of any of the foregoing.
"Insurance Policy" means, with respect to any Lease, an
insurance policy covering physical damage to or loss of the related
Equipment.
"Insurance Proceeds" means, depending on the context, any
amounts payable or any payments made, to the Servicer under any
Insurance Policy.
"Interest Rate Hedge" shall mean the master agreement between
the Trustee on behalf of the Trust and the initial Hedging
Counterparty, and any other similar agreement executed by the Trust and
delivered pursuant to Section 4.5(a), in each case as supplemented from
time to time by the Trustee on behalf of the Trust and the relevant
Hedging Counterparty, or any Replacement Interest Rate Hedge or
Qualified Substitute Arrangement.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time.
"Lease" shall mean each agreement, including, as applicable,
schedules, subschedules, supplements and amendments to a master lease,
pursuant to which the Originator, as lessor, leases specified assets to
a Lessee at a specified monthly or quarterly rental.
"Lease Files" shall mean, with respect to each Included Lease,
the fully executed original counterpart (for UCC purposes) of the
Lease, the original certificate of title or other title document with
respect to the related Equipment (if applicable), and otherwise such
documents, if any, that the Servicer keeps on file in accordance with
its customary procedures, evidencing ownership of such Equipment.
"Lessee" means, with respect to any Lease, the Person or
Persons obligated to make payments with respect to such Lease,
including any guarantor thereof.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), equity interest, participation interest,
preference, priority or other security agreement or preferential
arrangement of any kind or nature
<PAGE>
whatsoever, including, without limitation, any conditional sale or
other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing;
provided, however, that any assignment pursuant to Section 7.2 shall
not be deemed to constitute a Lien.
"Liquidation Expenses" means, with respect to any Lease, the
aggregate amount of all out-of-pocket expenses reasonably incurred by
the Servicer (including amounts paid to any subservicer) and any
reasonably allocated costs of internal counsel, in each case in
accordance with the Servicer's customary procedures in connection with
the repossession, refurbishing and disposition of any related Equipment
upon or after the expiration or earlier termination of such Lease and
other out-of-pocket costs related to the liquidation of any such
Equipment, including the attempted collection of any amount owing
pursuant to such Lease if it is a Defaulted Lease.
"Liquidation Proceeds" means, with respect to a Defaulted
Lease, proceeds from the sale or re-lease of the Equipment, proceeds of
the related Insurance Policy and any other recoveries with respect to
such Defaulted Lease and the related Equipment, net of Liquidation
Expenses and amounts, if any, so received that are required to be
refunded to the Lessee on such Lease.
"Lockbox" shall mean the post office boxes listed on Schedule
2 to which the Lessees are instructed to remit payments on the Included
Leases and/or such other post office boxes as may be established
pursuant to subsection 3.2(f).
"Lockbox Account" shall mean the intervening account used by a
Lockbox Processor for deposit of funds received in a Lockbox prior to
their transfer to the Collection Account.
"Lockbox Agreement" shall have the meaning specified in
Section 3.2(f).
"Lockbox Processor" shall mean the depositary institution or
processing company (which may be the Trustee) which processes payments
on the Leases sent by the Lessees thereon forwarded to a Lockbox.
"Monthly Period" shall mean a calendar month.
"Monthly Servicing Fee" shall have the meaning
specified in Section 3.8.
"Monthly Statement" shall have the meaning specified in
Section 3.10.
<PAGE>
"Moody's" shall mean Moody's Investors Service, Inc.,
or any successor thereto.
"Note" shall mean any one of the notes of any Series executed
by the Trust and authenticated by the Trustee substantially in the form
(or forms, in the case of a Series with multiple Classes) of the notes
attached to the related Supplement.
"Note Interest" shall mean interest payable in respect of the
Notes of any Series pursuant to Article IV as set forth in the
Supplement related to such Series.
"Note Owner" shall mean, with respect to a Book-Entry Note,
the Person who is the owner of such Book-Entry Note, as reflected on
the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly or as an
indirect participant, in accordance with the rules of such Clearing
Agency).
"Note Principal" shall mean principal payable in respect of
the Notes of any Series pursuant to Article IV as set forth in the
Supplement related to such Series.
"Note Rate" shall mean, with respect to any Series of Notes
(or, for any Series with more than one Class, for each Class of such
Series), the rate (or formula on the basis of which such rate shall be
determined) per annum stated for such Series in the related Supplement,
which rate shall be calculated in each case on the basis set forth in
the related Supplement.
"Noteholder" shall mean the Person in whose name a Note
is registered in the Register.
"Notice Date" shall have the meaning specified in
Section 2.6(b).
"Officer's Certificate" shall mean a certificate signed by any
officer of Transferor or the Servicer and delivered to the Trustee.
"Opinion of Counsel" shall mean a written opinion of counsel,
who may be counsel (including internal counsel) for the Transferor or
the Servicer, which counsel shall be reasonably acceptable to the
Trustee.
"Optional Repurchase Percentage" shall have, with respect to
any Series, the meaning specified in the related Supplement.
"Original Lease" shall mean each Lease identified by account
number and Lease Balance in a computer file or list
<PAGE>
delivered to the Trustee by the Transferor on or prior to the Initial
Closing Date pursuant to Section 2.1.
"Originator" shall mean, with respect to each Lease, the party
that is the original lessor thereunder.
"Paying Agent" shall mean any paying agent appointed pursuant
to Section 6.6 and shall initially be the Trustee.
"Pay Out Commencement Date" shall mean, with respect to each
Series, (a) the date on which a Trust Pay Out Event is deemed to occur
pursuant to Section 9.1, or (b) the date on which a Series Pay Out
Event is deemed to occur pursuant to the Supplement for such Series.
"Pay Out Event" shall mean either a Trust Pay Out Event
or a Series Pay Out Event.
"Pay Out Event Series Share" shall mean, with respect to any
allocation or payment following the occurrence of a Pay Out Event and
any particular Series, the lesser of (i) the percentage equivalent of a
fraction, the numerator of which is the Adjusted Principal Amount of
such Series as of the first day of the Pay Out Event and the
denominator of which is the Aggregate Adjusted Principal Amount, as of
such first day and (ii) the remaining unpaid Adjusted Principal Amount
of such Series.
"Permitted Investments" shall mean negotiable instruments or
securities or other investments (a) which, except in the case of demand
or time deposits, investments in money market funds and Repurchase
Obligations, are represented by instruments in bearer or registered
form or ownership of which is represented by book entries by a Clearing
Agency or by a Federal Reserve Bank in favor of depository institutions
eligible to have an account with such Federal Reserve Bank who hold
such investments on behalf of their customers and (b) which evidence:
(i) direct obligations of, and obligations
fully guaranteed as to full and timely payment by, the
United States of America (or by any agency thereof to the
extent such obligations are backed by the full faith and
credit of the United States of America);
(ii) demand deposits, time deposits or
certificates of deposit of depository institutions or trust
companies incorporated under the laws of the United States of
America or any state thereof and subject to supervision and
examination by federal or state banking or depository
institution authorities; provided, however, that at the time
of the Trust's investment or contractual commitment to invest
therein, the commercial paper, if any, and short-term
unsecured
<PAGE>
debt obligations (other than such obligation whose rating is
based on the credit of a Person other than such institution or
trust company) of such depository institution or trust company
shall have a credit rating from the Rating Agency in the
Highest Required Investment Category granted by such Rating
Agency;
(iii) commercial paper having, at the time of the
Trust's investment or contractual commitment to invest
therein, a rating in the Highest Required Investment Category
granted by the Rating Agency;
(iv) bankers' acceptances issued by any depository
institution or trust company referred to in (ii) above;
(v) investments in money market funds having, at
the time of the Trust's investment or contractual commitment
to invest therein, a rating of the Highest Required Investment
Category from the Rating Agency;
(vi) time deposits (having maturities of not more
than 90 days) or notes which are payable on demand by an
entity the commercial paper of which has, at the time of the
Trust's investment or contractual commitment to invest
therein, a rating of the Highest Required Investment Category
granted by the Rating Agency; and
(vii) Repurchase Obligations.
"Permitted Liens" shall mean (a) with respect to
Included Leases:
(i) Liens for state, municipal or other local taxes if such
taxes shall not at the time be due and payable or if the
Transferor shall currently be contesting the validity thereof
in good faith by appropriate proceedings and shall have set
aside on its books adequate reserves with respect thereto, and
(ii) Liens in favor of the Trustee created pursuant to this
Agreement;
and (b) with respect to the related Equipment:
(i) Liens for state, municipal or other local taxes if such
taxes shall not at the time be due and payable or if the
Transferor shall currently be contesting the validity thereof
in good faith by appropriate proceedings and shall have set
aside on its books adequate reserves with respect thereto,
(ii) Liens in favor of the Trustee created pursuant to this
Agreement, and (iii) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like
<PAGE>
non-consensual Liens arising in the ordinary course of
business.
"Permitted Transaction" shall mean any transaction or series
of related transactions pursuant to which the Transferor finances an
interest in the Trust Assets or the Transferor Interest pursuant to the
transfer of a Note or the Transferor Interest or otherwise and (i) as
to which the Rating Agency Condition is satisfied and (ii) which in the
reasonable judgment of the Transferor as evidenced by an Officer's
Certificate, could not reasonably be expected to have a material
adverse effect on the interests of any of the Noteholders.
"Person" shall mean any legal person, including any
individual, corporation, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization, governmental
entity or other entity of similar nature.
"Pool Sale" shall have the meaning specified in Section
12.2(b).
"Portfolio Parameters" shall mean the criteria
specified in Schedule 3.
"Principal Amount" shall have, with respect to any Series, the
meaning specified in the related Supplement.
"Principal Exchange" shall have the meaning specified
in subsection 6.12(b).
"Principal Percentage" shall have, for any Series, the
meaning specified in the related Supplement.
"Principal Terms" shall have the meaning, with respect to any
Series issued pursuant to an Exchange, specified in subsection 6.12(c).
"Publication Date" shall have the meaning specified in
Section 9.2(a).
"Qualified Institution" shall have the meaning
specified in Section 4.2(a).
"Qualified Substitute Arrangement" shall have the
meaning specified in Section 4.5(b).
"Rating Agency" shall mean, with respect to each Series, the
rating agency or agencies, if any, designated as a "Rating Agency" in
the related Supplement.
"Rating Agency Condition" shall mean, with respect to
any action or series of related actions or proposed
<PAGE>
transaction or series of related proposed transactions, that each
Rating Agency shall have notified the Transferor and the Trustee in
writing that such action or series of related actions or the
consummation of such proposed transaction or series of related
transactions will not result in a reduction or withdrawal of the rating
of any outstanding Series or Class with respect to which it is a Rating
Agency.
"Record Date" shall mean with respect to any Series, any date
specified as such in the applicable Supplement.
"Register" shall have the meaning specified in Section
6.3.
"Removal Date" shall have the meaning specified in
Section 2.8(a).
"Removal Notice Date" shall have the meaning specified
in Section 2.8(a).
"Removed Leases" shall have the meaning specified in
Section 2.8.
"Replacement Interest Rate Hedge" shall mean any interest rate
swap or cap having substantially the same terms and conditions as the
Interest Rate Hedge and otherwise satisfying the conditions set forth
in Section 4.5.
"Replacement Series" shall mean a Series which is
designated as such by the Transferor.
"Repurchase Obligations" shall mean repurchase obligations
with respect to any security that is a direct obligation of, or fully
guaranteed by, the United States of America or any agency or
instrumentality thereof, the obligations of which are backed by the
full faith and credit of the United States of America (collectively,
"Eligible Collateral"), in either case entered into with a depository
institution or trust company (acting as principal) described in clause
(b)(ii) of the definition of Permitted Investments.
"Required Holders" shall have, for any Series, the
meaning specified in the related Supplement.
"Requirements of Law" for any Person shall mean the
certificate of incorporation or articles of association and by-laws or
other organizational or governing documents of such Person, and any
law, treaty, rule or regulation, or order or determination of an
arbitrator or Governmental Authority, in each case applicable to or
binding upon such Person or to which such Person is subject, whether
Federal, state or local (including, without limitation, usury laws,
<PAGE>
the Federal Truth in Lending Act and Regulation Z and Regulation B of
the Board of Governors of the Federal Reserve System).
"Reserve Funding Requirement" shall mean, with respect to any
Series, the obligation to fund a reserve account to the extent
specified in the related Supplement.
"Response" shall have the meaning specified in
subsection 9.2(a).
"Responsible Officer" shall mean any Vice President, any
Assistant Vice President, any Assistant Secretary, any Assistant
Treasurer or any other officer of the Trustee with direct
responsibility for the administration of this Agreement and also, with
respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with
the particular subject. The term "Responsible Officer", when used
herein with respect to any Person other than the Trustee, means an
officer or employee of such Person corresponding to any officer or
employee described in the preceding sentence.
"Retransfer Agreement" shall have the meaning specified
in subsection 2.8(b)(ii).
"Retransfer Date" shall have the meaning specified in
subsection 2.4(e).
"Revolving Period" shall have, with respect to any Series, the
meaning specified in the related Supplement.
"Scheduled Interest Payment" means, with respect to any
Included Lease in any Monthly Period, the excess of the Scheduled
Payment over the Scheduled Principal Payment for
such Monthly Period.
"Scheduled Payment" means, with respect to any Included Lease,
the monthly or quarterly or semi-annual rent payment to be made by the
related Lessee under the terms of such Lease after the related Cut Off
Date or Additional Cut Off Date (it being understood that Scheduled
Payments do not include any Excluded Amounts).
"Scheduled Principal Payment" means, with respect to any
Included Lease in any Monthly Period, the excess of the Discounted
Lease Balance on the first day of such Monthly Period over the
Discounted Lease Balance thereof on the first day of the succeeding
Monthly Period.
"Scheduled Termination Date" means, for each Series, its
Scheduled Termination Date as set forth in the related Supplement.
<PAGE>
"Semi-Annual Lease Excess Concentration Amount" shall have the
meaning specified in Schedule 3.
"Series" shall mean any series of Notes, which may include
within any such Series a Class or Classes of Notes subordinate to
another such Class or Classes of Notes.
"Series Account" shall mean, with respect to any Series, any
of the accounts established and designated as such pursuant to the
related Supplement.
"Series Pay Out Event" shall have, with respect to any Series,
the meaning specified in the related Supplement.
"Series Representative" shall mean, with respect to any
Series, the Series Trustee or other representative of the Noteholders
of such Series, if any, appointed as such in the related Supplement.
"Series Sale" shall have the meaning specified in
Section 12.2(b).
"Series Share" shall mean, with respect to any allocation or
payment and any particular Series, the percentage equivalent of a
fraction, the numerator of which is the aggregate amount required to be
allocated or paid in respect thereof to such Series and the denominator
of which is the total amount thereof to be allocated or paid to all
Series, in each case without giving effect to any limitation based on
insufficient available funds.
"Series Termination Date" shall mean, with respect to any
Series, the date, if any, specified as such in the related Supplement.
"Series Trustee" shall have, with respect to any Series, the
meaning, if any, specified in the related Supplement.
"Servicer" shall mean initially AFG and its permitted
successors and assigns, and thereafter any Person appointed as
successor as herein provided to service the Trust Assets.
"Servicer Advance" means an advance of Scheduled Payments made
by the Servicer pursuant to Section 3.3.
"Servicer Default" shall have the meaning specified in
Section 10.1.
"Servicing Fee Percentage" shall mean .75%.
"Servicing Officer" shall mean any employee of the Servicer
involved in, or responsible for, the administration and servicing of
the Trust Assets whose name appears on a
<PAGE>
list of servicing officers furnished to the Trustee by the Servicer on
the Initial Closing Date, as such list may from time to time be
amended.
"Standard & Poor's" shall mean Standard & Poor's Ratings
Group, a division of McGraw Hill, Inc., or any successor thereto.
"Stipulated Loss Value" shall mean, with respect to any Lease,
the amount payable by the Lessee upon a Casualty Loss in respect of the
related Equipment.
"Substitute Lease" means a Lease that is added to the Trust
pursuant to Section 2.7(a).
"Successor Servicer" shall have the meaning specified
in Section 10.2(a).
"Supplement" shall mean, with respect to any Series, a
supplemental Indenture to this Agreement complying with the terms of
Section 6.12, executed in conjunction with the issuance of any Series
(or, in the case of the issuance of Notes and the book-entry notation
of the Transferor Interest in the Register on the Initial Closing Date,
the supplemental indenture executed in connection with such issuance).
"Target Repayment Amount" shall mean, for each Amortizing
Series in respect of each Monthly Period commencing on and after the
Amortization Commencement Date for such Series, the Target Repayment
Percentage of the excess of (i) the sum of (A) the Scheduled Principal
Payments, (B) Early Termination Lease Proceeds, (C) Warranty Purchase
Price and (D) the Default Amount over (ii) any Unreimbursed Servicer
Advances, in each case in respect of all Included Leases (or portions
thereof) in the related Amortizing Pool for such Monthly Period and
after giving effect to any substitution or reallocation.
"Target Repayment Percentage" with respect to any Series,
shall have the meaning specified in the related Supplement.
"Tax Collections" means all payments received on or with
respect to the Included Leases or the related Equipment that are
Excluded Amounts attributable to any taxes, fees or other charges
imposed by any Governmental Authority.
"Tax Escrow Account" shall have the meaning specified
in Section 4.2(c).
"Tax Opinion" shall mean, with respect to any action, an
opinion of outside counsel to the effect that, for federal income tax
purposes, (i) such action will not
<PAGE>
adversely affect the characterization as debt or as an interest in a
partnership (other than a partnership taxable as a corporation), as the
case may be, of any Notes of any outstanding Series or Class not
retained by the Transferor or any affiliate of the Transferor, (ii)
such action will not cause or constitute a sale, exchange or other
disposition by the Transferor or the Trust of the Trust Assets, or by
the Noteholders of such Noteholders' Notes of any Outstanding Series or
Class and (iii) on each Closing Date, the Notes of the new Series which
are not retained by the Transferor will be characterized as debt or as
an interest in a partnership (other than a partnership taxable as a
corporation).
"Termination Notice" shall have the meaning specified
in Section 10.1.
"Transfer Agent and Registrar" shall have the meaning
specified in Section 6.3(a) and shall initially be the Trustee.
"Transfer Agreement" shall have the meaning specified
in subsection 2.6(b)(iv).
"Transfer Date" shall mean the Business Day immediately
preceding each Distribution Date.
"Transferor" shall mean AFG Credit Corporation, a Delaware
corporation, or any successor thereto.
"Transferor Amount" shall mean, on any date of determination,
the Aggregate Net Pool Balance at the end of the day immediately prior
to such date of determination, minus the Aggregate Adjusted Principal
Amount at the end of such day. The Transferor Amount may be a negative
number.
"Transferor Exchange" shall have the meaning specified
in subsection 6.12(b).
"Transferor Interest" shall mean the interest which represents
the Transferor Amount and which has been evidenced by book-entry
notation in the Register, and is exchangeable as provided in Section
6.12; provided, that at any time there shall be only one Transferor
Interest, which shall not be transferable except as provided in Section
6.3(b).
"Transferor Percentage" shall mean, on any date of
determination, a percentage equal to 100% minus the Aggregate Principal
Percentage calculated on such date; provided, however, that the
Transferor Percentage shall never be less than zero.
<PAGE>
"Trust" shall mean the trust created by this Agreement and
known as the "AFG Master Trust".
"Trust Assets" shall have the meaning specified in
Section 2.1.
"Trust Pay Out Event" shall have, with respect to each Series,
the meaning specified in Section 9.1.
"Trust Termination Date" shall have the meaning
specified in subsection 12.1.
"Trustee" shall mean the institution executing this Agreement
as Trustee, or its successor in interest, or any successor trustee
appointed as herein provided.
"UCC" shall mean the Uniform Commercial Code, as amended from
time to time, as in effect in any specified jurisdiction.
"Unreimbursed Servicer Advances" means, at any time, the
amount of all previous Servicer Advances (or portions thereof) as to
which the Servicer has not been reimbursed as of such time pursuant to
Section 4.3(d) and which the Servicer has determined in its sole
discretion will not be recoverable from Collections with respect to the
related Included Leases.
"Variable Funding Series" shall mean any Series designated as
a Variable Funding Series in the related Supplement.
"Warranty Purchase Price" means, with respect to an Included
Lease and date of determination, an amount equal to the Discounted
Lease and Residual Balance as of the preceding Determination Date, plus
one month's interest thereon at the Applicable Discount Rate.
"Weighted Average Applicable Additional Fees" shall mean at
any date of determination the weighted average of any per annum fees
that are identified as "Applicable Additional Fees" in a Supplement for
a particular Series.
"Weighted Average Applicable Margin" shall mean at any date of
determination the weighted average of the Applicable Margins in effect
on such date, as estimated by the Servicer using the weighted average
life of the Included Leases and assuming no prepayments or defaults.
Section 1.2 Other Definitional Provisions.
(a) All terms defined in this Agreement or in any Supplement
shall have the defined meanings when used in any
<PAGE>
certificate or other document made or delivered pursuant hereto or thereto
unless otherwise defined therein.
(b) As used in this Agreement or in any Supplement and in any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms not defined in Section 1.1, and accounting terms partially
defined in Section 1.1 to the extent not defined, shall have the meanings given
to them under generally accepted accounting principles. To the extent that the
definitions of accounting terms herein are inconsistent with the meaning of such
terms under generally accepted accounting principles, the definitions contained
herein shall control.
(c) The agreements, representations and warranties of AFG in
this Agreement and in any Supplement in its capacity as Servicer shall be deemed
to be the agreements, representations and warranties of AFG solely in its
capacity as Servicer for so long as it acts in such capacity under this
Agreement.
(d) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement or any Supplement shall refer to this
Agreement or any Supplement as a whole and not to any particular provision of
this Agreement or any Supplement; and Section, subsection, Schedule and Exhibit
references contained in this Agreement or any Supplement are references to
Sections, subsections, Schedules and Exhibits in or to this Agreement or any
Supplement unless otherwise specified.
ARTICLE II
TRANSFER OF TRUST ASSETS
Section 2.1 Transfer of Trust Assets. (a) Transfer.
The Transferor does hereby transfer, assign and set-over to the
Trust for the benefit of the Noteholders and the Holder of the Transferor
Interest, all right, title and interest of the Transferor in, to and under the
following:
(i) on the Initial Closing Date and as of the related Cut
Off Date, the Original Leases and all monies due or to become due
thereunder after such Cut Off Date and all Collections in respect
thereof;
(ii) on the Addition Date with respect thereto and as of
the related Additional Cut Off Date, the Additional Leases and all
monies due or to become due thereunder after such Additional Cut Off
Date and all Collections in respect thereof;
(iii) the related Equipment;
(iv) the related Lease Files;
<PAGE>
(v) the Asset Purchase Agreement, including, but not
limited to, the obligation of AFG to purchase or repurchase Leases
under certain circumstances as specified therein;
(vi) the Insurance Policies and any Insurance
Proceeds related to the Included Leases;
(vii) the right to any Enhancement with respect
to any Series; and
(viii) all income or proceeds of the foregoing or
relating thereto.
Such property, together with all monies and investments on deposit, from time to
time, in the Collection Account, the Excess Funding Account and the Series
Accounts, shall constitute the assets of the Trust (collectively, the "Trust
Assets"). The foregoing transfer, assignment, set-over and conveyance does not
constitute and is not intended to result in the creation of an assumption by the
Trust, the Trustee or any Noteholder of any obligation of the Transferor, the
Servicer or any other Person in connection with the Included Leases or any
agreement or instrument relating thereto, including, without limitation, any
obligation to any Lessees or insurers, or in connection with the Asset Purchase
Agreement.
(b) Financing Arrangement. The Transferor hereby transfers
the Trust Assets to the Trust with the intent of issuing indebtedness secured
by the Trust Assets.
(c) Grant of Security Interest to Collateral Trustee. The
Trustee hereby grants to the Collateral Trustee for the benefit of the
Noteholders a security interest in all of the Trustee's right, title and
interest in, to and under the Trust Assets to secure the payment of principal
and interest on, and any other amounts owing in respect of, the Notes, and to
secure compliance with the provisions of this Agreement, all as provided in this
Agreement. This Agreement constitutes a security agreement under applicable law.
(d) Perfection of Transfer. In connection with the transfer,
assignment and set-over set forth in Section 2.1(a), the Transferor agrees as
follows:
(i) The Transferor shall record and file, at its own
expense, financing statements (including any continuation statements
with respect to such financing statements when applicable) with respect
to the Included Leases now existing or hereafter transferred to the
Trust meeting the requirements of applicable state law in such manner
and in such jurisdictions as are necessary to perfect the transfer of
the Leases from the Transferor to the Trust and (subject to the
limitations set forth below) to perfect the interest of the Trust in
the related Equipment to the extent the same
<PAGE>
may be viewed as inventory of the Transferor, and to deliver
file-stamped copies of such financing statements or continuation
statements or other evidence of such filings (which may, for purposes
of this Section 2.1, consist of telephone confirmations of such filings
with the file-stamped copy to be provided to the Trustee as soon as
practicable after receipt thereof by the Transferor) to the Trustee on
or prior to the Initial Closing Date, in the case of the Original
Leases, and the applicable Addition Date in the case of Additional
Leases and in the case of any continuation statements filed pursuant to
this Section 2.1(d), as soon as practicable after receipt thereof by
the Transferor. Notwithstanding the foregoing, the Transferor shall
only be obligated to record financing statements with respect to the
Equipment in the Filing Locations.
(ii) The Transferor shall, at its own expense, on or prior
to (x) the Initial Closing Date in the case of the Original Leases, and
(y) the applicable Addition Date, in the case of Additional Leases (A)
indicate in its books and records, including the appropriate computer
files relating to the Leases, that such Leases have been transferred to
the Trust pursuant to this Agreement for the benefit of the Noteholders
and the Holder of the Transferor Interest and stamp the related Lease
Files or otherwise mark such Leases with a legend to the effect that
such Leases have been transferred to the Trust for the benefit of the
Noteholders and the Holder of the Transferor Interest pursuant hereto
and (B) on or prior to the Initial Closing Date with respect to the
Original Leases and on or prior to the related Addition Date with
respect to Additional Leases to deliver to the Trustee a computer file
or microfiche or written list containing a true and complete list of
all Leases then being transferred to the Trust, identified by account
number and by the Discounted Lease Balance as of the related Cut Off
Date. Such file or list, as amended from time to time to reflect
Additional Leases and Removed Leases, shall be marked as Schedule 1 to
this Agreement and is hereby incorporated into and made a part of this
Agreement.
(iii) The Transferor shall, at its own expense, on or prior
to (x) the Initial Closing Date in the case of the Original Leases, and
(y) the applicable Addition Date, in the case of Additional Leases,
deliver to the Custodian the related Lease Files to be held by the
Custodian in accordance with the Custodian Agreement.
(iv) The Transferor shall, at its own expense, on or prior
to (x) the Initial Closing Date in the case of the Original Leases, and
(y) the applicable Addition Date, in the case of Additional Leases,
with respect to any item of related Equipment with respect to which
title thereto or a security interest therein is required to be noted on
a certificate of title or otherwise recorded, to take such
<PAGE>
steps as shall be necessary or appropriate, in the reasonable judgment
of the Servicer, to fully vest all right, title and interest in such
Equipment in the Trustee on behalf of the Trust, provided, that to the
extent UCC or similar filings are required with respect to any item of
related Equipment, the Transferor shall only be obligated to record
such filings in the Filing Locations. The Trustee is hereby authorized
and directed to sign all financing statements under this Section
2.1(d).
(e) Perfection of Security Interest of Collateral Trustee. In
connection with the grant of a security interest by the Trustee to the
Collateral Trustee set forth in Section 2.1(b), the Servicer agrees that it
will, on behalf of the Trustee, record and file, at its own expense, financing
statements (including any continuation statements with respect to such financing
statements when applicable) with respect to the Included Leases now existing or
hereafter transferred to the Trust meeting the requirements of applicable state
law in such manner and in such jurisdictions as are necessary to perfect the
security interest of the Collateral Trustee in the Included Leases, and to
deliver file-stamped copies of such financing statements or continuation
statements or other evidence of such filings (which may, for purposes of this
Section 2.1, consist of telephone confirmations of such filings with the
file-stamped copy to be provided to the Collateral Trustee as soon as
practicable after receipt thereof by the Servicer) to the Collateral Trustee on
or prior to the Initial Closing Date, in the case of the Original Leases, and
the applicable Addition Date in the case of Additional Leases and in the case of
any continuation statements filed pursuant to this Section 2.1(e), as soon as
practicable after receipt thereof by the Servicer. Notwithstanding the
foregoing, the Servicer shall only be obligated to record financing statements
with respect to the Equipment in the Filing Locations.
(f) Grant of Security Interest to Trustee. To the
extent that the Transferor retains or is deemed to retain any interest in the
Included Leases or the related Equipment or any other property included in the
Trust Assets, the Transferor hereby grants to the Trustee, for the benefit of
the Noteholders, a first priority perfected security interest in all of the
Trust Assets to secure a loan in an amount equal to the unpaid principal
amount of the Notes issued hereunder or to be issued hereunder, the interest
accruing thereon at the applicable Note Rates and all of the Transferor's and
the Servicer's other obligations hereunder, and agrees that this Agreement
shall constitute a security agreement under applicable law.
(g) References. The foregoing transfer, assignment, set-over,
conveyance and grant from the Transferor to the Trust shall be made to the
Trustee, on behalf of the Trust, and each reference in this Agreement to such
transfer, assignment, set- over and conveyance to the Trust, and each
retransfer,
<PAGE>
reassignment or reconveyance by the Trust, shall be construed accordingly.
Section 2.2 Acceptance by Trustee; Acknowledgment by
Collateral Trustee.
(a) Acceptance by Trustee. The Trustee hereby acknowledges its
acceptance, on behalf of the Trust, of the Trust Assets, and declares that it
shall maintain such right, title and interest, upon the trust herein set forth
in accordance with the terms of this Agreement, for the benefit of all
Noteholders and the Holder of the Transferor Interest. The Transferor shall
deliver to the Trustee on the Closing Date a certificate certifying that the
computer file or microfiche or written list with respect to the Original Leases
described in Section 2.1(d)(ii) has been provided to the Trustee.
(b) Acknowledgment by Collateral Trustee. The Collateral
Trustee hereby acknowledges its acceptance, on behalf of the Noteholders, of the
grant by the Trustee of a security interest in the Trust Assets.
(c) Custodian Agreement. In connection with the sale, transfer
and assignment of the Included Leases to the Transferor pursuant to the Asset
Purchase Agreement and to the Trust pursuant hereto, the Trustee, on behalf of
the Trust, simultaneously with the execution and delivery of this Agreement,
shall enter into a Custodian Agreement with the Custodian (the "Custodian
Agreement") in a form substantially similar to Exhibit A, pursuant to which the
Trustee, on behalf of the Trust, shall revocably appoint the Custodian, and the
Custodian shall accept such appointment, to act as the agent of the Trustee, on
behalf of the Trust, as custodian of the Lease Files.
(d) Confidentiality. The Trustee hereby agrees not to disclose
to any Person any of the account numbers or other information contained in the
computer files or microfiche or written lists delivered to the Trustee by the
Transferor pursuant to Sections 2.1 and 2.6, except as is required in connection
with the performance of its duties hereunder or in enforcing its rights or the
rights of the Noteholders and the Holder of the Transferor Interest, or to a
Successor Servicer appointed pursuant to Section 10.2, any successor trustee
appointed pursuant to Section 11.8, any co-trustee or separate trustee appointed
pursuant to Section 11.10 or as mandated by any Requirement of Law applicable to
the Trustee. The Trustee agrees to take such measures as shall be reasonably
requested by the Transferor to protect and maintain the security and
confidentiality of such information, and, in connection therewith, shall allow,
upon reasonable notice, the Transferor to inspect the Trustee's security and
confidentiality arrangements from time to time during normal business hours.
<PAGE>
(e) No Indebtedness. The Trustee shall have no power to
create, assume or incur indebtedness or other liabilities in the name of the
Trust other than as contemplated in this Agreement.
Section 2.3 Representations and Warranties of Transferor
Relating to Transferor. The Transferor hereby represents and warrants as of the
Initial Closing Date and on each Addition Date that:
(a) Organization and Good Standing. The Transferor is a
corporation duly organized and validly existing in good standing under
the laws of the State of Delaware, and has full corporate power,
authority and legal right to own its properties and conduct its
business as such properties are presently owned and such business is
presently conducted, and to execute, deliver and perform its
obligations under this Agreement and the Asset Purchase Agreement and
to direct the Trustee to execute and deliver the Notes and to make a
book-entry notation in the Register evidencing the Transferor Interest.
(b) Due Qualification. The Transferor is duly qualified to do
business and is in good standing as a foreign corporation (or is exempt
from such requirements), and has obtained or will obtain all necessary
licenses and approvals, in each jurisdiction in which failure to so
qualify or to obtain such licenses and approvals would have a material
adverse effect on its ability to perform its obligations hereunder.
(c) Due Authorization. The execution and delivery of this
Agreement and the Asset Purchase Agreement and the consummation of the
transactions provided for herein and therein have been duly authorized
by the Transferor by all necessary corporate action on the part of the
Transferor.
(d) No Conflict. The execution and delivery of this Agreement
and the Asset Purchase Agreement, the performance of the transactions
contemplated hereby and thereby and the fulfillment of the terms hereof
and thereof will not conflict with, result in any breach of any of the
material terms and provisions of, or constitute (with or without notice
or lapse of time or both) a default under, any indenture, contract,
agreement, mortgage, deed of trust, or other instrument to which the
Transferor is a party or by which it or any of its property is bound.
(e) No Violation. The execution and delivery of this Agreement
and the Asset Purchase Agreement, the performance of the transactions
contemplated hereby and thereby and the fulfillment of the terms hereof
and thereof will not conflict with or violate, in any material respect,
any Requirements of Law applicable to the Transferor.
<PAGE>
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Transferor, threatened against
the Transferor, before any court, regulatory body, administrative
agency, or other tribunal or governmental instrumentality (i) asserting
the invalidity of this Agreement, the Asset Purchase Agreement or the
Notes, (ii) seeking to prevent the issuance of the Notes or the making
of a book-entry notation in the Register evidencing the Transferor
Interest or the consummation of any of the transactions contemplated by
this Agreement, the Asset Purchase Agreement or the Notes or the
Transferor Interest, (iii) seeking any determination or ruling that, in
the reasonable judgment of the Transferor, could reasonably be expected
to be adversely determined, and if adversely determined, would
materially and adversely affect the performance by the Transferor of
its obligations under this Agreement or the Asset Purchase Agreement or
(iv) seeking to impose income taxes on the Trust.
(g) All Consents Required. All approvals, authorizations,
consents, orders or other actions of any Person or of any Governmental
Authority required in connection with the execution and delivery of
this Agreement and the Notes and the book-entry notation in the
Register evidencing the Transferor Interest, the performance of the
transactions contemplated by this Agreement, and the fulfillment of or
terms hereof, have been obtained.
(h) Bulk Sales. The execution, delivery and performance of
this Agreement do not require compliance with any "bulk sales" law by
the Transferor.
(i) Solvency. The transactions under this Agreement do not and
will not render the Transferor insolvent.
The representations and warranties set forth in this Section 2.3 shall survive
the transfer of the Trust Assets to the Trust, and termination of the rights and
obligations of the Servicer pursuant to Section 10.1. Upon discovery by the
Transferor, the Servicer or a Responsible Officer of the Trustee of a breach of
any of the foregoing representations and warranties, the party discovering such
breach shall give prompt written notice to the others and any Enhancement
Provider. For the purposes of the representations and warranties contained in
this Section 2.3 and made by the Transferor on the Initial Closing Date, "Notes"
shall mean the Notes issued on the Initial Closing Date. The Transferor hereby
represents and warrants, with respect to any Series, as of the Closing Date with
respect to such Series, unless otherwise stated in the related Supplement, that
the representations and warranties of the Transferor set forth in this Section
2.3 will be true and correct as of such date (for the purposes of such
representations and warranties, "Notes" shall mean the Notes issued on such
Closing Date).
<PAGE>
Section 2.4 Representations and Warranties of
Transferor Relating to the Agreement and the Included Leases.
(a) Binding Obligation; Valid Transfer and Security Interest.
The Transferor hereby represents and warrants that, as of the Initial Closing
Date and, with respect to any Series issued after the Initial Closing Date,
unless otherwise stated in the related Supplement, as of the Closing Date for
such Series and as of each Addition Date:
(i) This Agreement constitutes a legal, valid and
binding obligation of the Transferor, enforceable against the
Transferor in accordance with its terms, except as such enforceability
may be limited by Debtor Relief Laws and except as such enforceability
may be limited by general principles of equity (whether considered in a
suit at law or in equity).
(ii) This Agreement constitutes either (A) a valid
transfer to the Trust of all right, title and interest of the
Transferor in, to and under the Trust Assets, and such property will be
held by the Trust free and clear of any Lien of any Person claiming
through or under the Transferor or its Affiliates, except for (w) the
interests of the Trustee and the Noteholders, (x) Permitted Liens, and
(y) the interest of the Transferor as Holder of the Transferor Interest
or (B) a grant of a security interest (as defined in the UCC as in
effect in the State of California) in such property to the Trust. Upon
the filing of the financing statements described in Section 2.1 and, in
the case of Additional Leases on the applicable Addition Date, the
Trustee on behalf of the Trust shall have a first priority perfected
security interest in such property, subject only to Permitted Liens.
Neither the Transferor nor any Person claiming through or under
Transferor shall have any claim to or interest in the Collection
Account, the Excess Funding Account or any Series Account, except as
expressly provided in this Agreement or any Supplement, in accordance
with the provisions of Article IV, and, if this Agreement constitutes
the grant of a security interest in such property, except for the
interest of the Transferor in such property as a debtor for purposes of
the UCC as in effect in the State of California.
(b) Eligibility of Leases. The Transferor hereby represents
and warrants as of the Initial Closing Date that (i) as of the initial Cut Off
Date, Schedule 1 to this Agreement and the computer file or microfiche or
written list delivered pursuant to Section 2.1 is an accurate and complete
listing in all material respects of all the Included Leases as of such Cut Off
Date and the information contained therein with respect to the identity of such
Leases and the amounts owing thereunder is true and correct in all material
respects as of such Cut Off Date, (ii) each such Lease is an Eligible Lease,
(iii) each such
<PAGE>
Lease and the related Equipment has been transferred to the Trust free and clear
of any Lien of any Person (other than Permitted Liens and the interest of the
Transferor as holder of the Transferor Interest) and in compliance, in all
material respects, with all Requirements of Law applicable to the Transferor and
(iv) with respect to each such Lease, all material consents, licenses, approvals
or authorizations of or registrations or declarations with any Governmental
Authority required to be obtained, effected or given by the Transferor in
connection with the transfer of such Lease and the related Equipment to the
Trust have been duly obtained, effected or given and are in full force and
effect.
On each day on which any Additional Lease is transferred by
the Transferor to the Trust, Transferor shall be deemed to represent and warrant
that (i) each Additional Lease transferred on such day is an Eligible Lease,
(ii) each such Additional Lease and the related Equipment has been transferred
to the Trust free and clear of any Lien of any Person (other than Permitted
Liens and the interest of the Transferor as holder of the Transferor Interest)
and in compliance, in all material respects, with all Requirements of Law
applicable to the Transferor or the Originator thereof, (iii) with respect to
each such Additional Lease, all material consents, licenses, approvals or
authorizations of or registrations or declarations with any Governmental
Authority required to be obtained, effected or given by the Transferor in
connection with the transfer of such Lease and the related Equipment to the
Trust have been duly obtained, effected or given and are in full force and
effect and (iv) the representations and warranties set forth in subsection
2.4(a) are true and correct with respect to each Lease transferred on such day
as if made on such day.
(c) Notice of Breach. The representations and warranties set
forth in this Section 2.4 shall survive the transfer of the respective Included
Leases and related Equipment to the Trust, and termination of the rights and
obligations of the Servicer pursuant to Section 10.1. Upon discovery by the
Transferor, the Servicer or a Responsible Officer of the Trustee of a breach of
any of the foregoing representations and warranties, the party discovering such
breach shall give prompt written notice to the others and any Enhancement
Provider.
(d) Retransfer of Ineligible Leases. In the event of a breach
of any representation and warranty set forth in Section 2.4(b) or in subsection
2.6(b)(v)(w) with respect to an Included Lease (each such Lease, an "Ineligible
Lease"), within 60 days of the receipt by the Transferor of written notice of
such breach given by the Trustee or the Servicer, the Transferor shall accept a
retransfer of each such Included Lease to which such breach relates on the terms
and conditions set forth below; provided, however, that no such retransfer shall
be required to be made with respect to such Ineligible Lease (and such Lease
shall cease to be an Ineligible Lease) if, on any day within such 60 day
<PAGE>
period, the representations and warranties in subsection 2.4(b) or in subsection
2.6(b)(v)(w), with respect to such Ineligible Lease shall then be true and
correct in all material respects with respect to such Ineligible Lease as if
such Ineligible Lease had been transferred to the Trust on such day. With
respect to each retransfer of an Ineligible Lease required to be made pursuant
to this Section 2.6(d), the Transferor shall repurchase and the Trustee shall
convey, without recourse, representation or warranty, all of the Trustee's
right, title and interest in each such Ineligible Lease. The Transferor shall
accept a retransfer of each such Ineligible Lease and there shall be deducted
from the Aggregate Pool Balance the Discounted Lease Balance of each such
Ineligible Lease. On and after the date such Lease becomes an Ineligible Lease,
such Lease shall not be included in the Aggregate Pool Balance. In consideration
of such retransfer the Transferor shall, on the date of retransfer of such
Ineligible Lease, either (i) make a deposit in the Collection Account (for
allocation pursuant to Article IV) in immediately available funds in an amount
equal to the Warranty Purchase Price or (ii) transfer to the Trust a Substitute
Lease. Upon each retransfer to the Transferor of such Ineligible Lease, the
Trust shall automatically and without further action be deemed to transfer,
assign and set-over to the Transferor, without recourse, representation or
warranty (other than that the Trustee has not encumbered such Lease and the
related Equipment, except for the grant of a security interest therein to the
Collateral Trustee), all the right, title and interest of the Trust in, to and
under such Ineligible Lease and all monies due or to become due with respect
thereto, the related equipment and all proceeds of the Ineligible Lease and
Liquidation Proceeds and Insurance Proceeds relating thereto and all rights to
security for any such Ineligible Lease, and all proceeds and products of the
foregoing. The Trustee shall execute such documents and instruments of transfer
as may be prepared by the Transferor and take such other actions as shall
reasonably be requested by the Transferor to effect the transfer of such
Ineligible Lease pursuant to this subsection. The obligation of the Transferor
to accept retransfer of any Ineligible Lease shall constitute the sole remedy
respecting any breach of the representations and warranties set forth in Section
2.4(b) and subsection 2.6(b)(v)(w) with respect to such Lease available to
Noteholders and the Holder of the Transferor Interest, or the Trustee on their
behalf.
(e) Retransfer of Trust Portfolio. In the event of a breach of
any of the representations and warranties set forth in Section 2.4(a) hereof
which breach could reasonably be expected to have a material adverse affect on
the rights of the Noteholders or of the Trustee hereunder or on the ability of
the Transferor to perform its obligations hereunder, either the Trustee, or the
Holders of a principal amount of Notes aggregating more than 662/3% of the
Aggregate Principal Amount, by notice then given in writing to the Transferor
(and to the Trustee and the Servicer, if given by the Noteholders), may
<PAGE>
direct the Transferor to accept retransfer of all of the Included Leases and the
Transferor shall be obligated to accept retransfer of such Leases on a
Distribution Date specified by the Transferor (such date, the "Retransfer Date")
occurring within the period of 60 days after such notice on the terms and
conditions set forth below; provided, however, that no such retransfer shall be
required to be made if, at any time during such applicable period, the
representations and warranties contained in Section 2.4(a) shall then be true
and correct in all material respects. The Transferor shall deposit on the
Retransfer Date an amount equal to the deposit amount provided in the next
sentence for such Leases in the Collection Account for distribution to the
Noteholders pursuant to Section 12.3. The deposit amount for such retransfer
will be equal to the sum of (i) the Aggregate Adjusted Principal Amount at the
end of the day on the Business Day preceding the Distribution Date on which the
retransfer is scheduled to be made, plus (ii) an amount equal to all interest
accrued but unpaid on the Notes at the applicable Note Rate through such
Distribution Date, plus (iii) an amount sufficient to pay all unreimbursed
amounts owing to each Enhancement Provider (to the extent set forth in the
applicable Supplement) less (iv) the amount, if any, available in the Collection
Account and the Excess Funding Account on such Transfer Date. On the Retransfer
Date immediately following the Transfer Date on which such amount has been
deposited in full into the Collection Account, the Included Leases and all
monies due or to become due with respect thereto, the related Equipment and all
proceeds thereof, all rights to security for any such Leases, and all proceeds
and products of the foregoing, shall be transferred to the Transferor, and the
Trustee shall execute and deliver such instruments of transfer, in each case
without recourse, representation or warranty (other than that the Trustee has
not encumbered any such Lease and the related Equipment), as shall be prepared
and reasonably requested by the Transferor to vest in the Transferor, or its
designee or assignee, all right, title and interest of the Trust in, to and
under the Included Leases, all monies due or to become due with respect thereto,
the related Equipment and all proceeds thereof and Insurance Proceeds relating
thereto. If the Trustee or the Noteholders give a notice directing the
Transferor to accept a retransfer as provided above, the obligation of the
Transferor to accept a retransfer of the Included Leases pursuant to Section
2.4(e) shall constitute the sole remedy respecting a breach of the
representations and warranties contained in Section 2.4(a) available to the
Noteholders or the Trustee on behalf of the Noteholders.
Section 2.5 Covenants of Transferor. The Transferor
hereby covenants that:
(a) Leases Not to be Evidenced by Promissory Notes. The
Transferor will take no action to cause any Included Lease to be
evidenced by any "instrument" (as defined in the UCC as in effect in
the State of California) that is not
<PAGE>
also considered "chattel paper", except in connection with the
enforcement or collection of such Lease. The Servicer will deliver
promptly any such instruments to the Custodian.
(b) Security Interests. Except for the transfers hereunder,
the Transferor will not sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or suffer to exist any Lien on
any Included Lease or related Equipment, whether now existing or
hereafter transferred to the Trust, or any interest therein. The
Transferor will immediately notify the Trustee of the existence of any
Lien on any Included Lease or related Equipment; and the Transferor
shall defend the right, title and interest of the Trustee on behalf of
the Trust in, to and under the Included Leases and the related
Equipment, against all claims of third parties; provided, however, that
nothing in this subsection 2.5(b) shall prevent or be deemed to
prohibit the Transferor from suffering to exist upon any of the
Included Leases Permitted Liens; provided further, however, that
nothing in this subsection 2.5(b) shall prevent or be deemed to
prohibit the Transferor from granting a participation interest in the
Transferor Interest or the interest in the Trust evidenced thereby.
(c) Reserved.
(d) Delivery of Collections. The Transferor agrees to pay to
the Servicer promptly (but in no event later than two Business Days
after receipt) all Collections and Tax Collections received by the
Transferor in respect of the Included Leases.
(e) Regulatory Filings. The Transferor shall make any filings,
reports, notices, applications and registrations with, and seek any
consents or authorizations from, the Securities and Exchange Commission
and any state securities authority on behalf of the Trust as may be
necessary or that Transferor deems advisable to comply with any federal
or state securities or reporting requirements laws.
(f) Reserved.
(g) Reserved.
(h) Compliance with Law. The Transferor hereby agrees to
comply in all material respects with all Requirements of Law applicable
to the Transferor.
(i) Activities of Transferor. The Transferor shall not engage
in any business or activity of any kind, or enter into any transaction
or indenture, mortgage, instrument, agreement, contract, lease or other
undertaking, which is not directly related to the transactions
contemplated and
<PAGE>
authorized by this Agreement or the Asset Purchase Agreement or which
is otherwise a Permitted Transaction.
(j) Indebtedness. The Transferor shall not create, incur,
assume or suffer to exist any Indebtedness or other liability
whatsoever, except (i) obligations incurred or owing to the Trust under
this Agreement or the Asset Purchase Agreement, (ii) liabilities
incident to the maintenance of its corporate existence in good standing
or (iii) obligations incident to a Permitted Transaction.
(k) Guarantees. The Transferor shall not become or remain
liable, directly or contingently, in connection with any Indebtedness
or other liability of any other Person, whether by guarantee,
endorsement (other than endorsements of negotiable instruments for
deposit or collection in the ordinary course of business), agreement to
purchase or repurchase, agreement to supply or advance funds, or
otherwise except incident to a Permitted Transaction.
(l) Investments. The Transferor shall not make or suffer to
exist any loans or advances to, or extend any credit to, or make any
investments (by way of transfer of property, contributions to capital,
purchase of stock or securities or evidences of indebtedness,
acquisition of the business or assets, or otherwise) in, any Person
except (i) for acquisitions of Leases pursuant to the Asset Purchase
Agreement, (ii) for investments in Permitted Investments in accordance
with the terms of this Agreement or (iii) pursuant to a Permitted
Transaction.
(m) Merger; Sales. The Transferor shall not enter into any
transaction of merger or consolidation, or liquidate or dissolve itself
(or suffer any liquidation or dissolution), or acquire or be acquired
by any Person, or convey, sell, lease or otherwise dispose of all or
substantially all of its property or business, except as provided for
in this Agreement.
(n) Distributions. The Transferor shall not declare or pay,
directly or indirectly, any dividend or make any other distribution
(whether in cash or other property) with respect to the profits, assets
or capital of the Transferor or any Person's interest therein, or
purchase, redeem or otherwise acquire for value any of its capital
stock now or hereafter outstanding, except that so long as no Pay Out
Event or Accelerated Payment Event has occurred and is continuing and
no Pay Out Event or Accelerated Payment Event would occur as a result
thereof or after giving effect thereto, the Transferor may declare and
pay dividends on its capital stock.
(o) Agreements. The Transferor shall not become a party to, or
permit any of its properties to be bound by,
<PAGE>
any indenture, mortgage, instrument, contract, agreement, lease or
other undertaking, except this Agreement, the Asset Purchase Agreement
and the Supplements and except incidental to a Permitted Transaction or
amend or modify the provisions of its Certificate of Incorporation or
issue any power of attorney except to the Trustee or to the Servicer.
(p) Asset Purchase Agreement. The Transferor shall not give
any material consent under the Asset Purchase Agreement unless the
Rating Agency Condition is satisfied with respect thereto.
(q) Net Worth. The Transferor shall maintain a net worth,
exclusive of the Transferor Interest, that is, at any date of
determination, at least equal to 5% of the sum of (i) the Aggregate
Pool Balance plus (ii) the Equipment Residual Value calculated at such
date.
(r) Separate Corporate Existence. The Transferor
shall:
(i) Maintain its own deposit account or accounts,
separate from those of any Affiliate, with commercial banking
institutions. The funds of the Transferor will not be diverted
to any other Person or for other than corporate uses of the
Transferor, except as expressly permitted herein.
(ii) Ensure that, to the extent that it shares the
same officers or other employees as any of its stockholders or
Affiliates, the salaries of and the expenses related to
providing benefits to such officers and other employees shall
be fairly allocated among such entities, and each such entity
shall bear its fair share of the salary and benefit costs
associated with all such common officers and employees.
(iii) Ensure that, to the extent that it jointly
contracts with any of its stockholders or Affiliates to do
business with vendors or service providers or to share
overhead expenses, the costs incurred in so doing shall be
allocated fairly among such entities, and each such entity
shall bear its fair share of such costs. To the extent that
the Transferor contracts or does business with vendors or
service providers when the goods and services provided are
partially for the benefit of any other Person, the costs
incurred in so doing shall be fairly allocated to or among
such entities for whose benefit the goods and services are
provided, and each such entity shall bear its fair share of
such costs. All material transactions between Transferor and
any of its Affiliates shall be either (i) in accordance with
the Asset Purchase Agreement or, if such Affiliate is not a
party to the Asset Purchase
<PAGE>
Agreement, on substantially similar terms), or (ii) only on an
arm's length basis.
(iv) Maintain a principal executive and
administrative office through which its business is conducted
separate from those of its Affiliates. To the extent that
Transferor and any of its stockholders or Affiliates have
offices in the same location, there shall be a fair and
appropriate allocation of overhead costs among them, and each
such entity shall bear its fair share of such expenses.
(v) Conduct its affairs strictly in accordance
with its Certificate of Incorporation and observe all
necessary, appropriate and customary corporate formalities,
including, but not limited to, holding all regular and special
stockholders' and directors' meetings appropriate to authorize
all corporate action, keeping separate and accurate minutes of
its meetings, passing all resolutions or consents necessary to
authorize actions taken or to be taken, and preparing and
maintaining its own accurate, separate, full and complete
books, records, accounts and financial statements, including,
but not limited to, payroll and intercompany transaction
accounts. The Transferor's financial statements will comply
with generally accepted accounting principles.
(vi) Within 120 days after the end of its fiscal
year, distribute a copy of its audited annual financial
statements to the Trustee.
(s) Location of Records. The Transferor (i) shall not move
outside the State of California, the location of its chief executive
office, without 45 days' prior written notice to the Trustee and (ii)
will promptly take all actions required (including but not limited to
all filings and other acts necessary or advisable under the UCC of each
relevant jurisdiction) in order to continue the first priority
perfected ownership interest of the Trust, the Noteholders and the
Holder of the Transferor Interest in all Included Leases. The
Transferor will give the Trustee prompt notice of a change within the
State of California of the location of its chief executive office.
Section 2.6 Addition of Leases.
(a) Permitted Additions. The Transferor may from time to time,
at its sole discretion, subject to the conditions specified in subsection 2.6(b)
below, transfer additional Eligible Leases to the Trust as Additional Leases as
of the applicable Additional Cut Off Date.
<PAGE>
(b) Conditions to Permitted Additions. The Transferor agrees
that any Additional Leases and the related Equipment shall be transferred by the
Transferor to the Trust under subsection 2.6(a) upon and subject to the
following conditions:
(i) On or before the fifth Business Day (the "Notice
Date") prior to the Addition Date, the Transferor shall give the
Trustee, the Servicer and any Enhancement Provider entitled thereto
pursuant to the relevant Supplement written notice that such Additional
Leases will be transferred to the Trust and specifying (A) the
applicable Addition Date, (B) the Additional Cut Off Date (which shall
be the last day of a Monthly Period), (C) the approximate number of
Additional Leases expected to be added, (D) the approximate Discounted
Lease Balances expected to be outstanding with respect to the
Additional Leases to be added as of the Additional Cut Off Date with
respect thereto and (E) if such Additional Leases are to be Hedged
Leases, the identity of the Hedging Counterparty and the effective
interest rate under the related hedging transaction, and if such
Additional Leases are not Hedged Leases, the effective interest rate as
calculated in accordance with the definition of "Discounted Lease
Balance".
(ii) The Transferor shall have complied with the
requirements of Section 2.1(c) with respect to such Additional Leases
and the related Equipment.
(iii) The Transferor shall have deposited (A) in the
Collection Account, Collections with respect to such Additional Leases
since the Additional Cut Off Date and (B) in the Tax Escrow Account,
any Tax Collections received in respect of such Lease that have not
been disbursed to the relevant Governmental Authority.
(iv) On or prior to the Addition Date the Transferor
shall have delivered to the Trustee a written transfer agreement
(including an acceptance by the Trustee on behalf of the Trust for the
benefit of the Noteholders) in substantially the form of Exhibit B (the
"Transfer Agreement").
(v) The Transferor shall be deemed to represent and
warrant that (v) as of the Addition Date, Schedule 1 to the Transfer
Agreement and the computer file or microfiche or written list delivered
pursuant to Section 2.1 is an accurate and complete listing in all
material respects of all the Additional Leases as of the Additional Cut
Off Date and the information contained therein with respect to the
identity of such Additional Leases is true and correct in all material
respects as of the Additional Cut Off Date, (w) each Additional Lease
is, as of the Additional Cut Off Date, an Eligible Lease, (x) no
selection procedures reasonably believed by the Transferor to be
materially adverse to the
<PAGE>
interests of the Noteholders were utilized in selecting the Additional
Leases from the available Eligible Leases, (y) the transfer of such
Leases to the Trust will not cause the Portfolio Parameters to be
untrue and (z) as of the Addition Date, the Transferor is not insolvent
and will not be rendered insolvent by transferring any such Additional
Lease to the Trust.
(vi) The Transferor shall be deemed to represent and
warrant that, as of the Addition Date, the representations and
warranties set forth in Section 2.4 are true and correct with respect
to the Additional Accounts and the related Transfer Agreement.
(vii) The Transferor shall, on each Addition Date,
deliver an Officer's Certificate of a Vice President or more senior
officer confirming the items set forth in paragraphs (ii), (iii), (iv),
(v) and (vi) above.
(viii) The Transferor shall on each Addition Date deliver
an Opinion of Counsel with respect to the Additional Leases to the
Trustee substantially in the form of Exhibit C.
Section 2.7 Substitution or Reallocation of Leases.
(a) Right of Substitution. Subject to the provisions of
Sections 2.7(b) through (d), the Transferor may transfer to the Trust a Lease
and the related Equipment (each a "Substitute Lease") in substitution for any
Included Lease and the related Equipment. In instances where an Included Lease
being substituted for had been allocated to an Amortizing Pool prior to the
substitution, the Substitute Lease (or portion thereof) being substituted
therefor shall be allocated to the corresponding Amortizing Pool.
(b) Eligible Leases. Each Substitute Lease shall be an
Eligible Lease the transfer of which to the Trust shall be subject to the
satisfaction of the conditions set forth in Section 2.6(b).
(c) Conditions to Substitution. The Servicer shall not permit
any substitution under Section 2.7(a) on any Addition Date:
(i) if the sum of the Discounted Lease Balances (as of the
related Cut Off Date) of Leases substituted for Defaulted Leases on a
cumulative basis (A) during any period of twelve consecutive Monthly
Periods would exceed 4% of the Aggregate Net Pool Balance on the
related Cut Off Date for such Substitute Leases or (B) after the Pay
Out Commencement Date would exceed 7% of the Aggregate Net Pool Balance
as of the Pay Out Commencement Date, unless, in either case, the Rating
Agency Condition shall have been satisfied with respect thereto;
<PAGE>
(ii) if the sum of the Discounted Lease Balances (as of the
related Cut Off Date) of all Substitute Leases on a cumulative basis
(A) during any period of twelve consecutive Monthly Periods would
exceed 10% of the Aggregate Net Pool Balance on the related Cut Off
Date for such Substitute Leases or (B) after the Pay Out Commencement
Date would exceed 15% of the Aggregate Net Pool Balance as of the Pay
Out Commencement Date, unless, in either case, the Rating Agency
Condition shall have been satisfied with respect thereto;
(iii) unless as of the related Additional Cut Off Date, each
Substitute Lease has a Discounted Lease Balance not less than the
Discounted Lease Balance of the Lease being replaced;
(iv) if after giving effect to all proposed substitutions
to be made on such Addition Date, the sum of the Scheduled Principal
Payments on all Included Leases due in any Monthly Period would be less
than the sum of all Scheduled Principal Payments on the Included Leases
in each such Monthly Period before giving effect to such proposed
substitutions;
(v) if an Insolvency Event has occurred with respect to
the Transferor or the Servicer or a Servicer Default has occurred and
is continuing.
(d) Security Interest. Upon the replacement of an Included
Lease and the related Equipment with a Substitute Lease as described above, the
interest of the Trustee on behalf of the Trust in such replaced Lease, the
related Equipment and all proceeds thereon shall be terminated.
(e) Reallocation of Leases. During any period prior to the Pay
Out Commencement Date when there is both a Floating Pool and an Amortizing Pool,
subject to the provisions of this Section 2.7(e), the Servicer may reallocate an
Included Lease (or a portion thereof) and the related Equipment from such
Floating Pool to any such Amortizing Pool (each a "Reallocated Lease") in
exchange for any Included Lease and the related Equipment in such Amortizing
Pool that has become a Defaulted Lease, an Early Termination Lease or an
Ineligible Lease. The Servicer shall not permit any reallocation under this
Section 2.7(e) on any day:
(i) unless as of the last day of the preceding Monthly
Period, each Reallocated Lease has a Discounted Lease Balance not less
than the Discounted Lease Balance of the
Lease being replaced in such Amortizing Pool; and
(ii) if after giving effect to all proposed exchanges to be
made on such day, the sum of the Scheduled Principal Payments on all
Included Leases due in any Monthly Period in such Amortizing Pool would
be less than the sum of all
<PAGE>
Scheduled Principal Payments on the Included Leases in such pool in
each such Monthly Period before giving effect to such proposed
exchange.
Upon the reallocation of an Included Lease and the related Equipment as
described above, all Collections from the first day of the Monthly Period in
which such reallocation occurs in respect of (i) the Reallocated Lease and the
related Equipment shall be attributable to the Amortizing Pool and (ii) the
Included Lease and the related Equipment being exchanged for such Reallocated
Lease shall be attributable to the Floating Pool.
Section 2.8 Removal of Leases.
(a) Removal. Subject to the conditions set forth below, and
without limiting its rights under Section 2.7(d), the Transferor may designate
from time to time Included Leases no longer to be designated for inclusion in
the Trust (the "Removed Leases"). On or before the fifth Business Day (the
"Removal Notice Date") prior to the date on which Included Leases are to be
removed (the "Removal Date"), the Transferor shall give the Trustee, the
Servicer and each Enhancement Provider entitled thereto pursuant to the relevant
Supplement written notice that the Removed Leases are to be retransferred to the
Transferor.
(b) Conditions to Removal. The Transferor shall be permitted
to designate and require retransfer to it of the Removed Leases only upon
satisfaction of the following conditions:
(i) The Transferor shall satisfy the Rating Agency
Condition with respect thereto by such Removal Date.
(ii) On each Removal Date, the Trustee shall deliver to
the Transferor a written retransfer agreement in substantially the form
of Exhibit D (the "Retransfer Agreement") prepared by the Transferor,
and the Transferor shall deliver to the Trustee a computer file,
microfiche or written list containing a true and complete schedule
identifying all Removed Leases specifying for each such Removed Lease,
as of the Removal Notice Date, its account number and the Discounted
Lease Balance thereof. Such computer file, microfiche or written list
shall, as of the date of such Retransfer Agreement, be incorporated
into and made a part of this Agreement.
(iii) The Transferor shall represent and warrant as of
each Removal Date that (a) the list of Removed Leases, as of the
Removal Notice Date, complies in all material respects with the
requirements of (ii) above; (b) no selection procedure used by the
Transferor which is adverse to the interests of the Noteholders was
utilized in selecting the Removed Leases; and (c) as of the Removal
Notice Date and as of the Removal Date, the Transferor is not insolvent
and the
<PAGE>
Transferor has no present intention of seeking protection under any
Debtor Relief Laws.
(iv) The removal of any Removed Leases on any Removal
Date shall not cause a Pay Out Event to occur, or an event which with
notice or lapse of time or both would constitute a Pay Out Event or
cause the Portfolio Parameters to be untrue.
(v) Such Lease shall not be allocated to an Amortizing
Pool (unless such Lease is substituted for in accordance with Section
2.7).
(vi) The Asset Base shall not be less than the Aggregate
Adjusted Principal Amount; and
(vii) The Transferor shall have delivered to the Trustee
and to each Enhancement Provider entitled thereto pursuant to the
relevant Supplement an Officer's Certificate of an officer of the
Transferor confirming the items set forth in (i) through (vi) above.
Upon satisfaction of the above conditions, the Trustee shall
execute and deliver the Retransfer Agreement to the Transferor, and the Removed
Leases shall no longer constitute a part of the Trust.
Section 2.9 Release of Lien on Equipment. At the same time as
(i) any Included Lease becomes an Expired Lease and the Equipment related to
such Lease is sold, (ii) any Lease becomes an Early-Termination Lease and the
Equipment related to such Early-Termination Lease is sold, or (iii) the Servicer
substitutes or replaces any unit of Equipment as contemplated in Section 3.1 or
any Lease and related Equipment as contemplated in Section 2.7 or 2.8, the
Trustee, on behalf of the Trust, will to the extent requested by the Servicer
release its interest in the Equipment relating to such Expired Lease or
Early-Termination Lease or such substituted or replaced Equipment or Lease and
related Equipment, as the case may be; provided that such release will not
constitute a release of the Trust's interest in the proceeds of such sale (other
than with respect to Equipment or Lease and related Equipment that is replaced
pursuant to Section 3.1(c) or 2.7 or removed pursuant to Section 2.8, as the
case may be). In connection with any sale of such Equipment, the Trustee will
execute and deliver to the Servicer any assignments, bills of sale, termination
statements and any other releases and instruments as the Servicer may request in
order to effect such release and transfer; provided that the Trustee will make
no representation or warranty, express or implied, with respect to any such
Equipment in connection with such sale or transfer and assignment other than
with respect to its interest in such Equipment or the absence of any such
interest and other than that the Trustee has not encumbered such Lease or the
related Equipment. Nothing in this Section 2.9 shall diminish the
<PAGE>
Servicer's obligations pursuant to Section 3.1(d) with respect to the proceeds
of any such sale.
Section 2.10 Hedging of Included Leases After the
Related Addition Date.
(a) Subject to the provisions of Section 2.10(b), the
Transferor may on any Distribution Date transfer to the Trust an Interest Rate
Hedge with respect to one or more Included Leases that were not originally
Hedged Leases hereunder.
(b) The Transferor agrees that any such Interest Rate Hedge
shall be transferred to the Trust under Section 2.10(a) upon and subject to the
following conditions:
(i) On or before the Determination Date preceding such
Distribution Date, the Transferor shall give the Trustee, the Servicer,
each Rating Agency and any Enhancement Provider entitled thereto
pursuant to the relevant Supplement written notice that such Interest
Rate Hedge will be transferred to the Trust and specifying (A) the
applicable Distribution Date for such transfer, (B) the specific
Included Leases being hedged thereunder, (C) the sum of the Discounted
Lease Balances of such Leases as of the last day of the preceding
Monthly Period before giving effect to such Interest Rate Hedge and
after giving effect thereto, (D) the identity of the Hedging
Counterparty and the effective interest rate under the related hedging
transaction and (E) a recalculation of the Asset Base, the Aggregate
Pool Balance and the Aggregate Net Pool Balance as of such
Determination Date (after giving effect to all transactions to occur on
such date hereunder).
(ii) On such Distribution Date, after giving effect to
the transfer of such Interest Rate Hedge to the Trust and the
corresponding recalculation of the Asset Base, no Pay Out Event or
Accelerated Payment Event, or an event which with notice or lapse of
time or both would constitute a Pay Out Event or Accelerated Payment
Event, shall have occurred, the Asset Base shall be at least equal to
the Aggregate Adjusted Principal Amount and the Portfolio Parameters
shall be true.
ARTICLE III
ADMINISTRATION AND SERVICING OF INCLUDED LEASES
Section 3.1 Appointment and Acceptance; Duties.
(a) Appointment of Initial Servicer. AFG is hereby appointed
as Servicer pursuant to this Agreement. AFG accepts the appointment and agrees
to act as the Servicer pursuant to this Agreement.
<PAGE>
(b) General Duties. The Servicer will service, administer and
enforce the Included Leases on behalf of the Trust and will have full power and
authority to do any and all things in connection with such servicing and
administration which it deems necessary or desirable. The Servicer will manage,
service, administer, and make collections on the Included Leases with reasonable
care, using that degree of skill and attention that the Servicer exercises with
respect to all comparable equipment leases that it services for itself or
others. The Servicer's duties will include collection and posting of all
payments, responding to inquiries of Lessees regarding the Included Leases,
investigating delinquencies, accounting for collections, furnishing monthly and
annual statements with respect to collections and payments in accordance with
Section 3.10, making Servicer Advances in its discretion, enforcing the Asset
Purchase Agreement and maintaining the perfected first priority security
interest of the Trustee in the Trust Assets. The Servicer will follow its
customary standards, policies, and procedures and will have full power and
authority, acting alone, to do any and all things in connection with such
managing, servicing, administration, and collection that it deems necessary or
desirable. If the Servicer commences a legal proceeding to enforce a Defaulted
Lease pursuant to Section 3.4 or commences or participates in a legal proceeding
(including a bankruptcy proceeding) relating to or involving an Included Lease,
the Trust will be deemed to have automatically assigned such Included Lease to
the Servicer for purposes of commencing or participating in any such proceeding
as a party or claimant, and the Servicer is authorized and empowered by the
Trustee, pursuant to this Section 3.1(b), to execute and deliver, on behalf of
itself and the Trust, any and all instruments of satisfaction or cancellation,
or partial or full release or discharge, and all other notices, demands, claims,
complaints, responses, affidavits or other documents or instruments in
connection with any such proceedings. If in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce an Included Lease on the
ground that it is not a real party in interest or a holder entitled to enforce
the Included Lease, then the Trustee will, at the Servicer's expense and
direction, take steps to enforce the Included Lease, including bringing suit in
its name.
(c) Consent to Assignment or Replacement. At the request of a
Lessee, the Servicer may in its sole discretion consent to the assignment of the
related Included Lease or the sublease of a unit of the Equipment relating to an
Included Lease, so long as such Lessee remains liable for all of its obligations
under such Included Lease. Upon the request of any Lessee, the Servicer may, in
its sole discretion, provide for the substitution or replacement of any unit of
Equipment for a substantially similar unit of equipment.
(d) Disposition Upon Termination of Included Lease. Upon the
expiration or termination of an Included Lease the Servicer will use
commercially reasonable efforts to dispose of
<PAGE>
any related Equipment. Without limiting the generality of the foregoing, the
Servicer may dispose of any such Equipment by selling such Equipment to the
Servicer or any of its Affiliates for a purchase price equal to the fair market
value thereof. The Servicer will deposit any Early Termination Lease Proceeds
and any Expired Lease Proceeds of any such disposition in accordance with
Section 4.3.
(e) Subservicers. The Servicer may enter into servicing
agreements with one or more subservicers (including any Affiliate of the
Servicer) to perform all or a portion of the servicing functions on behalf of
the Servicer; provided that the Servicer will remain obligated and be liable to
the Trust for servicing and administering the Included Leases in accordance with
the provisions of this Agreement without diminution of such obligation and
liability by virtue of the appointment of such subservicer, to the same extent
and under the same terms and conditions as if the Servicer alone were servicing
and administering the Included Leases. The fees and expenses of the subservicer
(if any) will be as agreed between the Servicer and its subservicer and neither
the Trustee, the Trust nor the Holders will have any responsibility therefor.
All actions of a subservicer taken pursuant to such a subservicer agreement will
be taken as an agent of the Servicer with the same force and effect as though
performed by the Servicer.
(f) Further Assurances. The Trustee will furnish the Servicer,
and the Servicer will furnish any subservicer, with any limited powers of
attorney prepared by the Servicer and other documents reasonably necessary or
appropriate to enable the Servicer or a subservicer, as applicable, to carry out
its servicing and administrative duties under this Agreement.
(g) Notice to Lessees. Subject to the provisions of Section
3.2(e), the Servicer will not be required to notify any Lessee that such
Lessee's Included Lease or related Equipment has been sold, transferred,
assigned, or conveyed pursuant to the Asset Purchase Agreement or pursuant to
this Agreement; provided that, in the event that the Servicer resigns or is
replaced, then if the place for payment pursuant to any Included Lease is
changed, the Successor Servicer must give each related Lessee prompt written
notice of the appointment of the Successor Servicer and the place to which such
Lessee should make payments pursuant to each such Included Lease.
Section 3.2 Collection of Payments.
(a) Collection Efforts. The Servicer will make reasonable
efforts to collect all payments called for under the terms and provisions of the
Included Leases as and when the same become due, and will follow those
collection procedures which it follows with respect to all comparable equipment
leases that it services for itself or others. To the extent consistent with the
Servicer's past practices, the Servicer may grant extensions,
<PAGE>
rebates, or adjustments on an Included Lease which will not, for purposes of
this Agreement, extend the original due dates or the number of Scheduled
Payments or reduce the amount of any Scheduled Payment. The Servicer may in its
discretion waive any late payment charge or any other fees that may be collected
in the ordinary course of servicing any Included Lease.
(b) Early Termination Lease. The Servicer may, in its sole
discretion, permit an Included Lease to become an Early Termination Lease (which
shall not include an Included Lease that becomes an Early Termination Lease due
to a Casualty Loss), so long as, unless another Included Lease is substituted
therefor as described in Section 2.7, (i) the Servicer deposits in the
Collection Account, not later than the second Business Day after the Date of
Processing thereof by the Servicer, the sum of (A) the Discounted Lease and
Residual Balance of such Included Lease as of the Determination Date in the
month prior to the month in which such Included Lease becomes an Early
Termination Lease and (B) the amount of any Hedge Termination Payment owing in
respect thereof and (ii) at the time the Servicer permits an Included Lease to
become an Early Termination Lease the Discounted Lease Balance of all Included
Leases which have become Early Termination Leases (and for which substitute
Included Leases have not been transferred to the Trust) for the period of twelve
months ending with the current Monthly Period does not exceed 4% of the
Aggregate Pool Balance as of the last day of the preceding Monthly Period.
(c) Acceleration. The Servicer, in its sole discretion, may
accelerate (or elect not to accelerate) the maturity of all or any Scheduled
Payments under any Included Lease under which a default under the terms thereof
has occurred and is continuing (after the lapse of any applicable grace period);
provided that the Servicer is required to accelerate the Scheduled Payments due
under any Included Lease (and take other action in accordance with the
Originator's past practice, including repossessing or otherwise converting the
related Equipment, to realize upon the value of such Included Lease and the
related Equipment) to the fullest extent permitted by the terms of such Included
Lease, promptly after such Included Lease becomes a Defaulted Lease.
(d) Taxes and Other Amounts. To the extent provided for in any
Included Lease, the Servicer will make reasonable efforts to collect all
payments with respect to amounts due for taxes, assessments and insurance
premiums relating to the Included Leases or the Equipment, to withdraw any such
amounts deposited in the Tax Escrow Account, and to remit such amounts to the
appropriate Governmental Authority or insurer on or prior to the date such
payments are due.
(e) Lockboxes. On or before the Initial Closing Date with
respect to the Original Leases and on or before the relevant Addition Date, with
respect to Additional Leases, the Servicer
<PAGE>
shall have instructed all Lessees to make all payments in respect of the
Included Leases to a Lockbox. All Collections received in a Lockbox shall,
within one Business Day of receipt thereof be deposited in the Lockbox Account.
In the event that any payments in respect of the Included Leases are made
directly to the Servicer, the Servicer shall, within two Business Days of
receipt thereof, deposit such amounts in a Lockbox Account or in the Collection
Account.
(f) Lockbox Agreements. On or before the Initial Closing Date,
the Transferor, the Servicer, the Collateral Trustee on behalf of the
Noteholders and the Holder of the Transferor Interest and each Lockbox Processor
shall have entered into an agreement (each a "Lockbox Agreement") in a form
substantially similar to Exhibit E, as the same may be amended, supplemented or
otherwise modified from time to time (provided, however, that if the Collateral
Trustee is not the Lockbox Processor, no such amendment, supplement or
modification will permit, without the consent of the Collateral Trustee, (i) any
increase in the time between receipt of a payment and remittance to the
Collateral Trustee, (ii) a change in the payment instruction to the Collateral
Trustee or (iii) a change in the payment instruction to the Lockbox Processor),
pursuant to which such Lockbox Processor is irrevocably directed, and such
Lockbox Processor irrevocably agrees, to deposit funds received in the Lockbox
in the Lockbox Account. Pursuant to the Lockbox Agreement, the Lockbox Processor
maintaining the Lockbox Account shall be irrevocably directed, and shall
irrevocably agree, to transfer funds on deposit in the Lockbox Account within
two Business Days of receipt thereof to the Collection Account. The Lockbox
Account shall be maintained in accordance with the terms and conditions of such
documentation. A new Lockbox Account may be designated by the Transferor and the
Servicer, and the Collateral Trustee shall consent to any such change in the
Lockbox Account; provided that (i) the Collateral Trustee shall have received
from the Transferor or the Servicer written notice of such change at least 30
days prior to the proposed effective date of such change and (ii) the Lockbox
Processor chosen to maintain such new Lockbox Account shall enter into a Lockbox
Agreement with the Transferor, the Servicer and the Collateral Trustee,
substantially similar to Exhibit E.
(g) Remittances. As soon as practicable but in any event not
later than the Business Day following the date of establishment by the Servicer
that any of the collected funds received in any of the Lockboxes do not
constitute Collections on account of the Included Leases, such monies which do
not constitute such Collections shall be remitted to or at the direction of the
Transferor.
Section 3.3 Servicer Advances. For each Monthly Period, if the
Servicer determines that any Scheduled Payment (or portion thereof) which was
due and payable pursuant to an Included Lease during such Monthly Period was not
received prior
<PAGE>
to the end of such Monthly Period, the Servicer may make a Servicer Advance in
an amount up to the amount of such delinquent Scheduled Payment (or portion
thereof), to the extent that in its sole discretion it determines that it can
recoup such amount from subsequent collections under the related Included Lease.
The Servicer will deposit any Servicer Advances into the Collection Account on
or prior to 11:00 a.m. (New York City time) on the related Transfer Date, in
immediately available funds. The Servicer will be entitled to be reimbursed for
Servicer Advances pursuant to Section 4.3(d).
Section 3.4 Realization Upon Defaulted Lease. The Servicer
will use its best efforts consistent with its customary and usual practices and
procedures in its servicing of equipment leases to repossess or otherwise
comparably convert the ownership of any Equipment relating to a Defaulted Lease
and will act as sales and processing agent for Equipment which it repossesses.
The Servicer will follow such other practices and procedures as it deems
necessary or advisable and as are customary and usual in its servicing of
equipment leases and other actions by the Servicer in order to realize upon such
Equipment, which practices and procedures may include reasonable efforts to
enforce all obligations of Lessees and repossessing and selling such Equipment
at public or private sale in circumstances other than those described in the
preceding sentence. Without limiting the generality of the foregoing, the
Servicer may sell any such Equipment to the Servicer or its Affiliates for a
purchase price equal to the then fair market value thereof. In any case in which
any such Equipment has suffered damage, the Servicer will not expend funds in
connection with any repair or towards the repossession of such Equipment unless
it determines in its discretion that such repair and/or repossession will
increase the Liquidation Proceeds by an amount greater than the amount of such
expenses. The Servicer will remit to the Collection Account the Liquidation
Proceeds received in connection with the sale or disposition of Equipment
relating to a Defaulted Lease in accordance with Section 4.3(a).
Section 3.5 Maintenance of Insurance Policies. The
---------------------------------
Servicer will use its best efforts to ensure that each Lessee maintains an
Insurance Policy with respect to the related Equipment in an amount at least
equal to the sum of the Discounted Lease and Residual Balance of the related
Included Lease; provided that the Servicer, in accordance with its customary
servicing procedures, may allow Lessees to self-insure. Additionally, the
Servicer will require that each Lessee maintain physical damage and liability
insurance during the term of each Included Lease in amounts and against risks
customarily insured against by the Lessee on equipment owned by it. If a
Lessee fails to maintain physical damage and liability insurance, the Servicer
may purchase and maintain such insurance on behalf of, and at the expense of,
the Lessee. In connection with its activities as Servicer of the Included
Leases, the Servicer agrees to present, on behalf of itself, the Trust and the
<PAGE>
Holders, claims to the insurer under each Insurance Policy and any such
liability policy, and to settle, adjust and compromise such claims, in each
case, consistent with the terms of each Included Lease. The Servicer's Insurance
Policies with respect to the related Equipment will insure against liability for
personal injury and property damage relating to such Equipment, will name the
Trustee as an insured thereunder.
Section 3.6 Representations and Warranties of Servicer. The
Servicer represents and warrants to the Trust, the Trustee and the Holders that,
as of the Initial Closing Date and each subsequent Closing Date and on each
Addition Date, insofar as any of the following affects the Servicer's ability to
perform its obligations pursuant to this Agreement in any material respect:
(a) Organization and Good Standing. The Servicer is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, with all requisite corporate power
and authority to own its properties and to conduct its business as
presently conducted and to enter into and perform its obligations
pursuant to this Agreement.
(b) Due Qualification. The Servicer is qualified to do
business as a foreign corporation, is in good standing, and has
obtained all licenses and approvals as required under the laws of, all
states in which the ownership or lease of its property, the performance
of its obligations pursuant to this Agreement or the other conduct of
its business requires such qualification, standing, license or
approval, except to the extent that the failure to so qualify, maintain
such standing or be so licensed or approved would not, in the
aggregate, materially and adversely affect the ability of the Servicer
to comply with this Agreement or to perform its obligations hereunder
or adversely effect the enforceability of the Included Leases.
(c) Power and Authority. The Servicer has the corporate power
and authority to execute and deliver this Agreement and to carry out
its terms. The Servicer has duly authorized the execution, delivery and
performance of this Agreement by all requisite corporate action.
(d) No Violation. The consummation of the transactions
contemplated by, and the fulfillment of the terms of, this Agreement by
the Servicer (with or without notice or lapse of time) will not (i)
conflict with, result in any breach of any of the terms or provisions
of, or constitute a default under, the certificate of incorporation or
by-laws of the Servicer, or any term of any indenture, agreement,
mortgage, deed of trust or other instrument to which the Servicer is a
party or by which it is bound, (ii) result in the creation or
imposition of any Lien upon any of
<PAGE>
its properties pursuant to the terms of any such indenture, agreement,
mortgage, deed of trust or other instrument, or (iii) violate any law,
regulation, order, writ, judgment, injunction, decree, determination or
award of any Governmental Authority applicable to the Servicer or any
of its properties.
(e) No Consent. No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any
Governmental Authority having jurisdiction over the Servicer or any of
its properties is required to be obtained by or with respect to the
Servicer in order for the Servicer to enter into this Agreement or
perform its obligations hereunder.
(f) Binding Obligation. This Agreement constitutes a legal,
valid and binding obligation of the Servicer, enforceable against the
Servicer in accordance with its terms, except as such enforceability
may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (whether considered in a suit at law
or in equity).
(g) No Proceedings. There are no proceedings or investigations
pending, or, to the best of the Servicer's knowledge, threatened
against the Servicer, before any Governmental Authority (i) asserting
the invalidity of this Agreement, (ii) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement
or (iii) seeking any determination or ruling that might (in the
reasonable judgment of the Servicer) materially and adversely affect
the performance by the Servicer of its obligations under, or the
validity or enforceability of, this Agreement.
(h) Location of Lease Files. Except as provided in the
Custodian Agreement, the Lease Files shall remain at all times in the
possession of the Custodian or the Trustee.
Section 3.7 Covenants of Servicer. The Servicer
hereby covenants that:
(a) Lease Files. The Servicer will, at its own cost and
expense, maintain all Lease Files with the Custodian in accordance with
the terms of the Custodian Agreement. Without limiting the generality
of the preceding sentence, the Servicer will not dispose of any
documents constituting the Lease Files in any manner which is
inconsistent with the performance of its obligations as the Servicer
pursuant to this Agreement and will not dispose of any Included Lease
except as contemplated by this Agreement.
<PAGE>
(b) Compliance with Law. The Servicer will comply, in all
material respects, with all laws and regulations of any Governmental
Authority applicable to the Servicer or the Included Leases and related
Equipment and Lease Files or any part thereof; provided that the
Servicer may contest any such law or regulation in any reasonable
manner which will not materially and adversely affect the value of (or
the rights of the Trustee on behalf of the Holders, with respect to)
the Trust Assets.
(c) Preservation of Security Interest. The Servicer will
execute and file such financing and continuation statements and any
other documents reasonably requested by the Trustee to be filed or
which may be required by any law or regulation of any Governmental
Authority to preserve and protect fully the interest of the Trustee in,
to and under the Trust Assets; provided that the Servicer will not be
required (i) to file any financing or continuation statements with
respect to the Equipment in any jurisdiction other than the Filing
Locations.
(d) Obligations with Respect to Included Leases. The Servicer
will duly fulfill and comply with, in all material respects, all
obligations on the part of the "lessor" to be fulfilled or complied
with under or in connection with each Included Lease and will do
nothing to impair the rights of the Trustee and the Holders in, to and
under the Trust Assets. The Servicer will perform such obligations
under the Included Leases and will not change or modify the Included
Leases, except as otherwise provided herein and except insofar as any
such failure to perform, change or modification would not materially
and adversely affect the value of (or the rights of the Trustee, on
behalf of the Holders, with respect to) the Included Leases or the
related Equipment.
(e) No Bankruptcy Petition. The Servicer agrees that, prior to
the date that is one year and one day after the payment in full of all
amounts owing in respect of all outstanding Notes, it will not
institute against the Transferor, or the Trust, or join any other
Person in instituting against the Transferor or the Trust, any
bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceedings under the laws of the United
States or any state of the United States. This Section 3.7(e) will
survive the termination of this Agreement.
Section 3.8 Servicing Compensation. As compensation for its
servicing activities hereunder and reimbursement for its expenses as set forth
in Section 3.9, the Servicer shall be entitled to receive a monthly servicing
fee in respect of any Monthly Period (or portion thereof) prior to the
termination of the Trust pursuant to Section 12.1 (with respect to each Monthly
<PAGE>
Period, the "Monthly Servicing Fee") equal to one-twelfth of the product of (A)
the Servicing Fee Percentage and (B) the Aggregate Pool Balance on the first day
of such Monthly Period.
Section 3.9 Payment of Certain Expenses by Servicer. The
Servicer will be required to pay all expenses incurred by it in connection with
its activities under this Agreement, including fees and disbursements of
independent accountants, the Trustee, the Collateral Trustee, taxes imposed on
the Servicer, expenses incurred in connection with payments and reports pursuant
to this Agreement, and all other fees and expenses not expressly stated under
this Agreement for the account of the Trust or the Transferor, but excluding
Liquidation Expenses incurred as a result of activities contemplated by Section
3.4. The Servicer will be required to pay all reasonable fees and expenses owing
to the Trustee and the Collateral Trustee in connection with the maintenance of
the Trust Accounts. The Servicer shall be required to pay such expenses for its
own account and shall not be entitled to any payment therefor other than the
Monthly Servicing Fee.
Section 3.10 Monthly Statement; Annual Report.
(a) Monthly Statement. With respect to each Distribution Date
and the related Monthly Period, the Servicer will provide to the Trustee and
each Rating Agency, on the related Determination Date, a monthly statement (a
"Monthly Statement"), signed by a Responsible Officer of the Servicer and
substantially in the form of Exhibit F and such other information as may be
specified in a Supplement.
(b) Annual Summary Statement. The Servicer will provide to the
Trustee, each Rating Agency and each Enhancement Provider, on or prior to March
31 of each year, commencing March 31, 1996, a cumulative summary of the
information required to be included in the Monthly Statements for the Monthly
Periods ending during the immediately preceding calendar year.
Section 3.11 Annual Statement as to Compliance. The
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Servicer will provide to the Trustee, each Rating Agency and each Enhancement
Provider, on or prior to March 31 of each year, commencing March 31, 1996, an
annual report signed by a Responsible Officer of the Servicer stating that (a)
a review of the activities of the Servicer, and the Servicer's performance
pursuant to this Agreement, for the period ending on the last day of the
immediately preceding calendar year has been made under such Person's
supervision and (b) to the best of such Person's knowledge, based on such
review, the Servicer has performed or has caused to be performed in all
material respects all of its obligations under this Agreement throughout such
year and no Servicer Default has occurred and is continuing (or, if a Servicer
Default has so occurred and is continuing, specifying each such event, the
nature and status thereof and the steps necessary to remedy such event, and,
if a Servicer Default
<PAGE>
occurred during such year and no notice thereof has been given to the Trustee,
specifying such Servicer Default and the steps taken to remedy such event).
Section 3.12 Annual Independent Public Accountant's Servicing
Reports. The Servicer will cause a firm of nationally recognized independent
public accountants (who may also render other services to the Servicer) to
furnish to the Trustee, each Rating Agency, and each Enhancement Provider, on or
prior to March 31 of each year, commencing March 31, 1996, (i) a report relating
to the previous calendar year to the effect that (a) such firm has reviewed
certain documents and records relating to the servicing of the Included Leases,
and (b) based on such examination, such firm is of the opinion that the Monthly
Statements for such year were prepared in compliance with this Agreement, except
for such exceptions as it believes to be immaterial and such other exceptions as
will be set forth in such firm's report and (ii) a report covering the preceding
calendar year to the effect that such accountants have applied certain
procedures agreed upon by the Servicer and such accountants to certain documents
and records relating to the servicing of Accounts under this Agreement, compared
the information contained in the Servicer's certificates delivered during the
period covered by such report with such documents and records in each case as
specified in Exhibit G and that no matters came to the attention of such
accountants that caused them to believe that such servicing was not conducted in
compliance with Article III, Article IV and Article VIII of this Agreement,
except for such exceptions as such accountants shall believe to be immaterial
and such other exceptions as shall be set forth in such statement. A copy of
such report may be obtained by any Noteholder by a request in writing to the
Trustee addressed to the Corporate Trust Office. In addition, the Servicer shall
cause such accountants to furnish a copy of such report to each Rating Agency
and to each Enhancement Provider.
Section 3.13 Tax Treatment. The Transferor has structured this
Agreement and the Notes to facilitate a secured, credit-enhanced financing on
behalf of the Transferor on favorable terms with the intention that the Notes
will constitute indebtedness of the Transferor for federal income and state and
local tax purposes and the Trust shall be treated as a "security device" for
such purposes. The Transferor, the Servicer, each Holder and each Note Owner
agree to treat and to take no action inconsistent with the treatment of the
Notes (or any beneficial interest therein) as indebtedness for purposes of
federal, state, local and foreign income or franchise taxes and any other tax
imposed on or measured by income. Each Holder, by accepting its Note or the
Transferor Interest, as the case may be, and each Note Owner, by acquiring a
beneficial interest in a Note, agrees to be bound by the provisions of this
Section 3.13. Each Noteholder will cause any Note Owner acquiring an interest in
a Note through it to comply with this Agreement as to treatment as indebtedness
under applicable tax law, as described in this
<PAGE>
Section 3.13. Furthermore, subject to Section 11.11, the Trustee shall not file
tax returns or obtain an employer identification number on behalf of the Trust.
Section 3.14 Adjustments. If (i) the Servicer makes a deposit
into the Collection Account in respect of a Collection of an Included Lease and
such Collection was received by the Servicer in the form of a check which is not
honored for any reason or (ii) the Servicer makes a mistake with respect to the
amount of any Collection and deposits an amount that is less than or more than
the actual amount of such Collection, the Servicer shall appropriately adjust
the amount subsequently deposited into the Collection Account to reflect such
dishonored check or mistake. Any Scheduled Payment in respect of which a
dishonored check is received shall be deemed not to have been paid.
ARTICLE IV
RIGHTS OF NOTEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.1 Rights of Holders.
(a) The Notes. The Notes shall represent indebtedness secured
by the Trust Assets and an obligation to pay the Noteholders Note Interest and
Note Principal out of the Trust Assets, which, with respect to each Series,
shall consist of the right to receive, to the extent necessary to make the
required Note Principal, Note Interest and any other payments with respect to
the Notes of such Series at the times and in the amounts specified in the
related Supplement, the portion of Collections allocable to Noteholders of such
Series pursuant to this Agreement and such Supplement, funds on deposit in the
Collection Account allocable to Noteholders of such Series pursuant to this
Agreement and such Supplement, funds on deposit in any related Series Account
and funds available pursuant to any related Enhancement, it being understood
that the Notes of any Series or Class shall not represent any interest in any
Series Account or Enhancement for the benefit of any other Series or Class. The
Transferor Interest shall represent the interest in the remainder of the Trust
Assets not allocated pursuant to this Agreement or any Supplement to the
Noteholders, including the right to receive Collections with respect to the
Included Leases and other amounts at the times and in the amounts specified in
this Agreement or any Supplement to be paid to the holder of the Transferor
Interest, provided, however, that the Transferor Interest shall not represent
any interest in the Collection Account, any Series Account or any Enhancement,
except as specifically provided in this Agreement or any Supplement.
(b) No Recourse. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Transferor, the Trustee or
the Collateral Trustee on the Notes or under this
<PAGE>
Agreement or any certificate or other writing delivered in connection herewith
or therewith, against: (i) the Trustee or the Collateral Trustee in its
individual capacity; (ii) any owner of a beneficial interest in the Transferor;
or (iii) any partner, owner, beneficiary, agent, officer, director, employee or
agent of the Trustee or the Collateral Trustee in their individual capacities,
any holder of a beneficial interest in the Transferor, the Trustee or the
Collateral Trustee or of any successor or assign of the Trustee or the
Collateral Trustee in their individual capacities (or any of their successors or
assigns), except as any such Person may have expressly agreed (it being
understood that the Trustee and the Collateral Trustee have no such obligations
in their individual capacities) and except that any such partner, owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any instalment or call owing to such entity.
Section 4.2 Establishment of Accounts.
(a) The Collection Account. The Servicer, for the benefit of
the Noteholders and the Holder of the Transferor Interest, shall establish and
maintain in the name of the Collateral Trustee on behalf of the Noteholders and
the Holder of the Transferor Interest, or cause to be established and
maintained, with an office or branch located in the state designated by the
Servicer of a depository institution or trust company (which may include the
Collateral Trustee) organized under the laws of the United States of America or
any one of the states thereof a non-interest bearing segregated deposit account
(the "Collection Account") bearing a designation clearly indicating that the
funds deposited therein are held in trust for the benefit of the Noteholders and
the Holder of the Transferor Interest; provided, however, that at all times the
certificates of deposit, short-term deposits or commercial paper or the
long-term unsecured debt obligations (other than such obligation whose rating is
based on collateral or on the credit of a Person other than such depository
institution or trust company) of such depository institution or trust company if
other than the Collateral Trustee or First Union National Bank of North
Carolina, shall have a credit rating from the Rating Agency or Agencies for each
Series outstanding hereunder of P-1, A-1+, as applicable, respectively, in the
case of the certificates of deposit, short-term deposits or commercial paper, or
a rating from the applicable Rating Agency of Aaa or AAA, as applicable, in the
case of the long-term unsecured debt obligations, and which is a member of the
FDIC (each of First Union National Bank of North Carolina, the Collateral
Trustee or any such depository institution trust company, a "Qualified
Institution"). The Supplement for a Series may require the Collateral Trustee to
establish and maintain, for administrative purposes only, other Series Accounts
for such Series bearing a designation clearly indicating that the funds
allocated thereto are held in trust for the benefit of the Noteholders of such
Series. Pursuant to
<PAGE>
authority granted to it pursuant to subsection 3.1(b), the Servicer shall have
the power, revocable by the Trustee, to withdraw funds from the Collection
Account for the purposes of carrying out its duties hereunder.
(b) Establishment of the Excess Funding Account. The
Servicer, for the benefit of the Noteholders and the Holder of the Transferor
Interest, shall establish and maintain or cause to be established and
maintained in the name of the Collateral Trustee, on behalf of the Noteholders
and the Holder of the Transferor Interest, with a Qualified Institution
designated by the Servicer, a segregated trust account within the corporate
trust department of such Qualified Institution (the "Excess Funding Account"),
bearing a designation clearly indicating that the funds deposited therein are
held in trust for the benefit of the Noteholders and the Holder of the
Transferor Interest. The Collateral Trustee shall possess all right, title and
interest in all funds on deposit from time to time in the Excess Funding
Account and in all proceeds thereof. Pursuant to the authority granted to it
pursuant to subsection 3.1(b), the Servicer shall have the power, revocable by
the Trustee, to withdraw funds and to instruct the Trustee to withdraw funds
from the Excess Funding Account for the purposes of carrying out its duties
hereunder.
(c) Establishment of the Tax Escrow Account. The
Servicer, for the benefit of the Noteholders and the Holder of the Transferor
Interest, shall establish and maintain or cause to be established and
maintained in the name of the Collateral Trustee, on behalf of the Noteholders
and the Holder of the Transferor Interest, with a Qualified Institution
designated by the Servicer, a segregated trust account within the corporate
trust department of such Qualified Institution (the "Tax Escrow Account"),
bearing a designation clearly indicating that the funds deposited therein are
held in trust for the purpose of paying the underlying tax obligations. The
Collateral Trustee shall possess all right, title and interest in all funds on
deposit from time to time in the Tax Escrow Account and in all proceeds
thereof. Pursuant to the authority granted to it pursuant to subsection
3.1(b), the Servicer shall have the power, revocable by the Trustee, to
withdraw funds and to instruct the Trustee to withdraw funds from the Tax
Escrow Account for the purposes of carrying out its duties hereunder.
(d) Failure of Institution to Qualify. If any institution with
which any of the accounts established pursuant to this Section 4.2 are
established ceases to be a Qualified Institution, the Servicer or the Collateral
Trustee (as the case may be) shall within 10 Business Days establish a
replacement account at a Qualified Institution after notice thereof.
(e) Amounts in Excess Funding Account. Amounts on deposit in
the Excess Funding Account on any Business Day will be invested, at the written
direction of the Servicer to the Collateral Trustee or the Qualified Institution
(with a copy to
<PAGE>
the Collateral Trustee), in Permitted Investments maturing or available for
withdrawal on the next Transfer Day. Earnings from such investments received
shall be treated as part of the Available Amount and shall be deposited in the
Collection Account. Any investment instructions to the Collateral Trustee or the
Qualified Institution may be in writing or made orally and confirmed promptly in
writing, shall be deemed to include a certification that the proposed investment
is a Permitted Investment that matures at or prior to the date required by this
Agreement, and may be given pursuant to standing instructions.
(f) Amounts in Collection Account. Amounts on deposit in the
Collection Account on any Business Day will be invested, at the written
direction of the Servicer to the Collateral Trustee or the Qualified Institution
(with a copy to the Collateral Trustee), in Permitted Investments maturing or
available for withdrawal on the next Business Day; provided that any portion of
such funds that are allocable to a particular Monthly Period may be invested in
Permitted Investments maturing on the Transfer Date preceding the Distribution
Date on which such funds will be included in the "Available Amount". Earnings
from such investments received shall be treated as part of the Available Amount
and shall be deposited in the Collection Account. Any investment instructions to
the Collateral Trustee or the Qualified Institution may be in writing or made
orally and confirmed promptly in writing, shall be deemed to include a
certification that the proposed investment is a Permitted Investment that
matures at or prior to the date required by this Agreement, and may be given
pursuant to standing instructions.
(g) Amounts in Tax Escrow Account. Amounts on deposit in the
Tax Escrow Account on any Business Day will be invested, at the written
direction of the Servicer to the Collateral Trustee or the Qualified Institution
(with a copy to the Collateral Trustee), in Permitted Investments maturing or
available for withdrawal on the Business Day that the Servicer determines such
funds will be required to be withdrawn from such account. Earnings from such
investments received shall be treated as part of the Available Amount and shall
be deposited in the Collection Account. Any investment instructions to the
Collateral Trustee or the Qualified Institution may be in writing or made orally
and confirmed promptly in writing, shall be deemed to include a certification
that the proposed investment is a Permitted Investment that matures at or prior
to the date required by this Agreement, and may be given pursuant to standing
instructions.
(h) Identification of Accounts. Schedule 4, which is hereby
incorporated into and made a part of this Agreement, identifies the Collection
Account, the Excess Funding Account, and the Tax Escrow Account by setting forth
the account number of such account, the account designation of such account and
the name of the institution with which such account has been established.
<PAGE>
Section 4.3 Collections and Allocations.
(a) Collections. The Servicer shall, subject to subsections
4.3(c) and 4.3(d), transfer, or cause to be transferred, all Collections on
deposit in the form of available funds in the Lockbox Account to the Collection
Account as promptly as possible after the Date of Processing of such
Collections, but in no event later than the fourth Business Day following such
Date of Processing. The Servicer shall promptly (but in no event later than two
Business Days after the Date of Processing thereof) deposit all Collections
received directly by it in the Collection Account. The Servicer shall transfer,
or cause to be transferred, all Tax Collections on deposit in the form of
available funds in the Collection Account to the Tax Escrow Account as promptly
as possible after the Date of Processing of such Tax Collections, but in no
event later than the fourth Business Day following such Date of Processing. The
Servicer shall promptly (but in no event later than two Business Days after the
Date of Processing thereof) deposit all Tax Collections received directly by it
in the Tax Escrow Account.
The Servicer shall allocate such amounts to each Series of
Notes and to the Holder of the Transferor Interest in accordance with this
Article IV and shall withdraw the required amounts from the Collection Account
or pay such amounts to the Holder of the Transferor Interest or to the other
Persons entitled thereto in accordance with this Article IV. The Servicer shall
make such deposits or payments on the date indicated therein, if applicable, by
wire transfer in immediately available funds or as otherwise provided in the
Supplement for any Series with respect to such Series.
(b) Initial Deposits. On the Initial Closing Date and on each
Addition Date thereafter, the Servicer will deposit (in immediately available
funds) into the Collection Account all Collections received after the applicable
Cut Off Date and through and including the Initial Closing Date or Addition
Date, as the case may be, in respect of Leases being transferred to the Trust on
such date.
(c) Payments from Tax Escrow Account. The Servicer may from
time to time withdraw amounts on deposit in the Tax Escrow Account for the
purpose of paying, or reimbursing itself for paying, any taxes allocable to the
Included Leases or the related Equipment.
(d) Amounts Exempt from Deposit. Notwithstanding Sections
4.3(a) and 4.3(b), the following collections (or portions thereof) are not
required to be deposited into the Collection Account:
(i) Collections on any Included Leases on which (and to
the extent that) the Servicer has previously made a Servicer Advance
which has not been reimbursed, which
<PAGE>
amounts the Servicer may retain (as a reimbursement of such
Servicer Advance); and
(ii) Collections from any Removed Lease or any Included
Lease for which another Included Lease has been substituted as
described in Section 2.7, which amounts the Servicer may retain to the
extent necessary to reimburse itself for any related Servicer Advance
which has not been reimbursed, and the remainder of which amounts the
Servicer will pay to the Transferor or Originator, as the case may be.
(e) Allocations Prior to Pay Out Event. On each Determination
Date prior to a Pay Out Event, the Servicer, by means of a Monthly Payment
Instructions and Notification, substantially in the form of Exhibit H, shall
instruct the Collateral Trustee to withdraw, and on the succeeding Distribution
Date the Collateral Trustee acting in accordance with such instructions shall
withdraw, the amounts required to be withdrawn from the Collection Account
pursuant to this Section in order to make the following payments or allocations
from the Available Amount for the related Distribution Date (in each case, such
payment or transfer to be made only to the extent funds remain available
therefor after all prior payments and transfers for such Distribution Date have
been made), in the following order of priority:
(i) pay to the Servicer, the amount of any
Unreimbursed Servicer Advance;
(ii) pay to the Servicer the Monthly Servicing Fee for the
preceding Monthly Period together with any amounts in respect of the
Monthly Servicing Fee that were due in respect of prior Monthly Periods
that remain unpaid;
(iii) pay to each Hedging Counterparty the amount owing to
such Hedging Counterparty under the related Interest Rate Hedge for the
Accrual Period ending on such Distribution Date, together with any such
amounts that were due in respect of prior Accrual Periods that remain
unpaid (excluding, in each case, any amounts owing in respect of
termination payments (other than Hedge Termination Payments),
liquidated damages and gross-ups); provided that if the Available
Amount remaining to be allocated pursuant to this Section 4.3(e)(iii)
is less than the full amount required to be so allocated, such
remaining Available Amount shall be allocated to each Hedging
Counterparty pro rata based on the amount owing to it;
(iv) allocate to each Series an amount equal to Note
Interest accrued in respect thereof for the Accrual Period ending on
such Distribution Date, together with any such amounts that accrued in
respect of prior Accrual Periods for which no allocation was previously
made; provided that if the Available Amount remaining to be allocated
pursuant to
<PAGE>
this Section 4.3(e)(iv) is less than the full amount required to be so
allocated, such remaining Available Amount shall be allocated to each
Series in accordance with its Series Share thereof;
(v) allocate to each Series which was as of the first day
of the preceding Monthly Period an Amortizing Series or an Accumulating
Series its Target Repayment Amount for such Monthly Period, together
with any such amounts that were due in respect of prior Monthly Periods
for which no allocation was previously made; provided that if the
Available Amount remaining to be allocated pursuant to this Section
4.3(e)(v) is less than the full amount required to be so allocated,
such remaining Available Amount shall be allocated to each Series in
accordance with its Series Share thereof; and
(vi) allocate any remaining Available Amount to the Excess
Funding Account.
(f) Allocations after a Pay Out Event. On each Determination
Date after the occurrence of a Pay Out Event, the Servicer, by means of a
Monthly Payment Instructions and Notification, substantially in the form of
Exhibit H, shall instruct the Collateral Trustee to withdraw, and on the
succeeding Distribution Date the Collateral Trustee acting in accordance with
such instructions shall withdraw, the amounts required to be withdrawn from the
Collection Account pursuant to this Section in order to make the following
payments or allocations from the Available Amount for the related Distribution
Date (in each case, such payment or transfer to be made only to the extent funds
remain available therefor after all prior payments and transfers for such
Distribution Date have been made), in the following order of priority:
(i) pay to the Servicer, the amount of any Unreimbursed
Servicer Advance;
(ii) pay to the Servicer the Monthly Servicing Fee for the
preceding Monthly Period together with any amounts in respect of the
Monthly Servicing Fee that were due in respect of prior Monthly Periods
that remain unpaid;
(iii) pay to each Hedging Counterparty the amount owing to
such Hedging Counterparty under the applicable Interest Rate Hedge for
the Accrual Period ending on such Distribution Date, together with any
such amounts that were due in respect of prior Accrual Periods that
remain unpaid (excluding, in each case, any amounts owing in respect of
termination payments (other than Hedge Termination Payments),
liquidated damages and gross-ups); provided that if the Available
Amount remaining to be allocated pursuant to this Section 4.3(f)(iii)
is less than the full amount required to be so allocated, such
remaining Available Amount
<PAGE>
shall be allocated to each Hedging Counterparty pro rata
based on the amount owing to it;
(iv) allocate to each Series an amount equal to Note
Interest accrued in respect thereof for the Accrual Period ending on
such Distribution Date, together with any such amounts that accrued in
respect of prior Accrual Periods for which no allocation was previously
made; provided that if the Available Amount remaining to be allocated
pursuant to this Section 4.3(f)(iv) is less than the full amount
required to be so allocated, such remaining Available Amount shall be
allocated to each Series in accordance with its Pay Out Event Series
Share thereof;
(v) allocate to each Series the remaining Adjusted
Principal Amount thereof; provided that if the Available Amount
remaining to be allocated pursuant to this Section 4.3(f)(v) is less
than the full amount required to be so allocated, such remaining amount
shall be allocated to each such Series in accordance with its Pay Out
Event Series Share thereof; and
(vi) allocate any remaining Available Amount to the Excess
Funding Account.
(g) Excess Funding Account Prior to a Pay Out Event. On each
Business Day prior to a Pay Out Event, the Servicer shall instruct the
Collateral Trustee to withdraw, and on such day the Collateral Trustee acting in
accordance with such instructions shall withdraw, the amounts required to be
withdrawn from the Excess Funding Account pursuant to this Section in order to
make the following payments or allocations from the amount on deposit therein on
such day up to the Available Excess Funding Amount on such day (in each case,
such payment or transfer to be made only to the extent funds remain available
therefor after all prior payments and transfers for such day have been made and
after giving effect to any Additional Leases transferred to the Trust on such
day), in the following order of priority:
(i) allocate to each Series which is a Variable Funding
Series such amount, if any, as shall be directed by the Servicer to be
applied in accordance with the terms of the related Supplement to
reduce the Principal Amount thereof;
(ii) allocate to each Series an amount equal to any amounts
then due and payable in respect of any Reserve Funding Requirement
thereunder or any Accelerated Funding Requirement thereunder; provided
that if the Available Excess Funding Amount remaining to be allocated
pursuant to this Section 4.3(g)(ii) is less than the full amount
required to be so allocated, such remaining amount shall be allocated
to each Series in accordance with its Series Share thereof;
<PAGE>
(iii) allocate to each Series an amount equal to any amounts
then due and payable in respect of fees and expenses owing in respect
thereof; provided that if the Available Excess Funding Amount remaining
to be allocated pursuant to this Section 4.3(g)(iii) is less than the
full amount required to be so allocated, such remaining amount shall be
allocated to each Series in accordance with its Series Share thereof;
(iv) pay to each Hedging Counterparty any unpaid amounts
owing to such Hedging Counterparty under the related Interest Rate
Hedge; provided that if the Available Amount remaining to be allocated
pursuant to this Section 4.3(g)(iv) is less than the full amount
required to be so allocated, such remaining Available Amount shall be
allocated to each Hedging Counterparty pro rata based on the amount
owing to it; and
(v) So long as no event which, with the passage of time or
the giving of notice or both, would be a Pay Out Event or an
Accelerated Payment Event has occurred and is continuing, pay to the
Holder of the Transferor Interest any remaining Available Excess
Funding Amount.
(h) Excess Funding Account after a Pay Out Event. On each
Distribution Date after a Pay Out Event, the Servicer shall instruct the
Collateral Trustee to withdraw, and on such day the Collateral Trustee acting in
accordance with such instructions shall withdraw, the amounts required to be
withdrawn from the Excess Funding Account pursuant to this Section in order to
make the following payments or allocations from the amount on deposit therein on
such day (in each case, such payment or transfer to be made only to the extent
funds remain available therefor after all prior payments and transfers for such
day have been made), in the following order of priority:
(i) on the first Distribution Date following the Monthly
Period in which a Pay Out Event occurs the entire balance in the Excess
Funding Account shall be treated as part of the Available Amount on
such day and shall be distributed pursuant to Section 4.3(f);
(ii) on each subsequent Distribution Date, pay to the
Trustee any unpaid fees and expenses owing to it hereunder;
(iii) on each subsequent Distribution Date, allocate to each
Series an amount equal to any amounts then due and payable in respect
of fees and expenses owing in respect thereof; provided that if the
amount remaining to be allocated pursuant to this Section 4.3(h)(iii)
is less than the full amount required to be so allocated, such
remaining amount shall be allocated to each Series in accordance with
its Series Share thereof;
<PAGE>
(iv) on each Distribution Date to occur after all amounts
owing in respect of all outstanding Series have been repaid in full,
pay to each Hedging Counterparty any unpaid amounts owing to such
Hedging Counterparty under the related Interest Rate Hedge; provided
that if the Available Amount remaining to be allocated pursuant to this
Section 4.3(h)(iv) is less than the full amount required to be so
allocated, such remaining Available Amount shall be allocated to each
Hedging Counterparty pro rata based on the amount owing to it; and
(v) on each Distribution Date to occur after all amounts
owing in respect of all outstanding Series and Interest Rate Hedges
have been paid in full, pay to the Holder of the Transferor Interest
any remaining amount.
Section 4.4 Determination of the Amortizing Pools.
(a) On or before the Distribution Date immediately preceding
the Amortization Commencement Date for each Series, the Servicer will select a
group of Included Leases (or portions thereof), to be used to establish a
repayment schedule for such Series (each such group, an "Amortizing Pool") in
accordance with the following criteria and procedures:
(i) The Servicer shall make such selection from among
those Included Leases that are not then assigned to another Amortizing
Pool (unless the Principal Amount of the related Series has been repaid
in full) and are not then Defaulted Leases.
(ii) The aggregate number of Included Leases (or
portions thereof) shall be such as to provide an Aggregate Pool Balance
for such Amortizing Pool at least equal to the Principal Amount of such
Series as of the related Amortization Commencement Date.
(iii) If and to the extent Additional Selection Criteria
are specified in the Supplement for such Series, the Servicer shall use
such criteria.
(iv) Except as specified above in this Section, the
Servicer shall have complete discretion when selecting Included Leases
for inclusion in an Amortizing Pool.
(b) Upon the payment in full of the related Principal Amount,
any Included Leases (or portions thereof) remaining outstanding in such
Amortizing Pool shall be released from such Amortizing Pool.
(c) It is understood that the allocation of specific Included
Leases (or portions thereof) to a particular Amortizing Pool and Series is
solely for the purpose of establishing a target repayment schedule for such
Series and of allocating the
<PAGE>
Available Amount prior to a Pay Out Event and does not give any such Series any
preference or priority with respect to the Included Leases (or portions thereof)
allocated to the related Amortizing Pool.
Section 4.5 Interest Rate Hedges. (a) The Servicer may from
time to time designate Persons to become additional Hedging Counterparties
hereunder, provided that (i) when designating such additional Hedging
Counterparty, the Servicer shall deliver to the Trustee an Opinion of Counsel as
to the due authorization, execution and delivery and validity and enforceability
of the Interest Rate Hedge with such additional Hedging Counterparty and (ii) at
the time of such designation, the long term unsecured debt or long term
certificate of deposit rating assigned to such additional Hedging Counterparty,
shall be at least A by Standard & Poor's and A2 by Moody's.
(b) In the event that the long term unsecured debt or long
term certificate of deposit rating of a Hedging Counterparty is withdrawn or
reduced below A by Standard & Poor's or is withdrawn or reduced below A2 by
Moody's, then within 30 days after receiving notice of such decline in
creditworthiness, either (x) such Hedging Counterparty, at its own expense, will
obtain a Replacement Interest Rate Hedge or (y) the Trustee, at the direction of
the Servicer to do either of the following, shall either (i) with the prior
written confirmation of the Rating Agency that such action will not result in a
reduction or withdrawal of the rating of any Class of Notes, use its best
efforts to (A) cause such Hedging Counterparty to pledge securities in the
manner provided by applicable law or (B) otherwise cause to be pledged
securities, which shall be held by the Trustee, its custodian, or its agent free
and clear of the Lien of any third party, in a manner conferring on the Trustee
a perfected first Lien in such securities securing the Hedging Counterparty's
performance of its obligations under the Interest Rate Hedge, or (ii) provided
that a Replacement Interest Rate Hedge or Qualified Substitute Arrangement
meeting the requirements of Section 4.5(c) has been obtained, (A) provide
written notice to the Hedging Counterparty of its intention to terminate the
Interest Rate Hedge within such 30-day period and (B) terminate the Interest
Rate Hedge within such 30-day period, request the payment to it of all amounts
due to the Trust under the Interest Rate Hedge through the termination date and
deposit any such amounts so received, on the day of receipt, to the Collection
Account, or (iii) use reasonable efforts to establish any other arrangement
satisfactory to the Rating Agency including collateral, guarantees or letters of
credit, which arrangement will result in the Rating Agency's not reducing or
withdrawing the then rating of any Class of Notes (a "Qualified Substitute
Arrangement"); provided, however, that in the event at any time any alternative
arrangement established pursuant to clause (x) or (y)(i) or (y)(iii) above shall
cease to be satisfactory to the Rating Agency, then the provisions of this
Section 4.5(b) shall again be applied and in connection therewith the 30-day
period
<PAGE>
referred to above shall commence on the date the Servicer receives notice of
such cessation or termination, as the case may be.
(c) Unless an alternative arrangement pursuant to clause (x)
or (y)(i) of Section 4.5(b) is being established, the Trustee, at the direction
of the Servicer shall use its best efforts to obtain a Replacement Interest Rate
Hedge or Qualified Substitute Arrangement meeting the requirements of this
Section 4.5(c) during the 30-day period referred to in Section 4.5(b). The
Trustee shall not at any time terminate the Interest Rate Hedge unless, prior to
such termination, the Trustee or the Servicer has obtained (i) a Replacement
Interest Rate Hedge or Qualified Substitute Arrangement, (ii) to the extent
applicable, an Opinion of Counsel as to the due authorization, execution,
delivery, validity and enforceability of such Replacement Interest Rate Hedge or
Qualified Substitute Arrangement, as the case may be, and (iii) a letter from
the Rating Agency confirming that the termination of the Interest Rate Hedge and
its replacement with such Replacement Interest Rate Hedge or Qualified
Substitute Arrangement will not adversely affect its rating of any Class of
Notes.
(d) The Servicer shall notify the Trustee and the Rating
Agency within five Business Days after obtaining knowledge that the long term
unsecured debt or the long term certificate of deposit rating of a Hedging
Counterparty has been withdrawn or reduced by Standard & Poor's or Moody's.
(e) Notwithstanding the foregoing, the Servicer may at any
time obtain a Replacement Interest Rate Hedge, provided that the Servicer
delivers to the Trustee (i) an Opinion of Counsel as to the due authorization,
execution and delivery and validity and enforceability of such Replacement
Interest Rate Hedge and (ii) a letter from the Rating Agency confirming that the
termination of the then current Interest Rate Hedge and its replacement with
such Replacement Interest Rate Hedge will not adversely affect its rating of any
Class of Notes. Upon the effectiveness of a Replacement Interest Rate Hedge, the
Trustee is authorized to reconvey the benefits of the replaced Interest Rate
Hedge to the Transferor.
(f) The Trustee on behalf of the Trust hereby appoints each
Hedging Counterparty to perform the duties of the calculation agent under the
related Interest Rate Hedge.
[THE REMAINDER OF ARTICLE IV IS RESERVED AND
SHALL BE SPECIFIED IN ANY SUPPLEMENT
WITH RESPECT TO ANY SERIES]
<PAGE>
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL
BE SPECIFIED IN ANY SUPPLEMENT
WITH RESPECT TO ANY SERIES]
ARTICLE VI
THE NOTES
Section 6.1 The Notes and the Transferor Interest. The Notes
of each Series and any Class thereof shall be issued in fully registered form
and shall be substantially in the form of the exhibits with respect thereto
attached to the related Supplement. The Transferor Interest shall be evidenced
by book-entry notation in the Register. The Notes shall, upon issue, be
executed, authenticated and delivered by the Trustee. The Notes shall be
issuable in a minimum denomination of $1,000 principal amount and integral
multiples thereof, unless otherwise provided in any Supplement, and the Notes of
each Series shall be issued upon initial issuance in an aggregate original
principal amount equal to the Initial Principal Amount of such Series. Each Note
shall be executed by manual or facsimile signature on behalf of the Trust by a
Responsible Officer of the Trustee. Any Note bearing the manual or facsimile
signature of the individual who was, at the time when such signature was
affixed, authorized to sign on behalf of the Trustee shall not be rendered
invalid, notwithstanding that such individual has ceased to be so authorized
prior to the authentication and delivery of such Note or does not hold such
office at the date of such Note. No Note shall be entitled to any benefit under
this Agreement, or be valid for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by or on behalf of the Trustee by the manual or facsimile signature of
a Responsible Officer, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder. All Notes shall be dated the date of their authentication.
Section 6.2 Authentication of Notes and Transferor Interest.
Contemporaneously with the initial transfer of the Original Leases and the other
initial Trust Assets to the Trust, the Trustee shall authenticate and deliver
the initial Series of Notes. The Trustee shall evidence the Transferor Interest
of the Transferor by notation in the Register simultaneously with its delivery
to or upon the order of the Transferor of the initial Series of Notes. The Notes
shall be duly authenticated by or on behalf of the Trustee.
Section 6.3 Registration of Transfer and Exchange of
Notes. (a) The Trustee shall cause to be kept at the office or
agency to be maintained by a transfer agent and registrar (the
<PAGE>
"Transfer Agent and Registrar") in accordance with the provisions of Section
11.16 a register (the "Register") in which, subject to such reasonable
regulations as it may prescribe, the Transfer Agent and Registrar shall provide
for the registration of the Notes and of transfers and exchanges of the Notes as
herein provided. The Trustee is hereby initially appointed Transfer Agent and
Registrar for the purpose of registering the Notes and transfers and exchanges
of the Notes as herein provided. The Trustee shall be permitted to resign as
Transfer Agent and Registrar upon 30 days written notice to the Transferor. In
the event that the Trustee shall no longer be the Transfer Agent and Registrar,
the Transferor shall appoint a successor Transfer Agent and Registrar.
Upon surrender for registration of transfer of any Note of any
Series at any office or agency of the Transfer Agent and Registrar maintained
for such purpose, the Trust shall execute, and the Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Notes of such Series in authorized denominations of like aggregate
principal amounts.
At the option of a Noteholder, Notes of any Series may be
exchanged for other Notes of the same Series and authorized denominations of
like principal amounts, upon surrender of the Notes to be exchanged at any such
office or agency. Whenever any Notes are so surrendered for exchange the Trust
shall execute, and the Trustee shall authenticate and deliver the Notes which
the Noteholder making the exchange is entitled to receive. Every Note presented
or surrendered for registration of transfer or exchange shall be accompanied by
a written instrument of transfer in a form satisfactory to the Trustee and the
Transfer Agent and Registrar duly executed by the Noteholder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Transfer Agent and Registrar may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Notes.
All Notes surrendered for registration of transfer or exchange
shall be canceled and disposed of in the Trustee's customary manner.
(b) It is the understanding of the parties to this Agreement
that AFG has particular expertise in performing the functions given by this
Agreement to the Servicer and that the Noteholders will be purchasing Notes
relying on its exercising such expertise in performing such functions. As
provided in Sections 8.5 and 8.7, the Servicer is not permitted to resign,
except as otherwise permitted in such sections. Except as provided in Section
6.12, Section 6.14 and Section 7.2, the Transferor Interest, or any interest
therein, shall not be
<PAGE>
transferred, assigned, exchanged, or otherwise transferred, unless (i) the
Rating Agency Condition will have been satisfied with respect thereto, (ii) the
Transferor will have delivered to the Trustee an Officer's Certificate to the
effect that, based upon the facts known to such officer at such time, such
transfer, assignment or exchange will not cause a Pay Out Event and (iii) the
Transferor will have delivered to the Trustee a Tax Opinion, and provided,
however, in any event, the Transferor shall retain at all times at least 25% in
interest of the Transferor Interest (without exclusion for any constituent
interests therein) which interest cannot be subordinated to any constituent
interests in the Transferor Interest.
(c) The Transfer Agent and Registrar will maintain at its
expense in the Borough of Manhattan, The City of New York, an office or offices
or agency or agencies where Notes may be surrendered for registration of
transfer or exchange.
Section 6.4 Mutilated, Destroyed, Lost or Stolen Notes. If (a)
any mutilated Note is surrendered to the Transfer Agent and Registrar, or the
Transfer Agent and Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any Note and (b) there is delivered to the
Transfer Agent and Registrar and the Trustee such security or indemnity as may
be required by them to save each of them harmless, then, in the absence of
notice to the Trustee that such Note has been acquired by a bona fide purchaser,
the Trust shall execute, and the Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
new Note of like tenor and aggregate principal amount. In connection with the
issuance of any new Note under this Section 6.4, the Trustee or the Transfer
Agent and Registrar may require the payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Trustee and the Transfer
Agent and Registrar) connected therewith. Any duplicate Note issued pursuant to
this Section 6.4 shall constitute complete and indefeasible evidence of a right
to receive payments from the Trust on the terms set forth therein, as if
originally issued, whether or not the lost, stolen or destroyed Note shall be
found at any time.
Section 6.5 Persons Deemed Owners. Prior to due presentation
of a Note for registration of transfer, the Trustee and the Paying Agent, the
Transfer Agent and Registrar and any agent of any of them may treat the Person
in whose name any Note is registered as the owner of such Note for the purpose
of receiving distributions pursuant to Article V (as described in any
Supplement) and for all other purposes whatsoever, and neither the Trustee and
the Paying Agent, the Transfer Agent and Registrar nor any agent of any of them
shall be affected by any notice to the contrary: provided, however, that in
determining whether the Holders of Notes evidencing the requisite principal
amounts have given any request, demand, authorization, direction,
<PAGE>
notice, consent or waiver hereunder, Notes owned by the Transferor, the Servicer
or any Affiliate thereof shall be disregarded and deemed not to be outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which a Responsible Officer in the Corporate Trust Office of
the Trustee actually knows to be so owned shall be so disregarded. Notes so
owned which have been pledged in good faith shall not be disregarded and may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Transferor, the Servicer or an Affiliate thereof.
Section 6.6 Appointment of Paying Agent. (a) The Paying Agent
shall make distributions to Noteholders from a Distribution Account pursuant to
Article V. Any Paying Agent shall have the revocable power to withdraw funds
from such Distribution Account for the purpose of making distributions referred
to above. The Trustee may revoke such power and remove the Paying Agent for a
particular Series, if the Trustee determines in its sole discretion that the
Paying Agent shall have failed to perform its obligations under this Agreement
in any material respect. The Paying Agent, unless the Supplement relating to any
Series states otherwise, shall initially be the Collateral Trustee. The
Collateral Trustee shall be permitted to resign as Paying Agent upon 30 days'
written notice to the Transferor. In the event that the Collateral Trustee shall
no longer be the Paying Agent, the Transferor shall appoint a successor. Each
Paying Agent must be reasonably acceptable to the Transferor, the Trustee and
the Servicer. The provisions of Sections 11.1, 11.2 and 11.3 shall apply to the
Trustee also in its role as Paying Agent, for so long as the Trustee shall act
as Paying Agent.
(b) The Trustee shall cause the Paying Agent (other than
itself or the Collateral Trustee) to execute and deliver to the Trustee an
instrument in which such Paying Agent shall agree with the Trustee that such
Paying Agent will hold all sums, if any, held by it for payment to the
Noteholders in trust for the benefit of the Noteholders entitled thereto until
such sums shall be paid to such Noteholders and shall agree, and if the
Collateral Trustee is the Paying Agent it hereby agrees, that it shall comply
with all requirements of the Internal Revenue Code regarding the withholding of
payments in respect of federal income taxes due from Noteholders and the Holder
of the Transferor Interest by the Collateral Trustee.
Section 6.7 Access to List of Holders' Names and Addresses.
The Trustee will furnish or cause to be furnished by the Transfer Agent and
Registrar to the Servicer or the Paying Agent, within five Business Days after
receipt by the Trustee of a request therefor from the Servicer or the Paying
Agent, respectively, in writing, a list in such form as the Servicer or
<PAGE>
the Paying Agent may reasonably require, of the names and addresses of the
Noteholders as of the most recent Record Date for payment of distributions to
Noteholders. If Holders of a principal amount of Notes aggregating not less than
10% of the Principal Amount of the Notes of any Series (the "Applicants") apply
in writing to the Trustee, and such application states that the Applicants
desire to communicate with other Noteholders of any Series with respect to their
rights under this Agreement or under the Notes and is accompanied by a copy of
the communication which such Applicants propose to transmit, then the Trustee,
after having been indemnified to its satisfaction by such Applicants for its
costs and expenses, shall afford or shall cause the Transfer Agent and Registrar
to afford such Applicants access during normal business hours to the most recent
list of Noteholders held by the Trustee and shall give the Servicer notice that
such request has been made, within five Business Days after the receipt of such
application. Such list shall be as of a date no more than 45 days prior to the
date of receipt of such Applicants' request. Every Noteholder and the Holder of
the Transferor Interest, by receiving and holding a Note or the Transferor
Interest, as the case may be, agrees that neither the Trustee nor the Transfer
Agent and Registrar nor the Transferor nor any of their respective agents shall
be held accountable by reason of the disclosure of any such information as to
the names and addresses of the Noteholders and the Holder of the Transferor
Interest hereunder, regardless of the source from which such information was
obtained.
Section 6.8 Authenticating Agent. (a) The Trustee may appoint
one or more authenticating agents with respect to the Notes which shall be
authorized to act on behalf of the Trustee in authenticating the Notes in
connection with the issuance, delivery, registration of transfer, exchange or
repayment of Notes. Whenever reference is made in this Agreement to the
authentication of Notes by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication on
behalf of the Trustee by an authenticating agent and a certificate of
authentication executed on behalf of the Trustee by an authenticating agent.
Each authenticating agent must be reasonably acceptable to the Transferor and
the Servicer.
(b) Any institution succeeding to the corporate agency
business of an authenticating agent shall continue to be an authenticating agent
without the execution or filing of any paper or any further act on the part of
the Trustee or such authenticating agent.
(c) An authenticating agent may at any time resign by giving
written notice of resignation to the Trustee and to the Transferor. The Trustee
may at any time terminate the agency of an authenticating agent by giving notice
of termination to such authenticating agent and to the Transferor. Upon
receiving such a notice of resignation or upon such a termination, or in case at
<PAGE>
any time an authenticating agent shall cease to be acceptable to the Trustee or
the Transferor or the Servicer, the Trustee promptly may appoint a successor
authenticating agent. Any successor authenticating agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
authenticating agent. No successor authenticating agent shall be appointed
unless reasonably acceptable to the Trustee, the Transferor and the Servicer.
(d) The Transferor agrees to pay each authenticating agent
from time to time reasonable compensation for its services under this Section
6.8.
(e) The provisions of Sections 11.1, 11.2 and 11.3 shall be
applicable to any authenticating agent.
(f) Pursuant to an appointment made under this Section 6.8,
the Notes may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
This is one of the Notes described in the Pooling and
Servicing Agreement and Indenture of Trust.
as Authenticating Agent for the Trustee,
By:
Authorized Officer
Section 6.9 Book-Entry Notes. Unless otherwise provided in any
related Supplement, the Notes of any Series upon original issuance, shall be
issued in the form of one or more physical Notes representing the Book-Entry
Notes, to be delivered to the Clearing Agency specified in the Supplement for
such Series, by, or on behalf of, the Transferor. The Notes of each Series
shall, unless otherwise provided in the related Supplement, initially be
registered on the Register in the name of the nominee of the Clearing Agency,
and no Note Owner will receive a definitive certificate representing such Note
Owner's interest in the Notes, except as provided in Section 6.11. Unless and
until definitive, fully registered Notes of any Series (the "Definitive Notes")
have been issued to Note Owners:
(i) the provisions of this Section 6.9 shall be in full
force and effect with respect to each such Series;
(ii) the Transferor, the Servicer, the Paying Agent, the
Transfer Agent and Registrar and the Trustee may deal with the related
Clearing Agency and the related Clearing Agency Participants for all
purposes (including the making
<PAGE>
of distributions on the Notes of each such Series) as the
authorized representatives of such Note Owners;
(iii) to the extent that the provisions of this Section
6.9 conflict with any other provisions of this Agreement, the
provisions of this Section 6.9 shall control with respect to each such
Series; and
(iv) the rights of Note Owners of each such Series shall
be exercised only through the Clearing Agency and the applicable
Clearing Agency Participants and shall be limited to those established
by law and agreements between such Note Owners and the Clearing Agency
and/or the Clearing Agency Participants. Pursuant to the Depository
Agreement applicable to a Series, unless and until Definitive Notes are
issued pursuant to Section 6.11, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency Participants and receive
and transmit distributions of principal and interest on the Notes to
such Clearing Agency Participants.
Section 6.10 Notices to Clearing Agent. Whenever notice or
other communication to the Noteholders of a Series is required under this
Agreement, unless and until Definitive Notes shall have been issued to the Note
Owners of such Series, the Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes of such
Series to the Clearing Agency.
Section 6.11 Definitive Notes Initially Issued as Book-Entry
Notes. If (i)(A) the Transferor advises the Trustee in writing that the Clearing
Agency is no longer willing or able properly to discharge its responsibilities
under the related Depository Agreement, and (B) the Trustee or the Transferor is
unable to locate a qualified successor, (ii) the Transferor, at its option,
advises the Trustee in writing that it elects to terminate the book-entry system
through such Clearing Agency or (iii) after the occurrence of a Pay Out Event,
Note Owners of a Series representing beneficial interests aggregating not less
than 50% of the Principal Amount of a Series advise the Trustee and the related
Clearing Agency through the related Clearing Agency Participants in writing that
the continuation of a book-entry system through such Clearing Agency is no
longer in the best interests of the Note Owners, the Trustee shall notify all
Note Owners of such Series through such Clearing Agency, of the occurrence of
any such event and of the availability of Definitive Notes to Note Owners
requesting the same. Upon surrender to the Trustee of the Notes of such Series
by the related Clearing Agency, accompanied by registration instructions from
the related Clearing Agency for registration, the Trustee on behalf of the Trust
shall issue the Definitive Notes of such Series. Neither the Transferor nor the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such
<PAGE>
instructions. Upon the issuance of Definitive Notes of such Series, all
references herein to obligations imposed upon or to be performed by the Clearing
Agency shall be deemed to be imposed upon and performed by the Trustee, to the
extent applicable with respect to such Definitive Notes and the Trustee shall
recognize the Holders of the Definitive Notes of such Series as Noteholders of
such Series hereunder.
Section 6.12 Exchange of Transferor Interest.
(a) Upon any Exchange, the Transferor shall, pursuant to
Section 6.1, deliver to the Trustee for execution and authentication under
Section 6.2, one or more new Series of Notes. Any such Series of Notes shall be
substantially in the form specified in the related Supplement and shall bear,
upon its face, the designation for the Series to which it belongs, as selected
by the Transferor. Except as specified in the related Supplement, all Notes of
any Series shall rank pari passu and be equally and ratably entitled as provided
herein to the benefits hereof (except that the Enhancement provided for any
Series shall not be available for any other Series) without preference, priority
or distinction on delivery, all in accordance with terms and provisions of this
Agreement and the related Supplement.
(b) The Holder of the Transferor Interest may direct the
Trustee in writing to make an appropriate entry in the Register to evidence an
exchange of the Transferor Interest for (i) one or more newly issued Series of
Notes and (ii) a new Transferor Interest evidenced by book-entry notation in the
Register (any such exchange, a "Transferor Exchange"). In addition, to the
extent permitted for any Series of Notes as specified in the related Supplement,
the Noteholders of such Series may tender their Notes and the Holder of the
Transferor Interest may direct the Trustee in writing to make an appropriate
entry in the Register to evidence an exchange of the Transferor Interest
pursuant to the terms and conditions set forth in such Supplement in exchange
for (i) one or more newly issued Series of Notes and (ii) a new Transferor
Interest evidenced by book-entry notation in the Register (a "Principal
Exchange"). The Transferor Exchange and Principal Exchange are referred to
collectively herein as an "Exchange". The Holder of the Transferor Interest may
perform an Exchange by notifying the Trustee in writing at least five days (but
in no event less than three Business Days) in advance (an "Exchange Notice") of
the date upon which the Exchange is to occur (an "Exchange Date"). Any Exchange
Notice shall state the designation of any Series to be issued on the Exchange
Date and, with respect to each such Series: (a) its Initial Principal Amount (or
the method of calculating such Initial Principal Amount), (b) its Note Rate (or
the method of allocating interest payments or other cash flows to such Series),
if any, (c) the Enhancement Provider(s), if any, with respect to such Series,
and (d) whether such Series is a Replacement Series. On the Exchange Date, the
Trustee shall execute, authenticate and deliver any such Series of Notes only
<PAGE>
upon delivery to it of the following: (a) a Supplement in form satisfactory to
the Trustee satisfying the criteria set forth in subsection 6.12(c) executed by
the Transferor and specifying the Principal Terms of such Series, (b) the
applicable Enhancement, if any, (c) the agreement, if any, pursuant to which the
Enhancement Provider(s) agree(s) to provide the Enhancement, if any, (d) a Tax
Opinion with respect to the newly issued Series of Notes, (e) proof that the
Rating Agency Condition with respect to the Exchange has been satisfied, (f) an
Officer's Certificate of the Transferor that on the Exchange Date (i) after
giving effect to the Exchange, and any Additional Lease being transferred to the
Trust on the Exchange Date pursuant to subsection 2.6(a), no Pay Out Event or an
event which with notice or lapse of time or both would constitute a Pay Out
Event shall have occurred and (ii) after giving effect to such Exchange, the
Asset Base would at least equal the Aggregate Adjusted Principal Amount, and (g)
evidence, satisfactory to the Trustee, of any deposit to a Distribution Account
required in connection with the issuance of a Replacement Series. Upon
satisfaction of such conditions, the Trustee shall cancel the existing
Transferor Interest or applicable Notes, as the case may be, and issue or make
an appropriate entry in the Register, as the case may be and as provided above,
such Series of Notes and a new Transferor Interest, dated the Exchange Date.
There is no limit to the number of Exchanges that may be performed under this
Agreement.
(c) In conjunction with an Exchange, the parties hereto shall
execute a Supplement, which shall specify the relevant terms with respect to any
newly issued Series of Notes, which may include without limitation: (i) its name
or designation, (ii) an Initial Principal Amount or the method of calculating
the Initial Principal Amount, (iii) the Note Rate (or formula for the
determination thereof), (iv) the Closing Date, (v) the Rating Agency or Agencies
rating such Series, (vi) the name of the Clearing Agency, if any, (vii) the
rights of the Holder of the Transferor Interest that have been transferred to
the Holders of such Series pursuant to such Exchange, (viii) the interest
payment date or dates and the date or dates from which interest shall accrue,
(ix) the method of allocating amounts to such Series pursuant to Article IV and,
if applicable, with respect to other Series and the method by which the
principal amount of Notes of such Series shall amortize or accrue, (x) the names
of any accounts to be used by such Series and the terms governing the operation
of any such accounts, (xi) the Series Termination Date, (xii) the terms of any
Enhancement with respect to such Series, (xiii) the Enhancement Provider(s), if
applicable, (xiv) the terms on which the Notes of such Series may be repurchased
or remarketed to other investors, (xv) any deposit into any account provided for
such Series, (xvi) the number of Classes of such Series, and if more than one
Class, the rights and priorities of each such Class, (xvii) the priority of any
Series with respect to any other Series, and (xviii) any other relevant terms of
such Series (including whether or not such Series will be pledged as collateral
for an issuance of any other
<PAGE>
securities, including commercial paper or whether or not such Series is a
Replacement Series) (all such terms, the "Principal Terms" of such Series). The
terms of such Supplement may modify or amend the terms of this Agreement solely
as applied to such new Series.
Section 6.13 Note Transfer Restrictions.
(a) Unless otherwise provided in the related Supplement, in
the case of any Notes issued by the Trust for which an Opinion of Counsel is not
delivered that such Class of Notes will be treated as debt for federal income
tax purposes (a "Restricted Note"), no sale, assignment, participation, transfer
or other disposition (a "Transfer") of any such Restricted Note (or any interest
therein) shall be made unless the Transferor and the Servicer shall have granted
their prior consent to such Transfer, which consent shall not be unreasonably
withheld. Moreover, in no event shall a transfer of a Restricted Note be
permitted to a partnership, S corporation or grantor trust. The Transferor and
Servicer shall not approve a Transfer of a Restricted Note and consent will be
deemed to be reasonably withheld if the Transfer creates a substantial risk that
the Trust would be taxable as a corporation for federal income tax purposes. Any
Holder of a Restricted Note which wishes to effect a Transfer must deliver to
the Transferor and the Servicer the following representation prior to the
Transfer:
The Purchaser has neither acquired nor will it sell, trade, assign or
otherwise dispose of the Note(s) (or any interest therein) or cause the
Note(s) (or any interest therein) to be marketed on or through (i) an
"established securities market" within the meaning of section
7704(b)(1) of the Code, including, without limitation, an
over-the-counter market or an interdealer quotation system that
regularly disseminates firm buy or sell quotations or (ii) a "secondary
market" within the meaning of section 7704(b)(2) of the Code, including
a market wherein the Notes (or any interests therein) are regularly
quoted by any person making a market in such interests and a market
wherein any person regularly makes available bid or offer quotes with
respect to the Notes (or any interest therein) and stands ready to
effect buy or sell transactions at the quoted prices for itself or on
behalf of others.
If the Transferor and Servicer do not object to the Transfer within 5 Business
Days of the receipt of the above representation, the Transfer Agent and
Registrar shall record the Transfer.
(b) The Transferor shall designate 20% of the principal amount
of each Class of Notes of a Series which is issued by the Trust for which an
Opinion of Counsel is not delivered that such Class of Notes will be treated as
debt for federal income tax purposes ("Restricted Subclass Notes") to be
<PAGE>
subject to the following transfer restrictions in addition to those described in
subparagraph (a) of this Section: (i) if Restricted Subclass Notes are held by
the Transferor, such Notes will only be transferable with the consent of a
majority in interest of each Class of Notes for which an Opinion of Counsel is
not delivered that such Class of Notes will be treated as debt for federal
income tax purposes and a majority in interest of the holders of each issuance
of constituent interests in the Transferor Interest and (ii) if Restricted
Subclass Notes are held by a Person other than the Transferor, such Notes will
only be transferable with the consent of the Transferor, a majority in interest
of each Class of Notes for which an Opinion of Counsel is not delivered that
such Class of Notes will be treated as debt for federal income tax purposes and
a majority in interest of the holders of any constituent interests in the
Transferor Interest.
Section 6.14 Constituent Transferor Interests.
(a) Subject to the satisfaction of the conditions set forth in
Section 6.14(c) and Section 6.3(b), the Holder of the Transferor Interest may at
any time and from time to time create a constituent interest in the Transferor
Interest by (i) authorizing or directing the Trustee to issue an interest in the
Trust that is payable from amounts that are otherwise allocable to the
Transferor Interest, or (ii) authorizing or directing the Trustee to reallocate
all or any portion of the amounts distributable to the Holder of the Transferor
Interest pursuant to Article IV and Article V to any other Holder. In connection
with such issuance or reallocation, the Transferor may assign an interest rate
to the Transferor Interest(s) or a portion thereof. Upon presentation to the
Trustee and the Paying Agent of documentation satisfactory to the Trustee (to
which the Trustee may be a party, if requested by the Transferor) reallocating
payments with respect to the Transferor Interest, the Paying Agent shall pay
amounts due hereunder to the Holder of the Transferor Interest or to the holders
of such constituent interests, as the case may be, pursuant to the terms of such
documentation. The minimum denomination of issuance of any constituent interest
in the Transferor Interest will be $20,000.
(b) The documentation referred to in subsection (a) of this
Section 6.14 shall set forth the rights of the holders of the interests issued
thereby with respect to the approval of amendments and waivers pursuant to
Section 13.1.
(c) As a condition precedent to the issuance of the
constituent interests pursuant to this Section 6.14, (A) the Trustee and the
Transferor shall have received an opinion of outside tax counsel to the effect
that (i) the constituent interests issued and sold to third parties will be
characterized as indebtedness or an interest in a partnership (not taxable as a
corporation) for federal income tax purposes, (ii) the issuance of the
constituent interests will not cause outstanding Notes to be characterized as
other than indebtedness for federal income
<PAGE>
tax purposes and (iii) the issuance of the constituent interests will not be
treated as a taxable sale, exchange or other disposition of the Trust Assets for
federal income tax purposes, (B) in the reasonable belief of the Transferor, as
evidenced by an Officer's Certificate, such issuance of constituent interests
would not cause a Pay Out Event to occur, or an event which, with notice or
lapse of time or both, would constitute a Pay Out Event, and (C) the Rating
Agency Condition shall have been satisfied.
(d) Any holder who wishes to effect a Transfer of a
constituent interest must deliver to the Transferor and the Servicer the
representation set forth in Section 6.13.
ARTICLE VII
OTHER MATTERS RELATING TO TRANSFEROR
Section 7.1 Liability of Transferor. The Transferor shall be
liable in accordance herewith to the extent, and only to the extent, of the
obligations specifically undertaken by the Transferor hereunder.
Section 7.2 Merger or Consolidation of, or Assumption
of the Obligations of, Transferor, etc.
(a) Transferor shall not consolidate with or merge into any
other Person or convey or transfer its properties and assets substantially as an
entirety to any Person, unless:
(i) the Person formed by such consolidation or into
which Transferor is merged or the Person which acquires by conveyance
or transfer the properties and assets of the Transferor substantially
as an entirety shall be, if the Transferor is not the surviving entity,
organized and existing under the laws of the United States of America
or any State or the District of Columbia and shall expressly assume, by
an agreement supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the performance of every
covenant and obligation of the Transferor, as applicable hereunder, and
shall benefit from all the rights granted to the Transferor, as
applicable hereunder;
(ii) the Transferor shall have delivered to the Trustee
and, to the extent provided in the related Supplement, to each
Enhancement Provider, an Officer's Certificate of Transferor and an
Opinion of Counsel, each stating that such consolidation, merger,
conveyance or transfer and such supplemental agreement comply with this
Section 7.2 and that all conditions precedent herein provided for
relating to such transaction have been complied with and, in the case
of the Opinion of Counsel, that such
<PAGE>
supplemental agreement is legal, valid and binding with
respect to such surviving entity;
(iii) the Transferor shall have complied with Section
6.3(b) to the extent applicable; and
(iv) the Transferor shall have delivered notice of such
consolidation, merger, conveyance or transfer to each Rating Agency
and, with respect to each Series that is rated by a Rating Agency, the
Rating Agency Condition shall have been satisfied and, with respect to
each other Series, the consent thereto of the Required Holders has been
obtained.
(b) The obligations of the Transferor hereunder shall not be
assignable nor shall any Person succeed to the obligations of the Transferor
hereunder except for mergers, consolidations, assumptions or transfers in
accordance with the provisions of the foregoing paragraph.
Section 7.3 Limitation on Liability of Transferor. Except as
expressly provided herein, neither the Transferor nor any of the directors,
officers, employees and agents of the Transferor shall be under any liability to
the Trust, the Trustee, the Noteholders, the Holder of the Transferor Interest
or any other Person for any action taken or for refraining from the taking of
any action pursuant to this Agreement whether arising from express or implied
duties under this Agreement, it being expressly understood that all such
liability is expressly waived and released as a condition of, and as
consideration for, the execution of this Agreement and any Supplement and the
issuance of the Notes and the book-entry notation in the Register evidencing the
Transferor Interest; provided, however, that the Transferor hereby assumes
liability for any liabilities, costs or expenses of the Trust arising under any
tax law, including without limitation any foreign, federal, state or local
income or franchise taxes or any other tax imposed on or measured by income (or
any interest or penalties with respect thereto or arising from a failure to
comply therewith) required to be paid by the Trust in connection herewith to any
taxing authority; provided, further, that this provision shall not protect
Transferor or any such Person against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of willful misconduct hereunder. The
Transferor and any director, officer, employee and agent of the Transferor may
rely in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder.
Section 7.4 Liabilities. A creditor of the Trust may seek
personal satisfaction from the Transferor to the extent that the Trust assets
are insufficient to satisfy the creditor's claims as though this Agreement
created a partnership under the Delaware Uniform Partnership law in which the
Transferor is the general partner; provided, however, that the Transferor shall
not
<PAGE>
be liable to or indemnify or hold harmless the Trustee, the Noteholders or the
Collateral Trustee or any of its respective officers, directors, employees or
agents as to any loss, liability, expense, damage or injury suffered or
sustained by reason of fraud, negligence or willful misconduct on the part of
the Trustee or the Collateral Trustee, as the case may be, or any of its
respective officers, directors, employees or agents; and provided further,
however, that, in no event will the Transferor be liable, directly or
indirectly, for or in respect of any indebtedness evidenced or created by any
Note or the Transferor Interest, recourse as to which shall be limited solely to
the assets of the Trust allocated for the payment thereof as provided in this
Agreement and any applicable Supplement.
Section 7.5 Decisions with Respect to the Trust. Transferor
agrees that all decisions with respect to the Trust that are not, pursuant to
the terms of this Agreement, otherwise required to be made by other parties, are
to be made by the Transferor.
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER
Section 8.1 Liability of the Servicer. The Servicer shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer in such capacity herein.
Section 8.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer. The Servicer shall not consolidate with or merge
into any other Person or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(i) the Person formed by such consolidation or into
which the Servicer is merged or the Person which acquires by conveyance
or transfer the properties and assets of the Servicer substantially as
an entirety shall be, if the Servicer is not the surviving entity,
organized and existing under the laws of the United States of America
or any State or the District of Columbia and shall expressly assume, by
an agreement supplemental hereto, executed and delivered to the Trustee
in form satisfactory to the Trustee, the performance of every covenant
and obligation of the Servicer hereunder, and shall benefit from all
the rights granted to the Servicer, as applicable hereunder;
(ii) the Servicer has delivered to the Trustee and each
Enhancement Provider an Officer's Certificate and an Opinion of Counsel
each stating that such consolidation, merger, conveyance or transfer
and such supplemental agreement comply with this Section 8.2 and that
all
<PAGE>
conditions precedent herein provided for relating to such transaction
have been complied with and, in the case of the Opinion of Counsel,
that such supplemental agreement is legal, valid and binding with
respect to such surviving entity;
(iii) the Servicer shall have delivered notice of such
consolidation, merger, conveyance or transfer to each of the Rating
Agencies; and
(iv) after giving effect thereto, no Pay Out Event or an
event which with notice or lapse of time or both would constitute a Pay
Out Event shall have occurred.
Section 8.3 Limitation on Liability of the Servicer and
Others. Except as provided herein, neither the Servicer nor any of the directors
or officers or employees or agents of the Servicer shall be under any liability
to the Trust, the Trustee, the Noteholders, the Holder of the Transferor
Interest or any other Person for any action taken or for refraining from the
taking of any action pursuant to this Agreement whether arising from express or
implied duties under this Agreement; provided, however, that this provision
shall not protect the Servicer or any such Person against any liability which
would otherwise be imposed by reason of its willful misfeasance, bad faith or
negligence in the performance of duties or by reason of its willful misconduct
hereunder. The Servicer and any director or officer or employee or agent of the
Servicer may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
Section 8.4 Indemnification of the Trust, the Trustee and the
Collateral Trustee. The Servicer shall indemnify and hold harmless the
Transferor, the Trust, the Trustee (and its officers, directors, employees and
agents) and the Collateral Trustee (and its officers, directors, employees and
agents) from and against any loss, liability, expense, damage or injury suffered
or sustained by reason of any acts, omissions or alleged acts or omissions
arising out of activities of the Trust, the Trustee or the Collateral Trustee
pursuant to this Agreement, including those arising from acts or omissions of
the Servicer pursuant to this Agreement, including, but not limited to any
judgment, award, settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim; provided, however, that the Servicer shall not
indemnify the Transferor, the Trust, the Trustee or the Collateral Trustee if
such acts, omissions or alleged acts (other than its own) constitute willful
misfeasance, bad faith or negligence by such Person; provided further, that the
Servicer shall not indemnify the Transferor, the Trust, the Trustee or the
Collateral Trustee (or, directly or indirectly, any Noteholders or any Note
Owners), for any liabilities, costs or expenses of the Transferor or the Trust
<PAGE>
with respect to any action taken by the Trustee or the Collateral Trustee, as
the case may be, at the request of any Noteholders; provided further, that the
Servicer shall not indemnify the Transferor or the Trust (or, directly or
indirectly, any Noteholders or any Note Owners) as to any losses, claims or
damages incurred by any of them in their capacities as investors, including
without limitation losses incurred as a result of Defaulted Leases which are
written off as uncollectible; and provided further, that the Servicer shall not
indemnify the Trust, the Trustee, the Collateral Trustee (or, directly or
indirectly, any Noteholders or the Note Owners) for any liabilities, costs or
expenses of the Trust, the Trustee, the Collateral Trustee (or, directly or
indirectly, any Noteholders or the Note Owners) arising under any tax law,
including without limitation any federal, state or local income or franchise
taxes or any other tax imposed on or measured by income (or any interest or
penalties with respect thereto or arising from a failure to comply therewith)
required to be paid by the Trust, such Noteholders or such Note Owners in
connection herewith to any taxing authority. The provisions of this indemnity
shall run directly to and be enforceable by an injured party subject to the
limitations hereof.
Any indemnification pursuant to this Section shall not be
payable from the Trust Assets.
The obligations of the Servicer under this Section 8.4 shall
survive the termination of the Trust and the removal of the Servicer and the
resignation or removal of the Trustee and/or the Collateral Trustee.
Notwithstanding the foregoing, the Servicer shall not be responsible for the
actions of a successor servicer.
Section 8.5 The Servicer Not to Resign. The Servicer shall not
resign from the obligations and duties hereby imposed on it except upon
determination that (i) the performance of its duties hereunder is or becomes
impermissible under applicable law and (ii) there is no reasonable action which
the Servicer could take to make the performance of its duties hereunder
permissible under applicable law. Any such determination permitting the
resignation of the Servicer shall be evidenced as to clause (i) above by an
Opinion of Counsel to such effect delivered to the Trustee. No such resignation
shall become effective until the Trustee or a Successor Servicer shall have
assumed the responsibilities and obligations of the Servicer in accordance with
Section 10.2. If the Trustee is unable within 120 days of the date of such
determination to appoint a Successor Servicer, the Trustee shall serve as
successor Servicer hereunder subject to the provisions of Section 10.2 hereof.
Section 8.6 Access to Certain Documentation and Information
Regarding the Included Leases. To the extent that documentation regarding
Included Leases and related Equipment is not otherwise held in custody by the
Trustee, the Servicer shall provide to the Trustee access to the documentation
regarding such
<PAGE>
Included Leases and the related Equipment in such cases where the Trustee is
required in connection with the enforcement of the rights of the Trust, or by
applicable statutes or regulations to review such documentation, such access
being afforded without charge but only (i) upon reasonable request, (ii) during
normal business hours, (iii) subject to the Servicer's normal security and
confidentiality procedures and (iv) at offices designated by the Servicer.
Section 8.7 Delegation of Duties. Any delegation of duties
permitted under Article III shall not relieve the Servicer of its liability and
responsibility with respect to such duties, and shall not constitute a
resignation within the meaning of Section 8.5.
Section 8.8 Contents of Records. The Servicer shall clearly
and unambiguously identify each Included Lease and the related Equipment in its
computer or other records to reflect that such Leases and Equipment have been
transferred by the Transferor to the Trust pursuant to this Agreement.
ARTICLE IX
PAY OUT EVENTS
Section 9.1 Pay Out Events. If any one of the
following events shall occur with respect to any Series:
(a) failure on the part of the Transferor:
(i) to make any payment or deposit required by the
terms of (A) the Agreement, or (B) any Supplement, on or
before the date occurring three Business Days after the date
such payment or deposit is required to be made; or
(ii) duly to observe or perform in any material respect
any covenants or agreements applicable to it set forth in the
Agreement or any Supplement, which failure has a material
adverse effect on the Noteholders of such Series and which
continues unremedied for a period of 60 days after the first
to occur of (A) the date on which written notice of such
failure, requiring the same to be remedied, shall have been
given to the Transferor by the Trustee, or to the Transferor
and the Trustee by the Holders of a principal amount of Notes
aggregating not less than 25% of the Principal Amount of any
Series adversely affected thereby or (B) the date on which a
Responsible Officer of the Servicer becomes aware of such
failure, and such failure continues to affect materially and
adversely the interests of such Noteholders for such period;
or
<PAGE>
(b) any representation or warranty made by the Transferor in
this Agreement or any Supplement, or any information contained in a
computer file or microfiche list required to be delivered by the
Transferor pursuant to Section 2.1 or 2.6, shall prove to have been
incorrect in any material respect when made or when delivered, which
continues to be incorrect in any material respect for a period of 60
days after the first to occur of (A) the date on which written notice
of such failure, requiring the same to be remedied, shall have been
given to the Transferor by the Trustee, or to the Transferor and the
Trustee by the Holders of a principal amount of Notes aggregating not
less than 25% of the Principal Amount of any Series adversely affected
thereby and (B) the date on which a Responsible Officer of the
Transferor becomes aware of such incorrectness, and as a result of
which the interests of the Noteholders are materially and adversely
affected and continue to be materially and adversely affected for such
period; provided, however, that a Pay Out Event pursuant to this
subsection 9.1(b) shall not be deemed to have occurred hereunder if the
Transferor has accepted reassignment of the related Lease, or all of
such Leases, if applicable, during such period in accordance with the
provisions hereof; or
(c) an Insolvency Event shall occur with respect to the
Transferor or the Servicer; or
(d) any Servicer Default shall occur; or
(e) any Note has not been paid in full on or before its
Scheduled Termination Date; or
(f) the Trust or Transferor shall become an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended;
then, and in any such event described in subparagraph (a), (b) or (d), after the
applicable grace period set forth in such subparagraphs, either the Trustee or
the Holders of a principal amount of Notes aggregating more than 662/3% of the
Aggregate Principal Amount by notice then given in writing to the Transferor and
the Servicer (and to the Trustee if given by the Noteholders) may declare that a
pay out event (a "Trust Pay Out Event") has occurred as of the date of such
notice and in the case of any event described in subparagraph (c), (e) or (f) a
Pay Out Event shall occur immediately upon the occurrence of such event without
any notice or other action on the part of the Trustee or the Noteholders.
Notwithstanding the foregoing, a delay in or failure of performance referred to
in subsection 9.1(a)(i) for a period of ten Business Days, or under subsection
9.1(a)(ii) or 9.1(b) for a period of 60 days, in each case without giving effect
to any grace period specified in such subsections, shall not constitute a Pay
Out Event for purposes of this sentence until the expiration of such period, if
such
<PAGE>
failure could not be prevented by the exercise of reasonable diligence by the
Transferor or the Servicer and such failure was caused by (i) an act of God or
the public enemy, acts of declared or undeclared war, public disorder,
rebellion, riot or sabotage, epidemics, landslides, lightning, fire, hurricanes,
tornadoes, earthquakes, nuclear disasters or meltdowns, floods, power outages,
bank closings, or similar causes or (ii) computer malfunction, communication
malfunction or other electronic system malfunction or similar causes. The
preceding sentence shall not relieve the Transferor or the Servicer from using
all reasonable efforts to perform their respective obligations in a timely
manner in accordance with the terms of this Agreement and any Supplement and the
Transferor or the Servicer shall provide the Trustee and each Rating Agency with
an Officer's Certificate giving prompt notice of such failure, together with a
description of its efforts to so perform its obligations. Notice of any such Pay
Out Event shall be given by the Servicer to the Rating Agencies.
Section 9.2 Additional Rights Upon the Occurrence of Certain
Events. (a) If an Insolvency Event occurs with respect to the Transferor, the
Transferor shall promptly give notice to the Trustee thereof. Within 15 days
after a Responsible Officer of the Trustee receives notice of the Insolvency
Event or otherwise learns of an Insolvency Event, the Trustee shall (i) publish
a notice in an Authorized Newspaper that an Insolvency Event has occurred and
that the Trustee intends to sell, dispose of or otherwise liquidate the Trust
Assets in a commercially reasonable manner and (ii) send written notice to the
Noteholders describing the provisions of this Section 9.2 and requesting
instructions from such Holders. If after 30 days from the day notice pursuant to
clause (i) above is first published (the "Publication Date"), the Trustee shall
not have received written instructions from a majority in interest of the
Holders of each Class of Notes of a Series which is issued by the Trust for
which an Opinion of Counsel is not delivered that such Class of Notes will be
treated as debt for federal income tax purposes and a majority in interest of
the holders of each issuance of constituent interests in the Transferor Interest
to the effect that the Trustee shall not instruct the Servicer to sell, dispose
of, or otherwise liquidate the Trust Assets, the Trustee, subject to the
following proviso, shall instruct the Servicer to proceed to take such
preparatory actions as the Trustee may deem appropriate in order to sell,
dispose of, or otherwise liquidate the Trust Assets in a commercially reasonable
manner and on commercially reasonable terms, which shall include the
solicitation of competitive bids; provided, however, no such sale, disposition
or liquidation, whether in whole or in part, of the Trust Assets shall be
consummated until and unless the occurrence of refusal to provide the written
response referred to above within the 30 days described above (a "Response").
The Trustee may obtain a prior determination from any bankruptcy trustee,
conservator or receiver that the terms and manner of any proposed sale,
disposition or liquidation are commercially
<PAGE>
reasonable. The provisions of Sections 9.1 and 9.2 shall not be
deemed to be mutually exclusive.
(b) The proceeds from the sale, disposition or liquidation of
the Trust Assets pursuant to subsection (a) above shall be treated as
Collections on the Included Leases and shall be allocated and deposited in
accordance with the provisions of Article IV. On the day following the
Distribution Date on which such proceeds are scheduled to be distributed to the
Noteholders, the Trust shall terminate.
ARTICLE X
SERVICER DEFAULTS
Section 10.1 Servicer Defaults. If any one of the
following events (a "Servicer Default") shall occur and be
continuing:
(a) any failure by the Servicer to make any payment, transfer
or deposit or to give instructions or notice to the Trustee pursuant to
Article IV or to make any required drawing, withdrawal, or payment
under any Enhancement, or to deliver any required monthly servicing
report hereunder on or before the date occurring three Business Days
after the date such payment, transfer, deposit, withdrawal or drawing,
or such instruction or notice or report is required to be made or
given, as the case may be, under the terms of this Agreement; or
(b) failure on the part of the Servicer duly to observe or
perform in any material respect any other covenants or agreements of
the Servicer set forth in this Agreement or any Supplement which has a
material adverse effect on the Noteholders and the Holder of the
Transferor Interest, which continues unremedied for a period of 30 days
after the first to occur of (A) the date on which written notice of
such failure requiring the same to be remedied shall have been given to
the Servicer by the Trustee, or to the Servicer and the Trustee by the
Holders of a principal amount of Notes aggregating not less than 25% of
the Principal Amount of any Series adversely affected thereby and (B)
the date on which a Responsible Officer of the Servicer becomes aware
thereof and such failure continues to materially adversely affect such
Noteholders for such period; or
(c) any representation, warranty or certification made by the
Servicer in this Agreement or any Supplement or in any certificate
delivered pursuant to this Agreement or any Supplement shall prove to
have been incorrect when made, which has a material adverse effect on
the Noteholders and the Holder of the Transferor Interest and which
continues to
<PAGE>
be incorrect in any material respect for a period of 30 days after the
first to occur of (A) the date on which written notice of such
incorrectness requiring the same to be remedied shall have been given
to the Servicer by the Trustee, or to the Servicer and the Trustee by
the Holders of a principal amount of Notes aggregating not less than
25% of the Principal Amount of any Series adversely affected thereby
and (B) the date on which a Responsible Officer of the Servicer becomes
aware thereof, and such incorrectness continues to materially adversely
affect such Holders for such period; or
(d) an Insolvency Event shall occur with respect to the
Servicer; or
(e) the Servicer delegates any of its duties hereunder except
to the extent such delegation is permitted hereunder; or
(f) as of the last day of any fiscal quarter of the Servicer
the consolidated net worth of the Servicer is less than $6,000,000;
then, so long as such Servicer Default shall not have been remedied, either the
Trustee or the Holders of a principal amount of Notes aggregating more than
662/3% of the Aggregate Principal Amount, by notice then given in writing to the
Servicer (and to the Trustee if given by the Noteholders) (a "Termination
Notice"), may terminate all of the rights and obligations of the Servicer as
Servicer under this Agreement. After receipt by the Servicer of such Termination
Notice, and on the date that a Successor Servicer shall have been appointed by
the Trustee pursuant to Section 10.2, all authority and power of the Servicer
under this Agreement shall pass to and be vested in a Successor Servicer; and,
without limitation, the Trustee is hereby authorized and empowered (upon the
failure of the Servicer to cooperate) to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, all documents and other instruments
upon the failure of the Servicer to execute or deliver such documents or
instruments, and to do and accomplish all other acts or things necessary or
appropriate to effect the purposes of such transfer of servicing rights. The
Servicer agrees to cooperate with the Trustee and such Successor Servicer in
effecting the termination of the responsibilities and rights of the Servicer to
conduct servicing hereunder, including without limitation, the transfer to such
Successor Servicer of all authority of the Servicer to service the Trust Assets
provided for under this Agreement, including, without limitation, all authority
over all Collections which shall on the date of transfer be held by the Servicer
for deposit, or which have been deposited by the Servicer, in any Collection
Account or Series Account, or which shall thereafter be received with respect to
the Trust Assets, and in assisting the Successor Servicer and in enforcing all
rights to Insurance Proceeds. The Servicer shall
<PAGE>
promptly transfer the Lease Files and its electronic records relating to the
Included Leases to the Successor Servicer in such electronic form as the
Successor Servicer may reasonably request and shall promptly transfer to the
Successor Servicer all other records, correspondence and documents necessary for
the continued servicing of the Included Leases in the manner and at such times
as the Successor Servicer shall reasonably request. To the extent that
compliance with this Section 10.1 shall require the Servicer to disclose to the
Successor Servicer information of any kind which the Servicer reasonably deems
to be confidential, the Successor Servicer shall be required to enter into such
customary licensing and confidentiality agreements as the Servicer shall deem
reasonably necessary to protect its interest. The Servicer shall, on the date of
any servicing transfer, transfer all of its rights and obligations, if any, in
respect of any Enhancement to the Successor Servicer. In connection with any
servicing transfer, all reasonable costs and expenses (including reasonable
attorneys' fees and expenses) incurred in connection with transferring the
Included Leases and the other Trust Assets to the Successor Servicer and
amending this Agreement to reflect such succession as Successor Servicer
pursuant to this Section 10.1 and Section 10.2 shall be paid by the Servicer
(unless the Trustee is acting as the Servicer, in which case the original
Servicer) upon presentation of reasonable documentation of such costs and
expenses.
Notwithstanding the foregoing, a delay in or failure of
performance referred to in subsection 10.1(a) for a period of ten Business Days,
or under subsection 10.1(b), (c) or (e) for a period of 60 days, in each case
without giving effect to any grace period specified in such subsections, shall
not constitute a Servicer Default if such delay or failure could not have been
prevented by the exercise of reasonable diligence by the Servicer and such delay
or failure was caused by an act of God or public enemy, acts of declared or
undeclared war, public disorder, rebellion, riot or sabotage, epidemics,
landslides, lightning, fire, hurricanes, tornadoes, earthquakes, nuclear
disasters or meltdowns, floods, power outages, bank closings, communications
malfunction, computer malfunction or other electronic system malfunction or
similar causes. The preceding sentence shall not relieve the Servicer from using
its best efforts to perform its obligations in a timely manner in accordance
with the terms of this Agreement and the Servicer shall provide the Trustee and
the Transferor with an Officer's Certificate giving prompt notice of such
failure or delay by it, together with a description of the cause of such failure
or delay and its efforts so to perform its obligations.
Section 10.2 Trustee to Act; Appointment of Successor. (a) On
and after the receipt by the Servicer of a Termination Notice pursuant to
Section 10.1, the Servicer shall continue to perform all servicing functions
under this Agreement until the date specified in the Termination Notice or
otherwise specified by the Trustee in writing or, if no such date is specified
in
<PAGE>
such Termination Notice or otherwise specified by the Trustee, until a date
mutually agreed upon by the Servicer and the Trustee. The Trustee shall as
promptly as possible after the giving of a Termination Notice appoint a
successor servicer (the "Successor Servicer"), and such Successor Servicer shall
accept its appointment by a written assumption in a form acceptable to the
Trustee. If the Trustee is unable to appoint any successor servicer and the
Servicer delivers an Officer's Certificate to the effect that it cannot in good
faith cure the Servicer Default which gave rise to a transfer of servicing, then
the Trustee shall offer the Servicer the right to accept retransfer of all the
Trust Assets and the Servicer may accept retransfer of all the Trust Assets,
provided, however, that if the long-term unsecured debt obligations of the
Servicer are not rated at the time of such purchase at least investment grade by
each Rating Agency, no such retransfer shall occur unless the Servicer shall
deliver an Opinion of Counsel reasonably acceptable to the Trustee that such
retransfer would not constitute a fraudulent conveyance of the Servicer. The
retransfer deposit amount for such a retransfer shall be equal to the sum of the
Aggregate Principal Amount, plus accrued interest thereon, at the Note Rate,
through the date of retransfer. In the event that a Successor Servicer has not
been appointed and has not accepted its appointment at the time when the
Servicer ceases to act as Servicer, the Trustee without further action shall
automatically be appointed the Successor Servicer. Notwithstanding the above,
the Trustee shall, if it is legally unable so to act, petition a court of
competent jurisdiction to appoint any established financial institution having a
net worth of not less than $20,000,000 and whose regular business includes the
servicing of Leases as the Successor Servicer hereunder.
(b) Upon its appointment, the Successor Servicer shall be the
successor in all respects to the Servicer with respect to servicing functions
under this Agreement and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Servicer by the terms and
provisions hereof, and all references in this Agreement to the Servicer shall be
deemed to refer to the Successor Servicer. Any Successor Servicer, by its
acceptance of its appointment, will automatically agree to be bound by the terms
and provisions of any Enhancement to the extent that such terms apply to the
Servicer.
(c) In connection with such appointment and assumption, the
Trustee shall be entitled to such compensation, or may make such arrangements
for the compensation of the Successor Servicer out of Collections, as it and
such Successor Servicer shall agree; provided, however, that no such
compensation shall be in excess of the Monthly Servicing Fee.
(d) All authority and power granted to the Servicer under this
Agreement shall automatically cease and terminate upon termination of the Trust
pursuant to Section 12.1 and shall pass to and be vested in the Transferor and,
without limitation, the
<PAGE>
Transferor is hereby authorized and empowered to execute and deliver, on behalf
of the Servicer, as attorney-in-fact or otherwise, all documents and other
instruments, and to do and accomplish all other acts or things necessary or
appropriate to effect the purposes of such transfer of servicing rights. The
Servicer agrees to cooperate with the Transferor in effecting the termination of
the responsibilities and rights of the Servicer to conduct servicing on the
Included Leases.
Section 10.3 Notification to Holders. Upon the Servicer's
becoming aware of the occurrence of any Servicer Default, the Servicer shall
give prompt written notice thereof to the Trustee and the Trustee shall give
notice to the Noteholders at their respective addresses appearing in the
Register. Upon any termination or appointment of a Successor Servicer pursuant
to this Article X, the Trustee shall give prompt written notice thereof to the
Noteholders at their respective addresses appearing in the Register. A copy of
any notice given pursuant to this Section 10.3 shall be delivered by the
Servicer to each Rating Agency.
Section 10.4 Waiver of Past Defaults. The Holders of a
principal amount of Notes aggregating not less than 662/3% of the Principal
Amount of each Series affected thereby may, on behalf of all Noteholders and the
Holder of the Transferor Interest, waive any default by the Servicer or the
Transferor in the performance of its obligations hereunder and its consequences,
except a default in the failure to make any required deposits or payments in
accordance with Article IV, provided, however, that no such waiver shall affect
any rights of, or obligations to, any Enhancement Provider hereunder. Upon any
such waiver of a past default, such default shall cease to exist, and any
default arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereon except to the extent
expressly so waived.
ARTICLE XI
THE TRUSTEE AND THE COLLATERAL TRUSTEE
Section 11.1 Duties of Trustee.
(a) The Trustee, prior to the occurrence of a Servicer Default
of which a Responsible Officer of the Trustee has actual knowledge and after the
curing of all Servicer Defaults which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Agreement, and no implied duties or covenants shall be read into this Agreement
against the Trustee. If a Responsible Officer of the Trustee has received notice
that a Servicer Default has occurred (which has not been cured or waived), the
Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the
<PAGE>
same degree of care and skill in the exercise of such rights and powers, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs, provided, however, that if the Trustee shall assume
the duties of the Servicer pursuant hereto, the Trustee in performing such
duties shall use the degree of skill and attention customarily exercised by a
servicer with respect to comparable Leases that it services for itself or
others.
(b) The Trustee, upon receipt of all resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments furnished to the Trustee which are specifically required to be
furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they reasonably conform to the requirements of this Agreement.
The Trustee shall give prompt written notice to all Holders of any material lack
of conformity of any such instrument to the applicable requirements of this
Agreement discovered by the Trustee which would entitle a specified percentage
of the Holders to take any action pursuant to this Agreement. Notwithstanding
the foregoing, prior to the occurrence of a Servicer Default actually known to a
Responsible Officer of the Trustee, the Trustee shall have no obligation to
independently calculate, recompute, verify or confirm any information received
from the Servicer.
(c) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct; provided, however, that:
(i) the Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(ii) the Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it in
good faith in accordance with the direction of the Holders of a
principal amount of Notes aggregating more than 50% of the Principal
Amount of any Series relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Agreement; and
(iii) the Trustee shall not be charged with knowledge of
any failure by the Servicer to comply with the obligations of the
Servicer referred to in Section 10.1 or any Pay Out Event unless a
Responsible Officer of the Trustee obtains actual knowledge of such
failure or Pay Out Event or the Trustee receives written notice of such
failure from the Servicer or any Holders of a principal amount of
<PAGE>
Notes aggregating not less than 10% of the Principal Amount of any
Series.
(d) The Trustee shall not be required to expend or risk its
own funds or otherwise incur financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if
there is reasonable ground for believing that the repayment of such funds or
indemnity against satisfactory to it such risk or liability is not reasonably
assured to it, and none of the provisions contained in this Agreement shall in
any event require the Trustee to perform, or be responsible for the manner of
performance of, any of the obligations of the Servicer under this Agreement
except during such time, if any, as the Trustee shall be the successor to, and
be vested with the rights, duties, powers and privileges of, the Servicer in
accordance with the terms of this Agreement.
(e) Except for actions expressly authorized by this Agreement,
the Trustee shall take no action reasonably likely to impair the interests of
the Trust in the Trust Assets now existing or hereafter arising or to impair the
value of any Included Lease.
(f) Except as provided in Sections 2.6 and 2.7, the Trustee
shall have no power to vary the corpus of the Trust, including, without
limitation, the power to (i) accept any substitute obligation for a Lease
initially assigned to the Trust under Section 2.1 or 2.6, (ii) add any other
investment, obligation or security to the Trust or (iii) withdraw from the Trust
any Leases, except for a withdrawal permitted under subsection 2.4(d) or 2.4(e),
Article IV, or Section 9.2 or 12.1.
(g) In the event that to the actual knowledge of a Responsible
Officer of the Trustee the Paying Agent or the Transfer Agent and Registrar
shall fail to perform any obligation, duty or agreement in the manner or on the
day required to be performed by the Paying Agent or the Transfer Agent and
Registrar, as the case may be, under this Agreement, the Trustee shall be
obligated promptly to perform such obligation, duty or agreement in the manner
so required.
(h) If the Transferor has agreed to transfer any of its Leases
to another Person, upon the written request of the Transferor, the Trustee on
behalf of the Trust will enter into such intercreditor agreements with the
transferee of such Leases as are customary and necessary to identify the rights
of the Trust and such other Person, as the case may be, in the Transferor's
Leases: provided, that the Trust shall not enter into any intercreditor
agreement which could reasonably be expected to adversely affect the interests
of itself or the Noteholders and the Holder of the Transferor Interest and, upon
the request of the Trustee, the Transferor will deliver an Opinion of Counsel on
any matters relating to such intercreditor agreement, requested by the Trustee.
<PAGE>
Section 11.2 Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 11.1:
(a) the Trustee may rely on and shall be protected in
acting on, or in refraining from acting in accordance with, any
resolution, Officer's Certificate, certificate of auditors or any other
certificate, statement, instrument, opinion, report, notice, request,
consent, order, appraisal, bond or other paper or document believed by
it to be genuine and to have been signed or presented to it pursuant to
this Agreement by the proper party or parties;
(b) the Trustee may consult with counsel and any advice
from counsel or Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered
or omitted by it hereunder in good faith and in accordance with such
advice or Opinion of Counsel;
(c) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Agreement, or
to institute, conduct or defend any litigation hereunder or in relation
hereto, at the request, order or direction of any of the Noteholders or
the Holder of the Transferor Interest or any Enhancement Provider,
pursuant to the provisions of this Agreement, unless such Holders or
such Enhancement Provider shall have offered to the Trustee security or
indemnity satisfactory to it against the costs, expenses and
liabilities which may be incurred therein or thereby; provided,
however, that nothing contained herein shall relieve the Trustee of the
obligations, upon the occurrence of any Servicer Default (which has not
been cured) of which a Responsible Officer of the Trustee has actual
knowledge, to exercise such of the rights and powers vested in it by
this Agreement or any Enhancement, and to use the same degree of care
and skill in their exercise as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs;
(d) the Trustee shall not be liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Agreement;
(e) the Trustee shall not be bound to make any investigation
into the facts of matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent,
order, approval, bond or other paper or document, unless requested in
writing so to do by Holders of a principal amount of Notes aggregating
more than 50% of the Principal Amount of any Series, provided, however,
that if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the
making of such
<PAGE>
investigation shall be, in the sole discretion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the
terms of this Agreement, the Trustee may require indemnity satisfactory
to it against such cost, expense or liability as a condition to so
proceeding;
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys or a custodian or nominee, and the Trustee
shall not be responsible for the supervision of or any misconduct or
negligence on the part of any such agent, attorney, custodian or
nominee appointed with due care by it hereunder;
(g) except as may be required pursuant to subsection 11.1(a),
the Trustee shall not be required to make any initial or periodic
examination of any documents or records related to the Included Leases
or the related Equipment for the purpose of establishing the presence
or absence of defects, the compliance by the Transferor with its
representations and warranties or for any other purpose; and
(h) the right of the Trustee to perform any discretionary act
enumerated in this Agreement or any Supplement shall not be construed
as a duty, and the Trustee shall not be answerable for other than its
negligence or willful misconduct in the performance of any such act.
(i) in the event that the Trustee is the Paying Agent,
Transfer Agent or Registrar, the rights and protections afforded to the
Trustee hereunder shall also be afforded to the Trustee acting in such
other capacities.
Section 11.3 Trustee Not Liable for Recitals in Notes. The
Trustee assumes no responsibility for the correctness of the recitals contained
herein and in the Notes (other than the certificate of authentication on the
Notes). Except as set forth in Section 11.15, the Trustee makes no
representations as to the validity or sufficiency of this Agreement or any
Supplement or of the Notes and the Transferor Interest (other than the
certificate of authentication on the Notes) or of any Lease or related document.
The Trustee shall not be accountable for the use or application by the
Transferor of any of the Notes or the Transferor Interest or of the proceeds
thereof, or for the use or application of any funds paid to the Transferor in
respect of the Included Leases or deposited in the Collection Account, the
Excess Funding Account or any other Series Account, or withdrawn from the
Collection Account, by the Servicer. The Trustee shall have no duty to conduct
any affirmative investigation as to the occurrence of any condition requiring
the repurchase of any Lease by the Transferor pursuant to this Agreement or any
Supplement or the eligibility of any Lease for purposes of this Agreement or any
Supplement. The Trustee shall have no responsibility for
<PAGE>
filing any financing or continuation statement in any public office at any time
or to otherwise perfect or maintain the perfection of any security interest or
lien granted to it hereunder (unless the Trustee shall have become the Successor
Servicer) or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Agreement or any Supplement.
Section 11.4 Trustee May Own Notes. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes, and
may deal with the Transferor, the Servicer or any Enhancement Provider, with the
same rights as it would have if it were not the Trustee.
Section 11.5 Servicer to Pay Trustee's Fees and Expenses. The
Servicer covenants and agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to receive, compensation as agreed upon (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) for all services rendered by it in the execution of
the trust hereby created and in the exercise and performance of any of the
powers and duties hereunder of the Trustee, and, subject to Section 8.4, the
Servicer will pay or reimburse the Trustee (without reimbursement from any
Series Account or otherwise) upon its request for all reasonable expenses,
disbursements and advances, if any, incurred or made by the Trustee in
accordance with any of the provisions of this Agreement (including the fees and
reasonable expenses of its agents and counsel) except any such expense,
disbursement or advance as may arise from its negligence or bad faith and except
as provided in the following sentence. If the Trustee is appointed Successor
Servicer pursuant to Section 10.2, the provisions of this Section 11.5 shall not
apply to expenses, disbursements and advances made or incurred by the Trustee in
its capacity as Successor Servicer.
The obligations of the Servicer under this Section 11.5 shall
survive the termination of the Trust and the resignation or removal of the
Trustee.
In the case of a sale, disposition or liquidation of the Trust
Assets pursuant to subsection 9.2(a), the Trustee shall be entitled to retain
from any amounts distributable to the Transferor pursuant to any Supplement with
respect to any Series from the proceeds of such sale, disposition or liquidation
an amount equal to the Trustee's expenses in connection with such sale,
disposition or liquidation and the performance by the Trustee of the procedures
set forth in subsection 9.2(a).
Whenever the Trustee incurs expenses after the occurrence of
an Insolvency Event with respect to the Transferor or Servicer, the expenses are
intended to constitute expenses of administration under Title 11 of the United
States Code or any
<PAGE>
other applicable federal or state bankruptcy, insolvency or
similar law.
Section 11.6 Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be a corporation organized and doing business under
the laws of the United States of America or any state thereof authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $100,000,000 and subject to supervision or examination by
Federal or state authority. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this Section 11.6,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. In addition, no institution shall qualify as a successor trustee
hereunder unless its long-term debt obligations are rated at least investment
grade by each Rating Agency. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 11.6, the Trustee
shall resign immediately in the manner and with the effect specified in Section
11.7.
Section 11.7 Resignation or Removal of Trustee. (a)
---------------------------------
The Trustee may at any time resign and be discharged from the trust hereby
created by giving written notice thereof to the Transferor and the Servicer.
Upon receiving such notice of resignation, the Transferor shall (i) promptly
appoint a successor trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the resigning Trustee and one copy to
the successor trustee and (ii) provide written notice to each Rating Agency of
such resignation. If no successor trustee shall have been so appointed and
have accepted within 30 days after the giving of such notice of resignation,
the resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee.
(b) The Servicer may at any time remove the Trustee and
discharge it from the trust hereby created and appoint a successor trustee if
(i) no Pay Out Event shall have occurred and is continuing and (ii) the Rating
Agency Condition shall have been satisfied with respect thereto, by giving
written notice thereof to the Trustee, provided, that all amounts then owing to
the Trustee shall have been paid in full prior to any such removal.
(c) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 11.6 and shall fail to resign after
written request therefor by the Transferor, or if at any time the Trustee shall
be legally unable to act, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation,
<PAGE>
conservation or liquidation, then the Transferor may, but shall not be required
to, remove the Trustee and promptly appoint a successor trustee by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee.
(d) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this Section 11.7
shall not become effective until acceptance of appointment by the successor
trustee as provided in Section 11.8.
Section 11.8 Successor Trustee. (a) Any successor trustee
appointed as provided in Section 11.7 shall execute, acknowledge and deliver to
the Transferor and to its predecessor Trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor Trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become fully vested with all the
rights, powers, duties and obligations of its predecessor hereunder, with like
effect as if originally named as Trustee herein. The predecessor Trustee shall
deliver to the successor trustee all documents and statements held by it
hereunder; and Transferor and the predecessor Trustee shall execute and deliver
such instruments and do such other things as may reasonably be required for
fully and certainly vesting and confirming in the successor trustee all such
rights, powers, duties and obligations.
(b) No successor trustee shall accept appointment as provided
in this Section 11.8 unless at the time of such acceptance such successor
trustee shall be eligible under the provisions of Section 11.6.
(c) Upon acceptance of appointment by a successor trustee as
provided in this Section 11.8, such successor trustee shall mail notice of such
succession hereunder to all Noteholders and the Holder of the Transferor
Interest at their addresses as shown in the Register, and also to each Rating
Agency.
Section 11.9 Merger or Consolidation of Trustee. Any
----------------------------------
Person into which the Trustee may be merged or converted or with
which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which the Trustee shall be
a party, or any Person succeeding to all or substantially all of
the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation
shall be eligible under the provisions of Section 11.6, without
the execution or filing of any paper or any further act on the
part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 11.10 Appointment of Co-Trustee or Separate
Trustee. (a) Notwithstanding any other provisions of this
<PAGE>
Agreement, at any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust may at the time be located, the
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders
and the Holder of the Transferor Interest, such title to the Trust, or any part
thereof, and, subject to the other provisions of this Section 11.10, such
powers, duties, obligations, rights and trusts as the Trustee may consider
necessary or desirable. No co-trustee or separate trustee hereunder shall be
required to meet the terms of eligibility as a successor trustee under Section
11.6 and no notice to Noteholders and the Holder of the Transferor Interest of
the appointment of any co-trustee or separate trustee shall be required under
Section 11.8.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed
upon and exercised or performed by the Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Trustee joining in such act), except to the extent that under any laws
of any jurisdiction in which any particular act or acts are to be
performed (whether as Trustee hereunder or as successor to the Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or any portion
thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the
direction of the Trustee;
(ii) no trustee hereunder shall be liable by reason of
any act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the resignation
of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article XI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided
<PAGE>
therein, subject to all the provisions of this Agreement, specifically including
every provision of this Agreement relating to the conduct of, affecting the
liability of, or affording protection to, the Trustee. Every such instrument
shall be filed with the Trustee and a copy thereof given to the Servicer.
(d) Any separate trustee or co-trustee may at any time
constitute the Trustee its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 11.11 Tax Returns. As set forth in Section 3.13, the
Trustee shall not file any federal tax returns on behalf of the Trust; provided,
however, that if the Trust shall be required to file tax returns, the Servicer,
as soon as practicable after it is made aware of such requirement, shall prepare
or cause to be prepared, and the Trustee is authorized hereunder to sign, any
tax returns required to be filed by the Trust and, to the extent possible, the
Servicer shall deliver such returns to the Trustee at least five days before
such returns are due to be filed. The Servicer shall prepare or shall cause to
be prepared all tax information required by law to be distributed to Noteholders
and the Holder of the Transferor Interest and shall deliver such information to
the Trustee at least five days prior to the date it is required by law to be so
distributed to Holders. The Trustee, upon written request, will furnish the
Servicer with all such information known to the Trustee as may be reasonably
required in connection with the preparation of all tax returns of the Trust. In
no event shall the Trustee or the Servicer be liable for any liabilities, costs
or expenses of the Trust, the Noteholders or the Note Owners arising under any
tax law, including without limitation federal, state or local income or excise
taxes or any other tax imposed on or measured by income (or any interest or
penalty with respect thereto or arising from a failure to comply therewith).
Nothing in this Section 11.11 shall be construed as inconsistent with the
characterization of the Notes as indebtedness of the Transferor for purposes of
federal, state and local income or franchise taxes and any other tax imposed
upon or measured by income, as expressed in Section 3.13.
Section 11.12 Trustee May Enforce Claims Without Possession of
Notes. All rights of action and claims under this Agreement or the Notes and the
Transferor Interest may be prosecuted and enforced by the Trustee without the
possession of any of the Notes and the Transferor Interest, or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name as trustee. Any recovery of
judgment shall, after provision
<PAGE>
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Noteholders and the Holder of the Transferor Interest in respect of which
such judgment has been obtained.
Section 11.13 Suits for Enforcement. If a Servicer Default of
which a Responsible Officer of the Trustee has actual knowledge shall occur and
be continuing, the Trustee, in its discretion, may, subject to the provisions of
Section 10.1, proceed to protect and enforce its rights and the rights of the
Noteholders and the Holder of the Transferor Interest under this Agreement or
any Supplement by a suit, action or proceeding in equity or at law or otherwise,
whether for the specific performance of any covenant or agreement contained in
this Agreement or any Supplement or in aid of the execution of any power granted
in this Agreement or any Supplement or for the enforcement of any other legal,
equitable or other remedy as the Trustee, being advised by counsel, shall deem
most effectual to protect and enforce any of the rights of the Trustee or such
Holders.
Section 11.14 Rights of Holders to Direct Trustee. Holders of
a principal amount of Notes aggregating more than 50% of the Aggregate Principal
Amount (or, with respect to any remedy, trust or power that does not relate to
all Series, 50% of the aggregate unpaid principal amount of the Notes of all
Series to which such remedy, trust or power relates) shall have the right to
direct the time, method, and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee; provided, however, that, subject to Section 11.1, the Trustee shall
have the right to decline to follow any such direction if the Trustee being
advised by counsel determines that the action so directed may not lawfully be
taken, or if the Trustee in good faith shall, by a Responsible Officer or
Responsible Officers of the Trustee, determine that the proceedings so directed
would be illegal or involve it in personal liability or be unduly prejudicial to
the rights of Noteholders not parties to such direction; and provided further
that nothing in this Agreement shall impair the right of the Trustee to take any
action deemed proper by the Trustee and which is not inconsistent with such
direction.
Section 11.15 Representations and Warranties of
Trustee. The Trustee represents and warrants that:
(i) The Trustee is a banking corporation organized,
existing and in good standing under the laws of the State of New York;
(ii) The Trustee is an entity that satisfies the
eligibility requirements of Section 11.6;
<PAGE>
(iii) The Trustee has full power, authority and right to
execute, deliver and perform this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance
by it of this Agreement; and
(iv) This Agreement has been duly executed and delivered
by the Trustee.
Section 11.16 Maintenance of Office or Agency. The Trustee
will maintain at its expense in the Borough of Manhattan, The City of New
York, an office or offices or agency or agencies where notices and demands to
or upon the Trustee in respect of the Notes and this Agreement may be served.
The Trustee initially appoints its Corporate Trust Office as its office for
such purposes in New York. The Trustee will give prompt written notice to the
Servicer and to the Noteholders and the Holder of the Transferor Interest of
any change in the location of the Register or any such office or agency.
Section 11.17 Release of Collateral Trustee's Lien. Whenever
under this Agreement the Trustee retransfers Trust Assets to the Transferor, the
security interest in favor of the Collateral Trustee in such Included Leases and
the related Equipment will be automatically released upon such retransfer.
Whenever under this Agreement an Included Lease becomes an Expired Lease or an
Early Termination Lease, the security interest in favor of the Collateral
Trustee in such Included Lease will be automatically released upon such event.
Whenever under this Agreement the Servicer substitutes or replaces any unit of
Equipment as contemplated in Section 3.1 or any Included Lease and related
Equipment as contemplated in Section 2.7 or 2.8, the security interest in favor
of the Collateral Trustee in such unit of Equipment or Included Lease and
related Equipment, as applicable, will be automatically released upon such
event. In connection with any such release, the Collateral Trustee will execute
and deliver to the Trustee (with a copy to the Servicer) any assignments,
termination statements and any other releases and instruments as the Trustee or
the Servicer may request in order to effect such release.
Section 11.18 Requests for Agreement. A copy of this Agreement
may be obtained by any Holder by a request in writing to the Trustee addressed
to the Corporate Trust Office and will be provided at the expense of the
Transferor.
Section 11.19 Duties of Collateral Trustee.
(a) The Collateral Trustee, prior to the occurrence of a Pay
Out Event of which a Responsible Officer of the Collateral Trustee has actual
knowledge and after the curing of all Pay Out Events which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement, and no implied duties or covenants shall be read into
this Agreement against the Collateral Trustee. If a Responsible
<PAGE>
Officer of the Collateral Trustee has received notice that a Pay Out Event has
occurred (which has not been cured or waived), the Collateral Trustee shall
exercise such of the rights and powers vested in it by this Agreement, and use
the same degree of care and skill in the exercise of such rights and powers, as
a prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) In the absence of bad faith on its part, the Collateral
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Collateral Trustee and conforming to the requirements of this
Agreement; provided, however, that the Collateral Trustee shall examine the
certificates and opinions to determine whether or not they conform to any
applicable requirements of this Agreement.
(c) No provision of this Agreement shall be construed to
relieve the Collateral Trustee from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct; provided, however,
that:
(i) the Collateral Trustee shall not be personally
liable for an error of judgment made in good faith by a Responsible
Officer or Responsible Officers of the Collateral Trustee, unless it
shall be proved that the Collateral Trustee was negligent in
ascertaining the pertinent facts;
(ii) the Collateral Trustee shall not be personally
liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the
Holders of a principal amount of Notes aggregating more than 50% of the
Principal Amount of any Series relating to the time, method and place
of conducting any proceeding for any remedy available to the Collateral
Trustee, or exercising any trust or power conferred upon the Collateral
Trustee, under this Agreement; and
(iii) the Collateral Trustee shall not be charged with
knowledge of any Pay Out Event unless a Responsible Officer of the
Collateral Trustee obtains actual knowledge of such Pay Out Event.
(d) The Collateral Trustee shall not be required to expend or
risk its own funds or otherwise incur financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers,
if there is reasonable ground for believing that the repayment of such funds or
indemnity against satisfactory to it such risk or liability is not reasonably
assured to it, and none of the provisions contained in this Agreement shall in
any event require the Collateral Trustee to perform, or be responsible for the
manner
<PAGE>
of performance of, any of the obligations of the Servicer under
this Agreement.
(e) Except for actions expressly authorized by this Agreement,
the Collateral Trustee shall take no action reasonably likely to impair the
interests of the Trust in the Trust Assets now existing or hereafter arising or
to impair the value of any Included Lease.
Section 11.20 Certain Matters Affecting the Collateral
Trustee. Except as otherwise provided in Section 11.19:
(a) the Collateral Trustee may rely on and shall be
protected in acting on, or in refraining from acting in accordance
with, any resolution, Officer's Certificate, certificate of auditors or
any other certificate, statement, instrument, opinion, report, notice,
request, consent, order, appraisal, bond or other paper or document
believed by it to be genuine and to have been signed or presented to it
pursuant to this Agreement by the proper party or parties;
(b) the Collateral Trustee may consult with counsel and
any advice from counsel or Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken or
suffered or omitted by it hereunder in good faith and in accordance
with such advice or Opinion of Counsel;
(c) the Collateral Trustee shall be under no obligation
to exercise any of the rights or powers vested in it by this Agreement,
or to institute, conduct or defend any litigation hereunder or in
relation hereto, at the request, order or direction of any of the
Noteholders or any Enhancement Provider, pursuant to the provisions of
this Agreement, unless such Holders or such Enhancement Provider shall
have offered to the Collateral Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which
may be incurred therein or thereby; provided, however, that nothing
contained herein shall relieve the Collateral Trustee of the
obligations, upon the occurrence of any Pay Out Event (which has not
been cured) of which a Responsible Officer of the Collateral Trustee
has actual knowledge, to exercise such of the rights and powers vested
in it by this Agreement or any Enhancement, and to use the same degree
of care and skill in their exercise as a prudent person would exercise
or use under the circumstances in the conduct of such person's own
affairs;
(d) the Collateral Trustee shall not be liable for any
action taken, suffered or omitted by it in good faith and believed by
it to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement;
<PAGE>
(e) the Collateral Trustee shall not be bound to make any
investigation into the facts of matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval, bond or other paper or document, unless
requested in writing so to do by Holders of a principal amount of Notes
aggregating more than 50% of the Principal Amount of any Series,
provided, however, that if the payment within a reasonable time to the
Collateral Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation shall be, in the
sole discretion of the Collateral Trustee, not reasonably assured to
the Collateral Trustee by the security afforded to it by the terms of
this Agreement, the Collateral Trustee may require indemnity
satisfactory to it against such cost, expense or liability as a
condition to so proceeding;
(f) the Collateral Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys or a custodian or nominee, and the
Collateral Trustee shall not be responsible for the supervision of or
any misconduct or negligence on the part of any such agent, attorney,
custodian or nominee appointed with due care by it hereunder;
(g) the Collateral Trustee shall not be required to make any
initial or periodic examination of any documents or records related to
the Included Leases or the related Equipment for the purpose of
establishing the presence or absence of defects, the compliance by the
Transferor with its representations and warranties or for any other
purpose; and
(h) the right of the Collateral Trustee to perform any
discretionary act enumerated in this Agreement or any Supplement shall
not be construed as a duty, and the Collateral Trustee shall not be
answerable for other than its negligence or willful misconduct in the
performance of any such act.
(i) in the event that the Collateral Trustee is the Paying
Agent, Transfer Agent or Registrar, the rights and protections afforded
to the Collateral Trustee hereunder shall also be afforded to the
Collateral Trustee acting in such other capacities.
Section 11.21 Collateral Trustee Not Liable for Recitals in
Notes. The Collateral Trustee assumes no responsibility for the correctness of
the recitals contained herein and in the Notes. Except as set forth in Section
11.32, the Collateral Trustee makes no representations as to the validity or
sufficiency of this Agreement or any Supplement or of the Notes and the
Transferor Interest or of any Lease or related
<PAGE>
document. The Collateral Trustee shall not be accountable for the use or
application by the Transferor of any of the Notes or the Transferor Interest or
of the proceeds thereof, or for the use or application of any funds paid to the
Transferor in respect of the Included Leases or deposited in the Collection
Account, the Excess Funding Account or any other Series Account, or withdrawn
from the Collection Account, by the Servicer. The Collateral Trustee shall have
no duty to conduct any affirmative investigation as to the occurrence of any
condition requiring the repurchase of any Lease by the Transferor pursuant to
this Agreement or any Supplement or the eligibility of any Lease for purposes of
this Agreement or any Supplement. The Collateral Trustee shall have no
responsibility for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the perfection of any
security interest or lien granted to it hereunder or to prepare or file any
Securities and Exchange Commission filing for the Trust or to record this
Agreement or any Supplement.
Section 11.22 Collateral Trustee May Own Notes. The Collateral
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes, and may deal with the Transferor, the Servicer or any Enhancement
Provider, with the same rights as it would have if it were not the Collateral
Trustee.
Section 11.23 Servicer to Pay Collateral Trustee's Fees and
Expenses. The Servicer covenants and agrees to pay to the Collateral Trustee
from time to time, and the Collateral Trustee shall be entitled to receive,
compensation as agreed upon (which shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust) for all services
rendered by it in the execution of the trust hereby created and in the exercise
and performance of any of the powers and duties hereunder of the Collateral
Trustee, and, subject to Section 8.4, the Servicer will pay or reimburse the
Collateral Trustee (without reimbursement from any Series Account or otherwise)
upon its request for all reasonable expenses, disbursements and advances, if
any, incurred or made by the Collateral Trustee in accordance with any of the
provisions of this Agreement (including the fees and reasonable expenses of its
agents and counsel) except any such expense, disbursement or advance as may
arise from its negligence or bad faith and except as provided in the following
sentence.
The obligations of the Servicer under this Section 11.23 shall
survive the termination of the Trust and the resignation or removal of the
Collateral Trustee.
Whenever the Collateral Trustee incurs expenses after the
occurrence of an Insolvency Event with respect to the Transferor or Servicer,
the expenses are intended to constitute expenses of administration under Title
11 of the United States
<PAGE>
Code or any other applicable federal or state bankruptcy, insolvency or similar
law.
Section 11.24 Eligibility Requirements for Collateral Trustee.
The Collateral Trustee hereunder shall at all times be a corporation organized
and doing business under the laws of the United States of America or any state
thereof authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $100,000,000 and subject to supervision
or examination by Federal or state authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purpose of
this Section 11.24, the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In addition, no institution shall qualify as a
Successor Collateral Trustee hereunder unless its long-term debt obligations are
rated at least investment grade by each Rating Agency. In case at any time the
Collateral Trustee shall cease to be eligible in accordance with the provisions
of this Section 11.24, the Collateral Trustee shall resign immediately in the
manner and with the effect specified in Section 11.25.
Section 11.25 Resignation or Removal of Collateral Trustee.
(a) The Collateral Trustee may at any time resign and be discharged from the
trust hereby created by giving written notice thereof to the Transferor and the
Servicer. Upon receiving such notice of resignation, the Transferor shall (i)
promptly appoint a successor collateral trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Collateral Trustee and one copy to the successor collateral trustee and (ii)
provide written notice to each Rating Agency of such resignation. If no
successor collateral trustee shall have been so appointed and have accepted
within 30 days after the giving of such notice of resignation, the resigning
Collateral Trustee may petition any court of competent jurisdiction for the
appointment of a successor collateral trustee.
(b) The Servicer may at any time remove the Collateral Trustee
and discharge it from the trust hereby created and appoint a successor
Collateral Trustee if (i) no Pay Out Event shall have occurred and be continuing
and (ii) the Rating Agency Condition shall have been satisfied with respect
thereto, by giving written notice thereof to the Collateral Trustee.
(c) If at any time the Collateral Trustee shall cease to be
eligible in accordance with the provisions of Section 11.24 and shall fail to
resign after written request therefor by the Transferor, or if at any time the
Collateral Trustee shall be legally unable to act, or shall be adjudged a
bankrupt or insolvent, or a receiver of the Collateral Trustee or of its
property shall be appointed, or any public officer shall take
<PAGE>
charge or control of the Collateral Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Transferor
may, but shall not be required to, remove the Collateral Trustee and promptly
appoint a successor collateral trustee by written instrument, in duplicate, one
copy of which instrument shall be delivered to the Collateral Trustee so removed
and one copy to the successor collateral trustee.
(d) Any resignation or removal of the Collateral Trustee and
appointment of a successor collateral trustee pursuant to any of the provisions
of this Section 11.25 shall not become effective until acceptance of appointment
by the successor collateral trustee as provided in Section 11.26.
Section 11.26 Successor Collateral Trustee. (a) Any
successor collateral trustee appointed as provided in Section 11.25 shall
execute, acknowledge and deliver to the Transferor, the Trustee and to its
predecessor Collateral Trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor
Collateral Trustee shall become effective and such successor collateral
trustee, without any further act, deed or conveyance, shall become fully
vested with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Collateral Trustee
herein. The predecessor Collateral Trustee shall deliver to the successor
collateral trustee all documents and statements held by it hereunder; and
Transferor and the predecessor Collateral Trustee shall execute and deliver
such instruments and do such other things as may reasonably be required for
fully and certainly vesting and confirming in the successor collateral trustee
all such rights, powers, duties and obligations.
(b) No successor collateral trustee shall accept appointment
as provided in this Section 11.26 unless at the time of such acceptance such
successor collateral trustee shall be eligible under the provisions of Section
11.24.
(c) Upon acceptance of appointment by a successor collateral
trustee as provided in this Section 11.26, such successor collateral trustee
shall mail notice of such succession hereunder to all Noteholders and the Holder
of the Transferor Interest at their addresses as shown in the Register, and also
to each Rating Agency.
Section 11.27 Merger or Consolidation of Collateral Trustee.
Any Person into which the Collateral Trustee may be merged or converted or with
which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Collateral Trustee shall be a party, or
any Person succeeding to all or substantially all of the corporate trust
business of the Collateral Trustee, shall be the successor of the Collateral
Trustee hereunder, provided such corporation shall be
<PAGE>
eligible under the provisions of Section 11.24, without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
Section 11.28 Appointment of Co-Collateral Trustee or Separate
Collateral Trustee. (a) Notwithstanding any other provisions of this Agreement,
at any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust may at the time be located, the
Collateral Trustee shall have the power and may execute and deliver all
instruments to appoint one or more Persons to act as a co-collateral trustee or
co-collateral trustees, or separate collateral trustee or separate collateral
trustees, of all or any part of the Trust, and to vest in such Person or
Persons, in such capacity and for the benefit of the Noteholders and the Holder
of the Transferor Interest, such title to the Trust, or any part thereof, and,
subject to the other provisions of this Section 11.28, such powers, duties,
obligations, rights and trusts as the Collateral Trustee may consider necessary
or desirable. No co-collateral trustee or separate collateral trustee hereunder
shall be required to meet the terms of eligibility as a successor collateral
trustee under Section 11.24 and no notice to Noteholders and the Holder of the
Transferor Interest of the appointment of any co-collateral trustee or separate
collateral trustee shall be required under Section 11.26.
(b) Every separate collateral trustee and co-collateral
trustee shall, to the extent permitted by law, be appointed and act subject to
the following provisions and conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Collateral Trustee shall be conferred or
imposed upon and exercised or performed by the Collateral Trustee and
such separate collateral trustee or co-collateral trustee jointly (it
being understood that such separate collateral trustee or co-collateral
trustee is not authorized to act separately without the Collateral
Trustee joining in such act), except to the extent that under any laws
of any jurisdiction in which any particular act or acts are to be
performed (whether as Collateral Trustee hereunder or as successor to
the Servicer hereunder), the Collateral Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to the
Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate collateral trustee or
co-collateral trustee, but solely at the direction of the Collateral
Trustee;
(ii) no collateral trustee hereunder shall be liable by
reason of any act or omission of any other collateral trustee
hereunder; and
<PAGE>
(iii) the Collateral Trustee may at any time accept the
resignation of or remove any separate collateral trustee or
co-collateral trustee.
(c) Any notice, request or other writing given to the
Collateral Trustee shall be deemed to have been given to each of the then
separate collateral trustees and co-collateral trustees, as effectively as if
given to each of them. Every instrument appointing any separate collateral
trustee or co-collateral trustee shall refer to this Agreement and the
conditions of this Article XI. Each separate collateral trustee and
co-collateral trustee, upon its acceptance of the trusts conferred, shall be
vested with the estates or property specified in its instrument of appointment,
either jointly with the Collateral Trustee or separately, as may be provided
therein, subject to all the provisions of this Agreement, specifically including
every provision of this Agreement relating to the conduct of, affecting the
liability of, or affording protection to, the Collateral Trustee. Every such
instrument shall be filed with the Collateral Trustee and a copy thereof given
to the Servicer.
(d) Any separate collateral trustee or co-collateral trustee
may at any time constitute the Collateral Trustee its agent or attorney-in-fact
with full power and authority, to the extent not prohibited by law, to do any
lawful act under or in respect of this Agreement on its behalf and in its name.
If any separate collateral trustee or co-collateral trustee shall die, become
incapable of acting, resign or be removed, all of its estates, properties,
rights, remedies and trusts shall vest in and be exercised by the Collateral
Trustee, to the extent permitted by law, without the appointment of a new or
successor collateral trustee.
Section 11.29 Collateral Trustee May Enforce Claims Without
Possession of Notes. All rights of action and claims under this Agreement or the
Notes may be prosecuted and enforced by the Collateral Trustee without the
possession of any of the Notes, or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Collateral Trustee
shall be brought in its own name as trustee. Any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Collateral Trustee, its agents and counsel, be
for the ratable benefit of the Noteholders in respect of which such judgment has
been obtained.
Section 11.30 Suits for Enforcement. If a Pay Out Event of
which a Responsible Officer of the Collateral Trustee has actual knowledge shall
occur and be continuing, the Collateral Trustee, in its discretion, may, subject
to the provisions of Article IX, proceed to protect and enforce its rights and
the rights of the Noteholders under this Agreement or any Supplement by a suit,
action or proceeding in equity or at law or otherwise, whether for the specific
performance of any
<PAGE>
covenant or agreement contained in this Agreement or any Supplement or in aid of
the execution of any power granted in this Agreement or any Supplement or for
the enforcement of any other legal, equitable or other remedy as the Collateral
Trustee, being advised by counsel, shall deem most effectual to protect and
enforce any of the rights of the Collateral Trustee or such Holders.
Section 11.31 Rights of Holders to Direct Collateral Trustee.
Holders of a principal amount of Notes aggregating more than 50% of the
Aggregate Principal Amount (or, with respect to any remedy, trust or power that
does not relate to all Series, 50% of the aggregate unpaid principal amount of
the Notes of all Series to which such remedy, trust or power relates) shall have
the right to direct the time, method, and place of conducting any proceeding for
any remedy available to the Collateral Trustee, or exercising any trust or power
conferred on the Collateral Trustee; provided, however, that, subject to Section
11.19, the Collateral Trustee shall have the right to decline to follow any such
direction if the Collateral Trustee being advised by counsel determines that the
action so directed may not lawfully be taken, or if the Collateral Trustee in
good faith shall, by a Responsible Officer or Responsible Officers of the
Collateral Trustee, determine that the proceedings so directed would be illegal
or involve it in personal liability or be unduly prejudicial to the rights of
Noteholders not parties to such direction; and provided further that nothing in
this Agreement shall impair the right of the Collateral Trustee to take any
action deemed proper by the Collateral Trustee and which is not inconsistent
with such direction.
Section 11.32 Representations and Warranties of
Collateral Trustee. The Collateral Trustee represents and
warrants that:
(i) The Collateral Trustee is a banking corporation
organized, existing and in good standing under the laws of the State of
New York;
(ii) The Collateral Trustee is an entity that satisfies
the eligibility requirements of Section 11.24;
(iii) The Collateral Trustee has full power, authority
and right to execute, deliver and perform this Agreement, and has taken
all necessary action to authorize the execution, delivery and
performance by it of this Agreement; and
(iv) This Agreement has been duly executed and delivered
by the Collateral Trustee.
Section 11.33 Limitation of Liability. It is expressly
understood and agreed by the parties hereto that (a) this Agreement is
executed and delivered by Bankers Trust
<PAGE>
Company, not individually or personally but solely (i) as Trustee of the Trust
and (ii) as Collateral Trustee of the Trust, in the exercise of the powers and
authority conferred and vested in it, (b) except with respect to Section 11.15
(with respect to the Trustee) and Section 11.32 (with respect to the Collateral
Trustee) hereof the representations, undertakings and agreements herein made on
the part of the Trust are made and intended not as personal representations,
undertakings and agreements by the Trustee or the Collateral Trustee, as
applicable, but are made and intended for the purpose of binding only the Trust,
(c) nothing herein contained shall be construed as creating any liability on the
Trustee or the Collateral Trustee, individually or personally, to perform any
covenant of the Trust either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties who are signatories to
this Agreement and by any Person claiming by, through or under such parties;
provided, however, that the Trustee or the Collateral Trustee, as applicable,
shall be liable in its individual capacity for its own willful misconduct or
negligence and for any tax assessed against it based on or measured by any fees,
commission or compensation received by it for acting as Trustee or Collateral
Trustee, as applicable, and (d) under no circumstances shall the Trustee or the
Collateral Trustee be personally liable for the payment of any indebtedness or
expenses of the Trust or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trust under this
Agreement.
ARTICLE XII
TERMINATION
Section 12.1 Termination of Trust. The respective obligations
and responsibilities of the Transferor, the Servicer, the Trustee and the
Collateral Trustee created hereby (other than the obligation of the Trustee to
make payments to Noteholders and the Holder of the Transferor Interest as
hereafter set forth) shall terminate, except with respect to the duties
described in Sections 7.4, 8.4 and 11.5 and subsections 2.4(c) and 12.3(b), upon
the earlier of (i) the day, if any, designated by the Transferor after the
Distribution Date following the date on which funds shall have been deposited in
the Distribution Account sufficient to pay the Aggregate Principal Amount plus
Note Interest accrued through such Distribution Date in full and (ii) the day on
which final payment is made under the Notes and the Transferor Interest (any
such day under either the preceding clause (i) or this clause (ii) is referred
to as a "Trust Termination Date"); but in no event later than the Final Trust
Termination Date.
<PAGE>
Section 12.2 Optional Purchase and Final Trust
Termination Date of Notes.
(a) If so provided in any Supplement, the Transferor or the
Servicer may, but shall not be obligated to, repurchase Notes of the related
Series by depositing into the related Distribution Account, if any, on the
Transfer Date that is on or immediately preceding the Distribution Date
specified in such Supplement, the amount so specified therein; provided,
however, that if the long-term unsecured debt obligations of the Servicer are
not rated at least Baa-3 by Moody's and BBB- by Standard & Poor's at the time of
such purchase, such purchase shall not occur unless the Transferor shall deliver
an Opinion of Counsel reasonably acceptable to the Trustee that such purchase of
Notes would not constitute a fraudulent conveyance by the Transferor or the
Servicer. On the Distribution Date that is on or following the Transfer Date on
which such deposit is made, the Transferor shall be deemed, automatically and
without requirement for any act on the part of the Transferor, or of any other
Person, to have acquired all outstanding Notes and to have retired the Notes,
thereby resulting in an increase in the Transferor Amount. If so provided in any
Supplement, the Transferor may replace the Notes of such Series with a
Replacement Series; provided that the Transferor shall follow the procedures set
forth in related Supplement.
(b) The Principal Amount of each Series shall be due and
payable no later than the Series Termination Date with respect to such Series.
If on the Determination Date in the third month immediately preceding the month
in which such Series Termination Date occurs, the Adjusted Principal Amount with
respect to such Series would be greater than zero (after giving effect to all
transfers, withdrawals, deposits and drawings to occur on the next Transfer Date
and the payment of principal on the Notes of such Series to be made on the
related Distribution Date pursuant to Article IV), the Servicer shall sell,
dispose of, or otherwise liquidate, in a commercially reasonable manner and on
commercially reasonable terms (which shall include the solicitation of
competitive bids from Persons who are not Affiliates of the Transferor), within
60 days of such Determination Date (a "Series Sale"), an amount of Included
Leases and related Equipment equal to (i) the Adjusted Principal Amount of such
Series determined as of the date of such sale, disposition or liquidation
provided, however, that the Servicer shall give the Transferor at least 15 days'
advance written notice of such sale, disposition or other liquidation.
Notwithstanding the foregoing, if after giving effect to any such sale,
disposition or liquidation and the application of the proceeds thereof, the
Asset Base would be less than the Aggregate Adjusted Principal Amount, the
Servicer shall sell, dispose of, or otherwise liquidate, in the manner specified
above, all Included Leases and related Equipment (a "Pool Sale"). The Transferor
shall have the option, exercisable at any time after the Servicer has obtained
an offer from any Person that is not an
<PAGE>
Affiliate of the Transferor and prior to the consummation of any such sale,
disposition or liquidation by giving notice of the exercise thereof to the
Servicer, to purchase such Leases for cash (payable in immediately payable funds
on the Series Termination Date) for the lesser of (i) 100% of the Discounted
Lease and Residual Balance of such Leases, or (ii) the highest price offered
therefor pursuant to such proposed sale, disposition or other liquidation. In
the case of a Series Sale, the proceeds received upon the sale, disposition or
other liquidation of such Leases in an amount up to (i) the Adjusted Principal
Amount with respect to such Series on the Series Termination Date, plus (ii)
unpaid interest thereon at the Note Rate for each Series as of the Series
Termination Date with respect to such Series, and shall be distributed to the
Holders of the Notes of such Series in final payment thereof pursuant to the
terms of Section 12.3. Proceeds received in excess of the amount to be deposited
as aforesaid shall be treated as Collections on the Included Leases and shall be
allocated and deposited in accordance with the provisions of Article IV. In the
case of a Pool Sale, all proceeds received shall be treated as Collections on
the Included Leases and shall be allocated and deposited in accordance with the
provisions of Article IV.
(c) The amount deposited pursuant to subsections 12.2(a) and
12.2(b) shall be paid to the Noteholders in the manner provided in Section 12.3.
Section 12.3 Final Distributions. (a) Written notice of any
termination, specifying the Distribution Date upon which the Noteholders may
surrender their Notes for payment of the final distribution and cancellation
(unless otherwise specified in a Supplement), shall be given (subject to at
least four Business Days' prior notice from the Servicer to the Trustee) by the
Trustee to Noteholders mailed not later than the fifth day of the month of such
final distribution specifying (a) the Distribution Date (which shall be the
Distribution Date in the month in which the deposit is made pursuant to
subsection 2.4(e), 12.1 or 12.2(a)) upon which final payment of the Notes will
be made upon presentation and surrender of Notes (unless otherwise specified in
a Supplement) at the office or offices therein designated, (b) the amount of any
such final payment and (c) that the Record Date otherwise applicable to such
Distribution Date is not applicable, payments being made only upon presentation
and surrender of the Notes at the office or offices therein specified (unless
otherwise specified in a Supplement). The Servicer's notice to the Trustee in
accordance with the preceding sentence shall be accompanied by an Officer's
Certificate setting forth the information specified in Section 3.5 covering the
period during the then current calendar year through the date of such notice.
The Trustee shall give such notice to the Transfer Agent and Registrar and the
Paying Agent at the time such notice is given to Noteholders.
<PAGE>
(b) All funds on deposit in the related Distribution Account,
if any, in the case of a final payment, pursuant to Section 12.2 and, in the
case of a termination of the Trust, pursuant to Section 12.1 (and
notwithstanding such termination), shall continue to be held in trust for the
benefit of the Noteholders and the Holder of the Transferor Interest and the
Paying Agent or the Trustee shall pay such funds to the appropriate Noteholders
upon surrender of their Notes (unless otherwise specified in a Supplement). In
the event that all of the Noteholders shall not surrender their Notes for
cancellation within six months after the date specified in the above-mentioned
written notice, the Trustee shall give a second written notice to the remaining
Noteholders to surrender their Notes for cancellation and receive the final
distribution with respect thereto. If within one year after the second notice
all the Notes shall not have been surrendered for cancellation, the Trustee may
take appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Noteholders concerning surrender of their Notes, and the
cost thereof shall be paid out of the funds in the Distribution Account held for
the benefit of such Noteholders. The Trustee and the Paying Agent shall pay to
the Transferor upon request any monies held by them for the payment of principal
or interest which remains unclaimed for two years. After payment to the
Transferor, Noteholders entitled to the money must look to the Transferor for
payment as general creditors unless an applicable abandoned property law
designates another Person.
Section 12.4 Termination Rights of the Holder of the
Transferor Interest. Upon the termination of the Trust pursuant to Section 12.1
and the surrender of the Transferor Interest, the Trustee shall return to the
Holder of the Transferor Interest (without recourse, representation or warranty
(other than that the Trustee has not encumbered such Lease and the related
Equipment, except for the grant of a security interest therein to the Collateral
Trustee)) all right, title and interest of the Trust in, to and under the Trust
Assets, except for amounts held by the Trustee pursuant to subsection 12.3(b).
The Trustee shall execute and deliver such instruments of transfer, in each case
prepared by the Transferor and without recourse, representation or warranty as
shall be reasonably requested by the Holder of the Transferor Interest to vest
in the Holder of the Transferor Interest all right, title and interest which the
Trust had in the Trust Assets.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Amendment. (a) This Agreement (including any
Supplement) may be amended from time to time by the Servicer, the Transferor,
the Trustee and the Collateral Trustee, without the consent of any of the
Noteholders and the
<PAGE>
Holder of the Transferor Interest, (i) to cure any ambiguity, to revise any
exhibits or Schedules, to correct or supplement any provisions herein or thereon
or (ii) to add any other provisions with respect to matters or questions raised
under this Agreement which shall not be inconsistent with the provisions of this
Agreement; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, adversely affect in any material respect the interests of
any of the Noteholders.
(b) This Agreement (including any Supplement) may be amended
from time to time by the Servicer, the Transferor, the Trustee and the
Collateral Trustee, without the consent of any of the Noteholders and the Holder
of the Transferor Interest, to modify, eliminate or add to the provisions of
this Agreement to such extent as shall be necessary to effect the qualification
of this Agreement under the Trust Indenture Act of 1939, as amended (the "TIA"),
or under any similar federal statute hereafter enacted and to add to this
Agreement such other provisions as may be expressly required by the TIA.
(c) This Agreement (including any Supplement) may be amended
from time to time by the Servicer, the Transferor, the Trustee and the
Collateral Trustee, without the consent of any of the Noteholders and the Holder
of the Transferor Interest, to eliminate any restrictions on transferability
applicable to any Series, or class thereof, of Notes, to the extent that, in the
Opinion of Counsel, such restrictions are not necessary to comply with Section
7704 of the Code; provided, that prior to any such amendment, an Opinion of
Counsel provided by tax counsel and to that effect shall have been delivered to
the Trustee.
(d) This Agreement and any Supplement may also be amended from
time to time by the Servicer, the Transferor, the Trustee and the Collateral
Trustee with the consent of Noteholders aggregating more than 662/3% of the
Principal Amount of each and every Series adversely affected, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders of any Series then issued and outstanding; provided, however, that
no such amendment under this subsection shall(i) reduce in any manner the amount
of, or delay the timing of, distributions which are required to be made on any
Note of such Series without the consent of all of the related Noteholders; (ii)
change the definition of or the manner of calculating the Principal Amount, or
the Principal Percentage of such Series without the consent of the related
Noteholders or (iii) reduce the aforesaid percentage required to consent to any
such amendment, in each case without the consent of each Noteholder of all
Series affected.
(e) It shall not be necessary to obtain the consent of
Noteholders under this Section 13.1 to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of
<PAGE>
obtaining such consents and of evidencing the authorization of the execution
thereof by Noteholders shall be subject to such reasonable requirements as the
Trustee may prescribe.
(f) Any Supplement executed and delivered pursuant to Section
6.12 and any amendments regarding the addition to or removal of Leases from the
Trust as provided in Sections 2.6 or 2.7, executed in accordance with the
provisions hereof, shall not be considered amendments to this Agreement for the
purpose of Section 13.1.
(g) In connection with any amendment, the Trustee may request,
in addition to the Opinion of Counsel required by subsection 13.2(d), an Opinion
of Counsel from the Transferor or the Servicer to the effect that the amendment
complies with all requirements of this Agreement. For the purposes of this
Section 13.1(g), such Opinion of Counsel may not be provided by internal
counsel. The Trustee may, but shall not be obligated to, enter into any
amendment which affects the Trustee's rights, duties or immunities under this
Agreement or otherwise.
Section 13.2 Protection of Right, Title and Interest to Trust.
(a) The Servicer shall cause this Agreement, all amendments hereto and/or all
financing statements and continuation statements and any other necessary
documents covering the Holders' and the Trustee's right, title and interest to
the Trust Assets to be promptly recorded, registered and filed, and at all times
to be kept recorded, registered and filed, all in such manner and in such places
as may be required by law fully to preserve and protect the right, title and
interest of the Trustee hereunder to all property comprising the Trust Assets.
The Servicer shall deliver to the Trustee file-stamped copies of, or filing
receipts for, any document recorded, registered or filed as provided above, as
soon as available following such recording, registration or filing. The
Transferor shall cooperate fully with the Servicer in connection with the
obligations set forth above and will execute any and all documents reasonably
required to fulfill the intent of this subsection 13.2(a).
(b) Within 30 days after the Transferor makes any change in
its name, identity or corporate structure which would make any financing
statement or continuation statement filed in accordance with paragraph (a) above
seriously misleading within the meaning of Section 9-402 of the UCC as in effect
in the state where such financing statement or continuation statement was filed,
the Transferor shall give the Trustee and the Rating Agencies notice of any such
change and shall file such financing statements or amendments as may be
necessary to continue the perfection of the Trust's security interest in the
Trust Assets and the proceeds thereof.
(c) The Servicer will give the Trustee prompt written notice
of any relocation of any office from which it services
<PAGE>
Included Leases or keeps the Lease Files or of its principal executive office
and whether, as a result of such relocation, the applicable provisions of the
UCC would require the filing of any amendment of any previously filed financing
or continuation statement or of any new financing statement and shall file such
financing statements or amendments as may be necessary to continue the
perfection of the Trust's security interest in the Included Leases and the
proceeds thereof. The Servicer will at all times maintain each office from which
it services Included Leases and its principal executive office within the United
States of America.
(d) The Servicer will deliver to the Trustee: (i)
upon the execution and delivery of each amendment of Articles I, II, III or IV
other than amendments pursuant to subsection 13.1(a), an Opinion of Counsel
substantially in the form of Exhibit I; and (ii) on or before April 15 of each
year, beginning with April 15, 1996, an Opinion of Counsel, dated as of a date
during the preceding 90-day period, substantially in the form of Exhibit J.
Section 13.3 Limitation on Rights of Holders. (a)
The death or incapacity of any Holder shall not operate to terminate this
Agreement or the Trust, nor shall such death or incapacity entitle such
Holder's legal representatives or heirs to claim an accounting or to take any
action or commence any proceeding in any court for a partition or winding up
of the Trust, nor otherwise affect the rights, obligations and liabilities of
the parties hereto or any of them.
(b) No Holder shall have any right to vote (except with
respect to the Noteholders as provided in Section 13.1) or in any manner
otherwise control the operation and management of the Trust, or the obligations
of the parties hereto, nor shall anything herein set forth, or contained in the
terms of the Notes, be construed so as to constitute the Noteholders and the
Holder of the Transferor Interest from time to time as partners or members of an
association; nor shall any such Holder be under any liability to any third
person by reason of any action taken by the parties to this Agreement pursuant
to any provision hereof.
(c) No Holder shall have any right by virtue of any provisions
of this Agreement to institute any suit, action or proceeding in equity or at
law upon or under or with respect to this Agreement, unless such Holder
previously shall have given notice to the Trustee, and unless the Holders of a
principal amount of Notes aggregating more than 50% of the Principal Amount of
any Series affected shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee hereunder
and shall have offered to the Trustee such indemnity as it may require against
the costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer
<PAGE>
of indemnity, shall have neglected or refused to institute any such action, suit
or proceeding; it being understood and intended, and being expressly covenanted
by each Holder with every other Holder and the Trustee, that no one or more
Holders shall have the right in any manner whatever by virtue or by availing
itself or themselves of any provisions of this Agreement to affect, disturb or
prejudice the rights of the Holders of any other of the Notes or the Transferor
Interest, or to obtain or seek to obtain priority over or preference to any
other such Holder, or to enforce any right under this Agreement, except in the
manner herein provided and for the equal, ratable and common benefit of all
Holders. For the protection and enforcement of the provisions of this Section
13.3, each and every Holder and the Trustee shall be entitled to such relief as
can be given either at law or in equity.
SECTION 13.4 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAWS, PROVIDED, HOWEVER, THAT THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE TRUSTEE AND THE COLLATERAL TRUSTEE SHALL BE DETERMINED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
Section 13.5 Notices. All demands, notices and communications
hereunder shall be in writing (including by facsimile) and shall be deemed to
have been duly given if personally delivered (including by overnight courier)
at, mailed by registered mail, return receipt requested, to, or sent by
facsimile, with receipt confirmed and with a hard copy sent promptly, to (a) in
the case of the Servicer, to One Market Place, Suite 900, San Francisco,
California 94105 (facsimile # (415) 882-0860), Attn: Chief Financial Officer,
(b) in the case of the Transferor, to One Market Place, Suite 900, San
Francisco, California 94105 (facsimile # (415) 882-0860), Attn: Chief Financial
Officer, with a copy to the Servicer, (c) in the case of the Trustee or the
Collateral Trustee, to the Corporate Trust Office (facsimile # 212-250-6961),
Attn: Corporate Market Services, (d) in the case of the Enhancement Provider for
a particular Series the address, if any, specified in the Supplement relating to
such Series, (e) in the case of Moody's, to Moody's Investors Service, Inc., 99
Church Street, New York, New York 10007, Attn: ABS Monitoring Department, 4th
Floor, and (f) in the case of Standard & Poor's, to Standard & Poor's Ratings
Group, 25 Broadway, New York, New York 10004, Attention: Structured Finance
Surveillance; or, as to each party, at such other address as shall be designated
by such party in a written notice to each other party. Any notice required or
permitted to be mailed to a Holder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Holder receives such
notice.
<PAGE>
Section 13.6 Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Notes and the
Transferor Interest or rights of the Holders thereof or any Enhancement
Provider.
Section 13.7 Rule 144A Information. For so long as any of
the Notes of any Series or any Class are restricted securities within the
meaning of Rule 144(a)(3) under the Securities Act of 1933, as amended, each
of the Transferor, the Servicer, the Trustee and any Enhancement Provider
agree to cooperate with each other to provide to any Noteholders of such
Series or Class and to any prospective purchaser of Notes designated by such a
Noteholder upon the request of such Noteholder or prospective purchaser, any
information required to be provided to such holder or prospective purchaser to
satisfy the condition set forth in Rule 144A(d)(4) under the Act.
Section 13.8 Notes Nonassessable and Fully Paid. It
is the intention of the parties to this Agreement that the Notes and the
Transferor Interest shall not be liable for obligations of the Trust, that the
interests in the Trust Assets represented by the Notes and the Transferor
Interest shall be nonassessable for any losses or expenses of the Trust or for
any reason whatsoever, and that Notes upon authentication thereof by the
Trustee pursuant to Sections 2.1 and 6.2 are and shall be deemed fully paid.
Section 13.9 Further Assurances. The Transferor and the
Servicer agree to do and perform, from time to time, any and all acts and to
execute any and all further instruments required or reasonably requested by the
Trustee more fully to effect the purposes of this Agreement, including, without
limitation, the execution of any financing statements or continuation statements
relating to the Trust Assets for filing under the provisions of the UCC of any
applicable jurisdiction.
Section 13.10 No Waiver: Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Trustee, the Collateral
Trustee or the Noteholders, any right, remedy, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exhaustive of any rights, remedies, powers and privileges provided by law.
Section 13.11 Counterparts. This Agreement may be
executed in two or more counterparts (and by different parties on
<PAGE>
separate counterparts), each of which shall be an original, but all of which
together shall constitute one and the same instrument.
Section 13.12 Third-Party Beneficiaries. This Agreement shall
inure to the benefit of and be binding upon the parties hereto, the Holders and,
to the extent provided in any Supplement, the Enhancement Provider named
therein, and their respective successors and permitted assigns. Except as
otherwise provided in this Agreement or any Supplement, no other Person will
have any right or obligation hereunder.
Section 13.13 Actions by Holders. (a) Wherever in this
Agreement a provision is made that an action may be taken or a notice, demand or
instruction given by Noteholders, such action, notice or instruction may be
taken or given by any Noteholder, unless such provision requires a specific
percentage of Noteholders.
(b) Any request, demand, authorization, direction, notice,
consent, waiver or other act by a Holder shall bind such Holder and every
subsequent Holder of such Note or the Transferor Interest, as the case may be,
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof in respect of anything done or omitted to be done by the Trustee,
Transferor or the Servicer in reliance thereon, whether or not notation of such
action is made upon such Note or in the Register with respect to the Transferor
Interest, as the case may be.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement or any Supplement to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by agent duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, when required, to the Transferor or the
Servicer. Proof of execution of any such instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Agreement or any
Supplement and conclusive in favor of the Trustee, Transferor and the Servicer,
if made in the manner provided in this Section.
(d) The fact and date of the execution by any Holder of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
Section 13.14 Merger and Integration. Except as specifically
stated otherwise herein, this Agreement sets forth the entire understanding of
the parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
<PAGE>
modified, amended, waived or supplemented except as provided
herein.
Section 13.15 No Bankruptcy Petition. Each of each Holder and
the Trustee, severally and not jointly, hereby covenants and agrees that, prior
to the date which is one (1) year and one (1) day after the payment in full of
all Notes, it will not institute against, or join any other Person in
instituting against, the Transferor or the Trust any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding
under the laws of the United States or any state of the United States. Nothing
in this Section 13.15 shall preclude, or be deemed to estop, any Holder or the
Trustee from taking (to the extent such action is otherwise permitted to be
taken by such Person hereunder) or omitting to take any action prior to such
date in (i) any case or proceeding voluntarily filed or commenced by or on
behalf of the Transferor or the Trust under or pursuant to any such law or (ii)
any involuntary case or proceeding pertaining to the Transferor or the Trust
under or pursuant to any such law.
Section 13.16 Headings. The headings herein are for purposes
of reference only and shall not otherwise affect the meaning or interpretation
of any provision hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers as of the day and year first above
written.
AFG CREDIT CORPORATION,
as Transferor
By:___________________________
Title:
AMERICAN FINANCE GROUP, INC.
as Servicer
By:___________________________
Title:
BANKERS TRUST COMPANY,
as Trustee
By:___________________________
Title:
BANKERS TRUST COMPANY,
as Collateral Trustee
By:___________________________
Title:
<PAGE>
SCHEDULE 1
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
LIST OF LEASES
Delivered to Trustee only
As contained on an Appropriately Labeled Computer File or Microfiche Delivered
Contemporaneously with this Agreement.
Leases
Account Number: ___________
Discounted Lease Balance as of the related
Cut Off Date: $___________
<PAGE>
SCHEDULE 2
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
LIST OF LOCKBOXES
1. First Union National Bank of North Carolina
P.O. Box 60581
Charlotte, N.C. 28260
Account # 60581
<PAGE>
SCHEDULE 3
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
PORTFOLIO PARAMETERS1
1. Portfolio Quality:
(a) With respect to the Included Leases, the Weighted
Average Debt Rating of all of the Lessees thereunder is
at least Baa2, based on ratings assigned by Moody's, or
the equivalent based upon ratings assigned by another
Rating Agency.2 "Weighted Average Debt Rating" shall
mean at any time the weighted average of the senior
secured long-term debt ratings assigned by a Rating
Agency to the Lessees based on the following numerical
values3:
Credit Rating Numerical
Moody's/S&P/Internal Rating Value
Aaa/AAA 325.5
Aa1/AA+ 305.5
Aa2/AA 285.5
Aa3/AA- 265.5
A1/A+ 245.5
A2/A 225.5
A3/A- 205.5
Baa1/BBB+ 185.5
Baa2/BBB 165.5
Baa3/BBB- 145.5
(continued on next page)
- --------
1 Capitalized terms used in this Schedule and not otherwise defined shall
have the respective meanings set forth in the Pooling and Servicing
Agreement and Indenture of Trust.
2 For the purposes of this Schedule, the term "Rating Agency" has the
meaning assigned thereto in the Pooling and Servicing Agreement and
shall also include AFG's internal ratings ("Internal Ratings"), which
are based on the ALCAR Debt Rater Plus software, or successor
software packages.
3 For Lessees that do not have a senior secured long-term debt rating
assigned to them by Moody's or S&P, the numerical value that
corresponds to the rating that is one level above the unsecured long-
term debt rating of such Lessee in the table above shall be used. For
Lessees that are not assigned ratings by either Moody's or S&P,
Internal Ratings shall be used. In the case of a Lessee with
different ratings assigned by Moody's and S&P, the lower of the two
ratings shall be used.
<PAGE>
Credit Rating Numerical
Moody's/S&P/Internal Rating Value
Ba1/BB+ 125.5
Ba2/BB 105.5
Ba3/BB- 85.5
B1/B+ 65.5
B2/B 45.5
B3/B- 25.5
(b) No Lessee under an Included Lease has a long-term unsecured
debt rating assigned by Moody's of less than B-3, or the
equivalent assigned by another Rating Agency.
(c) The sum of the Discounted Lease Balances of all Included
Leases with respect to which the Lessees thereunder have
long-term unsecured debt ratings assigned by Moody's of B-1,
B-2 or B-3, or the equivalent assigned by another Rating
Agency, on a cumulative basis, is not greater than 5% of the
Aggregate Pool Balance.
(d) The sum of the Discounted Lease Balances of Included Leases
with respect to which the Lessees thereunder are rated
internally by AFG, on a cumulative basis, is not more than 25%
of the Aggregate Pool Balance.
2. Concentration Limitations: (a) Each amount set forth in the table below
represents the maximum percentage of the Aggregate Pool Balance that
may be comprised of the sum of the Discounted Lease Balances
attributable to the Included Leases in the applicable category, on a
cumulative basis.
<PAGE>
<TABLE>
<CAPTION>
3
=============================================================================================================================
Category When Aggregate Pool Balance is
-------------------------------------------------------------------------------
Greater Greater than
than $0 but $30 Million Greater
less than $30 but less than $60 than $60
Million Million Million
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Included Leases of
any individual
Lessee that is rated
investment grade or
higher by a Rating
Agency 25% 10% 9%
- -----------------------------------------------------------------------------------------------------------------------------
2. Included Leases of any individual
Lessee that is not rated investment
grade by a Rating
Agency 15% 3% 3%
- -----------------------------------------------------------------------------------------------------------------------------
3. Included Leases of
all Lessees that
operate in the same
industry* N/A 40% 40%
- -----------------------------------------------------------------------------------------------------------------------------
4. Included Leases that relate to the same
type of Equipment** N/A 40% 40%
- -----------------------------------------------------------------------------------------------------------------------------
5. Included Leases for
which the Scheduled
Payments are payable
semi-annually 10% 10% 10%
=============================================================================================================================
</TABLE>
- ---------------
* Based upon Primary Standard Industrial Classification Code
Number.
** As determined by AFG Credit Corporation in accordance with its customary
procedures.
<PAGE>
The following words and phrases shall have the following
meanings:
"Equipment Excess Concentration Amount" shall mean at any date
of determination, the dollar amount, if any, by which the Discounted
Lease Balances of Included Leases exceeds the applicable concentration
limits prescribed in
category 4 in the table above.
"Individual Lessee Excess Concentration Amount" shall mean at
any date of determination, the dollar amount, if any, by which the
Discounted Lease Balances of Included Leases exceeds the applicable
concentration limits prescribed in category 1 or category 2, as
applicable with respect to a particular Lessee, in the table above.
"Industry Excess Concentration Amount" shall mean at any date
of determination, the dollar amount, if any, by which the Discounted
Lease Balances of Included Leases exceeds the applicable concentration
limits prescribed in
category 3 in the table above.
"Semi-Annual Lease Excess Concentration Amount" shall mean at
any date of determination, the dollar amount, if any, by which the
Discounted Lease Balances of Included Leases exceeds the applicable
concentration limits prescribed in category 5 in the table above.
If at any date of determination with respect to any Included
Lease there are two or more of (a) an Equipment Excess Concentration
Amount, (b) an Individual Lessee Excess Concentration Amount, (c) an
Industry Excess Concentration Amount or (d) a Semi-Annual Lease Excess
Concentration Amount, then only the one largest dollar amount that is
attributable to (a), (b), (c) or (d) above, as applicable, shall be
used in the calculation of the Excess Concentration Amount at such date
of determination.
A Lease shall not be deemed to cause any of the limits set
forth in the table above to be exceeded, and shall therefore not be
deemed to give rise to the existence of an Equipment Excess
Concentration Amount, an Individual Lessee Excess Concentration Amount,
an Industry Excess Concentration Amount or a Semi-Annual Lease Excess
Concentration Amount, as the case may be, if the Rating Agency
Condition shall have been satisfied with respect to such Lease.
(b) the sum of the Discounted Lease Balances attributable to all
Included Leases that are not Hedged Leases shall not, on a
cumulative basis, exceed $10,000,000.
<PAGE>
3. Other Lease Requirements: Utilizing the Definition of "Discount Rate"
in the Pooling and Servicing Agreement and Indenture of Trust, 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 88% of the sum of the original cost
of the Equipment relating to all Included Leases.
<PAGE>
SCHEDULE 4
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
IDENTIFICATION OF ACCOUNTS
1. Collection Account
Account Number: 2000000732936
Account Designation: AFG Master Trust Collection
Account, Bankers Trust Company as
Collateral Trustee
Name of Institution
with which account
has been established: First Union National Bank of
North Carolina
2. Excess Funding Account
Account Number: 2000000733508
Account Designation: AFG Master Trust Excess Funding
Account, Bankers Trust Company as
Collateral Trustee
Name of Institution
with which account
has been established: First Union National Bank of
North Carolina
3. Tax Escrow Account
Account Number: 2000000733485
Account Designation: AFG Master Trust Tax Escrow
Account, Bankers Trust Company as
Collateral Trustee
Name of Institution
with which account
has been established: First Union National Bank of
North Carolina
<PAGE>
4. Series 1995-1 Distribution Account1
Account Number: 2000000733498
Account Designation: AFG Master Trust Series 1995-1
Distribution Account, Bankers
Trust Company as Collateral
Trustee
Name of Institution
with which account
has been established: First Union National Bank of
North Carolina
- --------
1 This account pertains to Series 1995-1 only. Distribution
accounts for other series will be added to this schedule as
appropriate.
<PAGE>
EXHIBIT A
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
FORM OF CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT, dated as of ________ __, 199_ is
made between AMERICAN FINANCE GROUP, INC., a Delaware corporation ("AFG"), [ ]
(the "Custodian") and BANKERS TRUST COMPANY, a New York banking corporation, as
Trustee and as Collateral Trustee (in such capacity, the "Trustee") of the AFG
Master Trust (the "Trust") under the POOLING AND SERVICING AGREEMENT AND
INDENTURE OF TRUST, dated as of July 1, 1995 (as amended or otherwise modified
from time to time, the "Pooling and Servicing Agreement"), among AFG CREDIT
CORPORATION, a Delaware corporation, as Transferor (the "Transferor"), AFG, in
its capacity as Servicer thereunder (in such capacity, the "Servicer") and the
Trustee.
WHEREAS, from time to time under the Pooling and Servicing
Agreement the Trustee, on behalf of the Trust, will acquire from the Transferor
interests in certain leases and related equipment to be serviced by the
Servicer;
WHEREAS, it is a requirement of the Pooling and
Servicing Agreement that the Trustee be given possession of such
leases;
WHEREAS, to facilitate the servicing of such leases by the
Servicer and the taking of, and maintenance of, possession thereof by the
Trustee, the Trustee wishes to appoint the Custodian as its agent to maintain
such possession; and
NOW, THEREFORE, in consideration of the mutual agreements
herein contained and of other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
SECTION 1. APPOINTMENT AND DUTIES OF CUSTODIAN
1.1 The Trustee hereby appoints the Custodian to act
exclusively as the custodian of the Trustee for the purposes of taking and
retaining custody of the Lease Files (as defined on Schedule I hereto) in
accordance with the terms and conditions of this Agreement, all for the
exclusive benefit of the Trustee on behalf of the Trust. In so taking and
retaining custody of the Lease Files, the Custodian shall be deemed to be acting
as the agent of the Trustee for the purpose of perfecting the Trustee's security
interest therein under the Uniform Commercial Code, provided, however, that the
Custodian makes no representations as to the existence, perfection or priority
of any such purported security interest, and provided further, that the
Custodian's duties as agent shall be limited to those expressly contemplated
herein. The Custodian hereby accepts such appointment.
<PAGE>
1.2 The Transferor, the Trustee and the Servicer may from time
to time deposit with the Custodian the items (the "Documents") listed on
Schedule I attached hereto. The sole responsibilities of the Custodian with
respect to such Documents shall be to (x) act as custodian of such Documents for
the Trustee so long as such Documents are in the Custodian's possession and (y)
(1) accept such Documents from the Transferor, the Trustee and the Servicer; (2)
verify that all Documents are in the respective Lease Files or, if a Lease File
already exists for any Included Lease, place any Documents received under this
subsection 1.2 in the appropriate Lease Files; and (3) secure the Lease Files.
The Custodian shall provide written verification of all documents received from
or removed by the Trustee and the Servicer in a form substantially similar to
Exhibit 1, copies of which will be provided to the Servicer or the Trustee, as
appropriate. The Custodian hereby acknowledges receipt of the Lease Files listed
on the Schedule of Included Leases attached as Schedule II hereto (except for
the documents listed on the Schedule of Exception attached to Exhibit 1 hereto
as Schedule A). The Custodian makes no representations as to: (i) the validity,
legality, enforceability or genuineness of any of the documents identified on
Schedule II, or (ii) the collectability, insurability, effectiveness or
suitability of any such documents. The Custodian shall have no duty to monitor
the delivery to it of such documents other than to note receipt of such on its
records.
1.3 Except as set forth in Section l.4, the Custodian shall
accept only written instructions (if oral, then immediately confirmed in writing
by telecopy) of an Authorized Representative (as defined below) of the Servicer
concerning the use, handling and disposition of the Lease Files. Each individual
designated as an authorized representative of the Trustee, the Servicer or the
Custodian (each, an "Authorized Representative") is authorized to give and
receive notices, requests and instructions and to deliver certificates and
documents in connection with this Custodian Agreement on behalf of the Trustee,
the Servicer or the Custodian, as the case may be, and the specimen signature
for each such Authorized Representative of the Trustee, the Servicer and the
Custodian initially authorized hereunder is set forth on Exhibits 4, 5 and 6
hereto, respectively. From time to time, the Trustee, the Servicer, the
Transferor and the Custodian may, by delivering to each of the others a revised
exhibit, change the information previously given, but each of the other parties
hereto shall be entitled to rely conclusively on the last exhibit until receipt
of a superseding exhibit.
1.4 (a) Unless the Custodian shall receive written notice from
the Trustee to the contrary and subject to the requirements of Section 1.6, the
Custodian, upon the receipt of a written request from the Servicer, in
substantially the form of Exhibit 3 hereto, detailing the Lease Files to be
released or transferred by the Custodian to the Servicer, shall release or
transfer the Lease Files specifically requested by the Servicer to the Servicer.
The Custodian shall deliver to the Servicer,
<PAGE>
upon receipt of such written instructions of the Servicer, as rapidly as
practicable, but in no case later than two (2) Business Days, all of the Lease
Files so designated for delivery.
(b) Any instruction by the Servicer to deliver the Lease Files
to the Servicer must inform the Custodian, to the Custodian's satisfaction, of
the terms and method of delivery of the Lease Files to the Servicer. The
Servicer shall hold the Custodian harmless from losses or damages to any person,
including, without limitation, the Trustee or the Transferor for the safe
transmittal of the Lease Files if the Custodian has complied with the Servicer's
instructions regarding their delivery. Upon receipt of a notice from the Trustee
to cease accepting instructions from the Servicer, the Custodian shall
thereafter accept instructions as set forth herein only from the Trustee until
such notice is withdrawn by the Trustee.
1.5 The notices, statements, directions and certificates
requested under or required by this Section 1 shall be full authority for and
direction to the Custodian to execute the certificates and notices and deliver
the Lease Files referred to herein and the Custodian shall promptly do so. The
Custodian in so doing shall have no liability to any Person except on account of
its willful misconduct or gross negligence.
1.6 At any time when an Included Lease is to be reconveyed to
the Transferor or otherwise disposed of under the terms of the Pooling and
Servicing Agreement, the Servicer shall submit a written request to the
Custodian in a form substantially similar to Exhibit 3 with a copy to the
Trustee (1) identifying the Included Leases for which a reconveyance or other
disposition hereunder is to be made, and (2) requesting the Custodian to release
the specific Lease Files relating to such Leases to the Servicer. Upon receipt
of such request from the Servicer with respect to any such sale or other
disposition hereunder, the Custodian shall promptly deliver the Lease Files
listed in such request to the Servicer. Upon receipt of a notice from the
Trustee to cease accepting instructions from the Servicer, the Custodian shall
thereafter accept instructions as set forth herein only from the Trustee until
such notice is withdrawn by the Trustee.
1.7 All Lease Files shall be kept in fireproof vaults or
cabinets at the office of the Custodian specified in Section 4.3, or at such
other office as shall be specified to the Trustee and the Servicer by 30 days'
prior written notice. All Lease Files shall be placed together in a separate
file cabinet with an appropriate identifying label and maintained in such a
manner so as to permit retrieval and access.
1.8 The Custodian shall keep all Lease Files clearly
segregated from any other documents or instruments in its files. The Custodian
shall clearly list by customer name and contract number all Lease Files, to
indicate that such Lease Files are the
<PAGE>
sole property of the Trustee, and that the Custodian is holding such files
solely as custodian for the Trustee; provided that the Lease Files, including
any original certificates of title or other title documents with respect to the
Equipment related to the Included Leases, may be transferred to the Trustee or
such other Person as the Trustee may direct.
1.9 The Custodian hereby agrees and covenants that, on
reasonable prior notice, it will permit any representative of the Servicer, the
Servicer's accountants (auditors), or the Trustee (or any of its agents), during
the Custodian's normal business hours, to examine the books of account, records,
reports and other papers of the Custodian relating to the Lease Files, to make
copies and extracts therefrom, all at such reasonable times and as often as may
be reasonably requested.
1.10 The Custodian shall not have any duty or obligation to
take any action in respect of the collection of any indebtedness evidenced by
the Lease Files or to otherwise act with respect to payment on any such
indebtedness, provided that the Custodian shall transfer any Lease Files to the
Servicer, and accept the return of such Lease Files from the Servicer, which the
Servicer from time to time may request in connection with the Servicer's
obligations under the Pooling and Servicing Agreement.
1.11 The Custodian undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement and no implied
covenants or obligations shall be read into this Agreement against the
Custodian; in the absence of bad faith on its part, the Custodian may rely, as
to the truth of the statements and correctness of the instructions given, on
instruments and reports furnished to the Custodian and conforming to the
requirements of this Agreement.
1.12 In performing its duties as Custodian, the Custodian
shall use the highest degree of care and attention employed by custodial
institutions holding and transferring documents of a comparable nature.
1.13 The Custodian makes no warranty or representation as to
the completeness or validity of the Lease Files (other than as set out in
Section 1.2 hereof) nor as to the perfection or priority of any security
interest therein in favor of the Trustee and is acting solely as custodian of
the Trustee to furnish only those services which are expressly described herein
or any other administerial service or action which is reasonably requested by
the Trustee in order to accomplish the purposes of this Agreement.
1.14 The Servicer covenants and agrees to pay to the Custodian
and the Custodian shall be entitled to receive, under a separate agreement with
the Transferor, reasonable compensation for all services rendered by it
hereunder and in the exercise and performance of any of the powers and duties
hereunder of the
<PAGE>
Custodian, and, the Servicer will pay or reimburse the Custodian upon its
request for all reasonable expenses, disbursements and advances incurred or made
by the Custodian in accordance with any of the provisions of this Agreement
(including the reasonable fees and expenses of its agents and counsel) except
any such expense, disbursement or advance as may arise from its negligence or
bad faith.
SECTION 2. INDEMNIFICATION
2.1 The Servicer agrees to indemnify and hold the Custodian
and its directors, officers, agents and employees harmless against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including
reasonable attorney's fees, that may be imposed on, incurred by, or asserted
against it or them in any way relating to or arising out of this Custodian
Agreement or any action taken or not taken by it or them hereunder unless such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements were imposed on, incurred by or asserted
against the Custodian because of the breach by the Custodian of its obligations
hereunder, which breach was caused by the negligence, lack of good faith or
willful misconduct on the part of the Custodian or any of its directors,
officers, agents or employees. The foregoing indemnification shall survive any
termination of this Custodian Agreement.
2.2 Neither the Custodian nor any of its directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
by it or them hereunder or in connection herewith in good faith and believed by
it or them to be within the purview of this Custodian Agreement, including,
without limitation, in the selection of shippers and methods of shipment, except
for its or their own negligence, lack of good faith or willful misconduct. In no
event shall the Custodian or its directors, officers, agents and employees be
held liable for any special, indirect, punitive or consequential damages
resulting from any action taken or omitted to be taken by it or them hereunder
or in connection herewith even if advised of the possibility of such damages.
Custodian shall not be responsible to the Trustee or any other party for
recitals, statements or warranties or representations of the Servicer contained
herein, in the Pooling and Servicing Agreement or in any document or be bound to
ascertain or inquire as to the performance or observance of any of the terms of
this Custodian Agreement or the Pooling and Servicing Agreement on the part of
the Servicer.
SECTION 3. TERMINATION OF AGREEMENT
3.1 This Agreement may be terminated at any time by the
Trustee without penalty hereto by written notice delivered by
<PAGE>
an Authorized Representative of the Trustee to the Custodian and the Servicer.
In such event, the Trustee will select a replacement custodian which is
satisfactory to the Servicer and will obtain the Servicer's written consent to
such selection, provided that no consent will be required if the Servicer is in
a default status under the Pooling and Servicing Agreement. The effective date
of termination shall be as specified in such notice; provided, however, that at
the option of either the Trustee or the Custodian, the effective date of
termination may be postponed to a date not more than ten (10) days from the date
of the delivery of such notice in order to provide the Custodian an opportunity
to prepare for the transfer of the Lease Files to the Trustee.
3.2 (a) Upon the termination of this Agreement and upon
written notice to the Custodian, the Custodian shall deliver to the Trustee, its
designee or any successor custodian, at the Custodian's office, all Lease Files
then held by the Custodian and a list of all Lease Files held by any other
Person.
(b) If, upon termination of this Agreement, the Trustee fails
to accept delivery of, or provide written delivery instructions for, all Lease
Files then held by the Custodian pursuant to this Agreement, the Custodian shall
have the right upon thirty (30) days prior written notice to the Trustee, to
store the unaccepted Lease Files in a non-fireproof area and shall not be held
liable by the Trustee for damage, theft, fire or other perils relating to the
Lease Files. Upon termination of this Agreement, the Custodian will not accept
any instructions from the Trustee other than arrangements for complete delivery
of all Lease Files in its possession. Upon the Trustee's failure to arrange
complete delivery or provide instructions for delivery within thirty (30) days
of termination, the Custodian shall have the right to mail all packages by
regular, insured U.S.A. mail or United Parcel Service to the Servicer or other
Person so designated by the Trustee.
SECTION 4. MISCELLANEOUS
4.1 Defined Terms. Capitalized terms used but not otherwise
defined herein shall the respective meanings assigned them in the Pooling and
Servicing Agreement. All references herein to "the Agreement" or "this
Agreement" are to this Custodian Agreement as it may be amended, supplemented or
modified from time to time, and all references hereto to Sections and
subsections are to Sections and subsections of this Agreement unless otherwise
specified.
4.2 Assignment, Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the parties hereto, and their
respective successors and permitted assigns. Except as otherwise provided in
this Agreement, no other Person will have any right or obligation hereunder.
<PAGE>
Notwithstanding anything contained in this Agreement to the contrary, this
Agreement may not be assigned by the Custodian without the prior written consent
of the Trustee, which shall not be unreasonably withheld.
4.3 Notices. (a) Except as otherwise specifically provided for
in this Agreement, all notices, payments and other communications between the
parties hereto shall be given by an Authorized Representative of the Trustee,
Custodian or Servicer, as the case may be, in writing (including by facsimile)
and shall be either hand delivered or mailed by registered or certified mail,
postage prepaid, return receipt requested, or by facsimile (with receipt
confirmed and with a hard copy sent promptly), Federal Express, other overnight
couriers providing receipts or electronic mail as follows:
If to the Trustee:
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Mr. Kevin Weeks
Corporate Market Services
Telephone Number: (212) 250-6531
Telecopy Number : (212) 250-6392, 6961
If to the Custodian:
--------------------------
Attention:
Telephone Number:
Telecopy Number :
If to the Servicer:
American Finance Group, Inc.
98 N. Washington Street
Boston, Massachusetts 02114
Attention: Vice President of Lease Operations
Telephone Number: (617) 854-5800
Telecopy Number : (617) 523-1410
(b) Any such notice, payment or communication so delivered or
addressed and mailed by certified mail, postage prepaid, return receipt
requested, shall be deemed to have been given when so mailed. Notice given by
Federal Express or electronic mail shall be deemed given twenty-four (24) hours
<PAGE>
after communicated. Any party may change the address to which notices, payments
or communications shall be given by notifying the other party in writing as
provided for in this Section.
4.4 No Set-Off. The Custodian, in its capacity as custodian
hereunder or otherwise, hereby agrees that it will not set-off against the Lease
Files delivered under this Agreement or the proceeds thereof any claims which it
may have against the Trustee or any other Person. The Custodian, in its capacity
as custodian hereunder or otherwise, hereby expressly waives any and all rights
it may have to file a lien against any Lease File individually or in the
aggregate.
4.5 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
4.6 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
4.7 Counterparts. This Agreement may be executed in two or
more counterparts (and by different parties on separate counterparts), each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
4.8 Merger and Integration. Except as specifically stated
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided herein.
4.9 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF [ ].
4.10 Genuineness of Documents. In the absence of bad faith on
the part of the Custodian, the Custodian may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein, upon
any request, instructions, certificate, opinion or other document furnished to
the Custodian, believed by the Custodian to be genuine and to have been signed
or presented by the proper party or parties and conforming to the requirements
of this Custodian Agreement; but in the case of any loan document or other
request, instruction, document or certificate which by any provision hereof is
specifically required to be furnished to the Custodian, the Custodian shall be
under a duty to examine the same to determine whether or not it conforms to the
requirements of this Custodian
<PAGE>
Agreement. The Custodian may consult with counsel and any opinion of counsel
shall be full and complete authorization and protection in respect of any action
taken or suffered or omitted by it hereunder in good faith and in accordance
with such opinion of counsel.
4.11 Reproduction of Documents. This Agreement and all
documents relating thereto, including, without limitation, (a) consents, waivers
and modifications which may hereafter be executed, (b) documents received by any
party at the closing, and (c) certificates and other information previously or
hereafter furnished, may be reproduced by any photographic, photostatic,
microfilm, micro-card, miniature photographic or other similar process. The
parties agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
4.12 Data Access. If the Custodian has issued to the Servicer
a data access security system in order that the Servicer may have access to
certain data and functions, the Servicer hereby agrees: (a) to access data and
functions only in accordance with the Data Access Operating Procedures annexed
hereto as Exhibit 7 and to regard and preserve as confidential all information
obtained with respect to the issuance to the Servicer of a data access authority
system (other than information provided by or on behalf of the Servicer); (b) to
access data and functions solely for its own internal use and benefit; (c) to
discontinue use of the data access security system at any time for security
reasons upon notice from the Custodian; (d) upon request, to cause the
Servicer's internal auditors to verify to the Custodian that data access is
restricted to authorized employees; (e) to indemnify the Custodian against and
to hold the Custodian harmless from all liability, claims, loss and demands
whatsoever, including reasonable attorney's fees, howsoever arising or incurred
because of or in connection with the access of data and functions by the
Servicer and the use by the Servicer or any of their employees, whether
authorized or unauthorized, of the data access security system; and (f) to
designate a duly authorized individual to serve as the Data Security
Administrator in accordance with the Data Security Administrator Designation
form annexed hereto as Exhibit 8.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers as of the day and year first above
written.
[Custodian], as Custodian
By
Title:
BANKERS TRUST COMPANY, as Trustee
and as Collateral Trustee
By
Title:
AMERICAN FINANCE GROUP, INC.
as Servicer
By
Title:
<PAGE>
SCHEDULE I
(Attached to and Made a Part of the
Custodian Agreement Between
[ ],
Bankers Trust Company and
American Finance Group, Inc.
dated as of __________ __, 199_)
CONTENTS OF LEASE FILES
(1) THE FOLLOWING DOCUMENTS RECEIVED FROM TIME TO TIME BY THE CUSTODIAN
FROM THE TRANSFEROR OR THE SERVICER WITH RESPECT TO THE INCLUDED LEASES
CONSTITUTE THE "LEASE FILES" (listed below as Exhibits "_" through
"_"):
<PAGE>
SCHEDULE II
(Attached to and Made a Part of the
Custodian Agreement Between
[ ],
Bankers Trust Company and
American Finance Group, Inc.
dated as of __________ __, 199_)
LIST OF INCLUDED LEASES
Leases
Account Number:
<PAGE>
EXHIBIT 1
(Attached to and Made a Part of the
Custodian Agreement Between
[ ],
Bankers Trust Company and
American Finance Group, Inc.
dated as of __________ __, 199_)
Custodian
Street Address
City, St, Zip
Re: Section 1.2 of the Custodian Agreement by and between
[_________________], as custodian ("Custodian"),
American Finance Group, Inc. ("Servicer") and Banker's
Trust Company ("Trustee") under the AFG Master Trust.
Dear _______________:
Enclosed please find the below-listed documents which Servicer requests be:
_____ added as an additional Lease File __________
_____ filed as an addition to a Lease File _________
Listing of Contents
1. _____________________________________________
2. _____________________________________________
3. _____________________________________________
4. _____________________________________________
5. _____________________________________________
6. _____________________________________________
7. _____________________________________________
AMERICAN FINANCE GROUP, INC.
By:____________________________
Title:_________________________
Custodian hereby acknowledges receipt of the above-listed documentation and
confirms to Servicer that it has filed such documents in accordance with the
instructions set forth herein as
<PAGE>
of this ____ day of __________, 199_. The Custodian makes no representations as
to: (i) the validity, legality, enforceability or genuineness of any of the
documents identified on Schedule II, or (ii) the collectability, insurability,
effectiveness or suitability of any such documents. The Custodian shall have no
duty to monitor the delivery to it of such documents other than to note receipt
of such on its records.
By:____________________________
Title:_________________________
<PAGE>
Exhibit 1 - Schedule A
(Attached to and Made a Part of the
Custodian Agreement Between
[ ],
Bankers Trust Company and
American Finance Group, Inc.
dated as of __________ __, 199_)
Schedule of Exceptions
<PAGE>
EXHIBIT 2
Certification of the Custodian
(Attached to and Made a Part of the
Custodian Agreement Between
[ ],
Bankers Trust Company and
American Finance Group, Inc.
dated as of __________ __, 199_)
Re: Reference is made to the Custodian Agreement, dated as of
_________, 1995 (the "Custodian Agreement") among Bankers
Trust Company (the "Trustee"), American Finance Group, Inc.
(the "Servicer") and [_______________________] (the
"Custodian")
Ladies and Gentlemen:
In accordance with the provisions of Section 1.2 of the Custodian Agreement, the
undersigned, as Custodian, hereby certifies that, as to each Lease File listed
in the Lease File Schedule attached hereto (other than any Lease File paid in
full or any Lease File listed on the attachment hereto), it has reviewed the
documents delivered to it pursuant to Section 1.2 of the Custodian Agreement, as
specified on the related Lease File Schedule, and has determined (except as
provided in the attached exception report) (i) all such documents listed on the
document inventory checklist are in its possession and (ii) based on its
examination, and only as to the foregoing documents, the information set forth
in the Lease File Schedule with respect to such Lease File accurately reflects
the information set forth in the Custodian's Lease File.
The undersigned makes no representation as to and shall not be required to
verify (a) the validity, legality, sufficiency, enforceability, recordability,
due authorization, adequacy of genuineness of any such documents contained in
each or any of the Lease Files, or (b) the collectability, insurability,
effectiveness or suitability of any such Lease File.
Any capitalized terms used but not defined herein shall have the meanings
assigned in the Custodian Agreement.
[CUSTODIAN]
By: _____________________
Name: ___________________
<PAGE>
EXHIBIT 3
(Attached to and Made a Part of the
Custodian Agreement Between
[ ],
Bankers Trust Company and
American Finance Group, Inc.
dated as of __________ __, 199_)
Custodian
Street Address
City, St, Zip
Re: Section ___ of the Custodian Agreement by and between
_______________, as custodian ("Custodian"), American
Finance Group, Inc. ("Servicer") and Banker's Trust
Company ("Trustee") under the AFG Master Trust.
Dear _______________:
In accordance with Section 1.4 of the Custodian Agreement, Servicer hereby
formally requests the release and transfer of the below-listed Lease Files and
the delivery of the same via _______________ at the address listed below:
Listing of Lease Files
Lease File _________ Lease File _________
Lease File _________ Lease File _________
Lease File _________ Lease File _________
Lease File _________ Lease File _________
Lease File _________ Lease File _________
Lease File _________ Lease File _________
Delivery Address
- ---------------------------
American Finance Group, Inc.
98 N. Washington St., Boston, MA 02114
AMERICAN FINANCE GROUP, INC.
By:____________________________
Title:_________________________
Servicer hereby acknowledges receipt of the above-listed Lease Files and
confirms the completeness of their contents this ____ day of __________, 199_.
<PAGE>
AMERICAN FINANCE GROUP, INC.
By:____________________________
Title:_________________________
<PAGE>
EXHIBIT 4
AUTHORIZED REPRESENTATIVES OF THE TRUSTEE
(Attached to and Made a Part of the
Custodian Agreement Between
[ ],
Bankers Trust Company and
American Finance Group, Inc.
dated as of __________ __, 199_)
Name Signature
- -------------------------- ------------------------------
Title:
- -------------------------- ------------------------------
Title:
- -------------------------- ------------------------------
Title:
- -------------------------- ------------------------------
Title:
<PAGE>
EXHIBIT 5
AUTHORIZED REPRESENTATIVES OF THE SERVICER
(Attached to and Made a Part of the
Custodian Agreement Between
[ ],
Bankers Trust Company and
American Finance Group, Inc.
dated as of __________ __, 199_)
Name Signature
- -------------------------- ------------------------------
Title:
- -------------------------- ------------------------------
Title:
- -------------------------- ------------------------------
Title:
- -------------------------- ------------------------------
Title:
<PAGE>
EXHIBIT 6
AUTHORIZED REPRESENTATIVES OF THE CUSTODIAN
(Attached to and Made a Part of the
Custodian Agreement Between
[ ],
Bankers Trust Company and
American Finance Group, Inc.
dated as of __________ __, 199_)
Name Signature
- -------------------------- ------------------------------
Title:
- -------------------------- ------------------------------
Title:
- -------------------------- ------------------------------
Title:
- -------------------------- ------------------------------
Title:
<PAGE>
EXHIBIT 7
PROTECTION OF EQUIPMENT AND INFORMATION
(Attached to and Made a Part of the
Custodian Agreement Between
[ ],
Bankers Trust Company and
American Finance Group, Inc.
dated as of __________ __, 199_)
The databases, computer programs, screen formats, screen
designs, report formats, interactive design techniques, and other information
furnished to the Servicer by the Custodian as part of the services constitute
copyrighted, trade secret or proprietary information of substantial value to the
Custodian. Such databases, programs and other information, other than such
information as has been provided by or on behalf of the Servicer are
collectively referred to below as "Proprietary Information". The Servicer agrees
that it shall treat all Proprietary Information as proprietary to the Custodian
and that it shall not divulge any Proprietary Information to any person or
organization except as is expressly permitted hereunder. Proprietary Information
is furnished "as is" without warranty. Without limiting the foregoing, the
Servicer agrees for itself and its employees and agents:
(1) to use such programs and databases constituting proprietary
information (i) solely on the Custodian's Computers or designated Servicer
devices, (ii) solely from devices at Servicer locations designated by the
Servicer on the Appendix attached hereto and (iii) solely in accordance with
Custodian's applicable user documentation;
(2) to refrain from copying or duplicating in any way (other than in
the normal course of performing processing on the Custodian's computers) any
part of any Proprietary Information, and to return any Proprietary Information
upon termination of this Agreement;
(3) to refrain from obtaining unauthorized access to any programs, data
or other information to which the Servicer is not entitled, and if such access
is accidently obtained, to respect and safeguard the same as Proprietary
Information;
(4) to refrain from causing or allowing proprietary information
transmitted from the Custodian's computer to the Servicer's terminal to be
transmitted to another computer, terminal or other device for other than the
Servicer's own use, except upon prior approval of Custodian;
(5) that the Servicer shall have access to only those authorized
transactions as set forth on the Appendix attached hereto; and
<PAGE>
(6) to honor all reasonable written requests made by the Custodian to
protect at the Custodian's expense the rights of the Custodian in Proprietary
Information at common law, under the Federal copyright statute and under other
Federal and state statutes.
(7) to designate a duly authorized individual to serve as the Data
Security Administrator in accordance with the Designation Form annexed hereto.
(8) to request a unique user ID for each separate user. The request
must be made in writing to Custodian's data security manager.
(9) to request immediate deactivation of a user ID or deletion of
access when no longer needed or when Servicer believes security has been
violated.
(10) to limit knowledge of user IDs to only authorized individuals.
(11) to not disclose passwords directly or indirectly to anyone,
including other employees of the Servicer.
(12) to not store user IDs or passwords in any computer file, as part
of an "automatic logon" procedure.
(13) to select unique passwords which cannot be easily guessed.
(14) to change the password every 30 days, or when the Servicer
believes the password might have become known to others, or when the Servicer
suspects a possible security violation.
(15) to not recycle or reuse passwords.
(16) to refrain from modifying, enhancing or otherwise creating
derivative works based upon the Proprietary Information, nor shall the Servicer
reverse engineer, decompile or otherwise attempt to secure the source code for
all or any part of the Proprietary Information.
<PAGE>
EXHIBIT 8
DATA SECURITY ADMINISTRATOR DESIGNATION FORM
(Attached to and Made a Part of the
Custodian Agreement Between
[ ],
Bankers Trust Company and
American Finance Group, Inc.
dated as of __________ __, 199_)
Date: _______________ __, 199_
[Custodian]
[Address]
Gentlemen:
As _______________ (title of officer or other authorized official) of
_________________________ (Name of Company), I hereby certify that the following
individual has been duly authorized by the Board of Directors or other governing
body of the Company (or designated by an official of the Company who has been
duly authorized by said Board of Directors or other governing body to make such
designation), to serve as the Data Security Administrator, as such term is
defined in the Data Access Operating Procedures:
Name Signature
- ---------------------------- -----------------------------------
It is understood and agreed that the above-named individual is the
authorized recipient on behalf of the Company of (1) all documents and
correspondence assigning, confirming or otherwise containing company and user
identification codes, passwords, mnemonics, tastkeys, encryption keys and other
security devices, and (2) all other notices, documents and correspondence from
State Street respecting the data access security systems, including, without
limitation, any changes or supplements to the Data Accessing Operating
Procedures.
IN WITNESS WHEREOF, I have executed this document and affixed the seal
of the Company on this ____ day of __________, 19__.
- -----------------------------------
(Signature of officer or other
authorized official)
- -----------------------------------
(Title)
* In case the first signing officer is a Data Security Administrator,
this form must be signed by a second officer.
<PAGE>
- -----------------------------------
(Signature of other officer or
other authorized official)*
- -----------------------------------
(Title)
* In case the first signing officer is a Data Security Administrator,
this form must be signed by a second officer.
<PAGE>
EXHIBIT B
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
FORM OF TRANSFER AGREEMENT OF
ADDITIONAL LEASES
ASSIGNMENT No. ____ OF ADDITIONAL LEASES, dated as of
_______________________, _____ (this "Assignment"), by and between AFG Credit
Corporation, a Delaware corporation (the "Transferor"), to Bankers Trust
Company, a banking corporation organized and existing under the laws of New York
(the "Trustee") pursuant to the Pooling and Servicing Agreement and Indenture of
Trust referred to below.
W I T N E S S E T H :
WHEREAS, the Transferor, American Finance Group, Inc., as
Servicer, and the Trustee are parties to the Pooling and Servicing Agreement and
Indenture of Trust, dated as of July 1, 1995 (hereinafter as such agreement may
have been, or may from time to time be, amended, supplemented or otherwise
modified, the "Pooling and Servicing Agreement");
WHEREAS, pursuant to the Pooling and Servicing Agreement, the
Transferor wishes to designate Additional Leases of the Transferor to be
included as Included Leases and to convey such Additional Leases, the related
Equipment and all monies due or to become due under such Additional Leases after
the Additional Cut Off Date, to the Trust as part of the corpus of the Trust (as
each such term is defined in the Pooling and Servicing Agreement); and
WHEREAS, the Trustee on behalf of the Trust is willing to
accept such designation and conveyance subject to the terms and conditions
hereof;
NOW THEREFORE, the Transferor and the Trustee hereby agree as
follows:
1. Defined Terms. All terms defined in the Pooling and
Servicing Agreement and used herein shall have such defined meanings when used
herein, unless otherwise defined herein.
"Additional Cut Off Date" shall mean, with respect to
Additional Leases designated hereby, ___________________, 19___ (which
shall be the last day of a Monthly Period).
"Addition Date" shall mean, with respect to the Additional
Leases designated hereby, ___________________, 19 ___.
<PAGE>
"Notice Date" shall mean, with respect to the Additional
Leases designated hereby, _______________, 19__ (which shall be a date
on or prior to the fifth Business Day prior to the Addition Date).
2. Designation of Additional Leases. The Transferor shall
deliver or cause to be delivered to the Trustee not later than the Addition
Date, a computer file or microfiche or written list containing a true and
complete list of all Additional Leases then being transferred to the Trust,
identified by account number and by the Discounted Lease Balance as of the
related Additional Cut Off Date. Such list shall be marked as Schedule 1 to this
Assignment, delivered to the Trustee as confidential and proprietary and, as of
the Addition Date, shall be incorporated into and made a part of this
Assignment.
3. Transfer of Additional Leases. (a) The Transferor does
hereby transfer, assign and set-over to the Trust for the benefit of the
Noteholders and the Holder of the Transferor Interest, on and after the Addition
Date, all right, title and interest of the Transferor in and to the Additional
Leases designated hereby, including all monies due or to become due thereunder
after the related Additional Cut Off Date, all Collections in respect thereof,
the related Equipment, the related Lease Files, the Insurance Policies and any
Insurance Proceeds related to the Additional Leases, and all income or proceeds
of the foregoing or relating thereto (collectively, the "Additional Trust
Assets").
(b) The Trustee hereby grants to the Collateral Trustee for
the benefit of the Noteholders a security interest in all of the Trustee's
right, title and interest in, to and under the Additional Trust Assets to secure
the payment of principal and interest on, and any other amounts owing in respect
of, the Notes, and to secure compliance with the provisions of the Pooling and
Servicing Agreement, all as provided in the Pooling and Servicing Agreement.
(c) In connection with such transfer, unless a financing
statement covering such Additional Trust Assets has heretofore been filed, the
Transferor agrees to record and file, at its own expense, financing statements
(including any continuation statements with respect to such financing statements
when applicable) with respect to the Additional Leases meeting the requirements
of applicable state law in such manner and in such jurisdictions as are
necessary to perfect the transfer of the Additional Leases from Transferor to
the Trust and (subject to the limitations set forth below) to perfect the
interest of the Trust in the related Equipment to the extent the same may be
viewed as inventory of the Transferor, and to deliver file-stamped copies of
such financing statements or continuation statements or other evidence of such
filings (which may, for purposes of this Section 3, consist of telephone
confirmations of such filings with the file-stamped copy to be provided to the
<PAGE>
Trustee as soon as practicable after receipt thereof by the Transferor) to the
Trustee on or prior to the Addition Date and, in the case of any continuation
statements filed pursuant to this Section 3, as soon as practicable after
receipt thereof by the Transferor. Notwithstanding the foregoing, the Transferor
shall only be obligated to record financing statements with respect to the
Equipment in the Filing Locations and will not be required to deliver the Lease
Files to the Trustee but instead the Lease Files will be held by the Servicer as
custodian for the Trustee in accordance with the provisions of the Pooling and
Servicing Agreement.
(d) In connection with such transfer, the Transferor further
agrees, at its own expense, on or prior to the date of this Assignment, to
indicate in its books and records, including the appropriate computer files
relating to the Additional Leases, that such Additional Leases have been
transferred to the Trust pursuant to this Assignment for the benefit of the
Noteholders and the Holder of the Transferor Interest 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 pursuant hereto.
(e) In connection with such transfer, the Transferor further
agrees, at its own expense, on or prior to the Addition Date, to deliver to the
Custodian the related Lease Files to be held by the Custodian in accordance with
the Custodian Agreement.
(f) In connection with such transfer, the Transferor further
agrees, at its own expense, on or prior to the Addition Date, with respect to
any item of related Equipment with respect to which title thereto or a security
interest therein is required to be noted on a certificate of title or otherwise
recorded, to take such steps as shall be necessary or appropriate, in the
reasonable judgement of the Servicer, or the Trustee, to fully vest all right,
title and interest in such Equipment in the Trustee.
(g) In connection with the grant of a security interest by the
Trustee to the Collateral Trustee set forth in Section 3(b) above, the Servicer
agrees that it will, on behalf of the Trustee, record and file, at its own
expense, financing statements (including any continuation statements with
respect to such financing statements when applicable) with respect to the
Additional Leases meeting the requirements of applicable state law in such
manner and in such jurisdictions as are necessary to perfect the security
interest of the Collateral Trustee in the Additional Leases, and to deliver
file-stamped copies of such financing statements or continuation statements or
other evidence of such filings (which may, for purposes of this Section 3,
consist of telephone confirmations of such filings with the file-stamped copy to
be provided to the Collateral Trustee as soon as practicable after receipt
thereof by the Servicer) to the
<PAGE>
Collateral Trustee on or prior to the Addition Date. Notwithstanding the
foregoing, the Servicer shall only be obligated to record financing statements
with respect to the Equipment in the Filing Locations.
4. Acceptance by Trustee; Acknowledgement by Collateral
Trustee. (a) The Trustee hereby acknowledges its acceptance, on behalf of the
Trust, of all right, title and interest previously held by the Transferor in and
to the Additional Trust Assets, and declares that it shall maintain such right,
title and interest, upon the trust set forth herein and in accordance with the
terms of the Pooling and Servicing Agreement, for the benefit of all Noteholders
and the Holder of the Transferor Interest. The Trustee further acknowledges
that, prior to or contemporaneously with the execution and delivery of this
Assignment, the Transferor delivered to the Trustee the computer file or
microfiche or written list described in Section 2 of this Assignment.
(b) The Collateral Trustee hereby acknowledges its acceptance,
on behalf of the Noteholders, of the grant by the Trustee of a security interest
in the Additional Trust Assets.
5. Representations and Warranties of the Transferor. The
Transferor hereby represents and warrants to the Trust as of the Addition Date:
(a) Legal Valid and Binding Obligation. This Assignment
constitutes a legal, valid and binding obligation of the Transferor,
enforceable against the Transferor in accordance with its terms, except
as such enforceability may be limited by Debtor Relief Laws and except
as such enforceability may be limited by general principles of equity
(whether considered in a suit at law or in equity);
(b) Schedule 1. (i) Schedule 1 to this Assignment and the
computer file or microfiche or written list delivered pursuant to
Section 2 of this Assignment is an accurate and complete listing in all
material respects of all the Additional Leases as of the Addition Date
and the information contained therein with respect to the identity of
such Additional Leases is true and correct in all material respects as
of the Addition Date, (ii) each Additional Lease is an Eligible Lease,
(iii) each Additional Lease and the related Equipment is being
transferred to the Trust free and clear of any Lien of any Person
(other than Permitted Liens) and in compliance, in all material
respects, with all Requirements of Law applicable to Transferor or the
Originator thereof, and (iv) with respect to each Additional Lease, all
material consents, licenses, approvals or authorizations of or
registrations or declarations with any Governmental Authority required
to be obtained, effected or given by the Transferor in connection with
the transfer of such Lease and the related Equipment to
<PAGE>
the Trust have been duly obtained, effected or given and are in full
force and effect.
(c) Portfolio Parameters. The transfer of the Additional
Leases to the Trust pursuant to this Assignment will not cause the
Portfolio Parameters to be untrue;
(d) Solvency. The Transferor is not insolvent and
will not be rendered insolvent by transferring any the
Additional Lease to the Trust;
(e) Security Interest. This Assignment constitutes either (A)
a valid transfer to the Trust of all right, title and interest of
Transferor in, to and under the Additional Trust Assets, and such
property will be held by the Trust free and clear of any Lien of any
Person claiming through or under the Transferor or its Affiliates,
except for (w) the interests of the Trustee and the Noteholders, (x)
Permitted Liens, and (y) the interest of the Transferor as holder of
the Transferor Interest or (B) a grant of a security interest (as
defined in the UCC as in effect in the State of California) in such
property to the Trust. Upon the filing of the financing statements
described in Section 3, the Trust shall have a first priority perfected
security interest in such property, subject only to Permitted Liens.
Neither Transferor nor any Person claiming through or under Transferor
shall have any claim to or interest in the Collection Account, the
Excess Funding Account or any Series Account, except for the
Transferor's right to receive the Excess Funding Account or any Series
Account as provided in the Pooling and Servicing Agreement or any
Supplement, in accordance with the provisions of Article IV of the
Pooling and Servicing Agreement, and, if this Assignment constitutes
the grant of a security interest in such property, except for the
interest of Transferor in such property as a debtor for purposes of the
UCC as in effect in the State of California.
(f) Notice has been given to each Rating Agency and to each
Enhancement Provider to the extent required under Section 2.6(b) of the
Pooling and Servicing Agreement.
6. Conditions Precedent. The acceptance of the Trustee set
forth in Section 4 above and the amendment of the Pooling and Servicing
Agreement set forth in Section 7 below are subject to the satisfaction, on or
prior to the Addition Date, of the following conditions precedent:
(a) Notice. On or prior to the Notice Date, the Transferor
shall have given the written notice specified in Section 2.6(b)(i) of
the Pooling and Servicing Agreement to each of the parties specified in
Section 2.6(b)(i) of the Pooling Servicing Agreement.
<PAGE>
(b) Deposit of Collections. The Transferor shall have
deposited (i) in the Collection Account, Collections with respect to
the Additional Leases designated on Schedule 1 hereto since the
Additional Cut Off Date and (B) in the Tax Escrow Account, any Tax
Collections received in respect of such Leases that have not been
disbursed to the relevant Governmental Authority.
(c) Officer's Certificate. The Transferor shall have delivered
to the Trustee an Officer's Certificate of a Vice President or more
senior officer, certifying the following items: (i) all requirements
set forth in Section 2.6 of the Pooling and Servicing Agreement for
designating Additional Leases and conveying the Additional Trust Assets
have been satisfied; (ii) each of the representations and warranties
made by the Transferor in Section 5 herein and, with respect to the
Additional Leases, in Section 2.4 of the Pooling and Servicing
Agreement, is true and correct as of the Addition Date. The Trustee may
conclusively rely on such Officer's Certificate, shall have no duty to
make inquiries with regard to the matters set forth therein, and shall
incur no liability in so relying.
(d) Opinion of Counsel. The Transferor shall have delivered to
the Trustee an Opinion of Counsel with respect to the Additional Leases
designated hereby substantially in the form of Exhibit C to the Pooling
and Servicing Agreement.
(e) Additional Information. The Transferor shall have
delivered to the Trustee such information as was reasonably requested
by the Trustee to satisfy itself as to the accuracy of the
representation and warranty set forth in Section 5(c) of this
Assignment.
7. Amendment of the Pooling and Servicing Agreement. The
Pooling and Servicing Agreement is hereby amended to provide that all references
therein to the "Pooling and Servicing Agreement", to "this Agreement" and
"herein" shall be deemed from and after the Addition Date to be a reference to
the Pooling and Servicing Agreement as supplemented by this Assignment. Except
as expressly amended hereby, all of the representations, warranties, terms,
covenants and conditions of the Pooling and Servicing Agreement shall remain
unamended and shall continue to be, and shall remain, in full force and effect
in accordance with their terms and except as expressly provided herein shall not
constitute or be deemed to constitute a waiver of compliance with or a consent
to noncompliance with any term or provision of the Pooling and Servicing
Agreement.
8. Counterparts. This Assignment may be executed in two or
more counterparts (and by different parties on separate counterparts), each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
<PAGE>
9. GOVERNING LAW. THIS ASSIGNMENT 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 SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the undersigned have caused this
Assignment of Additional Leases to be duly executed and delivered by their
respective duly authorized officers on the day and year first above written.
AFG CREDIT CORPORATION
By:___________________________
Title:________________________
BANKERS TRUST COMPANY,
as Trustee
By:___________________________
Title:________________________
<PAGE>
Schedule 1
to Assignment of Additional Leases
ADDITIONAL LEASES
As contained on an Appropriately Labeled Computer File or Microfiche Delivered
Contemporaneously with this Assignment.
Account Number: ___________
Discounted Lease Balance as of the related
Additional Cut Off Date: $___________
<PAGE>
EXHIBIT C
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
PROVISIONS TO BE INCLUDED IN
OPINION OF COUNSEL TO BE
DELIVERED PURSUANT TO
SUBSECTION 2.6(b)(viii) OF THE
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
The opinions set forth below may be subject to certain
qualifications, assumptions, limitations and exceptions taken or made in the
opinion of the Transferor's counsel with respect to similar matters delivered on
the Initial Closing Date.
(a) The Assignment has been duly authorized, executed and delivered by
the Transferor and constitutes the legal, valid and binding agreement of the
Transferor, enforceable against Transferor in accordance with its terms.
(b) If the Assignment constitutes a valid transfer, assignment and sale
to the Trust of the Additional Leases and the related Equipment (collectively,
the "Additional Assets"), based on the Financing Statement having been filed in
the office of the California Secretary of State, such transfer and assignment
transfers all of the right, title and interest of Transferor in and to such
Additional Assets and the Proceeds thereof to the Trust, free and clear of any
Liens of any person claiming through or under Transferor now existing or
hereafter created, subject to (i) Permitted Liens, (ii) the interest of
Transferor as holder of the Transferor Interest, (iii) AFG's right to receive
servicing fees in its capacity as the Servicer, and (iv) the matters set forth
below. With respect to Additional Assets or the Proceeds thereof represented by
Chattel Paper, Instruments or Money, the interest of the Trustee would be
subject to the matters set forth in clauses (i), (ii)(B) and (ii)(D) of section
(e) of this opinion (with respect to Instruments), clauses (ii)(B) and (ii)(C)
of section (e) of this opinion (with respect to Chattel Paper) or clauses (i)
and (ii)(B) of section (e) of this opinion (with respect to Money). With respect
to Additional Assets or the Proceeds thereof which are represented by
Instruments, the transferee would not have the rights of a holder in due course
unless transfer is effected by negotiation and delivery in accordance with
Sections 3201, 3203 and 3204 of the Code.
(c) The interest acquired by the Trustee will be enforceable against
subsequent creditors of or purchasers from Transferor. We note, however, that
unless the Lessee in respect of an Additional Lease has received notice of the
transfer to the Trust, bona fide payments made by such Lessee to Transferor, or
to a subsequent assignee of such Additional Lease as to which the Lessee has
received notice of such assignment, will discharge such Lessee's obligations to
the extent of such payment, and such
<PAGE>
payment will be recoverable only from Transferor, which recovery may be impaired
in a subsequent insolvency of Transferor. With respect to the foregoing, we
further note that under Section 3.2(e) of the Pooling and Servicing Agreement,
Lessees are to be directed to deliver lease payments to the Lockbox.
(d) The opinions in this section (a) shall apply if and to the extent
that the Assignment does not constitute a valid transfer, assignment and sale of
the Additional Assets. In that case, the Pooling and Servicing Agreement creates
a valid security interest (as defined in the Code) in favor of the Trustee, with
respect to the Additional Assets and the Proceeds thereof, for the benefit of
the Noteholders and the Holder of the Transfer or Interest, securing the
obligations of Transferor under the Pooling and Servicing Agreement. The
Financing Statement having been filed in the office of the California Secretary
of State, such security interest constitutes a perfected security interest in
the Additional Assets and the Proceeds thereof.
(e) Based on the Financing Statement having been filed in the office of
the California Secretary of State, such security interest is enforceable as such
against, and is prior to, creditors of and purchasers from Transferor, and the
Trustee will have the rights of a secured creditor properly perfected under
state law in a bankruptcy or insolvency proceeding or in the event of the
appointment of a receiver or trustee in bankruptcy with respect to Transferor,
except, in each case, (i) with respect to Additional Assets or the Proceeds
thereof evidenced by Instruments (as defined in Section 9105(1)(i) of the Code),
or Money, which in either case are not in the possession of the Trustee; and
(ii) as priority may be subject to (A) liens under Section 4210 of the Code
(relating to the security interest of a collecting bank), (B) claims of the
United States under the federal priority statute (31 U.S.C. ss.3713), (C) with
respect to Additional Assets or the Proceeds thereof represented by Chattel
Paper or Instruments, the interest of a purchaser of such Chattel Paper or
Instruments under Section 9308 of the Code (although we note that, pursuant to
Section 2.1 of the Pooling and Servicing Agreement, Transferor will deliver the
Lease Files to the Custodian), and (D) with respect to Additional Assets or the
Proceeds thereof evidenced by Instruments, security interests of third parties
perfected for 21 days under Section 9304(4) or (5)(b) of the Code.
(f) No further filing or other action, other than the execution and
delivery of the Assignment by the parties thereto and the filing of the
Financing Statement in the office of the California Secretary of State, is
necessary to protect the Trustee's ownership interest or perfect or continue the
perfected status under California law of the security interest of the Trustee
for the benefit of the Noteholders and the Holder of the Transferor Interest in
the Additional Assets and the Proceeds thereof against third parties, except
that appropriate
<PAGE>
continuation statements must be filed with respect to the Financing Statement at
five-year intervals to continue to protect or continue the perfection of such
interests.
<PAGE>
EXHIBIT D
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
FORM OF RETRANSFER AGREEMENT
TRANSFER No. ____ OF LEASES (this "Retransfer Agreement"),
dated as of _________________, 19 ___, by and between AFG CREDIT CORPORATION, a
Delaware corporation (the "Transferor"), and BANKERS TRUST COMPANY, a banking
corporation organized and existing under the laws of New York (the "Trustee"),
pursuant to the Pooling and Servicing Agreement and Indenture of Trust referred
to below.
W I T N E S S E T H :
WHEREAS, the Transferor, American Finance Group, Inc., as
Servicer, and the Trustee are parties to the Pooling and Servicing Agreement and
Indenture of Trust, dated as of July 1, 1995 (hereinafter as such agreement may
have been, or may from time to time be, amended, supplemented or otherwise
modified, the "Pooling and Servicing Agreement");
WHEREAS, pursuant to the Pooling and Servicing Agreement, the
Transferor wishes to remove certain Included Leases and the related Equipment
from the Trust (the "Removed Leases") and to cause the Trustee to reconvey the
Removed Leases, the related Equipment and the other Trust Assets relating to
such Removed Leases, from the Trust to the Transferor (as each such term is
defined in the Pooling and Servicing Agreement); and
WHEREAS, the Trustee on behalf of the Trust is willing to
accept such designation and to reconvey the Removed Leases and the related
Equipment subject to the terms and conditions hereof:
NOW THEREFORE, the Transferor and the Trustee hereby agree as
follows:
1. Defined Terms. All terms defined in the Pooling and
Servicing Agreement and used herein shall have such defined meanings when used
herein, unless otherwise defined herein.
"Removal Date" shall mean, with respect to the Removed
Leases designated hereby, , 199__.
"Removal Notice Date" shall mean, with respect to the Removed
Accounts designated hereby, _________, 199__ (which shall be a date on
or prior to the fifth Business Day prior
to the Removal Date).
<PAGE>
2. Designation of Removed Leases. The Transferor shall deliver
to the Trustee a computer file, microfiche or written list containing a true and
complete schedule identifying all Removed Leases specifying for each such
Removed Lease, as of the Removal Notice Date, its account number and the
Discounted Lease Balance thereof. Such list shall be marked as Schedule 1 to
this Retransfer Agreement and shall be incorporated into and made a part of this
Retransfer Agreement as of the Removal Date.
3. Transfer of Leases. (a) The Trustee does hereby transfer,
assign and set-over to the Transferor, without representation, warranty or
recourse, all right, title and interest of the Trust in and to the assets in and
arising in connection with the Removed Leases designated hereby, including all
monies due or to become due thereunder and all Collections in respect thereof,
the related Equipment, the related Lease Files, the Insurance Policies and any
Insurance Proceeds related to the Removed Leases, and all income or proceeds of
the foregoing or relating thereto.
(b) In connection with such transfer, the Trustee agrees to
execute and deliver to the Transferor on or prior to the date of this Retransfer
Agreement, a termination statement or partial release with respect to the
Removed Leases designated hereby (which may be a single termination statement
with respect to all such property) evidencing the reassignment and release by
the Trust of its lien on and interest in the Removed Leases and the related
Equipment, and meeting the requirements of applicable state law, in such manner
and such jurisdictions as are necessary to evidence such reassignment.
4. Acceptance by Trustee. The Trustee hereby acknowledges
that, prior to or contemporaneously with the execution and delivery of this
Retransfer Agreement, the Transferor delivered to the Trustee the computer file
or microfiche or written list described in Section 2 of this Retransfer
Agreement.
5. Representations and Warranties of the Transferor. The
Transferor hereby represents and warrants to the Trust as of the Removal Date:
(a) Legal Valid and Binding Obligation. This Retransfer
Agreement constitutes a legal, valid and binding obligation of the
Transferor, enforceable against the Transferor in accordance with its
terms, except as such enforceability may be limited by Debtor Relief
Laws and except as such enforceability may be limited by general
principles of equity (whether considered in a suit at law or in
equity);
(b) List of Removed Leases. The computer file or microfiche or
written list described in Section 2 of this Retransfer Agreement, as of
the Removal Notice Date,
<PAGE>
complies in all material respects with the requirements of Section
2.8(b)(ii) of the Pooling and Servicing Agreement;
(c) Selection Procedures. No selection procedure used by the
Transferor which is adverse to the interests of the Noteholders was
utilized in selecting the Removed Leases designated hereby; and
(d) Solvency. As of the Removal Notice Date and the Removal
Date, the Transferor is not insolvent and the Transferor has no present
intention of seeking protection under any Debtor Relief Laws.
6. Conditions Precedent. The acceptance by the Trustee set
forth in Section 4 above and the amendment of the Pooling and Servicing
Agreement set forth in Section 7 hereof is subject to the satisfaction, on or
prior to the Removal Date, of the following conditions precedent:
(a) Officers' Certificate. The Transferor shall have delivered
to the Trustee and each Enhancement Provider an Officers' Certificate of an
officer of the Transferor certifying that (i) as of the Removal Date, all
requirements set forth in Section 2.8(b) of the Pooling and Servicing Agreement
for designating Removed Leases and reconveying such Removed Leases and in
Section 6 hereof, have been satisfied, and (ii) each of the representations and
warranties made by the Transferor in Section 5 hereof is true and correct as of
the Removal Date. The Trustee may conclusively rely on such Officer's
Certificate, shall have no duty to make inquiries with regard to the matters set
forth therein and shall incur no liability in so relying.
(b) The removal of any Removed Leases on any Removal Date
shall not cause a Pay Out Event to occur, or an event which with notice or lapse
of time or both would constitute a Pay Out Event or cause the Portfolio
Parameters to be untrue.
(c) Any Removed Lease shall not be allocated to an Amortizing
Pool (unless such Lease is substituted for in accordance with Section 2.7 of the
Pooling and Servicing Agreement).
(d) As of the Removal Notice Date and the Removal Date, the
Asset Base shall not be less than the Aggregate Adjusted Principal Amount.
7. Amendment of the Pooling and Servicing Agreement. The
Pooling and Servicing Agreement is hereby amended to provide that all references
therein to the "Pooling and Servicing Agreement", to "this Agreement" and
"herein" shall be deemed from and after the Removal Date to be a reference to
the Pooling and Servicing Agreement as supplemented by this Retransfer
Agreement. Except as expressly amended hereby, all of the representations,
warranties, terms, covenants and conditions of the Pooling and
<PAGE>
Servicing Agreement shall remain unamended and shall continue to be, and shall
remain, in full force and effect in accordance with its terms and except as
expressly provided herein shall not constitute or be deemed to constitute a
waiver of compliance with or a consent to non-compliance with any term or
provision of the Pooling and Servicing Agreement.
8. Counterparts. This Retransfer Agreement may be executed in
two or more counterparts (and by different parties on separate counterparts),
each of which shall be an original, but all of which together shall constitute
one and the same instrument.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS, PROVIDED, HOWEVER, THAT THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
TRUSTEE SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the undersigned have caused this
Retransfer Agreement to be duly executed and delivered by their respective duly
authorized officers on the day and year first above written.
AFG CREDIT CORPORATION
By:___________________________
Title:________________________
BANKERS TRUST COMPANY,
as Trustee
By:___________________________
Title:________________________
<PAGE>
Schedule 1
to Retransfer Agreement
REMOVED LEASES
As contained on an Appropriately Labeled Computer File or Microfiche Delivered
Contemporaneously with this Agreement.
Account Number: ___________
Discounted Lease Balance as of the related
Removal Notice Date: $___________
<PAGE>
EXHIBIT E
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
FORM OF LOCKBOX AGREEMENT
THIS LOCKBOX AGREEMENT, dated as of __________ __, 199_, is
made between [ ], as Lockbox Processor (the "Lockbox Processor"), BANKERS TRUST
COMPANY, a New York Banking corporation, as Collateral Trustee (the "Collateral
Trustee"), AFG CREDIT CORPORATION, a Delaware corporation (the "Company") and
AMERICAN FINANCE GROUP, INC, a Delaware Corporation ("AFG").
WHEREAS, the Company has agreed to purchase certain leases
(the "Leases") and related equipment from time to time from AFG pursuant to the
Asset Purchase Agreement, dated as of July 1, 1995, between AFG and the Company;
WHEREAS, the Company has in turn transferred the Leases and
the related equipment to the AFG Master Trust (the "Trust") pursuant to the
Pooling and Servicing Agreement and Indenture of Trust, dated as of July 1, 1995
(as amended or otherwise modified from time to time, the "Pooling and Servicing
Agreement"), among the Company, AFG, as servicer (in such capacity, the
"Servicer"), and Bankers Trust Company, as Trustee and as Collateral Trustee;
WHEREAS, on or prior to the date of this Agreement, the
Servicer, pursuant to the terms of the Pooling and Servicing Agreement, has
instructed the lessees under the Leases to make all payments with respect to
such Leases to a Lockbox (as such term is defined in the Pooling and Servicing
Agreement); and
WHEREAS, the Company has assigned all of its right, title and
interest in and to the lockbox with the post office box listed in item 1 of
Schedule A hereto (the "Lockbox") and the lockbox account established pursuant
to Section 3.1 hereof and identified in item 2 of Schedule A hereto (the
"Lockbox Account") to the Trust for the benefit of the holders of the notes
issued by the Trust (the "Noteholders") and the holder of the transferor
interest in the Trust (the "Transferor Interest") (as such terms are defined in
the Pooling and Servicing Agreement);
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto agree as follows:
<PAGE>
ARTICLE I
COLLECTION PROCEDURES
Section 1.1 Access to Lockbox Mail. The Lockbox Processor, its
employees and agents shall have unrestricted and exclusive access to the mail
(including registered, insured or COD mail) directed to the Lockbox.
Section 1.2 Remittance Collection. The Lockbox Processor shall
collect the contents of the Lockbox on each day on which the Lockbox Processor
is open for normal business (a "Business Day"). The Lockbox Processor shall open
the envelopes and other contents of the Lockbox, remove and inspect the checks
and enclosures and process the checks and deposit the cash and enclosures as
provided herein; provided however, that any bulk items may be refused at the
post office and returned to sender.
Section 1.3 Remittances From AFG. Payments in respect of the
Leases that are made directly to the Company or AFG and deposited by the Company
or AFG, as the case may be, into the Lockbox Account shall be processed in
accordance with Articles II and III hereof.
Section 1.4 Acceptable Checks. Checks collected in accordance
with Sections 1.2 and 1.3 and conforming to the following requirements shall be
considered "Acceptable Checks" and processed in accordance with Article II
hereof:
(a) The name of the payee on the checks shall be
American Finance Group, Inc. or AFG Credit Corporation or a reasonable variation
thereof. If the name of the payee is missing on the payee line the Lockbox
Processor shall write or stamp "drawee refer to maker" on the payee line and
process the check.
(b) In the case of a missing date on a check the
Lockbox Processor shall either write in the postmark date or insert the current
date with a date-stamp.
(c) If checks written in numerical amount differ
from the written amount the Lockbox Processor shall use the written amount. If
the correct amount of the check cannot otherwise be determined the check shall
not be deposited.
(d) A check bearing a paid-in-full or other
similar restrictive notation shall not be deposited by the Lockbox Processor.
The Lockbox Processor shall not be required to examine the reverse sides of
checks for any restrictive notation.
(e) Items collected from the Lockbox and
denominated in a foreign currency or drawn on a foreign bank
shall be processed on a collection basis only. Credit on such
<PAGE>
foreign currency shall be posted to the Lockbox Account upon receipt of paid
collections less all applicable fees and charges.
ARTICLE II
PROCESSING ACCEPTABLE CHECKS
Section 2.1 Endorsement. The following endorsement shall be
applied to each Acceptable Check collected in accordance with Sections 1.2 and
1.3 hereof:
======================
Absence of payee endorsement guaranteed
======================
Section 2.2 Deposit of Collections. Each Acceptable Check
shall be deposited into the Lockbox Account on each Business Day. The collection
of the checks, money, statements, invoices, communications and other documents
accompanying the checks from the Lockbox shall create a bailment, and the
bailor- bailee relationship shall continue until such items are received by the
banking clearing house of the Lockbox Processor and are received and credited to
the Lockbox Account at which time the Collateral Trustee, on behalf of the
Noteholders and the holder of the Transferor Interest, as assignee of the
Company, shall become a depositor of the Lockbox Processor with respect to the
Acceptable Checks. The bailor-bailee relationship shall also apply to the
contents of the Lockbox other than money, checks, drafts and other orders for
the payment of money. The collection of the Acceptable Checks shall be governed
(i) by the Uniform Commercial Code as adopted in the state of the location of
the Lockbox and Lockbox Account and (ii) by this Agreement.
Section 2.3 Remittance Detail and Documentation. Prior to 1:00
p.m., Eastern Standard Time, on each Business Day, the Lockbox Processor shall
make available for pick-up by the Servicer at the address specified in item 3(a)
of Schedule A hereto the package of material described below, which package
shall be addressed to the address specified in item 3(b). This package shall
include any checks that are not Acceptable Checks, along with all statements,
invoices, communications and other documents accompanying such checks, and all
statements, invoices, communications and other documents accompanying the
Acceptable Checks collected in the Lockbox, along with photocopies of each
Acceptable Check, a detail deposit listing, a summary credit advice for the
day's total deposit, the checks returned pursuant to Section 3.5 hereof and all
other contents of the Lockbox.
Section 2.4 Preparation of Package. The package of
material described in Section 2.3 shall be prepared in the order
of receipt without regard to sorting or grouping in alphabetical
order or otherwise. Collections received from the Lockbox on any
<PAGE>
Business Day that are not processed prior to the deadline for preparing the
package of materials described in Section 2.3 hereof shall be processed on the
next Business Day and reported with the next day's collections.
Section 2.5 Telephone Confirmation; Transfer of Funds. Prior
to 1:00 p.m., Eastern Standard Time, on each Business Day, the Lockbox Processor
shall by telephone provide verbal confirmation of the summary credit advice for
that day's total deposit to the Servicer at the telephone number specified in
item 4 of Schedule A hereto. Prior to 5:00 p.m., Eastern Standard Time, on each
Business Day, the Lockbox Processor shall transfer all available funds (such
availability as set forth in the Lockbox Processor's then current published
Funds Availability Policy (the "Funds Availability Policy") as applicable to
commercial transaction accounts) on deposit in the Lockbox Account to account
number 2000000732936 at First Union National Bank of North Carolina (the
"Collection Account"). The Lockbox Processor hereby agrees to transfer all
available funds on deposit in the Lockbox Account to the Collection Account
within two Business Days of the Lockbox Processor's receipt thereof.
Section 2.6 Record Maintenance. The Lockbox Processor shall
maintain a microfilm or microfiche record of each Acceptable Check deposited in
the Lockbox Account which records shall be retained by the Lockbox Processor for
a period of seven years. A photocopy shall be provided to the Servicer or the
Collateral Trustee upon request (subject to the payment of the Lockbox
Processor's then prevailing charge for such service).
ARTICLE III
ESTABLISHMENT OF LOCKBOX ACCOUNT
Section 3.1 Establishment of Lockbox Account. The Lockbox
Processor has established the Lockbox Account using the account number set forth
in item 2 of Schedule A hereto. The Lockbox Account has been established in the
name of "Bankers Trust Company, as collateral trustee for the AFG Master Trust."
Section 3.2 Exclusive Dominion and Control in Collateral
Trustee. The Collateral Trustee, on behalf of the Noteholders and the holder of
the Transferor Interest, as assignee of the Company, shall have the sole and
exclusive right to withdraw funds or order a transfer of funds from the Lockbox
Account. The Company hereby appoints the Collateral Trustee as the true and
lawful attorney of the Company with full power of substitution, for the purpose
of making any such withdrawal or ordering any such transfer of funds from the
Lockbox Account, which appointment is coupled with an interest and is
irrevocable by the Company. Unless instructed otherwise in writing by the
Collateral Trustee, all funds withdrawn from the Lockbox Account
<PAGE>
from time to time may be transferred only to the Collection
Account.
Section 3.3 Statements. The Lockbox Processor shall mail all
statements relating to the activity in the Lockbox Account to the Servicer with
copies to the Collateral Trustee.
Section 3.4 Signature Cards. The Lockbox Processor is
authorized to honor, without inquiry or investigation, all checks, drafts or
other orders for payment of money drawn in the Collateral Trustee's name on the
Lockbox Account when signed by any of the individuals whose specimen signatures
appear on the Signature Card dated _______ __, 199_ (the "Signature Card"). For
purposes of this Section 3.4, items drawn by an authorized signer may be
conclusively deemed by the Lockbox Processor to be signed in the name of the
Collateral Trustee whether or not such signature is accompanied by language
indicating that the drawing is made in a representative capacity. Authorized
signers to the Lockbox Account may be added or deleted by written instructions
sent to the Lockbox Processor and executed by any vice president of the Company,
with the written consent of the Collateral Trustee. If a new authorized signer
is added to the Lockbox Account a new signature card containing the specimen
signature of any new signer shall be submitted to the Lockbox Processor by the
Company, with the written consent of the Collateral Trustee, along with the
written instructions requesting changes to the authorized signers on the Lockbox
Account. Submission of the Signature Card to the Lockbox Processor shall operate
to revoke all previous signature cards relating to the Lockbox Account unless
otherwise noted.
Section 3.5 Returned Checks. The Lockbox Processor shall
notify the Servicer of any check deposited to the Lockbox Account that is
returned unpaid because of insufficient funds or uncollected funds and shall
then follow the Servicer's instructions with respect to such check. The charge
for returned checks will be the prevailing rate as specified by the Lockbox
Processor. The Trust shall reimburse the Lockbox Processor for the amount of any
returned checks if there are not sufficient funds in the Lockbox Account or
Lockbox to reimburse the Lockbox Processor for the returned checks. This right
of indemnification shall survive termination of this Agreement.
Section 3.6 Adjustment and Correction Procedures. The
------------------------------------
Lockbox Processor may reverse any credit or debit it has erroneously made to
the Lockbox Account at any time without prior notice. The Lockbox Processor
shall notify the Servicer promptly by telephone of any such corrections.
Copies of credit or debit advices shall be sent to the Servicer and the
Collateral Trustee by first class mail or by facsimile transmission at the
addresses specified in Section 5.1 hereof. If any processing error shall come
to the attention of any of the Servicer or the Collateral Trustee then such
processing error shall be communicated promptly to the Lockbox Processor. All
transactions, including without
<PAGE>
limitation those for which the Lockbox Processor has provided the Servicer with
a receipt, are subject to the Lockbox Processor's final verification. Inquires
by the Servicer, the Company or the Collateral Trustee concerning day-to-day
processing shall be directed to the Lockbox Customer Service Department at the
address set forth in item 5 of Schedule A hereto. Written inquiries shall
include a short description of the problem, deposit date, deposit total and item
position on the adding machine tape.
ARTICLE IV
FEES AND EXPENSES
Section 4.1 Fees For Services. The Company shall pay the
Lockbox Processor the prices or fees for servicing the Lockbox and Lockbox
Account specified in item 6 of Schedule A hereto. The prices or fees specified
therein shall be subject to change upon the Lockbox Processor's giving the
Company thirty days' prior written notice.
Section 4.2 Expenses. All expenses incurred by the Lockbox
Processor directly relating to the Lockbox and the Lockbox Account, such as post
office rental, postage and exchange charges initially paid by the Lockbox
Processor, shall be reimbursed by the Servicer upon receiving notice of such
reimbursement claim. In the event the Company fails to pay the fees and expenses
set forth in this Section 4.2 and such fees and expenses remain past due for 45
days or more, the Lockbox Processor, after written notice of such failure to the
Collateral Trustee, shall have the right to debit the Lockbox Account for such
fees and expenses.
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.1 Notice. Informational requests of the Lockbox
Processor concerning collections in the Lockbox and other matters relating to
the Lockbox and the Lockbox Account may be made by telephone to the Servicer at
the telephone number set forth in this Section 5.1. All written notices,
demands, instructions or other communications required or permitted to be given
to or made upon any party hereto shall be in writing and shall be either hand
delivered or mailed by registered or certified mail, postage prepaid, return
receipt requested or by Federal Express or electronic mail and shall be deemed
to be given for purposes of this Agreement when so mailed. Notice given by
Federal Express or electronic mail shall be deemed given twenty-four (24) hours
after communicated. Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provisions of this section, notices, demands,
<PAGE>
instructions and other communications in writing shall be given to or made upon
the respective parties hereto at the respective addresses (or their respective
facsimile) indicated below:
If to the Lockbox Processor:
===================
Attention: ______________
Telephone No.:
Telecopier No.:
with copies to:
If to the Company:
AFG Credit Corporation
98 N. Washington Street
Boston, Massachusetts 02114
Attention: Chief Financial Officer
Telephone No.: 617-854-5805
Telecopier No.: 617-523-1410
If to the Servicer:
American Finance Group, Inc.
98 N. Washington Street
Boston, Massachusetts 02114
Attention: [Cash Manager]
Telephone No.: 617-854-5805
Telecopier No.: 617-523-1410
If to the Collateral Trustee:
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Corporate Market
Services
Telephone No.: 212-250-6531
Telecopier No.: 212-250-6961/6392
Any party may change the address to which notices, payments or
communications shall be given by notifying the other party in writing as
provided for in this Section
Section 5.2 Limitation of Liability; Force Majeure. The
Lockbox Processor shall not be liable to the parties hereto or to the Collateral
Trustee with respect to the Lockbox and the Lockbox Account for any acts done or
steps taken or omitted by it in good faith, for any mistake in fact or law, or
for anything it may do or refrain from doing in connection with or as required
by this Agreement except for gross negligence or willful misconduct. The Lockbox
Processor shall not be liable for any loss or claim resulting from any cause
outside of the Lockbox Processor's reasonable control. In no event shall the
Lockbox Processor be liable for incidental or consequential damages. A delay in
or
<PAGE>
failure of performance by the Lockbox Processor under this Agreement shall not
constitute a default hereunder if such delay or failure could not be prevented
by the exercise of reasonable diligence by the Lockbox Processor and such delay
or failure was caused by an act of God or the public enemy, acts of declared or
undeclared war, public disorder, rebellion or sabotage, power failures,
epidemics, landslides, lightning, fire, hurricanes, earthquakes, floods or
similar causes. The Lockbox Processor shall provide the Collateral Trustee and
the Servicer with prompt telephonic notice of such failure or delay by it.
Section 5.3 Limited Waiver of Setoff; Waiver. Except for
returned items, fees and expenses as provided in Section 3.5 and 4.2 hereof, the
Lockbox Processor agrees that it will not exercise any right of setoff,
counterclaim, banker's lien, security interest or other right or claim against
the Lockbox or the Lockbox Account. The failure of the Lockbox Processor on any
occasion to exercise any right as to the Company or the Lockbox Account not
otherwise waived under this Agreement will not be considered a waiver of the
Lockbox Processor's rights on any other occasion.
Section 5.4 Termination. This Agreement may be terminated by
either the Lockbox Processor or the Company by giving sixty days' prior written
notice to the other parties hereto. Any mail, documentation or checks received
by the Lockbox Processor after the termination date, shall be forwarded to the
party designated by the Company, or if no party is designated, to the Company,
with copies to the Collateral Trustee, for a period of four months subsequent to
the termination date. Termination shall not affect the rights of the parties for
amounts owing or claims arising prior to the termination date. Upon termination
of this Agreement, the Lockbox Processor shall close the Lockbox Account and the
Company shall instruct the United States Postal Service for disposition of all
mail addressed to the Lockbox.
Section 5.5 Modifications. This Agreement and the rights and
obligations of the parties hereunder may not be changed orally but only by an
instrument in writing signed by the parties to this Agreement; provided,
however, no such amendment, supplement or modification will, without the consent
of the Collateral Trustee, have a material adverse effect on the Collateral
Trustee's interest in the Lockbox or the Lockbox Account, including, without
limitation (i) any increase in the time between receipt of a payment and
remittance to the Collection Account, (ii) a change in the payment instructions
to the Collection Account or (iii) a change in the payment instructions to the
Lockbox Processor.
Section 5.6 Third-Party Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the parties
hereto, and their respective successors and permitted assigns.
Notwithstanding anything contained in this Agreement to the
<PAGE>
contrary, this Agreement may not be assigned by the Lockbox Processor without
the prior written consent of the Collateral Trustee.
Section 5.7 No Prior Security Interests. As of the date of
delivery of this Agreement, the Lockbox Processor represents that it has not
received any notice of any claim, lien, security interest or other encumbrance
relating to the Lockbox Account as of the date of this Agreement. Additionally,
the Lockbox Processor hereby represents that no security interest relating to
the Lockbox Account has been created in the Lockbox Processor's favor. This
Agreement shall constitute written notice to the Lockbox Processor of the
security interest in this Lockbox Account granted by the Company to the
Collateral Trustee, on behalf of the Noteholders and the holder of the
Transferor Interest. The Lockbox Processor shall give the Collateral Trustee
prompt notice if the Lockbox Account shall become subject to any writ, judgment,
warrant of attachment, execution or similar process.
Section 5.8 No Bankruptcy Petition. The Lockbox Processor
agrees that it will not institute against, or join any other person in
instituting against, the Company any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any federal or
state bankruptcy or similar law.
Section 5.9 Integration. This Agreement, together with
Schedule A hereto, the Signature Card and the Funds Availability Policy,
constitutes the entire agreement among the parties relating to the Lockbox, the
Lockbox Account and the Lockbox Processor's services relating thereto, and
supersedes all prior understandings, written or oral, concerning the subject
matter discussed herein. This Agreement may not be modified, amended, waived or
supplemented except as provided herein. To the extent there are any
inconsistencies between this Agreement and Schedule A hereto or the Signature
Card, this Agreement shall control.
Section 5.10 Deposit Account. The Lockbox Processor hereby
represents that the Lockbox Account is a "deposit account" as such term is
defined in the Uniform Commercial Code of the jurisdiction in which the Lockbox
and Lockbox Account are located. The Lockbox Processor represents and covenants
that the Lockbox Account is not, and will not be, evidenced by any negotiable
certificates of deposit.
Section 5.11 Severability Clause. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
<PAGE>
Section 5.12 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE LOCKBOX AND THE LOCKBOX
ACCOUNT ARE LOCATED, WHICH SHALL INITIALLY BE THE STATE OF ___________, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED
IN ACCORDANCE WITH SUCH LAWS.
Section 5.13 Counterparts. This Agreement may be executed in
two or more counterparts (and by different parties on separate counterparts),
each of which shall be an original, but all of which together shall constitute
one and the same instrument.
Section 5.14 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
<PAGE>
IN WITNESS WHEREOF, the Lockbox Processor, the Company, the
Servicer and the Collateral Trustee have caused this Agreement to be executed by
the respective officers thereunto duly authorized as of the day and year first
above written.
[LOCKBOX PROCESSOR]
By:_________________________
Title:
AFG CREDIT CORPORATION
By:_________________________
Title:
AMERICAN FINANCE GROUP, INC.
By:_________________________
Title:
BANKERS TRUST COMPANY
By:_________________________
Title:
<PAGE>
SCHEDULE A
(Attached to and Made a Part of the
Lockbox Agreement Between
[ ],
Bankers Trust Company
AFG Credit Corporation and
American Finance Group, Inc.
dated as of _________ __, 199_)
1. Lockbox address:
2. Lockbox Account number:
3. (a) Address at which package of material described in Section 2.3 will
be made available:
(b) Address to which package of material described in Section 2.3 will
be addressed:
American Finance Group, Inc.
98 N. Washington St.
Boston, Massachusetts 02114
Attn: Fran Prina, tel. 617-854-5848
4. Telephonic confirmation of summary credit advice for the day's total
deposit directed to:
Fran Prina, tel. 617-854-5848
5. Lockbox Customer Service Department: 1-800-222-3862
6. Pricing of Services:
<PAGE>
EXHIBIT F
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
FORM OF MONTHLY SERVICER'S CERTIFICATE
AFG MASTER TRUST
The undersigned, a duly authorized representative of American
Finance Group, Inc. ("AFG"), as Servicer pursuant to the Pooling and Servicing
Agreement and Indenture of Trust dated as of July 1, 1995 (as amended, modified
or otherwise supplemented from time to time, the "Pooling and Servicing
Agreement") among AFG, AFG Credit Corporation and Bankers Trust Company, as
Trustee and as Collateral Trustee, does hereby certify as follows:
Part I of II
1. Capitalized terms used in this Certificate have their
respective meanings set forth in the Pooling and
Servicing Agreement. This Certificate is delivered
pursuant to Section 3.10(a) of the Pooling and
Servicing Agreement. References herein to certain
sections and subsections are references to the
respective sections and subsections of the Pooling and
Servicing Agreement.
2. AFG is Servicer under the Pooling and Servicing
Agreement.
3. The undersigned is a Servicing Officer.
4. The date of this Certificate is a Determination Date under the
Pooling and Servicing Agreement.
5. The Portfolio Parameters are true in all respects as of the
date of this Certificate (if not true, explain any
deficiencies here).
6. The information set forth in the Chart attached hereto as Part
II of this Certificate is true and correct.
DATE:
- -------------------
by:
title:
<PAGE>
EXHIBIT G
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
FORM OF ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS'
SERVICING REPORT
AFG MASTER TRUST
American Finance Group, Inc.
98 N. Washington Street
Boston, Massachusetts 02114
AFG Credit Corporation
- ----------------------
- ----------, ------------ -----
Bankers Trust Company, as Trustee
Four Albany Street
New York, NY 10006
Gentlemen:
We have applied certain agreed-upon procedures, as discussed
below, to the accounting records of American Finance Group, Inc. (the
"Servicer") and AFG Credit Corporation ("AFG Credit") as of December 31, ____,
solely to assist the Servicer in its responsibilities as Servicer under the
Pooling and Servicing Agreement and Indenture of Trust, dated as of July 1,
1995, among AFG Credit, the Servicer and Bankers Trust Company, as trustee and
as collateral trustee (the "Trustee"), as amended and supplemented from time to
time by supplements thereto (each a "Supplement") entered into by AFG Credit,
the Servicer and the Trustee in conjunction with the issuance of Series of Notes
(the "Pooling and Servicing Agreement"). It is understood that this report is
solely for your information and is not to be referred to or distributed for any
other purpose to anyone who is not a member of management of the Servicer, AFG
Credit or the Trustee, or who is not otherwise specifically defined as a
recipient in the Pooling and Servicing Agreement. Our procedures and findings
are as follows:
(a) We compared each of the amounts in the certificates
delivered by the Servicer pursuant to Section 3.10(a)
of the Pooling and Servicing Agreement, the statements
or reports delivered to the Noteholders of each Series
pursuant to Article V of the Pooling and Servicing
Agreement and the monthly payment instructions
delivered to the Trustee with respect to each Series of
Notes pursuant to Article IV of the Pooling and
Servicing Agreement for each of the months in the
[fiscal year] [period of _____ months ended] [the
Saturday closest to January 31] to the corresponding
<PAGE>
amounts in schedules prepared by the Servicer and found
them to be in agreement.
(b) We verified the mathematical accuracy of the schedules
prepared by the Servicer and found no differences.
(c) We compared the information in the schedules prepared by the
Servicer to data extracted from the Servicer's credit
accounting system and found them to be in agreement.
(d) We read the Annual Servicer's Certificate delivered pursuant
to Section 3.10 of the Pooling and Servicing Agreement for the
[year] [the period of ____ months ended] [the Saturday closest
to January 31] and made inquiries of the Servicer's management
regarding the Servicer's compliance with the guidelines of the
Pooling and Servicing Agreement.
Because the above procedures do not constitute an audit made
in accordance with generally accepted auditing standards, we express no opinion
on any of the specified accounts or items referred to above. In connection with
the procedures referred to above, no matters came to our attention that caused
us to believe that the certificates and reports referred to above should be
adjusted. Based on our reading, inquiries and procedures as set forth in
paragraphs (a), (b), (c) and (d) above, nothing came to our attention that
caused us to believe that the servicing of the accounts was not conducted in
compliance with the terms and conditions set forth in the Pooling and Servicing
Agreement insofar as they relate to accounting matters. Had we performed
additional procedures, matters might have come to our attention that would have
been reported to you. This report relates only to the accounts or items
specified above and does not extend to any financial statements of American
Finance Group, Inc., AFG Credit Corporation or Bankers Trust Company taken as a
whole.
Date:
<PAGE>
EXHIBIT H
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
FORM OF MONTHLY PAYMENT INSTRUCTIONS AND NOTIFICATION2
AFG MASTER TRUST
This Payment Instructions and Notification has been prepared
and signed by a duly authorized representative of American Finance Group.
("AFG"), as Servicer pursuant to the Pooling and Servicing Agreement and
Indenture of Trust dated as of July 1, 1995, as supplemented by the Series
1995-1 Supplement thereto (the "Pooling and Servicing Agreement") among AFG, AFG
Credit Corporation and Bankers Trust Company, as Trustee and as Collateral
Trustee.
A. Capitalized terms used herein have their respective
meanings set forth in the Pooling and Servicing Agreement, as amended
by [the Series 1995-1 Supplement thereto] [name of applicable Series].
This form is delivered pursuant to Section [4.3(e)] [4.3(f)] of the
Pooling and Servicing Agreement.
B. AFG is the Servicer under the Pooling and
Servicing Agreement.
C. The undersigned is a Servicing Officer.
D. The date of this notice is a Determination Date
under the Pooling and Servicing Agreement.
DATE:
--------------------------
By:
Title:
- --------
2 The form attached to this Payment Instructions and Notification applies
to Series 1995-1. Payment Instructions and Notification for other
Series will be added as
attachments to this form as applicable.
<PAGE>
EXHIBIT I
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
PROVISIONS TO BE INCLUDED IN
OPINION OF COUNSEL PURSUANT
TO SUBSECTION 13.2(d)(i)
(a) The amendment to the Pooling and Servicing Agreement and
Indenture of Trust, attached hereto as Exhibit A (the "Amendment"), has been
duly authorized, executed and delivered by the Transferor and the Servicer and
constitutes the legal, valid and binding agreement of the Transferor and the
Servicer, enforceable in accordance with its terms.
(b) The Amendment has been entered into in accordance with the
terms and provisions of Section 13.1 of the Pooling and Servicing Agreement and
Indenture of Trust.
<PAGE>
EXHIBIT J
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
PROVISIONS TO BE INCLUDED
IN ANNUAL OPINION OF COUNSEL
The opinions set forth below, which are to be delivered
pursuant to subsection 13.2(d)(ii) of the Pooling and Servicing Agreement and
Indenture of Trust (the "Pooling and Servicing Agreement"), may be subject to
certain qualifications, assumptions, limitations and exceptions taken or made in
the opinion of the Transferor's counsel with respect to similar matters
delivered on the Initial Closing Date.
(a) If the Pooling and Servicing Agreement constitutes a valid
transfer, assignment and sale to the Trust of the Original Leases and the
related Equipment (collectively, the "Assets"), based on the Financing Statement
having been filed in the office of the California Secretary of State, such
transfer and assignment transfers all of the right, title and interest of
Transferor in and to such Assets and the Proceeds thereof to the Trust, free and
clear of any Liens of any person claiming through or under Transferor now
existing or hereafter created, subject to (i) Permitted Liens, (ii) the interest
of Transferor as holder of the Transferor Interest, (iii) AFG's right to receive
servicing fees in its capacity as the Servicer, and (iv) the matters set forth
below. With respect to Assets or the Proceeds thereof represented by Chattel
Paper, Instruments or Money, the interest of the Trustee would be subject to the
matters set forth in clauses (i), (ii)(B) and (ii)(D) of section (d) of this
opinion (with respect to Instruments), clauses (ii)(B) and (ii)(C) of section
(d) of this opinion (with respect to Chattel Paper) or clauses (i) and (ii)(B)
of section (d) of this opinion (with respect to Money). With respect to Assets
or the Proceeds thereof which are represented by Instruments, the transferee
would not have the rights of a holder in due course unless transfer is effected
by negotiation and delivery in accordance with Sections 3201, 3203 and 3204 of
the Code.
(b) The interest acquired by the Trustee will be enforceable against
subsequent creditors of or purchasers from Transferor. We note, however, that
unless the Lessee in respect of an Original Lease has received notice of the
transfer to the Trust, bona fide payments made by such Lessee to Transferor, or
to a subsequent assignee of such Original Lease as to which the Lessee has
received notice of such assignment, will discharge such Lessee's obligations to
the extent of such payment, and such payment will be recoverable only from
Transferor, which recovery may be impaired in a subsequent insolvency of
Transferor. With respect to the foregoing, we further note that under Section
3.2(e) of the Pooling and Servicing Agreement, Lessees are to be directed to
deliver lease payments to the Lockbox.
<PAGE>
(c) The opinions in this section (a) shall apply if and to the extent
that the Pooling and Servicing Agreement does not constitute a valid transfer,
assignment and sale of the Assets. In that case, the Pooling and Servicing
Agreement creates a valid security interest (as defined in the Code) in favor of
the Trustee, with respect to the Assets and the Proceeds thereof, for the
benefit of the Noteholders and the Holder of the Transfer or Interest, securing
the obligations of Transferor under the Pooling and Servicing Agreement. The
Financing Statement having been filed in the office of the California Secretary
of State, such security interest constitutes a perfected security interest in
the Assets and the Proceeds thereof.
(d) Based on the Financing Statement having been filed in the office of
the California Secretary of State, such security interest is enforceable as such
against, and is prior to, creditors of and purchasers from Transferor, and the
Trustee will have the rights of a secured creditor properly perfected under
state law in a bankruptcy or insolvency proceeding or in the event of the
appointment of a receiver or trustee in bankruptcy with respect to Transferor,
except, in each case, (i) with respect to Assets or the Proceeds thereof
evidenced by Instruments (as defined in Section 9105(1)(i) of the Code), or
Money, which in either case are not in the possession of the Trustee; and (ii)
as priority may be subject to (A) liens under Section 4210 of the Code (relating
to the security interest of a collecting bank), (B) claims of the United States
under the federal priority statute (31 U.S.C. ss.3713), (C) with respect to
Assets or the Proceeds thereof represented by Chattel Paper or Instruments, the
interest of a purchaser of such Chattel Paper or Instruments under Section 9308
of the Code (although we note that, pursuant to Section 2.1 of the Pooling and
Servicing Agreement, Transferor will deliver the Lease Files to the Custodian),
and (D) with respect to Assets or the Proceeds thereof evidenced by Instruments,
security interests of third parties perfected for 21 days under Section 9304(4)
or (5)(b) of the Code.
(e) No further filing or other action, other than the execution and
delivery of the Pooling and Servicing Agreement by the parties thereto and the
filing of the Financing Statement in the office of the California Secretary of
State, is necessary to protect the Trustee's ownership interest or perfect or
continue the perfected status under California law of the security interest of
the Trustee for the benefit of the Noteholders and the Holder of the Transferor
Interest in the Assets and the Proceeds thereof against third parties, except
that appropriate continuation statements must be filed with respect to the
Financing Statement at five-year intervals to continue to protect or continue
the perfection of such interests.
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 10.6
ASSET PURCHASE AGREEMENT
------------------------
between
AMERICAN FINANCE GROUP, INC.
and
AFG CREDIT CORPORATION
------------------------
Dated as of
July 1, 1995
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS......................................................1
1.1 Definitions.................................................1
1.2 Other Definitional Provisions...............................5
(a) Terms Used in Related Documents....................5
(b) Accounting Terms...................................5
(c) "Hereof", etc......................................5
ARTICLE II
SALE OF ORIGINAL ASSETS; SALE OF ADDITIONAL ASSETS;.............6
2.1 Sale of Original Assets.....................................6
(a) Sale...............................................6
(b) Purchase Price.....................................6
(c) Recordation........................................6
(d) Marking of Original Leases.........................7
(e) Custody of Lease Files.............................7
(f) Title to Equipment.................................7
2.2 Contribution or Sale of Additional Assets...................7
(a) Additional Sales and Contributions.................7
(b) Purchase Price.....................................7
(c) Recordation........................................8
(d) Marking of Additional Leases.......................8
(e) Custody of Lease Files.............................8
(f) Title to Equipment.................................8
ARTICLE III
AFG TO ACT AS AGENT FOR AFG CREDIT; ORIGINATION OF LEASES
BY AFG CREDIT....................................................9
3.1 Agency Agreement............................................9
(a) Origination of AFG Credit Leases...................10
(b) Custody of Lease Files.............................10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES...................................11
4.1 Representations and Warranties of AFG.......................11
(a) Representations and Warranties with Respect
to the Assets......................................11
-1-
<PAGE>
(b) Representations and Warranties with Respect
to the AFG Credit Leases...........................12
(c) Representations and Warranties as to AFG...........13
4.2 Representations and Warranties of AFG Credit................15
(a) Organization and Good Standing.....................15
(b) Due Qualification..................................15
(c) Due Authorization..................................16
(d) No Conflict........................................16
(e) No Violation.......................................16
(f) All Consents Required..............................16
4.3 Purchase of Ineligible Leases and Equipment by
AFG.........................................................16
4.4 Indemnification.............................................17
ARTICLE V
COVENANTS OF AFG AND AFG Credit..................................17
5.1 AFG Covenants...............................................17
(a) Lease Files........................................18
(b) Compliance with Law................................18
(c) Preservation of Ownership Interest.................18
(d) Obligations with Respect to Leases.................18
(e) No Bankruptcy Petition.............................18
(f) Security Interests.................................19
(g) Location of Records................................19
(h) Agency Relationship................................19
(i) Indemnification....................................19
5.2 Consent to Assignment.......................................19
ARTICLE VI
CONDITIONS PRECEDENT.............................................20
6.1 Conditions to AFG Credit's Obligations......................20
(a) Representations and Warranties.....................20
(b) Other Information..................................20
(c) Obligations........................................20
(d) Corporate Proceedings..............................20
6.2 Conditions to AFG's Obligations.............................20
(a) Representations and Warranties.....................21
(b) Corporate Proceedings..............................21
ARTICLE VII
TERMINATION......................................................21
7.1 Termination.................................................21
7.2 Effect of Termination.......................................21
-2-
<PAGE>
ARTICLE VIII
MISCELLANEOUS PROVISIONS.........................................22
8.1 Amendment...................................................22
8.2 Governing Law...............................................22
8.3 Notice......................................................22
8.4 Severability of Provisions..................................22
8.5 Assignment..................................................22
8.6 Further Assurances..........................................22
8.7 No Waiver; Cumulative Remedies..............................23
8.8 Counterparts................................................23
8.9 Third-Party Beneficiaries...................................23
8.10 Merger and Integration.....................................23
8.11 Headings...................................................23
8.12 Schedules and Exhibits.....................................23
Exhibits
Exhibit A Form of Assignment for Original Assets
Exhibit B Form of Assignment for Additional Assets
Schedules
1. Original Lease Schedule
2. Portfolio Parameters Schedule
-3-
<PAGE>
EXHIBIT 10.6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of July 1, 1995 (this
"Agreement"), is entered into between American Finance Group, Inc. ("AFG"), a
Delaware corporation, and AFG Credit Corporation ("AFG Credit"), a Delaware
corporation.
AFG in the ordinary course of its business originates
equipment and other leases, and purchases equipment and other leases originated
by other Persons, in the United States and abroad.
AFG desires, on the date hereof, to transfer the Original
Leases, its interests in the related Equipment and other assets (as such
capitalized terms are defined pursuant to Article I below) to AFG Credit upon
the terms and conditions set forth in this Agreement.
It is contemplated that, from time to time after the date
hereof, AFG and AFG Credit may agree that AFG will transfer additional Leases,
its interests in the related Equipment and other assets to AFG Credit upon the
terms and conditions set forth in this Agreement.
It is contemplated that, following such transfers, AFG, in its
capacity as Servicer pursuant to the Pooling and Servicing Agreement and
Indenture of Trust, will continue to administer and service the Leases and
Equipment transferred to AFG Credit.
AFG and AFG Credit desire that from time to time on or after
the date hereof, AFG Credit will purchase Property and originate equipment and
other leases, and that in connection therewith AFG will act as agent on behalf
of AFG Credit, as principal, upon the terms and conditions set forth in this
Agreement.
It is contemplated that, following such origination of leases
by AFG Credit, AFG, in its capacity as Servicer pursuant to the Pooling and
Servicing Agreement and Indenture of Trust, will continue to administer and
service the leases and Equipment originated by AFG Credit.
In consideration of the mutual covenants set forth in this
Agreement, and other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, AFG and AFG Credit agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. (a) Capitalized terms used in this
Agreement shall have the respective meanings assigned to such
<PAGE>
terms in the Pooling and Servicing Agreement (as defined in this Section 1.1)
unless otherwise defined herein.
(b) Whenever used in this Agreement, the following words and
phrases will have the following meanings:
"Additional Assets" shall mean all right, title and interest
of AFG in, to, and under (i) the Additional Leases (including AFG's
obligations under the Additional Leases) and all monies due or to
become due thereunder after the related Additional Cut-Off Date and all
Collections in respect thereof, (ii) the related Equipment, (iii) the
related Lease Files, (iv) the Insurance Policies and any Insurance
Proceeds related to the Additional Leases and (v) all income and
proceeds of the foregoing or relating thereto.
"Addition Date" shall have the meaning set forth in Section
2.2(a) of this Agreement.
"Additional Lease Schedule" shall have the meaning set forth
in Section 2.2(d) of this Agreement.
"Additional Cut-Off Date" shall mean each date as of which an
Additional Lease is to be contributed or sold to AFG Credit.
"Additional Leases" shall mean the Leases listed on any
Additional Lease Schedule created pursuant to Section 2.2(d) of this
Agreement.
"AFG Credit Assets" shall mean all right, title and interest
of AFG Credit in, to, and under (i) the AFG Credit Leases (including
AFG Credit's obligations under the AFG Credit Leases) and all monies
due or to become due thereunder after the related Origination Cut-Off
Date and all Collections in respect thereof, (ii) the related
Equipment, (iii) the related Lease Files, (iv) the Insurance Policies
and any Insurance Proceeds related to the AFG Credit Leases and (v) all
income and proceeds of the foregoing or relating thereto.
"AFG Credit Lease" shall mean each agreement, including, as
applicable, schedules, subschedules, summary schedules, supplements and
amendments to a master lease, that is entered into by AFG as agent on
behalf of AFG Credit as lessor thereunder, and pursuant to which AFG
Credit, as lessor, leases specified assets to a Lessee at a specified
monthly or quarterly or semi-annual rental, and which is identified in
the AFG Credit Lease Schedule; provided, that, from and after the date
on which an AFG Credit Lease is purchased from AFG Credit by AFG
pursuant to Section 4.3 of this Agreement or an AFG Credit Lease is
otherwise transferred by AFG Credit to AFG, such AFG Credit Lease
<PAGE>
shall no longer be an AFG Credit Lease for purposes of this
Agreement.
"AFG Credit Lease Schedule" shall have the meaning set forth
in Section 3.2(a) of this Agreement.
"Assets" shall mean the Original Assets and any
Additional Assets.
"Assignee" shall mean, at any time, any Person to whom the
Assets and the AFG Credit Assets have been assigned, whether absolutely
or by way of the grant of a security interest therein under any then
existing Transfer Agreement and to which AFG Credit's rights under this
Agreement have been assigned, and shall initially refer to AFG Master
Trust created pursuant to the Pooling and Servicing Agreement.
"Business Day" shall mean each day which is neither a
Saturday, a Sunday nor any other day on which banking institutions in
New York, New York, or San Francisco, California are authorized or
obligated by law or required by executive order to be closed.
"Closing Date" shall mean January 3, 1996.
"Cut-Off Date" shall mean January 3, 1996.
"Equipment" shall mean the assets (including office or other
equipment) leased to a Lessee pursuant to a Lease or AFG Credit Lease,
as the case may be, and/or, unless the context otherwise requires, a
security interest in such assets.
"Filing Locations" shall mean the States of California
and Massachusetts.
"Ineligible Lease" shall have the meaning set forth in Section
4.3 of this Agreement.
"Lease" shall mean each agreement, including, as applicable,
schedules, subschedules, summary schedules, supplements and amendments
to a master lease, pursuant to which the Originator, as lessor, leases
specified assets to a Lessee at a specified monthly or quarterly or
semi-annual rental, and which is identified in the Lease Schedule,
including all Original Leases and Additional Leases; provided, that,
from and after the date on which a Lease is repurchased by AFG pursuant
to Section 4.3 of this Agreement or a Lease is otherwise transferred by
AFG Credit to AFG, such Lease shall no longer be a Lease for purposes
of this Agreement.
"Lease Files" shall mean, with respect to each Lease and each
AFG Credit Lease, the fully executed original
<PAGE>
counterpart (for UCC purposes) of such Lease, the original certificate
of title or other title document with respect to the related Equipment
(if applicable), and otherwise such documents, if any, that AFG keeps
on file in accordance with its customary procedures, indicating
ownership of such Equipment.
"Lease Schedule" shall mean the Original Lease Schedule and
all Additional Lease Schedules, as amended to show the deletion of
Leases repurchased by AFG pursuant to Section 4.3 or otherwise
transferred by AFG Credit to AFG.
"Opinion of Counsel" shall mean a written opinion of counsel,
who may be counsel (including internal counsel) to AFG, and who shall
be reasonably acceptable to AFG Credit.
"Original Assets" shall mean all right, title and interest of
AFG in, to, and under (i) the Original Leases (including AFG's
obligations under the Original Leases) and all monies due or to become
due thereunder after the Cut-Off Date and all Collections in respect
thereof, (ii) the related Equipment, (iii) the related Lease Files,
(iv) the Insurance Policies and any Insurance Proceeds related to the
Original Leases and (v) all income and proceeds of the foregoing or
relating thereto.
"Original Leases" shall mean the Leases listed on the Original
Lease Schedule attached hereto.
"Original Lease Schedule" shall have the meaning set forth in
Section 2.1(d) of this Agreement.
"Origination Cut-Off Date" shall mean each date as of which an
AFG Credit Lease is to be originated by AFG as agent on behalf of AFG
Credit as lessor thereunder.
"Pooling and Servicing Agreement" shall mean, at any time, any
agreement then in effect pursuant to which any Person has agreed to
service the Assets (as such agreement is then in effect), and shall
initially refer to the Pooling and Servicing Agreement and Indenture of
Trust dated as of the date hereof, among AFG Credit, AFG, as Servicer,
and the Trustee.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, whether tangible or intangible.
"Responsible Officer" shall mean, with respect to AFG and AFG
Credit, any officer of such entity with direct responsibility for the
administration of this Agreement and also, with respect to a particular
matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular
subject.
<PAGE>
The term "Responsible Officer", when used herein with respect to any
Person other than either AFG or AFG Credit, shall mean an officer or
employee of such Person corresponding to any officer or employee
described in the preceding sentence.
"Servicer" shall mean, at any time, any Person then acting as
servicer under a servicing agreement, and shall initially refer to AFG
in its capacity as servicer under the Pooling and Servicing Agreement.
"Transfer Agreement" shall mean, at any time, any then
existing agreement pursuant to which AFG Credit has assigned its rights
in the Assets and the AFG Credit Assets, whether absolutely or by way
of the grant of a security interest therein (as such agreement is then
in effect), and shall initially refer to the Pooling and Servicing
Agreement.
"Trustee" shall mean the institution executing the Pooling and
Servicing Agreement as trustee, or its successor in interest, or any
successor trustee appointed as therein provided.
"Warranty Purchase Price" shall mean, with respect to any
Lease or AFG Credit Lease and the related Equipment to be repurchased
or purchased, respectively, by AFG, (a) the amount set forth as such in
any then applicable Transfer Agreement, or (b) if no such amount is set
forth or no Transfer Agreement is then in effect, an amount agreed to
by AFG and AFG Credit as reflecting the fair market value therefor,
determined on the same basis as the purchase price for sales of
Original Leases and Additional Leases has been determined hereunder.
1.2 Other Definitional Provisions.
(a) Terms Used in Related Documents. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto or thereto unless otherwise defined
therein.
(b) Accounting Terms. As used in this Agreement or in any
certificate or other document made or delivered pursuant hereto, accounting
terms not defined in Section 1.1, and accounting terms partially defined in
Section 1.1 to the extent not defined, shall have the meanings given to them
under generally accepted accounting principles. To the extent that the
definitions of accounting terms herein are inconsistent with the meanings of
such terms under generally accepted accounting principles, the definitions
contained herein shall control.
(c) "Hereof", etc. The words "hereof"; "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any
<PAGE>
particular provision of this Agreement; and Section, Schedule and Exhibit
references contained in this Agreement are references to Sections, Schedules and
Exhibits in or to this Agreement, unless otherwise specified.
ARTICLE II
SALE OF ORIGINAL ASSETS;
SALE OF ADDITIONAL ASSETS;
2.1 Sale of Original Assets.
(a) Sale. On the Closing Date, AFG will sell, assign, transfer
and convey to AFG Credit the Original Assets and will deliver to AFG Credit an
executed assignment substantially in the form of Exhibit A. Except for the
obligations of AFG pursuant to Section 4.3, the sale of the Original Assets will
be without recourse to AFG.
(b) Purchase Price. The purchase price for the Original Assets
shall be paid in immediately available funds on the Closing Date from AFG Credit
to AFG and shall be equal to the sum of (i) the sum of the discounted values of
the Original Leases, as estimated by AFG at the Cut-Off Date in accordance with
its normal valuation procedures, on a cumulative basis, plus (ii) the sum of the
anticipated residual values of each piece of Equipment related to an Original
Lease upon the expiration of each such Original Lease in accordance with its
terms (as such residual values are estimated by AFG on or about the date on
which each such Lease was created in accordance with its normal valuation
procedures), but not in excess of any purchase option price with respect thereto
set forth in each such Lease, on a cumulative basis.
(c) Recordation. AFG shall record and file, at its own
expense, financing statements (including any continuation statements with
respect to such financing statements when applicable) with respect to the
Original Assets meeting the requirements of applicable state law in such manner
and in such jurisdictions as are necessary to perfect the sale of the Original
Leases from AFG to AFG Credit, and to deliver file-stamped copies of such
financing statements or continuation statements or other evidence of such
filings (which may, for purposes of this Section 2.1, consist of telephone
confirmations of such filings with the file-stamped copy to be provided to AFG
Credit as soon as practicable after receipt thereof by AFG) to AFG Credit (and
copies to the Assignee) on or prior to the Closing Date, and in the case of any
continuation statements filed pursuant to this Section 2.1(c), as soon as
practicable after receipt thereof by AFG.
<PAGE>
(d) Marking of Original Leases. AFG shall, at its own expense,
on or prior to the Closing Date in the case of the Original Leases (A) indicate
in its books and records, including the appropriate computer files relating to
the Original Leases, that such Leases have been sold to AFG Credit pursuant to
this Agreement and stamp such Leases or otherwise mark such Leases with a legend
to the effect that such Leases have been assigned to the Assignee under the
Pooling and Servicing Agreement and (B) on or prior to the Closing Date, deliver
to AFG Credit a computer file or microfiche or written list (the "Original Lease
Schedule") containing a true and complete list of all Original Leases then being
sold to AFG Credit, identified by account number and by the Discounted Lease
Balance as of the Cut-Off Date. The Original Lease Schedule is attached to this
Agreement as Schedule 1.
(e) Custody of Lease Files. AFG shall, at its own expense, on
or prior to the Initial Closing Date in the case of the Original Leases deliver
to the Custodian the related Lease Files to be held by the Custodian in
accordance with the Custodian Agreement.
(f) Title to Equipment. AFG shall, at its own expense, on or
prior to the Closing Date in the case of the Original Leases, with respect to
any item of related Equipment with respect to which title thereto or a security
interest therein is required to be noted on a certificate of title or otherwise
recorded, take such steps as shall be necessary or appropriate, in the
reasonable judgement of AFG, to fully vest all right, title and interest in such
Equipment in the Assignee.
2.2 Contribution or Sale of Additional Assets.
(a) Additional Sales and Contributions. From time to time
after the date hereof, AFG Credit may request to purchase additional assets from
AFG, and AFG may agree to so sell, assign, transfer and convey such additional
assets. From time to time after the date hereof, in connection with a sale of
Additional Assets or otherwise, AFG may contribute to AFG Credit as a
contribution to capital, Additional Assets. The date on which any such sale or
contribution of any Additional Assets to be purchased by AFG Credit takes place
is herein referred to as an "Addition Date". On each Addition Date, AFG will
deliver to AFG Credit an executed assignment substantially in the form of
Exhibit B. Except for the obligations of AFG pursuant to Section 4.3, the sale
and contribution of the Additional Assets will be without recourse to AFG.
(b) Purchase Price. If AFG agrees to sell, assign, transfer
and convey any additional assets as described in Section 2.2(a) above, the
purchase price for any Additional Assets shall be payable in immediately
available funds on the Additional Closing Date from AFG Credit to AFG and shall
be equal to the sum of (i) the sum of the discounted values of the Additional
Leases,
<PAGE>
as estimated by AFG at the related Additional Cut-Off Date in accordance with
its normal valuation procedures, on a cumulative basis, plus (ii) the sum of the
anticipated residual values of each piece of Equipment related to an Additional
Lease upon the expiration of each such Additional Lease in accordance with its
terms (as such residual values are estimated by AFG on or about the date on
which each such Lease was created in accordance with its normal valuation
procedures), but not in excess of any purchase option price with respect thereto
set forth in each such Lease, on a cumulative basis.
(c) Recordation. In connection with any sale or contribution
of Additional Assets, AFG shall record and file, at its own expense, financing
statements (including any continuation statements with respect to such financing
statements when applicable) with respect to the Additional Assets meeting the
requirements of applicable state law in such manner and in such jurisdictions as
are necessary to perfect the sale or contribution of the Additional Leases from
AFG to AFG Credit, and to deliver file-stamped copies of such financing
statements or continuation statements or other evidence of such filings (which
may, for purposes of this Section 2.2, consist of telephone confirmations of
such filings with the file-stamped copy to be provided to AFG Credit as soon as
practicable after receipt thereof by AFG) to AFG Credit (and copies to the
Assignee) on or prior to the Addition Date, and in the case of any continuation
statements filed pursuant to this Section 2.2(c), as soon as practicable after
receipt thereof by AFG.
(d) Marking of Additional Leases. In connection with any
contribution or sale of Additional Assets, AFG shall, at its own expense, on or
prior to the Addition Date (A) indicate in its books and records, including the
appropriate computer files relating to the Additional Leases, that such Leases
have been sold or contributed to AFG Credit pursuant to this Agreement and stamp
such Leases or otherwise mark such Leases with a legend to the effect that such
Leases have been assigned to the Assignee under a Transfer Agreement and (B) on
or prior to the Addition Date, deliver to AFG Credit a computer file or
microfiche or written list (an "Additional Lease Schedule") containing a true
and complete list of all Additional Leases then being sold or contributed to AFG
Credit, identified by account number and by the Discounted Lease Balance as of
the related Additional Cut-Off Date. Each Additional Lease Schedule shall be
attached to the related assignment as a schedule thereto.
(e) Custody of Lease Files. AFG shall, at its own expense, on
or prior to the related Addition Date in the case of the Additional Leases
deliver to the Custodian the related Lease Files to be held by the Custodian in
accordance with the Custodian Agreement.
(f) Title to Equipment. AFG shall, at its own expense, on or
prior to the related Addition Date in the case of
<PAGE>
Additional Leases, with respect to any item of related Equipment with respect to
which title thereto or a security interest therein is required to be noted on a
certificate of title or otherwise recorded, take such steps as shall be
necessary or appropriate, in the reasonable judgement of AFG, to fully vest all
right, title and interest in such Equipment in the Assignee.
ARTICLE III
AFG TO ACT AS AGENT FOR AFG CREDIT;
ORIGINATION OF LEASES BY AFG CREDIT
3.1 Agency Agreement.
(a) Appointment of Agent. AFG and AFG Credit contemplate that
from time to time on or after the date hereof, AFG and AFG Credit may agree that
AFG Credit will purchase Property and originate equipment and other leases with
Lessees, and that in connection therewith, AFG will act as agent on behalf of
AFG Credit as principal. AFG Credit hereby appoints AFG to act as its agent and
grants to AFG the power and authority to act on its behalf and to take whatever
actions are deemed by AFG to be necessary in connection with such purchases of
Property and origination of leases by AFG Credit. AFG hereby accepts such
appointment as agent on the terms and conditions and for the purposes set forth
herein.
(b) Duties of Agent. AFG, as agent for AFG Credit, will be
wholly responsible for performing such functions as are necessary in connection
with all matters relating to the purchase of Property by AFG Credit and the
origination of the AFG Credit Leases by AFG Credit, including reviewing and
preparing contracts, certificates, legal opinions and other instruments and
performing due diligence, providing and receiving all notices and other
documentation and otherwise fulfilling all ongoing duties and responsibilities
that may be required under any documents that are entered into by AFG Credit
through AFG, as its agent, and fulfilling and complying with, in all material
respects, all obligations on the part of the "lessor" to be fulfilled or
complied with under or in connection with each AFG Credit Lease.
(c) Power of Attorney. In connection with the appointment of
AFG to act as agent on its behalf, AFG Credit hereby appoints AFG to act as AFG
Credit's attorney-in-fact for the purposes of entering into purchase or similar
agreements with vendors in connection with the purchase by AFG Credit of
Property, entering into the AFG Credit Leases with Lessees with respect to the
leasing of Equipment by AFG Credit, and executing any certificates, reports,
filings, instruments or other documents incident to the foregoing. AFG and AFG
Credit hereby agree that the power of attorney granted hereby shall be limited
to those documents incident to the specific transactions to be entered into by
AFG as agent for AFG Credit as contemplated by
<PAGE>
Section 3.1(a). AFG Credit will execute such powers of attorney as are requested
by AFG to evidence the appointment of AFG as its attorney-in-fact.
3.2 The AFG Credit Leases.
(a) Origination of AFG Credit Leases. AFG and AFG Credit
contemplate that from time to time on or after the date hereof, AFG and AFG
Credit may agree that AFG Credit will originate leases as lessor and that AFG
will act as agent on AFG Credit's behalf in connection therewith pursuant to the
agency relationship established in Section 3.1(a) above. The date on which any
such origination of an AFG Credit lease takes place is herein referred to as an
"Origination Date". In connection with the origination of the AFG Credit Leases
by AFG as agent for AFG Credit, AFG shall, at its own expense, on or prior to
the Origination Date, deliver to AFG Credit a computer file or microfiche or
written list (an "AFG Credit Lease Schedule") containing a true and complete
list of all AFG Credit Leases then being originated by AFG as agent on behalf of
AFG Credit, identified by account number and by the Discounted Lease Balance as
of the related Origination Cut-Off Date.
(b) Custody of Lease Files. AFG shall, at its own expense, on
or prior to the related Origination Date in the case of the AFG Credit Leases
deliver to the Custodian the related Lease Files to be held by the Custodian in
accordance with the Custodian Agreement.
(c) Criteria for AFG Credit Leases. AFG agrees that it will,
in evaluating and selecting Lessees to be parties to the AFG Credit Leases,
utilize the same credit guidelines, eligibility and other criteria that it
customarily utilizes in selecting lessees for Leases that AFG enters into as
lessor on its own behalf.
3.3 Payment; Compensation.
(a) Purchase of Property by AFG Credit. AFG Credit hereby
authorizes AFG, as agent on its behalf, to pay to the vendor thereof the full
purchase price of any Property purchased by AFG as agent on behalf of AFG Credit
pursuant to Section 3.1. AFG shall promptly notify AFG Credit and send AFG
Credit an invoice for any such payments made by AFG on AFG Credit's behalf. AFG
Credit hereby agrees to reimburse AFG, promptly upon receipt of an invoice,
fully for any amounts paid by AFG, as agent on behalf of AFG Credit, to a vendor
for the purchase of Property by AFG Credit pursuant to this Article III.
(b) Compensation of Agent. AFG and AFG Credit hereby agree
that as compensation for acting hereunder as agent for AFG Credit, AFG, as
Servicer, will retain the right to service the AFG Credit Leases pursuant to the
Pooling and Servicing Agreement
<PAGE>
and shall be entitled to receive the Servicing Fee payable thereunder with
respect to the AFG Credit Leases.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of AFG. AFG makes the
following representations and warranties for the benefit of AFG Credit and any
Assignee, on which AFG Credit relies in purchasing the Original Assets and any
Additional Assets, in accepting any contribution of any Additional Assets, and
in purchasing any Property and originating any AFG Credit Leases through AFG as
its agent pursuant to Article III hereof. Unless otherwise indicated, such
representations and warranties, with respect to the Original Assets, are as of
the Closing Date, with respect to any Additional Assets, are deemed to be made
as of the related Addition Date, and with respect to the AFG Credit Leases and
the assets subject thereto, are deemed to be made as of the related Origination
Date, and in each case will survive the contribution and/or sale of the Original
and Additional Leases and related Equipment to AFG Credit, the origination of
the AFG Credit Leases by AFG Credit, and the transfer of an interest in the
Leases and the AFG Credit Leases to any Assignee. Upon discovery by AFG or AFG
Credit or its assignee of a breach of any of the representations and warranties
contained in this Section 4.1, the party discovering such breach shall give
prompt written notice to the other.
(a) Representations and Warranties with Respect to the Assets.
As to the Assets:
(i) as of the Cut-Off Date, the Original Lease Schedule is
an accurate and complete listing in all material respects of all the
Original Leases and the information contained therein with respect to
the identity of such Leases and the amounts owing thereunder is true
and correct in all material respects as of the Cut-Off Date;
(ii) each Original Lease is an Eligible Lease;
(iii) each Original Lease and the related Equipment has been
transferred to AFG Credit or its Assignee free and clear of any Lien of
any Person (other than Permitted Liens) and is in compliance, in all
material respects, with all Requirements of Law applicable to AFG or
the Originator thereof;
(iv) with respect to each Original Lease, all material
consents, licenses, approvals or authorizations of or registrations or
declarations with any Governmental Authority required to be obtained,
effected or given by AFG in connection with the transfer of such Lease
and the related Equipment to AFG Credit or its Assignee have been
<PAGE>
duly obtained, effected or given and are in full force and
effect;
(v) as of the Closing Date, the Original Leases satisfy
the criteria set forth on the Portfolio Parameters Schedule attached to
this Agreement as Schedule 2;
(vi) as of any Additional Cut-Off Date, the related
Additional Lease Schedule is an accurate and complete listing in all
material respects of all the Additional Leases being transferred on the
related Addition Date and the information contained therein with
respect to the identity of such Leases and the amounts owing thereunder
is true and correct in all material respects as of the related
Additional Cut-Off Date;
(vii) each such Additional Lease is an Eligible Lease;
(viii) each such Additional Lease and the related Equipment
has been transferred to AFG Credit or its Assignee free and clear of
any Lien of any Person (other than Permitted Liens) and is in
compliance, in all material respects, with all Requirements of Law
applicable to AFG or the Originator thereof;
(ix) with respect to each such Additional Lease, all
material consents, licenses, approvals or authorizations of or
registrations or declarations with any Governmental Authority required
to be obtained, effected or given by AFG in connection with the
transfer of such Lease and the related Equipment to AFG Credit or its
Assignee have been duly obtained, effected or given and are in full
force and effect; and
(x) as of any Addition Date, the addition of the related
Additional Leases does not cause any of the criteria set forth on the
Portfolio Parameters Schedule attached to this Agreement as Schedule 2
to be untrue; and
(xi) as of any Addition Date, AFG is not insolvent and will
not be rendered insolvent by selling or contributing the related
Additional Leases to AFG Credit.
(b) Representations and Warranties with Respect to the AFG
Credit Leases. As to the AFG Credit Leases:
(i) each AFG Credit Lease is an Eligible Lease;
(ii) each AFG Credit Lease satisfies all of the same
eligibility and other criteria as the Original Leases and the
Additional Leases being sold or to be sold by AFG to AFG Credit
pursuant to Article II of this Agreement;
<PAGE>
(iii) AFG will not record any of the AFG Credit Assets on
its own books and will take no actions that are inconsistent with all
right, title and interest of AFG Credit or any Assignee in and to the
AFG Credit Assets;
(iv) as of any Origination Date, the addition of the
related AFG Credit Lease does not cause any of the criteria set forth
on the Portfolio Parameters Schedule attached to this Agreement as
Schedule 2 to be untrue, unless, with respect to any of the Individual
Lessee Excess Concentration Amount, the Industry Excess Concentration
Amount, the SemiAnnual Lease Excess Concentration Amount or the
Equipment Excess Concentration Amount, the Rating Agency Condition
shall have been satisfied with respect thereto; and
(v) each AFG Credit Lease is in compliance, in all
material respects, with all Requirements of Law applicable to the
Originator thereof (if other than AFG Credit).
(c) Representations and Warranties as to AFG. As to AFG:
(i) Organization and Good Standing. AFG is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Delaware, with all requisite corporate power and authority
to own its properties and to conduct its business as presently
conducted and to enter into and perform its obligations pursuant to
this Agreement;
(ii) Due Qualification. AFG is qualified to do business as
a foreign corporation, is in good standing, and has obtained all
licenses and approvals as required under the laws of, all states in
which the ownership or lease of its property, the performance of its
obligations pursuant to this Agreement or the other conduct of its
business requires such qualification, standing, license or approval,
except to the extent that the failure to so qualify, maintain such
standing or be so licensed or approved would not, in the aggregate,
materially and adversely affect the ability of AFG to comply with this
Agreement or to perform its obligations hereunder or adversely effect
the enforceability of the Leases;
(iii) Power and Authority. AFG has the corporate power and
authority to execute and deliver this Agreement and to carry out its
terms. AFG has duly authorized the execution, delivery, and performance
of this Agreement by all requisite corporate action;
(iv) No Violation. The consummation of the transactions
contemplated by, and the fulfillment of the terms of, this Agreement by
AFG (with or without notice or lapse of time) will not (i) conflict
with, result in any
<PAGE>
breach of any of the terms or provisions of, or constitute a default
under, the certificate of incorporation or by-laws of AFG, or any term
of any indenture, agreement, mortgage, deed of trust or other
instrument to which AFG is a party or by which it is bound, (ii) result
in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement, mortgage, deed
of trust or other instrument, or (iii) violate any law, regulation,
order, writ, judgment, injunction, decree, determination or award of
any Governmental Authority applicable to AFG or any of its properties;
(v) No Consent. No consent, approval, authorization,
order, registration, filing, qualification, license or permit of or
with any Governmental Authority having jurisdiction over AFG or any of
its properties is required to be obtained by or with respect to AFG in
order for AFG to enter into this Agreement or perform its obligations
hereunder;
(vi) Valid Contribution and Sale; Binding Obligations. The
sale of the Original Assets constitutes, and each contribution and sale
of any Additional Assets will constitute, a valid transfer to AFG
Credit or its assignee of all right, title and interest of AFG in, to
and under the Assets, and such property will be held by AFG Credit or
its assignee free and clear of any Lien of any Person claiming through
or under AFG or its Affiliates, except for Permitted Liens; and this
Agreement constitutes a legal, valid and binding obligation of AFG,
enforceable against AFG in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (whether considered in a suit at law
or in equity);
(vii) No Proceedings. There are no proceedings or
investigations pending, or, to the best of AFG's knowledge, threatened
against AFG, before any Governmental Authority (i) asserting the
invalidity of this Agreement, (ii) seeking to prevent the consummation
of any of the transactions contemplated by this Agreement or (iii)
seeking any determination or ruling that might (in the reasonable
judgment of AFG) materially and adversely affect the performance by AFG
of its obligations under, or the validity or enforceability of, this
Agreement;
(viii) Bulk Sales. The execution, delivery and
performance of this Agreement do not require compliance with
any "bulk sales" law by AFG;
(ix) Fair Consideration. The consideration received by AFG
in exchange for the transfer of the Assets on the date
<PAGE>
hereof and on each Addition Date is fair consideration having value
equivalent to or in excess of the value of the Assets transferred on
each such date; and the consideration received by AFG in exchange for
performing the services as agent for AFG Credit pursuant to Article III
hereof is fair consideration;
(x) Principal Place of Business. AFG's principal place of
business is in the State of California, City and County of San
Francisco;
(xi) Ability to Perform. At the date hereof, AFG does not
believe, nor does it have any reasonable cause to believe, that it
cannot perform each and every covenant contained in this Agreement; and
(xii) Transfer Taxes. The sale, transfer, assignment and
conveyance of the Assets by AFG described in this Agreement will not
result in the imposition of any tax Lien or any liability of AFG Credit
for any tax on such sale, transfer, assignment and conveyance.
4.2 Representations and Warranties of AFG Credit. AFG
--------------------------------------------
Credit makes the following representations and warranties on which AFG relies
in selling the Original Assets, contributing and selling any Additional Assets
and purchasing Property and acting as agent on behalf of AFG Credit in
connection with the purchase of Property and the origination of the AFG Credit
Leases by AFG Credit. Such representations and warranties speak as of the
Closing Date and each Addition Date and Origination Date, but shall survive
the contribution and/or sale of the Leases and related Equipment to AFG
Credit, the origination of the AFG Credit Leases, and the grant of a security
interest to the Leases and to the AFG Credit Leases and the related Equipment
to any Assignee. Upon discovery by AFG or AFG Credit or its assignee of a
breach of any of the representations and warranties contained in this Section
4.2, the party discovering such breach shall give prompt written notice to the
others.
(a) Organization and Good Standing. AFG Credit is a
corporation duly organized and validly existing in good standing under the laws
of the State of Delaware, and has full corporate power, authority and legal
right to own its properties and conduct its business as such properties are
presently owned and such business is presently conducted, and to execute,
deliver and perform its obligations under this Agreement and the Pooling and
Servicing Agreement;
(b) Due Qualification. AFG Credit is duly qualified to do
business and is in good standing as a foreign corporation (or is exempt from
such requirements), and has obtained or will obtain all necessary licenses and
approvals, in each jurisdiction in which failure to so qualify or to obtain such
licenses and
<PAGE>
approvals would have a material adverse effect on its ability to perform its
obligations hereunder;
(c) Due Authorization. The execution and delivery of this
Agreement and the Pooling and Servicing Agreement and the consummation of the
transactions provided for herein and therein have been duly authorized by AFG
Credit by all necessary corporate action on the part of AFG Credit;
(d) No Conflict. The execution and delivery of this Agreement
and the Pooling and Servicing Agreement, the performance of the transactions
contemplated hereby and thereby and the fulfillment of the terms hereof and
thereof will not conflict with, result in any breach of any of the material
terms and provisions of, or constitute (with or without notice or lapse of time
or both) a default under, any indenture, contract, agreement, mortgage, deed of
trust, or other instrument to which AFG Credit is a party or by which it or any
of its property is bound;
(e) No Violation. The execution and delivery of this Agreement
and the Pooling and Servicing Agreement, the performance of the transactions
contemplated hereby and thereby and the fulfillment of the terms hereof and
thereof will not conflict with or violate, in any material respect, any
Requirements of Law applicable to AFG Credit;
(f) All Consents Required. All approvals, authorizations,
consents, orders or other actions of any Person or of any Governmental Authority
required in connection with the execution and delivery of this Agreement, the
performance of the transactions contemplated by this Agreement, and the
fulfillment of or terms hereof, have been obtained.
4.3 Purchase of Ineligible Leases and Equipment by AFG. In the
event of a breach of any representation or warranty set forth in Section 4.1(a)
with respect to a Lease or Section 4.1(b) with respect to an AFG Credit Lease
(each such Lease or AFG Credit Lease, an "Ineligible Lease"), within 60 days of
the receipt by AFG of written notice of such breach given by AFG Credit, AFG
shall repurchase each such Lease or purchase each such AFG Credit Lease to which
such breach relates on the terms and conditions set forth below; provided,
however, that no such repurchase or purchase shall be required to be made with
respect to such Ineligible Lease (and such Lease or AFG Credit Lease, as the
case may be, shall cease to be an Ineligible Lease) if, on any day within such
60 day period, the representations and warranties in subsection 4.1(a) or
4.1(b), as the case may be, with respect to such Ineligible Lease shall then be
true and correct in all material respects with respect to such Ineligible Lease
as if such Ineligible Lease had been sold or contributed to AFG Credit or
originated by AFG Credit, as the case may be, on such day. With respect to each
repurchase or purchase of an Ineligible Lease, as the case may be, required to
be made
<PAGE>
pursuant to this Section 4.3, AFG shall repurchase or purchase, as the case may
be, and AFG Credit shall convey, without recourse, representation or warranty,
all of its right, title and interest in each Ineligible Lease. AFG shall be
obligated to repurchase or purchase, as the case may be, each such Ineligible
Lease. As payment for the Ineligible Leases, AFG shall, on the date of transfer
or retransfer, as the case may be, of such Ineligible Lease, (i) make a payment
to AFG Credit in immediately available funds in an amount equal to the Warranty
Purchase Price. Upon each repurchase or purchase, as the case may be, by AFG of
each such Ineligible Lease, AFG Credit shall automatically and without further
action be deemed to transfer, assign and set-over to AFG, without recourse,
representation or warranty, all the right, title and interest of AFG Credit in,
to and under such Ineligible Lease and all monies due or to become due with
respect thereto, the related Equipment and all proceeds of the Ineligible Lease
and Liquidation Proceeds and Insurance Proceeds relating thereto and all rights
to security for any such Ineligible Lease, and all proceeds and products of the
foregoing. AFG Credit shall execute such documents and instruments of transfer
and purchase or repurchase, as the case may be, as may be prepared by AFG and
take such other actions as shall reasonably be requested by AFG to effect the
purchase or repurchase, as the case may be, of such Ineligible Lease pursuant to
this subsection. The obligation of AFG to purchase or repurchase, as the case
may be, any Ineligible Lease and the indemnification provided for in Section 4.4
shall constitute the sole remedy respecting any breach of the representations
and warranties set forth in subsection 4.1(a) with respect to such Lease or
subsection 4.1(b) with respect to such AFG Credit Lease, as the case may be,
available to AFG Credit or the Assignee.
4.4 Indemnification. In addition to any remedy pursuant to
Section 4.3, AFG agrees to indemnify, defend and hold AFG Credit harmless from
and against any out of pocket expense (including interest, penalties, reasonable
attorneys' fees and amounts paid in settlement) to which AFG Credit or the
Assignee may become subject insofar as such expense arises solely out of or is
based solely upon the untruth of any representation or warranty of AFG set forth
in Section 4.1. The obligations of AFG under this Section 4.4 will be considered
to have been relied upon by AFG Credit and the Assignee and will survive the
execution, delivery, and performance of this Agreement regardless of any
investigation made by AFG Credit or the Assignee or on their behalf.
ARTICLE V
COVENANTS OF AFG AND AFG Credit
5.1 AFG Covenants. AFG covenants and agrees with AFG Credit as
follows for the benefit of AFG Credit and any Assignee:
<PAGE>
(a) Lease Files. AFG will comply with the provisions of the
Custodian Agreement insofar as such provisions are applicable to it.
(b) Compliance with Law. AFG will comply, in all material
respects, with all laws and regulations of any Governmental Authority
applicable to AFG, the Leases or the AFG Credit Leases and the related
Equipment and Lease Files or any part thereof; provided that AFG may
contest any such law or regulation in any reasonable manner which will
not materially and adversely affect the value of (or the rights of AFG
Credit or the Assignee, with respect to) the Assets or the AFG Credit
Assets.
(c) Preservation of Ownership Interest. AFG will execute and
file such financing and continuation statements and any other documents
reasonably requested by AFG Credit to be filed or which may be required
by any law or regulation of any Governmental Authority to preserve and
protect fully the interest of AFG Credit and the Assignee in, to and
under the Assets and the AFG Credit Assets.
(d) Obligations with Respect to Leases. AFG will duly fulfill
and comply with, in all material respects, all obligations on the part
of the "lessor" to be fulfilled or complied with under or in connection
with each Lease, and will do nothing to impair the rights of AFG Credit
in, to and under the Assets. AFG, as agent for AFG Credit, will duly
fulfill and comply with, in all material respects, all obligations on
the part of the "lessor" to be fulfilled or complied with under or in
connection with each AFG Credit Lease and will do nothing to impair the
rights of AFG Credit in, to and under the AFG Credit Assets. AFG will
perform such obligations under the Leases and AFG Credit Leases and
will not change or modify the Leases or AFG Credit Leases, except as
otherwise provided in the Pooling and Servicing Agreement and except
insofar as any such failure to perform, change or modification would
not materially and adversely affect the value of (or the rights of AFG
Credit or the Assignee, with respect to) the Leases or the AFG Credit
Leases, or the related Equipment.
(e) No Bankruptcy Petition. AFG agrees that, prior to the date
that is one year and one day after the termination of this Agreement
pursuant to Section 7.1 herein, it will not institute against AFG
Credit, or join any other Person in instituting against AFG Credit, any
bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceedings under the laws of the United
States or any state of the United States. This Section 5.1(e) will
survive the termination of this Agreement.
<PAGE>
(f) Security Interests. Except as otherwise herein provided,
AFG will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any Lien on any Lease
or related Equipment, whether now existing or hereafter transferred to
AFG Credit, or any interest therein. AFG will immediately notify AFG
Credit and the Assignee of the existence of any Lien on any Lease or
related Equipment; and AFG shall defend the right, title and interest
of AFG Credit in, to and under the Leases and the related Equipment,
against all claims of third parties; provided, however, that nothing in
this subsection 5.1(f) shall prevent or be deemed to prohibit AFG from
suffering to exist upon any of the Leases Permitted Liens.
(g) Location of Records. AFG (i) shall not move outside the
State of California the location of its chief executive office without
45 days' prior written notice to AFG Credit and (ii) will promptly take
all actions required (including but not limited to all filings and
other acts necessary or advisable under the UCC of each relevant
jurisdiction) in order to continue the first priority perfected
ownership interest of the Assignee in the Leases. AFG will give AFG
Credit prompt notice of a change within the State of California of the
location of its chief executive office.
(h) Agency Relationship. AFG (i) shall not take any actions on
behalf of AFG Credit that are outside the scope of or are in violation
of the agency agreement set forth herein, and (ii) when acting as agent
for AFG Credit, will fully disclose this fact to the related Equipment
vendor or Lessee, as applicable.
(i) Indemnification. AFG agrees to indemnify, defend and hold
AFG Credit and the Assignee harmless from and against any and all loss,
liability, damage, judgment, claim, deficiency, or expense (including
interest, penalties, reasonable attorneys' fees and amounts paid in
settlement) to which AFG Credit or the Assignee may become subject
insofar as such loss, liability, damage, judgment, claim, deficiency or
expense arises out of or is based upon a breach by AFG of its covenants
contained in this Section 5.1. The obligations of AFG under this
Section 5.1(i) will be considered to have been relied upon by AFG
Credit and the Assignee and will survive the execution, delivery, and
performance of this Agreement regardless of any investigation made by
AFG Credit or the Assignee or on their behalf.
5.2 Consent to Assignment. AFG understands that AFG Credit
intends to assign all its right, title and interest in, to and under the Assets
and the AFG Credit Assets to the Assignee pursuant to the Pooling and Servicing
Agreement. AFG consents to the assignment of all or any portion of this
Agreement by AFG
<PAGE>
Credit to any such Assignee. AFG agrees that any such Assignee (or, in each
case, the Servicer or Trustee on its behalf) may exercise the rights of AFG
Credit hereunder and will be entitled to all of the benefits of AFG Credit
hereunder to the extent provided in the Pooling and Servicing or the related
Transfer Agreement, as applicable.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to AFG Credit's Obligations. The obligations of
AFG Credit to purchase the Original Assets on the Closing Date, to accept and/or
purchase, as the case may be, any Additional Assets on the related Addition
Date, and to originate any AFG Credit Leases on the related Origination Date are
subject to the satisfaction or waiver of the following conditions as of such
Closing Date, Addition Date or Origination Date, as applicable:
(a) Representations and Warranties. All representations and
warranties of AFG contained in this Agreement will be true and correct
in all material respects as of the Closing Date, such Addition Date,
and such Origination Date (except as otherwise specified herein), as if
each such representation or warranty were made as of the Closing Date,
such Addition Date or such Origination Date;
(b) Other Information. All information concerning the Assets
and the AFG Credit Assets provided to AFG Credit will be true and
correct as of the Cut-Off Date, the related Additional Cut-Off Date or
the related Origination Cut-Off Date, as applicable, in all material
respects;
(c) Obligations. AFG will have performed in all material
respects all obligations required to be performed by AFG on or prior to
the Closing Date, the related Addition Date, or the related Origination
Date, as applicable, pursuant to the provisions of this Agreement; and
(d) Corporate Proceedings. All corporate and legal proceedings
and all instruments in connection with the transactions contemplated by
this Agreement will be satisfactory in form and substance to AFG
Credit, and AFG Credit will have received from AFG such copies of
documents (including records of corporate proceedings, certificates of
Responsible Officers and Opinions of Counsel) relevant to the
transactions herein contemplated as AFG Credit may reasonably have
requested.
6.2 Conditions to AFG's Obligations. The obligations of AFG to
sell the Original Assets on the Closing Date, to contribute or sell any
Additional Assets as of any Addition Date,
<PAGE>
and to act as agent on behalf of AFG Credit pursuant to Article III hereof as of
any Origination Date will be subject to the satisfaction or waiver of the
following conditions as of the Closing Date, such Addition Date or such
Origination Date, as applicable:
(a) Representations and Warranties. All representations and
warranties of AFG Credit contained in this Agreement will be true and
correct in all material respects as of the Closing Date, such Addition
Date or such Origination Date (except as otherwise specified herein),
as if each such representation or warranty were made as of the Closing
Date, such Addition Date or such Origination Date;
(b) Corporate Proceedings. All corporate and legal proceedings
and all instruments in connection with the transactions contemplated by
this Agreement will be satisfactory in form and substance to AFG, and
AFG will have received from AFG Credit such copies of documents
(including records of corporate proceedings, certificates of
Responsible Officers, and Opinions of Counsel) relevant to the
transactions herein contemplated as AFG may reasonably have requested.
ARTICLE VII
TERMINATION
7.1 Termination. The respective obligations and
responsibilities of AFG and AFG Credit created by this Agreement and the agency
relationship established pursuant to Article III hereunder will terminate upon
the last to occur of (i) the maturity or other liquidation of all Leases and AFG
Credit Leases and (ii) the termination of all Transfer Agreements.
7.2 Effect of Termination. No termination, rejection or
failure to assume the executory obligations of this Agreement in the bankruptcy
of AFG or AFG Credit will be deemed to impair or affect the obligations
pertaining to any executed contribution, executed sale or executed obligations,
including breaches of representations and warranties by AFG or AFG Credit prior
to termination. Without limiting the foregoing, prior to termination, the
failure of AFG to pay a Warranty Purchase Price will not render such
contribution, sale or obligations executory and the continued respective duties
of AFG and AFG Credit pursuant to Article V will not render an executed sale or
contribution executory.
<PAGE>
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Amendment. This Agreement may be amended from time to time
by AFG and AFG Credit, without the consent of the Assignee, (i) to cure any
ambiguity, to revise any Exhibits or Schedules, to correct or supplement any
provisions herein or thereon or (ii) to add any other provisions with respect to
matters or questions raised under this Agreement which shall not be inconsistent
with the provisions of this Agreement; provided, however, that such action shall
not, as evidenced by an Opinion of Counsel, adversely affect in any material
respect the interests of the Assignee.
8.2 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAWS.
8.3 Notice. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by registered mail, return receipt requested, to (a) in
the case of AFG, to One Market Place, Suite 900, San Francisco, California
94105, Attn: Chief Financial Officer, with a copy to General Counsel, and (b) in
the case of AFG Credit, to One Market Place, Suite 900, San Francisco,
California 94105, Attn: Chief Financial Officer, with a copy to General Counsel.
8.4 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
8.5 Assignment. This Agreement may not be assigned by AFG,
without the prior written consent of AFG Credit and the Assignee.
8.6 Further Assurances. AFG and AFG Credit agree to do and
perform, from time to time, any and all acts and to execute any and all further
instruments required or reasonably requested by the Assignee more fully to
effect the purposes of this Agreement, including, without limitation, the
execution of any financing statements or continuation statements relating to the
Assets for filing under the provisions of the UCC of any applicable
jurisdiction.
8.7 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of AFG Credit or AFG, any right,
remedy, power or privilege under this Agreement
<PAGE>
will operate as a waiver of such right, remedy, power or privilege; nor will any
single or partial exercise of any right, remedy, power or privilege under this
Agreement preclude any other or further exercise of such right, remedy, power or
privilege. The rights, remedies, powers and privileges provided under this
Agreement are cumulative and not exhaustive of any other rights, remedies,
powers and privileges provided by law.
8.8 Counterparts. This Agreement may be executed in two or
more counterparts (and by different parties on separate counterparts), each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
8.9 Third-Party Beneficiaries. This Agreement shall inure to
the benefit of and be binding upon the parties hereto, and their respective
successors and permitted assigns and will also, to the extent expressly provided
in this Agreement, inure to the benefit of the Servicer and the Assignee. Except
as otherwise provided in this Section 8.9, no other Person will have any right
or obligation hereunder.
8.10 Merger and Integration. Except as specifically stated
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided herein.
8.11 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
8.12 Schedules and Exhibits. The Schedules and Exhibits
constitute a part of this Agreement and are incorporated into this Agreement for
all purposes.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers as of the day and year first above
written.
AMERICAN FINANCE GROUP, INC.
By:
Name:
Title:
AFG CREDIT CORPORATION
By:
Name:
Title:
<PAGE>
FORM OF ASSIGNMENT FOR ORIGINAL ASSETS
For value received, in accordance with the Asset Purchase
Agreement dated as of July 1, 1995 (the "Sale Agreement"), between American
Finance Group, Inc., a Delaware corporation ("AFG"), and AFG Credit Corporation,
a Delaware corporation ("AFG Credit"), AFG does hereby sell, assign, transfer
and otherwise convey unto AFG Credit or its assignee, without recourse, the
Original Assets.
It is the intention of AFG and AFG Credit that the sales,
transfers, assignments and conveyances contemplated by this Assignment
constitute a sale of the property described herein and in the Sale Agreement
from AFG to AFG Credit and the beneficial interest in and title to such property
will not be part of AFG's estate in the event of the filing of a bankruptcy
petition by or against AFG under any bankruptcy law.
This Assignment is made pursuant to and upon the
representations, warranties and agreements on the part of the undersigned
contained in the Sale Agreement and is to be governed by the Sale Agreement.
Capitalized terms used herein and not otherwise defined will
have the meanings assigned to them in the Sale Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Assignment
to be duly executed as of _____ __, 19__.
AMERICAN FINANCE GROUP, INC.
By:
Name:
Title:
<PAGE>
FORM OF ASSIGNMENT FOR ADDITIONAL ASSETS
For value received, in accordance with the Asset Purchase
Agreement dated as of July 1, 1995, 1995 (the "Sale Agreement"), between
American Finance Group, Inc., a Delaware corporation ("AFG"), and AFG Credit
Corporation, a Delaware corporation ("AFG Credit"), AFG does hereby sell,
assign, transfer and otherwise convey unto AFG Credit or its assignee, without
recourse, (i) the Additional Leases listed on the Additional Lease Schedule
attached hereto (including AFG's obligations under the Additional Leases) and
all monies due or to become due thereunder after [__________] and all
Collections in respect thereof, (ii) the related Equipment, (iii) the Lease
Files for such Leases, (iv) any Insurance Policies and the related Insurance
Proceeds with respect to such Leases and (v) all income and proceeds of the
foregoing or relating thereto (collectively, the "Additional Assets").
It is the intention of AFG and AFG Credit that the sales,
transfers, assignments and conveyances contemplated by this Assignment
constitute a contribution and/or sale of the property described herein and in
the Sale Agreement from AFG to AFG Credit and the beneficial interest in and
title to such property will not be part of AFG's estate in the event of the
filing of a bankruptcy petition by or against AFG under any bankruptcy law.
This Assignment is made pursuant to and upon the
representations, warranties and agreements on the part of the undersigned
contained in the Sale Agreement and is to be governed by the Sale Agreement.
Capitalized terms used herein and not otherwise defined will
have the meanings assigned to them in the Sale Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Assignment
to be duly executed as of [__________], 199[__].
AMERICAN FINANCE GROUP, INC.
By:
Name:
Title:
<PAGE>
ADDITIONAL LEASE SCHEDULE
See Attached.
<PAGE>
SCHEDULE 1
to
ASSET PURCHASE AGREEMENT
<PAGE>
SCHEDULE 2
to
ASSET PURCHASE AGREEMENT
PORTFOLIO PARAMETERS1
1. Portfolio Quality:
(a) With respect to the Included Leases, the Weighted
Average Debt Rating of all of the Lessees thereunder is
at least Baa2, based on ratings assigned by Moody's, or
the equivalent based upon ratings assigned by another
Rating Agency.2 "Weighted Average Debt Rating" shall
mean at any time the weighted average of the senior
secured long-term debt ratings assigned by a Rating
Agency to the Lessees based on the following numerical
values3:
Credit Rating Numerical
Moody's/S&P/Internal Rating Value
Aaa/AAA 325.5
Aa1/AA+ 305.5
Aa2/AA 285.5
Aa3/AA- 265.5
A1/A+ 245.5
A2/A 225.5
A3/A- 205.5
Baa1/BBB+ 185.5
Baa2/BBB 165.5
Baa3/BBB- 145.5
Ba1/BB+ 125.5
Ba2/BB 105.5
(continued on next page)
- --------
1 Capitalized terms used in this Schedule and not otherwise defined shall
have the respective meanings set forth in the Pooling and Servicing
Agreement and Indenture of Trust.
2 For the purposes of this Schedule, the term "Rating Agency" has the
meaning assigned thereto in the Pooling and Servicing Agreement and
shall also include AFG's internal ratings ("Internal Ratings"), which
are based on the ALCAR Debt Rater Plus software, or successor
software packages.
3 For Lessees that do not have a senior secured long-term debt rating
assigned to them by Moody's or S&P, the numerical value that
corresponds to the rating that is one level above the unsecured long-
term debt rating of such Lessee in the table above shall be used. For
Lessees that are not assigned ratings by either Moody's or S&P,
Internal Ratings shall be used. In the case of a Lessee with
different ratings assigned by Moody's and S&P, the lower of the two
ratings shall be used.
<PAGE>
Credit Rating Numerical
Moody's/S&P/Internal Rating Value
Ba3/BB- 85.5
B1/B+ 65.5
B2/B 45.5
B3/B- 25.5
(b) No Lessee under an Included Lease has a long-term unsecured
debt rating assigned by Moody's of less than B-3, or the
equivalent assigned by another Rating Agency.
(c) The sum of the Discounted Lease Balances of all Included
Leases with respect to which the Lessees thereunder have
long-term unsecured debt ratings assigned by Moody's of B-1,
B-2 or B-3, or the equivalent assigned by another Rating
Agency, on a cumulative basis, is not greater than 5% of the
Aggregate Pool Balance.
(d) The sum of the Discounted Lease Balances of Included Leases
with respect to which the Lessees thereunder are rated
internally by AFG, on a cumulative basis, is not more than 25%
of the Aggregate Pool Balance.
2. Concentration Limitations: (a) Each amount set forth in the table below
represents the maximum percentage of the Aggregate Pool Balance that
may be comprised of the sum of the Discounted Lease Balances
attributable to the Included Leases in the applicable category, on a
cumulative basis.
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
Category When Aggregate Pool Balance is
-------------------------------------------------------------------------------
Greater Greater than
than $0 but $30 Million Greater
less than $30 but less than $60 than $60
Million Million Million
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Included Leases of
any individual
Lessee that is rated
investment grade or
higher by a Rating
Agency 25% 10% 9%
- -----------------------------------------------------------------------------------------------------------------------------
2. Included Leases of any individual Lessee
that is not rated investment
grade by a Rating
Agency 15% 3% 3%
- -----------------------------------------------------------------------------------------------------------------------------
3. Included Leases of
all Lessees that
operate in the same
industry* N/A 40% 40%
- -----------------------------------------------------------------------------------------------------------------------------
4. Included Leases that relate to the same
type of Equipment** N/A 40% 40%
- -----------------------------------------------------------------------------------------------------------------------------
5. Included Leases for
which the Scheduled
Payments are payable
semi-annually 10% 10% 10%
=============================================================================================================================
</TABLE>
- ---------------
* Based upon Primary Standard Industrial Classification Code
Number.
** As determined by AFG Credit Corporation in accordance with its customary
procedures.
<PAGE>
The following words and phrases shall have the following
meanings:
"Equipment Excess Concentration Amount" shall mean at any date
of determination, the dollar amount, if any, by which the Discounted
Lease Balances of Included Leases exceeds the applicable concentration
limits prescribed in
category 4 in the table above.
"Individual Lessee Excess Concentration Amount" shall mean at
any date of determination, the dollar amount, if any, by which the
Discounted Lease Balances of Included Leases exceeds the applicable
concentration limits prescribed in category 1 or category 2, as
applicable with respect to a particular Lessee, in the table above.
"Industry Excess Concentration Amount" shall mean at any date
of determination, the dollar amount, if any, by which the Discounted
Lease Balances of Included Leases exceeds the applicable concentration
limits prescribed in category 3 in the table above.
"Semi-Annual Lease Excess Concentration Amount" shall mean at
any date of determination, the dollar amount, if any, by which the
Discounted Lease Balances of Included Leases exceeds the applicable
concentration limits prescribed in category 5 in the table above.
If at any date of determination with respect to any Included
Lease there are two or more of (a) an Equipment Excess Concentration
Amount, (b) an Individual Lessee Excess Concentration Amount, (c) an
Industry Excess Concentration Amount or (d) a Semi-Annual Lease Excess
Concentration Amount, then only the one largest dollar amount that is
attributable to (a), (b), (c) or (d) above, as applicable, shall be
used in the calculation of the Excess Concentration Amount at such date
of determination.
A Lease shall not be deemed to cause any of the limits set
forth in the table above to be exceeded, and shall therefore not be
deemed to give rise to the existence of an Equipment Excess
Concentration Amount, an Individual Lessee Excess Concentration Amount,
an Industry Excess Concentration Amount or a Semi-Annual Lease Excess
Concentration Amount, as the case may be, if the Rating Agency
Condition shall have been satisfied with respect to such Lease.
(b) the sum of the Discounted Lease Balances attributable to all
Included Leases that are not Hedged Leases shall not, on a
cumulative basis, exceed $10,000,000.
<PAGE>
3. Other Lease Requirements: Utilizing the Definition of "Discount Rate"
in the Pooling and Servicing Agreement and Indenture of Trust, 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 88% of the sum of the original cost
of the Equipment relating to all Included Leases.
<PAGE>
EXHIBIT 10.7
- --------------------------------------------------------------------------------
AFG CREDIT CORPORATION,
Transferor,
AMERICAN FINANCE GROUP, INC.
Servicer,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
Administrative Agent,
THE INITIAL PURCHASERS NAMED HEREIN
and
BANKERS TRUST COMPANY,
Trustee and Collateral Trustee
on behalf of the Series 1995-1 Noteholders
-------------------------------------------------------------
SERIES 1995-1 SUPPLEMENTAL INDENTURE
Dated as of July 1, 1995
to
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
Dated as of July 1, 1995
-----------------------------------------------------------
$80,000,000
AFG MASTER TRUST
Series 1995-1
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Designation..................................................1
SECTION 2. Definitions..................................................1
SECTION 3. The Notes....................................................11
SECTION 4. Purchases of Class A Notes...................................12
SECTION 5. Purchase of Class B Notes....................................12
SECTION 6. Delivery.....................................................13
SECTION 7. Procedure for Increasing the Principal Amount................13
SECTION 8. Procedure for Decreasing the Principal Amount................15
SECTION 9. Allocation of Available Pricing Amount.......................15
SECTION 10. Reductions of the Commitments................................16
SECTION 11. Interest;....................................................17
SECTION 12. Indemnification by Transferor................................18
SECTION 13. Article IV of Agreement......................................19
SECTION 14. Article V of the Agreement...................................24
SECTION 15. Accelerated Payment Events; Series 1995-1 Pay
Out Events...........................................26
SECTION 16. Funding Costs................................................27
SECTION 17. Conditions Precedent to Effectiveness of
Supplement...........................................32
SECTION 18. Representations and Warranties of the
Transferor and the Servicer........................36
SECTION 19. Covenants of the Transferor..................................37
SECTION 20. Covenants of the Servicer....................................38
SECTION 21. Covenants of the Trustee.....................................39
SECTION 22. Obligations Unaffected.......................................39
SECTION 23. Administrative Agent.........................................39
SECTION 24. Payments.....................................................42
<PAGE>
SECTION 25. Costs and Expenses...........................................43
SECTION 26. Amendments...................................................43
SECTION 27. Successors and Assigns.......................................44
SECTION 28. Reserved. ...................................................47
SECTION 29. Repurchase by Servicer.......................................47
SECTION 30. Repurchase by Transferor.....................................47
SECTION 31. Permitted Successor Servicer.................................47
SECTION 32. Option to Repurchase.........................................47
SECTION 33. Final Distribution...........................................47
SECTION 34. Representations of Class B Purchasers........................48
SECTION 36. Counterparts.................................................48
SECTION 37. GOVERNING LAW................................................48
SECTION 38. The Trustee..................................................48
SECTION 39. Instructions in Writing......................................48
-ii-
<PAGE>
EXHIBITS
Exhibit A: Form of Class A Note
Exhibit B: Form of Class B Note
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
<PAGE>
EXHIBIT 10.7
SERIES 1995-1 SUPPLEMENTAL INDENTURE, dated as of July 1, 1995
(this "Supplement") among AFG Credit Corporation, a Delaware corporation, as
Transferor, American Finance Group, Inc., a Delaware corporation, as Servicer,
the several banks parties hereto as of the Closing Date (collectively, the
"Initial Purchasers" and individually, an "Initial Purchaser"), the other
financial institutions from time to time parties hereto as purchasers pursuant
to Section 27, First Union National Bank of North Carolina, as Administrative
Agent (in such capacity, the "Administrative Agent") 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 1995-1 Notes". The Series 1995-1 Notes shall be issued in two
Classes, which shall respectively be known as the "Series 1995-1 Class A Notes
(the "Class A Notes") and the "Series 1995-1 Class B Notes" (the "Class B
Notes"). Series 1995-1 shall be a Variable Funding Series. The Series 1995-1
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 1995-1 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
<PAGE>
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.
"Acquiring Purchaser" shall have the meaning set forth
in Section 27(d).
"Adjusted Class A Principal Amount" shall mean, on any date of
determination, the excess of the Aggregate Class A Principal Amount
over the Distribution Account Balance allocable to the Aggregate Class
A Principal Amount at the
end of such date of determination.
"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.
"Administrative Agent" shall have the meaning assigned
in the preamble.
"Administrative Fee" shall have the meaning specified
in Section 11(c).
"Aggregate Class A Commitment Amount" shall mean, as of any
date, the sum of the Commitments of all Class A Purchasers on such
date.
"Aggregate Class A Principal Amount" shall mean, as of any
date, the sum of the Class A Principal Amounts of all Class A
Purchasers on such date.
"Aggregate Class B Commitment Amount" shall mean, as of any
date, the sum of the Commitments of all Class B Purchasers on such
date.
"Aggregate Class B Principal Amount" shall mean, as of any
date, the sum of the Class B Principal Amounts of all Class B
Purchasers on such date.
"Aggregate Commitment Amount" shall mean, as of any date, the
sum of the Commitments of all Purchasers on such date.
"Alternate Base Rate" means, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (i) the rate of interest publicly announced by the
Administrative Agent from time to
<PAGE>
time as its prime rate in effect at its principal office or (ii) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%.
"Arranger" shall mean First Union National Bank of
North Carolina.
"Available Class A Pricing Amount" shall mean, on any
Distribution Date, the sum of (i) the Unallocated Class A Balance plus
(ii) the Class A Increase on such date.
"Available Class B Pricing Amount" shall mean, on any
Distribution Date, the sum of (i) the Unallocated Class B Balance plus
(ii) the Class B Increase on such date.
"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 in
Section 16(e)(i).
"Class A Average Principal Amount" shall mean, for any period
the sum of the Class A Principal Amount for each day of such period
divided by the number of days in such period.
"Class A Noteholder" shall mean the holder of record of any
Class A Note.
"Class A Note Interest" shall have the meaning specified in
Section 4.4A(a)(ii).
"Class A Notes" shall have the meaning assigned in the
preamble.
"Class A Commitment" shall mean, as to any Purchaser, its
obligation to maintain and, subject to the conditions set forth in
Section 7, increase its Class A Principal Amount, in an aggregate
amount not to exceed at any one time outstanding the amount set forth
opposite such Purchaser's name in Schedule 1 under the caption "Class A
Commitment", as such amount may be reduced from time to time as
provided herein; collectively, as to all such Purchasers, the "Class A
Commitments".
"Class A 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 Class A Commitment and the
denominator of which is the Aggregate Class A Commitment Amount as of
such date.
"Class A Decrease" shall have the meaning assigned in
Section 8.
<PAGE>
"Class A Increase" shall have the meaning assigned in
Section 7.
"Class A Increase Amount" shall have the meaning assigned in
Section 7.
"Class A Increase Date" shall have the meaning assigned in
Section 7.
"Class A Principal Amount" shall mean, with respect to any
Purchaser and as of any date, an amount equal to (a) such Purchaser's
Class A Principal Amount on the immediately preceding Weekly Sale Date
(or, with respect to the date as of which such Purchaser becomes a
party to this Supplement, whether by executing a counterpart hereof, a
Commitment Transfer Supplement or otherwise, (i) the product of such
Purchaser's Commitment Percentage and the Class A Principal Amount on
the immediately preceding Weekly Sale Date or (ii) the portion of the
transferor's Class A Principal Amount being purchased, in the case of
an Acquiring Purchaser), plus (b) the amount of any increases in such
Purchaser's Class A Principal Amount pursuant to Section 7 made on the
preceding Weekly Sale Date, minus (c) the amount of any distributions
to such Purchaser pursuant to Section 8 or 5.1A prior to such date of
determination.
"Class A LIBOR Rate" shall mean, with respect to each day
during a LIBOR Period pertaining to the Class A LIBOR Tranche, a rate
per annum equal to LIBOR plus 0.85%.
"Class A LIBOR Tranche" shall mean each portion of the Class A
Principal Amount for which Class A Note Interest is calculated by
reference to LIBOR with reference to a
particular LIBOR Period.
"Class A Percentage" shall mean 85%.
"Class A Purchaser" shall mean each purchaser of the Class A
Notes, including each Acquiring Purchaser; collectively, the "Class A
Purchasers."
"Class A Voting Percentage" shall mean with respect to any
Class A Purchaser, during the Revolving Period, the percentage
equivalent of a fraction the numerator of which equals such Purchaser's
Class A Commitment and the denominator of which equals the Aggregate
Class A Commitment Amount and thereafter, the percentage equivalent of
a fraction the numerator of which equals such Purchaser's Class A
Principal Amount and the denominator of which equals the Aggregate
Class A Principal Amount.
<PAGE>
"Class B Average Principal Amount" shall mean, for any period
the sum of the Class B Principal Amount for each day of such period
divided by the number of days in such period.
"Class B Noteholder" shall mean the holder of record of any
Class B Note.
"Class B Note Interest" shall have the meaning specified in
Section 4.4A(iii).
"Class B Notes" shall have the meaning assigned in the
preamble.
"Class B Commitment" shall mean, as to any Purchaser, its
obligation to maintain and, subject to the conditions set forth in
Section 7, increase its Class B Principal Amount, in an aggregate
amount not to exceed at any one time outstanding the amount set forth
opposite such Purchaser's name in Schedule 1 under the caption "Class B
Commitment", as such amount may be reduced from time to time as
provided herein; collectively, as to all such Purchasers, the "Class B
Commitments".
"Class B 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 Class B Commitment and the
denominator of which is the Aggregate Class B Commitment Amount as of
such date.
"Class B Decrease" shall have the meaning assigned in
Section 8.
"Class B Increase" shall have the meaning assigned in
Section 7.
"Class B Increase Amount" shall have the meaning assigned in
Section 7.
"Class B Increase Date" shall have the meaning assigned in
Section 7.
"Class B Principal Amount" shall mean, as of any date, an
amount equal to (a) the Class B Principal Amount on the immediately
preceding Weekly Sale Date (or, with respect to the date as of which
the Class B Notes are issued, the Initial Class B Principal Amount),
plus (b) the amount of any increases in the Class B Principal Amount
pursuant to Section 7 made on the preceding Weekly Sale Date, minus (c)
the amount of any distributions to the Class B Noteholders pursuant to
Section 5.1A prior to such date of determination.
<PAGE>
"Class B LIBOR Rate" shall mean, with respect to each day
during a LIBOR Period pertaining to the Class B LIBOR Tranche, a rate
per annum equal to LIBOR plus 1.85%.
"Class B LIBOR Tranche" shall mean each portion of the Class B
Principal Amount for which Class B Note Interest is calculated by
reference to LIBOR with reference to a
particular LIBOR Period.
"Class B Purchaser" shall mean each purchaser of the Class B
Notes, including each Acquiring Purchaser; collectively, the "Class B
Purchasers."
"Class B Voting Percentage" shall mean with respect to any
Class B Purchaser, during the Revolving Period, the percentage
equivalent of a fraction the numerator of which equals such Purchaser's
Class B Commitment and the denominator of which equals, the Aggregate
Class B Commitment Amount and thereafter, the percentage equivalent of
a fraction the numerator of which equals such Purchaser's Class B
Principal Amount and the denominator of which equals the Aggregate
Class B Principal Amount.
"Closing Date" shall mean the date on which the Principal
Amount is first increased to above zero.
"Commitments" shall mean, collectively the Class A Commitments
and the Class B 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.
"Commitment Reduction" shall have the meaning assigned
in subsection 10(a).
"Commitment Transfer Supplement" shall have the meaning
assigned in Section 27(d).
"Decrease" shall mean a Class A Decrease or a Class B
Decrease.
"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 Note
Interest).
<PAGE>
"Effective Date" shall have the meaning specified in
Section 17.
"Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight 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
for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from
three federal funds brokers of recognized standing selected by it.
"Increase Amount" shall mean, on any date, the aggregate
amount of the Class A Increase Amount and the Class B Increase Amount
on such date.
"Increase Date" shall mean any Class A Increase Date or
Class B Increase Date.
"Increased Costs" shall mean any amounts owing to the
Purchasers pursuant to Section 16(d).
"Initial Class A Principal Amount" shall mean
$10,033,365.05.
"Initial Class B Principal Amount" shall mean
$1,770,593.83.
"Initial Principal Amount" shall mean the sum of the
Initial Class A Principal Amount and the Initial Class B
Principal Amount.
"LIBOR" means with respect to each day during each LIBOR
Period with respect to a LIBOR Tranche, the rate per annum equal to the
average (rounded upwards to the nearest 1/16 of 1%) of the rates of the
Reference Banks quoted on page 3750 of the Telerate Screen for deposits
in United States dollars for a period of one month as of 10:00 A.M.,
New York City time, two Business Days prior to the beginning of such
LIBOR Period for delivery on the first day of such LIBOR Period;
provided that if only one rate appears on such page of the Telerate
Screen, LIBOR for such LIBOR Period shall mean such quoted rate;
provided, further, that if it is not possible to obtain or determine
the average of the rates of the Reference Banks as provided above,
"LIBOR" shall mean, with respect to each day during each LIBOR Period
pertaining to a LIBOR Tranche, the rate per annum equal to the average
(rounded upward to the nearest 1/16th of 1%) of the respective rates
notified to the Administrative Agent by each of the Reference Banks as
the rate at which such Reference Bank offers dollar deposits to prime
banks at or about 10:00 A.M., New York City time, two
<PAGE>
Business Days prior to the beginning of such LIBOR Period in the
interbank eurodollar market for delivery on the first day of such LIBOR
Period for the number of days comprised therein and in an amount of
$5,000,000.
"LIBOR Period" shall mean, with respect to any LIBOR Tranche,
a period commencing on and including the applicable Distribution Date
and ending on but excluding the Distribution Date.
"LIBOR Tranche" shall mean either the Class A LIBOR Tranche or
the Class B LIBOR Tranche.
"Minimum Class B Percentage" shall mean 15%.
"Noteholder" shall mean the holder of record of any
Note.
"Notes" shall mean the Class A Notes and the Class B
Notes.
"Optional Series 1995-1 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 1995-1 in the related Supplement.
"Participants" shall have the meaning specified in
Section 27(b).
"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 1995-1 Pay Out Event is deemed to occur pursuant
to this Supplement.
"Principal Amount" shall mean, on any date of determination,
the sum of the Aggregate Class A Principal Amount and the Aggregate
Class B Principal Amount on such date of determination.
"Program Agreements" shall have the meaning specified
in Section 17(a).
"Purchaser" shall mean each purchaser of the Series
1995-1 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 1995-1 Notes; provided that so long as no such
agency is currently rating a particular Class of Series 1995-1, the
requirement to
<PAGE>
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.
"Reference Banks" shall mean First Union National Bank
of North Carolina.
"Register" shall mean a register maintained by the
Administrative Agent for recording transfers of interests in the Class
A Notes and the Class B Notes.
"Required Class A Purchasers" shall mean, on any day,
Purchasers having, in the aggregate, Class A Voting Percentages of at
least 66-2/3%.
"Required Series Subordinated Amount" shall mean on any date
of determination, the product of the Adjusted Principal Amount on such
date (after giving effect to any increase or decrease therein to occur
on such date) times the Minimum Class B Percentage.
"Required Class B Purchasers" shall mean, on any day,
Purchasers having, in the aggregate, Class B Voting Percentages of at
least 66-2/3%.
"Required Purchasers" shall mean, on any day, Purchasers
having, in the aggregate, Voting Percentages of at least 66-2/3%.
"Revolving Noteholder's Interest" shall have the
meaning specified in Section 3.
"Revolving Period" shall mean the period from and including
the Closing Date to and including the earlier 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 1995-1 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 1995-1.
"Series Accounts" shall mean the Distribution Account with
respect to Series 1995-1.
"Series Available Amount" shall mean on any Distribution Date
the amount allocable to Series 1995-1 in accordance with Section 4.3(e)
or (f) and Section 4.3(g) or (h) of the Agreement, as the case may be.
<PAGE>
"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 1995-1" shall mean the Series of the AFG Master Trust
represented by the Series 1995-1 Notes.
"Series 1995-1 Pay Out Event" shall have the meaning
prescribed in Section 15(b) of this Supplement.
"Series Subordinated Amount" shall mean, on any date of
determination, the excess, if any, of (i) the Series Percentage of the
Asset Base on such date over (ii) the Adjusted Class A Principal Amount
on such date.
"Series Termination Date" shall mean the earlier to occur of
(i) the day after the Distribution Date on which the Series 1995-1
Notes are repaid in full, or (ii) the Scheduled Series 1995-1
Termination Date.
"Target Repayment Percentage" shall mean 100%.
"Taxes" shall have the meaning specified in Section
16(f).
"Telerate Page 3750" means the display page currently so
designated on the Dow Jones Telerate Service (or such other page as may
replace that page on that service for the purpose of displaying
comparable rates or prices).
"Transferee" shall have the meaning specified in
Section 27(g).
"Transfer Issuance Date" shall mean the date on which a
Commitment Transfer Supplement becomes effective pursuant to the terms
of such Commitment Transfer Supplement.
<PAGE>
"Unallocated Class A Balance" shall mean, as of any
Distribution Date, the sum of (i) the portion of the Aggregate Class A
Principal Amount for which the Class A Note Interest is then being
calculated by reference to the Alternate Base Rate and (ii) the portion
of the Aggregate Class A Principal Amount that is allocated to any
Class A LIBOR Tranche which expires on such Distribution Date (in each
case after giving effect to any reduction thereof in accordance with
Section 8).
"Unallocated Class B Balance" shall mean, as of any
Distribution Date, the sum of (i) the portion of the Aggregate Class B
Principal Amount for which the Class B Note Interest is then being
calculated by reference to the Alternate Base Rate and (ii) the portion
of the Aggregate Class B Principal Amount that is allocated to any
Class B LIBOR Tranche which expires on such Distribution Date (in each
case after giving effect to any reduction thereof in accordance with
Section 8).
"Unpaid Class A Note Interest" shall have the meaning
specified in Section 11(a).
"Unpaid Class B Note Interest" shall have the meaning
specified in Section 11(b).
"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.
"Weekly Sale Date" shall mean (i) the third Business Day of
each calendar week, except for any calendar week in which a
Distribution Date occurs and (ii) each Distribution Date.
"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 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 1995-1 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
<PAGE>
not allocated pursuant hereto to the Revolving Noteholders' Interest.
(b) The Series 1995-1 Notes shall consist of the Class A Notes
and the Class B Notes, substantially in the forms of Exhibits A and B,
respectively, 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 Class B Notes shall be issuable in a minimum
denomination of $20,000 principal amount and integral multiples thereof, and
shall not be subdivided.
(d) The Series 1995-1 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.
SECTION 4. Purchases of Class A Notes. (a) Initial Purchase.
Subject to the terms and conditions of this Supplement, each Initial Purchaser
with a Class A Commitment hereby severally agrees (i) to purchase from the Trust
on the Closing Date a principal amount of the Class A Notes equal to such
Initial Purchaser's Class A Commitment Percentage of the Initial Class A
Principal Amount and (ii) to maintain such interest in the Class A Notes,
subject to increase or decrease during the Revolving Period, in accordance with
the provisions of this Supplement.
(b) Subsequent Purchasers. Subject to the terms and conditions
of this Supplement, each Class A Acquiring Purchaser hereby severally agrees to
maintain its interest in the Class A Notes, subject to increase or decrease
during the Revolving Period, in accordance with the provisions of this
Supplement.
(c) Maximum Purchaser Amount. Notwithstanding anything to the
contrary contained in this Supplement, at no time shall the Class A Principal
Amount of any Purchaser exceed such Purchaser's Class A Commitment at such time.
SECTION 5. Purchase of Class B Notes. (a) Initial Purchase.
Subject to the terms and conditions of this Supplement, each Initial Purchaser
with a Class B Commitment hereby severally agrees (i) to purchase from the Trust
on the Closing Date a principal amount of the Class B Notes equal to such
Initial Purchaser's Class B Commitment Percentage of the Initial Class B
Principal Amount and (ii) to maintain such interest in the Class B Notes,
subject to increase or decrease during the Revolving Period, in accordance with
the provisions of this Supplement.
<PAGE>
(b) Subsequent Purchasers. Subject to the terms and conditions
of this Supplement, each Class B Acquiring Purchaser hereby severally agrees to
maintain its interest in the Class B Notes subject to increase or decrease
during the Revolving Period, in accordance with the provisions of this
Supplement.
(c) Maximum Purchaser Amount. Notwithstanding anything to the
contrary contained in this Supplement, at no time shall the Class B Principal
Amount of any Purchaser exceed such Purchaser's Class B Commitment at such time.
SECTION 6. Delivery. (a) On the Closing Date, the Trust shall
execute and the Trustee shall duly authenticate (i) Class A Notes in an
aggregate denomination equal to the Initial Class A Principal Amount and (ii)
Class B Notes in an aggregate denomination equal to the Initial Class B
Principal Amount.
(b) The Trustee shall deliver the Series 1995-1 Notes when
authenticated in accordance with Section 6.2 of the Agreement.
(c) Enhancement for the Class A Notes shall consist of the
subordination of the Class B Notes.
SECTION 7. Procedure for Increasing the Principal Amount. (a)
Subject to subsection 7(c), on any Weekly Sale Date during the Revolving Period,
the Principal Amount may be increased by increasing each Class A Purchaser's
Class A Principal Amount (a "Class A Increase"), up to an amount not exceeding
each Purchaser's Class A Commitment upon the request of the Servicer, on behalf
of the Trust, (each date on which an increase in the Class A Principal Amount
occurs hereunder being herein referred to as the "Class A Increase Date");
provided that the Servicer shall have given the Administrative Agent irrevocable
written notice (effective upon receipt) of such request (i) if the Increase on
such date is to be priced solely with reference to the Alternate Base Rate,
prior to 12:00 Noon (New York City time) one Business Day prior to such Class A
Increase Date or (ii) if all or a portion of such Class A Increase on such date
is to be allocated to any Class A LIBOR Tranche, prior to 12:00 Noon (New York
City time) three Working Days prior to such Class A Increase Date. Such notice
shall state the Class A Increase Date, the proposed amount of such Class A
Increase (the "Class A Increase Amount"), and, if all or a portion of such Class
A Increase is to be allocated to the Class A LIBOR Tranche, the LIBOR Period
with respect to each such Class A LIBOR Tranche; provided, that (i) prior to the
increase in the Class A Principal Amount, the Class B Purchasers shall pay to
the Trust an amount sufficient to increase the Class B Principal Amount to an
amount equal to the Required Series Subordinated Amount calculated after taking
into consideration the Increase on such Increase Date, (ii) a Class A Increase
allocated to the Class A LIBOR Tranche shall only occur on a
<PAGE>
Distribution Date and (iii) an allocation to the Class A LIBOR Tranche shall be
subject to the provisions of Section 9.
(b) Subject to subsection 7(c), on any Weekly Sale Date during
the Revolving Period, the Principal Amount may be increased by increasing each
Class B Purchaser's Class B Principal Amount (a "Class B Increase"), up to an
amount not exceeding each Class B Purchaser's Class B Commitment upon the
request of the Servicer on behalf of the Trust (each date on which an increase
in the Class B Principal Amount occurs hereunder being herein referred to as a
"Class B Increase Date"); provided that the Servicer shall have given the
Administrative Agent irrevocable written notice (effective upon receipt) of such
request (i) if the Class B Increase on such date is to be priced solely with
reference to the Alternate Base Rate, prior to 12:00 Noon (New York City time)
one Business Day prior to such Class B Increase Date or (ii) if all or a portion
of such Class B Increase on such date is to be allocated to any Class B LIBOR
Tranche, prior to 12:00 Noon (New York City time) three Working Days prior to
such Class B Increase Date. Such notice shall state the Increase Date, the
proposed amount of such Class B Increase (the "Class B Increase Amount") and, if
all or a portion of such Increase is to be allocated to the Class B LIBOR
Tranche, the LIBOR Period with respect to each such Class B LIBOR Tranche;
provided, that (i) an Increase allocated to the Class B LIBOR Tranche shall only
occur on a Distribution Date and (iii) an allocation to the Class B LIBOR
Tranche shall be subject to the provisions of Section 9.
(c) 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 Class A
Principal Amount of any Class A Purchaser would exceed its Class A
Commitment or if the Class B Principal Amount of any Class B Purchaser
would exceed its Class B Commitment (in each case 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) the Series Subordinated Amount does not equal or
exceed the Required Series Subordinated Amount;
(v) the Administrative Agent has not received a fee in the
amount of $1,000 relating to such increase;
(vi) an Accelerated Payment Event, or an event which, with
the passage of time or the giving of notice, would be
<PAGE>
an Accelerated Payment Event, has occurred and is continuing; and
(vii) 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.
(d) After receipt by the Administrative Agent of the notice
required by subsection 7(a) or (b) from the Servicer on behalf of the Trust, the
Administrative Agent shall promptly provide telephonic notice to each relevant
Purchaser of the Increase Date and of the portion of the Class A Increase Amount
or Class B Increase Amount allocable to such Purchaser (which shall equal such
Purchaser's Class A Commitment Percentage or Class B Commitment Percentage of
the related Increase Amount). Payments by the Purchasers in respect of any
Increase shall be made in immediately available funds on the related Increase
Date to the Administrative Agent for payment to the Transferor.
SECTION 8. Procedure for Decreasing the Principal Amount. On
any one or more Weekly Sale Dates during the Revolving Period, upon request of
the Servicer on behalf of the Trust, the Aggregate Class A Principal Amount may
be reduced (a "Class 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). On any one or more
Weekly Sale Dates during the Revolving Period, upon request of the Servicer on
behalf of the Trust, the Aggregate Class B Principal Amount may be reduced (a
"Class B 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) or
(iii) any combination of (i) and (ii); provided that, after giving effect to
such Class B Decrease, the Series Subordinated Amount shall not be less than the
Required Series Subordinated Amount and the amount of the Class B Decrease shall
not exceed the amount that when subtracted from the Aggregate Class B Principal
Amount (after giving effect to amounts previously allocated to thereto pursuant
to this Section 8) will cause the Aggregate Class B Principal Amount to equal
the Required Subordinated Amount (after giving effect to such Class B Decrease).
The Servicer shall give the Administrative 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, the portion
thereof to be allocated to the Class A Decrease and the portion thereof to be
allocated to the Class B Decrease; provided that each such Decrease shall be in
an amount equal to or greater than $250,000.
SECTION 9. Allocation of Available Pricing Amount. (a) On
each Distribution Date the Transferor may, subject to
<PAGE>
paragraph (c), elect to allocate all or any part of the Available Class A
Pricing Amount or the Available Class B Pricing Amount to the Class A LIBOR
Tranche or the Class B LIBOR Tranche, as applicable, with a LIBOR Period
commencing on such Distribution Date by giving the Administrative Agent
irrevocable written or telephonic (confirmed in writing) notice thereof, which
notice must be received by the Administrative Agent prior to 12:00 Noon (New
York City time) three Working Days prior to such Distribution Date. Such notice
shall specify (i) the applicable Distribution Date, (ii) the portion of the
Available Class A Pricing Amount being allocated to the Class A LIBOR Tranche
and (iii) the portion of the Available Class B Pricing Amount being allocated to
the Class B LIBOR Tranche. Promptly upon receipt of each such notice the
Administrative Agent shall notify each Purchaser of the contents thereof. If the
Administrative Agent shall not have received timely notice as aforesaid with
respect to all or any portion of the Available Class A Pricing Amount or the
Available Class B Pricing Amount, Note Interest on the amount for which no such
timely notice has been received shall be calculated by reference to the
Alternate Base Rate.
(b) Any reduction in the Aggregate Class A Principal Amount or
the Aggregate Class B Principal Amount on any Weekly Sale Date shall be
allocated in the following order of priority:
First, to reduce the Available Class A Pricing Amount or the
Available Class B Pricing Amount, as appropriate; and
Second, to reduce the portion of the Aggregate Class A
Principal Amount or Aggregate Class B Principal Amount allocated to the
Class A LIBOR Tranche or the Class B LIBOR
Tranche.
(c) Anything contained in this Section 9 to the contrary
notwithstanding, the portion of the Aggregate Class A Principal Amount allocable
to the Class A LIBOR Tranche must be an amount equal to at least $1,000,000.
SECTION 10. Reductions of the Commitments. (a) On
-----------------------------
any Weekly Sale Date during the Revolving Period, the Servicer, on behalf of
the Trust, may, upon three Working Days' prior written notice to the
Administrative Agent (effective upon receipt) reduce or terminate the Class A
Commitments or the Class B Commitments (a "Commitment Reduction") in an
aggregate amount equal to $5,000,000 or a whole multiple of $1,000,000 in
excess thereof, provided that no such termination or reduction shall be
permitted if, after giving effect thereto and to any reduction in the
Aggregate Class A Principal Amount and the Aggregate Class B Principal Amount
on such date, the Aggregate Class A Principal Amount would exceed the
Aggregate Class A Commitment Amount then in effect or the Aggregate Class B
Principal Amount would exceed the Aggregate Class B Commitment Amount then in
effect. Each Purchaser's Commitment shall be reduced by such Purchaser's Class
<PAGE>
A Commitment Percentage or Class B Commitment Percentage, as applicable, of the
amount of such Commitment Reduction.
(b) Once reduced, the Commitments may not be subsequently
reinstated. Upon effectiveness of any such reduction, the Administrative Agent
shall prepare a revised Schedule 1 to reflect the reduced Commitment of each
Purchaser and Schedule 1 of this Supplement shall be deemed to be automatically
superseded by such revised Schedule 1. The Administrative Agent shall distribute
such revised Schedule 1 to the Transferor, the Servicer, the Trustee and each
Purchaser.
SECTION 11. Interest; Administrative Fee. (a) Interest shall
accrue in respect of each day in each Accrual Period for the Class A Notes, with
respect to the portion of the Aggregate Class A Principal Amount allocated to
the Class A LIBOR Tranche during such period, at the Class A LIBOR Rate for such
period and, with respect to the portion thereof not allocated to the Class A
LIBOR Tranche on any day during such period, at the Alternate Base Rate
applicable to such day. Interest accrued during each Accrual Period on the Class
A Notes shall be payable on the Distribution Date immediately following the last
day of such Accrual Period. If any interest that accrues on the Class A Notes
during an Accrual Period is not paid on the related Distribution Date in
accordance with the preceding sentence ("Unpaid Class A Note Interest"), such
Unpaid Class A Note Interest shall be payable on the immediately following
Distribution Date, plus interest thereon for the additional Accrual Period
calculated at the Alternate Base Rate.
(b) Interest shall accrue in respect of each day in each
Accrual Period for the Class B Notes, with respect to the portion of the
Aggregate Class B Principal Amount allocated to the Class B LIBOR Tranche during
such period, at the Class B LIBOR Rate for such period and, with respect to the
portion thereof not allocated to the Class B LIBOR Tranche on any day during
such period, at the Alternate Base Rate applicable to such day, plus .35%.
Interest accrued during each Accrual Period on the Class B Notes shall be
payable on the Distribution Date coinciding with the last day of such Accrual
Period. If any interest that accrues on the Class B Notes during an Accrual
Period is not paid on the related Distribution Date in accordance with the
preceding sentence ("Unpaid Class B Note Interest"), such Unpaid Class B
Interest shall be payable on the immediately following Distribution Date, plus
interest thereon for the additional Accrual Period calculated at the Alternate
Base Rate.
(c) The Servicer shall pay to the Administrative Agent for its
own account, on each Distribution Date, an administrative fee with respect to
each Accrual Period or portion thereof ending on such date (the "Administrative
Fee") at a rate equal to .10% per annum of the average daily Principal Amount
during such Accrual Period. The Administrative Fee shall be payable in arrears
(a) for each Accrual Period on the Distribution Date
<PAGE>
coinciding with the last day of such period and (b) on the Series Termination
Date.
(d) Calculations of per annum rates and fees under this
Supplement shall be made on the basis of (i) a 360-day year for actual days
elapsed with respect to interest calculated with reference to the LIBOR Rate and
(ii) a 365- (or 366-, as the case may be) day year with respect to interest
calculated with reference to the Alternate Base Rate and other per annum fees.
Each determination of the LIBOR Rate hereunder by the Administrative 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 the Alternate Base Rate shall become effective as of the opening of business
on the day on which such change is announced. For the purposes of paying Note
Interest on any Distribution Date, if there shall be a change in the Alternate
Base Rate between a Determination Date and the end of the related Accrual
Period, the Alternate Base Rate in effect on such Determination Date shall be
deemed to be in effect for the remainder of the related Accrual Period and an
appropriate adjustment will be made on the next succeeding Distribution Date.
SECTION 12. Indemnification by Transferor. The Transferor
hereby agrees to pay, and to indemnify and hold harmless, the Administrative
Agent, each Purchaser, the Arranger, 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 Administrative Agent,
any such Purchaser, the Arranger, 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 Administrative
Agent, any Purchaser, the Arranger, 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 Administrative Agent, the
Trustee, any Purchaser, the Arranger 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 Administrative Agent, each
Purchaser, the Arranger, the Trustee or the Collateral Trustee and each officer,
<PAGE>
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 Administrative Agent, each Purchaser, the
Arranger, 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 4.1B, 4.2B and Section 4.4A shall read in their entirety
as provided in this Series 1995-1 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 1995-1 Notes:
ARTICLE IV
RIGHTS OF NOTEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.1B [Reserved]
Section 4.2B The Series 1995-1 Distribution Account. The
Servicer, for the benefit of the Series 1995-1 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 non-interest
bearing 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 1995-1 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
<PAGE>
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) pay to the Administrative Agent the Administrative
Fee for the preceding Accrual Period, together with any amounts in
respect of the Administrative Fee that were due in respect of prior
Accrual Periods that remain unpaid;
(ii) allocate to the Distribution Account for the
benefit of the Class A Noteholders an amount equal to Note Interest
accrued in respect of the Class A Notes ("Class A 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 the Alternate Base Rate;
(iii) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to Note Interest
accrued in respect of the Class B Notes ("Class B 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;
(iv) allocate to the Distribution Account for the
benefit of the Class A Noteholders an amount equal to the Class A
Percentage of the Optional Series 1995-1 Pay Down
Amount for such Distribution Date;
(v) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to the remaining
Optional Series 1995-1 Pay Down Amount for such
Distribution Date;
(vi) allocate to the Distribution Account for the
benefit of the Class A Noteholders an amount equal to any amounts then
due and payable in respect of Increased Costs in respect of the Class A
Notes accrued during the Accrual Period ending on such Distribution
Date; provided that such amount shall not, after giving effect to the
application thereof, cause the Series Subordinated Amount to be less
than the Required Series Subordinated Amount;
(vii) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to any amounts then
due and payable in respect of Increased Costs in respect of the Class B
Notes accrued during the Accrual Period ending on such Distribution
Date; provided that such amount shall not, after giving effect to the
application thereof, cause the Series Subordinated Amount to be less
than the Required Series Subordinated Amount;
<PAGE>
(viii) 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 1995-1; provided that such amount
shall not, after giving effect to the application thereof, cause the
Series Subordinated Amount to be less than the Required Series
Subordinated Amount;
(ix) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to interest payable
with respect to any Class B Note Interest that accrued in respect of
prior Accrual Periods for which no allocation was previously made,
calculated at the Alternate Base Rate;
(x) 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) pay to the Administrative Agent the Administrative
Fee for the preceding Accrual Period, together with any amounts in
respect of the Administrative Fee that were due in respect of prior
Accrual Periods that remain unpaid;
(ii) allocate to the Distribution Account for the
benefit of the Class A Noteholders an amount equal to Note Interest
accrued in respect of the Class A 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 the
Alternate Base Rate;
(iii) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to Note Interest
accrued in respect of the Class B 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;
<PAGE>
(iv) allocate to the Distribution Account for the
benefit of the Class A Noteholders an amount equal to the Class A
Percentage of the Target Repayment Amount for Series 1995-1 for such
Distribution Date, together with any such amounts that were due on
prior Distribution Dates for which no deposit was previously made;
(v) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to the remaining
Target Repayment Amount for Series 1995-1 for such Distribution Date,
together with any such amounts that were due on prior Distribution
Dates for which no deposit was previously made;
(vi) allocate to the Distribution Account for the
benefit of the Class A Noteholders an amount equal to any amounts then
due and payable in respect of Increased Costs in respect of the Class A
Notes accrued during the Accrual Period ending on such Distribution
Date; provided that such amount shall not, after giving effect to the
application thereof, cause the Series Subordinated Amount to be less
than the Required Series Subordinated Amount;
(vii) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to any amounts then
due and payable in respect of Increased Costs in respect of the Class B
Notes accrued during the Accrual Period ending on such Distribution
Date; provided that such amount shall not, after giving effect to the
application thereof, cause the Series Subordinated Amount to be less
than the Required Series Subordinated Amount;
(viii) 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 1995-1; provided that such amount
shall not, after giving effect to the application thereof, cause the
Series Subordinated Amount to be less than the Required Series
Subordinated Amount.
(ix) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to interest payable
with respect to any Class B Note Interest that accrued in respect of
prior Accrual Periods for which no allocation was previously made,
calculated at the Alternate Base Rate;
(x) 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
<PAGE>
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) pay to the Administrative Agent the Administrative
Fee for the preceding Accrual Period, together with any amounts in
respect of the Administrative Fee that were due in respect of prior
Accrual Periods that remain unpaid;
(ii) allocate to the Distribution Account for the
benefit of the Class A Noteholders an amount equal to Note Interest
accrued in respect of the Class A 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 the
Alternate Base Rate;
(iii) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to Note Interest
accrued in respect of the Class B 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;
(iv) allocate to the Distribution Account for the
benefit of the Class A Noteholders an amount equal to the remaining
Aggregate Class A Principal Amount;
(v) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to the remaining
Aggregate Class B Principal Amount;
(vi) allocate to the Distribution Account for the
benefit of the Class A Noteholders an amount equal to any amounts then
due and payable in respect of Increased Costs in respect of the Class A
Notes accrued during the Accrual Period ending on such Distribution
Date; provided that such amount shall not, after giving effect to the
application thereof, cause the Series Subordinated Amount to be less
than the Required Series Subordinated Amount;
(vii) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to any amounts then
due and payable in respect of Increased Costs in respect of the Class B
Notes accrued during the Accrual Period ending on such Distribution
Date; provided that such amount shall not, after giving effect to the
application
<PAGE>
thereof, cause the Series Subordinated Amount to be less than the
Required Series Subordinated Amount;
(viii) 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 1995-1; provided that such amount
shall not, after giving effect to the application thereof, cause the
Series Subordinated Amount to be less than the Required Series
Subordinated Amount.
(ix) allocate to the Distribution Account for the
benefit of the Class B Noteholders an amount equal to interest payable
with respect to any Class B Note Interest that accrued in respect of
prior Accrual Periods for which no allocation was previously made,
calculated at the Alternate Base Rate;
(x) 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 1995-1 Notes:
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
NOTEHOLDERS
Section 5.1A Distributions.
(a) On each Distribution Date, the Paying Agent shall
distribute to the Administrative Agent on behalf of the Class A Purchasers (in
accordance with the certificate delivered by the Servicer to the Trustee
pursuant to Section 5.2A(a) and promptly thereafter the Administrative Agent
shall make available to each Class A Purchaser (other than as provided in
Section 12.3 of the Agreement respecting a final distribution) such Purchaser's
pro rata share (based on its Class A Commitment Percentage) of amounts on
deposit in the Distribution Account as are payable with respect to the Class A
Notes pursuant to Section 4.4A on such Distribution Date.
(b) On each Distribution Date, the Paying Agent shall
distribute to the Administrative Agent on behalf of the Class B Purchasers (in
accordance with the certificate delivered by the Servicer to the Trustee
pursuant to Section 5.2A(a) and promptly thereafter the Administrative Agent
shall make available to each Class B Purchaser (other than as provided in
Section 12.3 of the Agreement respecting a final distribution) such Purchaser's
pro rata share (based on its Class B Commitment Percentage) of amounts on
deposit in the Distribution Account as are payable
<PAGE>
with respect to the Class B 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 each Series 1995-1
Noteholder and each Rating Agency 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) and (iii) below, shall be stated on the
basis of an original principal amount of $1,000 per Series 1995-1 Note and, in
the case of subclause (v) shall be stated on an aggregate basis and on the basis
of an original principal amount of $1,000 per Series 1995-1 Note):
(i) the total amount distributed;
(ii) the amount of such distribution allocable to Note
Principal;
(iii) the amount of such distribution allocable to Note
Interest;
(iv) the Aggregate Commitment Amount, the Class A
Principal Amount, the Class B Principal Amount, the
Principal Amount, the Class A Average Principal Amount and
the Class B Average Principal Amount; and
(v) the Adjusted Principal Amount, the Series Asset Base,
the Aggregate Adjusted Principal Amount, the Asset Base, the Series
Subordinated Amount, the Required Series Subordinated Amount, 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 1996, the Paying Agent shall
distribute on behalf of the Transferor, to each Person who at any time during
the preceding calendar year was a Series 1995-1 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 1995-1 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 1995-1 Noteholder,
together with such other customary information (consistent with the treatment of
the
<PAGE>
Series 1995-1 Notes as debt) as the Servicer deems necessary or desirable to
enable the Series 1995-1 Noteholders to prepare their tax returns consistent
with the treatment of the Series 1995-1 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 Administrative
Agent a copy of the Monthly Statement, and the Servicer shall, upon request,
provide a copy of the most current Monthly Statement to any Noteholder.
SECTION 15. Accelerated Payment Events; Series 1995-1
Pay Out Events.
(a) Accelerated Payment Events. If any one of the
following events shall occur with respect to the Series 1995-1
Notes:
(i) on any two consecutive Distribution Dates after giving
effect to all transactions and distributions to occur hereunder on such
dates, the Adjusted Principal Amount on each such date shall be less
than the Series Asset Base on each such date; or
(ii) on any two consecutive Distribution Dates after giving
effect to all transactions and distributions to occur hereunder on such
dates, the Aggregate Adjusted Principal Amount on each such date shall
exceed the Asset Base on each such date; or
(iii) on any two consecutive Distribution Dates after giving
effect to all transactions and distributions to occur hereunder on such
dates, the Series Subordinated Amount on each such date shall be less
than the Required Series Subordinated Amount on each such date; or
(iv) on any two consecutive Distribution Dates after giving
effect to all transactions and distributions to occur hereunder on such
dates, the product of (A) 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, and (B)
twelve, exceeds 5% of the average Aggregate Pool Balance on the last
day of such three preceding Monthly Periods; or
(v) on any two consecutive Distribution Dates after giving
effect to all transactions and distributions to occur hereunder on such
dates, the product of (A) the Discounted Lease Balances of Included
Leases that became Defaulted
<PAGE>
Leases during the three preceding Monthly Periods, and (B) four,
exceeds 4% of the average Aggregate Pool Balance on the last day of
such three preceding Monthly Periods; or
(vi) on any six consecutive Distribution Dates, Note Interest
shall not have been paid with respect to the Class A Notes or the Class
B 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, either the Administrative Agent or the Required Purchasers or the
Required Class B Purchasers, by notice then given in writing to the Transferor
and the Servicer (and to the Trustee if given by the Noteholders) may declare
that a payment event (an "Accelerated Payment Event") has occurred as of the
date of such notice.
(b) Series 1995-1 Pay Out Events. If the following event shall
occur with respect to the Series 1995-1 Notes:
(i) on any twelve consecutive Distribution Dates, Note
Interest shall not have been paid with respect to the Class A Notes or
the Class B Notes;
then, and in any such event after the applicable grace period set forth in such
subparagraphs, either the Administrative Agent or the Required Purchasers or the
Required Class B Purchasers, by notice then given in writing to the Transferor
and the Servicer (and to the Trustee if given by the Noteholders) may declare
that an event of default (a "Series 1995-1 Pay Out Event") has occurred 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 Note Interest is determined by reference to the
LIBOR Rate 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 reduction of a LIBOR
Tranche prior to the termination of the LIBOR Period for such LIBOR Tranche. 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.
<PAGE>
(b) Market Disruption. If on or prior to the first day of any
LIBOR Period, the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Transferor) that (i)
deposits in Dollars are not being offered to the Administrative Agent in the
London interbank market, (ii) the rate per annum referred to in the definition
of "LIBOR" as the basis upon which the LIBOR Rate is to be determined does not
accurately reflect the costs to the Required Purchasers of maintaining their
investment in the Series 1995-1 Notes at such time as Note Interest is based, in
whole or in part, upon the LIBOR Rate or (iii) adequate and reasonable means do
not otherwise exist for ascertaining the LIBOR Rate, the Administrative Agent
shall forthwith give telex or telecopy notice thereof, confirmed in writing, to
the Transferor and the Trustee, whereupon until the Administrative Agent
notifies the Transferor and the Trustee that the circumstances giving rise to
such notice no longer exist, the Available Pricing Amount shall not be allocated
to any LIBOR Tranche.
(c) Illegality. Notwithstanding any other provision herein to
the contrary, if, after the Closing Date, the adoption of any applicable law,
rule or regulation, or any change therein, or any change in the interpretation
or administration thereof by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Purchaser with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
make it unlawful for such Purchaser to maintain its interest in the Series
1995-1 Notes in any LIBOR Tranche and such Purchaser so notifies the
Administrative Agent, the Trustee and the Transferor, then the portion of each
LIBOR Tranche applicable to such Purchaser shall thereafter be calculated by
reference to the Alternate Base Rate. If any such change in the method of
calculating interest occurs on a day which is not the last day of the LIBOR
Period with respect to any LIBOR Tranche, the Transferor shall pay to the
Administrative Agent for the account of such Purchaser the amounts, if any, as
may be required pursuant to Section 16(a).
(d) Increased Costs. If, after the Closing Date, the adoption
of any applicable 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 nation or government (or any state or political subdivision
thereof) or any entity exercising executive, legislative, regulatory or
administrative functions of or pertaining to 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
<PAGE>
for changes in the rate of tax on the overall net income of such
Purchaser imposed in the United States of America or in the country
from which such Purchaser is then funding its interest in the Series
1995-1 Notes);
(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 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 Administrative Agent, who will in
turn notify the Servicer and the Transferor, of such Increased Costs and the
event giving rise to such Increased Costs. Each Purchaser shall certify such
Increased Costs to the Servicer and the Transferor and such certification shall
show the calculations thereof in reasonable detail and shall be conclusive
absent manifest error.
(e)(i) Changes in Capital Requirements. In the event that any
Purchaser shall have determined that any change in any Requirement of Law
regarding capital adequacy or in the 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 made subsequent to the date hereof (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
<PAGE>
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 Administrative Agent) of a written request therefor, the Transferor
shall indemnify such Purchaser such additional amount or amounts as will
compensate such for such reduction.
(ii) Upon the occurrence of any Change in Law, each Purchaser
whose Commitment hereunder is affected by such Change in Law shall transfer its
Commitment to another branch office (or, if such Purchaser so elects, to an
Affiliate) of such Purchaser, provided that such transfer shall be made only if
such Purchaser shall have determined in good faith (which determination shall,
absent manifest error, be final, conclusive and binding upon all parties) that,
(A) on the basis of existing circumstances, such transfer will avoid or reduce
the additional payments resulting from such Change in Law and will not result in
any additional costs, liabilities or expenses to such Purchaser (unless the
Transferor agrees to pay such additional costs, liabilities or expenses of such
Purchaser) and (B) such transfer is otherwise consistent with the interests of
such Purchaser.
(f) 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 Administrative Agent and each Purchaser, income and franchise taxes imposed
on the Administrative 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 Administrative Agent or
any Purchaser hereunder, the amounts so payable to the Administrative Agent or
such Purchaser shall be increased to the extent necessary to yield to the
Administrative 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
Administrative 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 Administrative Agent
the required receipts or other required documentary evidence, the Transferor
shall indemnify the Administrative Agent and the Purchasers for any incremental
taxes, interest or penalties that may become payable by the Administrative 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
<PAGE>
or at the time such Purchaser becomes a "Purchaser" hereunder) it will deliver
to the Transferor and the Administrative 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 is 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 Class A 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 Administrative Agent any such Form 1001 or
4224 and Form W-8 or W-9 further undertakes to deliver to the Transferor and the
Administrative 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 Administrative
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(f) 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(f) 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(f).
(v) Each Purchaser shall furnish the Administrative Agent, and
the Administrative 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
<PAGE>
payments of interest received by Purchasers under this Supplement.
(g) 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.
(h) Upon the occurrence of any event requiring Taxes to be
withheld from any amounts payable to any Purchaser hereunder, or which otherwise
results in a Purchaser claiming any costs under this Section 16, each Purchaser
whose Commitment hereunder is affected by such event shall transfer its
Commitment to another branch office (or, if such Purchaser so elects, to an
Affiliate) of such Purchaser, provided that such transfer shall be made only if
such Purchaser shall have determined in good faith (which determination shall,
absent manifest error, be final, conclusive and binding upon all parties) that,
(A) on the basis of existing circumstances, such transfer will avoid or reduce
the amount of Taxes withheld or other costs under this Section 16 incurred
resulting from such event and will not result in any additional costs,
liabilities or expenses to such Purchaser (unless the Transferor agrees to pay
such additional costs, liabilities or expenses of such Purchaser) and (B) such
transfer is otherwise consistent with the interests of such Purchaser. If any
Purchaser claims any costs under this Section 16, such Purchaser, will, at the
direction of the Transferor, pursuant to Section 27, assign its interest in the
Series 1995-1 Notes and its rights hereunder pursuant to documentation in form
and substance satisfactory to such Purchaser, for a purchase price equal to such
Purchaser's interest in its Series 1995-1 Note, together with accrued interest
thereon to the date of transfer.
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 Administrative Agent shall have received an
original executed copy for each Purchaser, each executed and delivered
in form and substance satisfactory to the Administrative 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 and this Supplement (collectively, the
"Program Agreements") shall be in full force and effect.
<PAGE>
(b) Corporate Proceedings of the Transferor and Servicer. The
Administrative Agent shall have received, with a counterpart for each
Purchaser, a copy of the resolutions in form and substance reasonably
satisfactory to the Administrative 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 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 Administrative Agent.
(c) Corporate Documents. The Administrative 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 Administrative 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 Administrative
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
<PAGE>
(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 Administrative 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 Administrative Agent shall have
received the results of a recent search by a Person satisfactory to the
Administrative 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 Administrative Agent shall have
received, with a counterpart for each Purchaser, (i) a legal opinion of
Farella Braun & Martel, counsel to the Transferor and the Servicer,
dated the date hereof, to the effect that (A) the sales of the Original
Leases and the related Equipment by each Originator to the Transferor
pursuant to the Asset Purchase Agreement are "true sales," (B) the
Transferor has a perfected first priority interest in the Original
Leases and the related Equipment and the Trustee has a perfected first
priority interest in the Trust Assets and (C) addressing other
customary matters in form and substance satisfactory to the
Administrative Agent; (ii) a legal opinion of Simpson Thacher &
Bartlett, counsel to the Administrative Agent, dated the date hereof,
to the effect that a court would not order the substantive
consolidation of the assets and liabilities of the Transferor with
those of the Servicer or any of its Affiliates; (iii) a legal opinion
of Simpson Thacher & Bartlett, counsel to the Administrative Agent,
dated the date hereof, with respect to certain tax matters, in form and
substance satisfactory to the Administrative Agent, (iv) a legal
opinion of Stephen Peary, special Massachusetts
<PAGE>
counsel to the Transferor and the Servicer, dated the date hereof, with
respect to certain Massachusetts tax matters, in form and substance
satisfactory to the Administrative Agent, and (v) a legal opinion of
Seward & Kissel, counsel to the Trustee, dated the date hereof in form
and substance satisfactory to the Administrative Agent.
(i) Certificates. The Administrative 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 December 6, 1995, 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 Administrative Agent shall have
received evidence satisfactory to it that the Series Accounts shall
have been established.
(k) Structuring Fee. The Administrative Agent shall have
received from the Servicer a structuring fee in the amount of $680,000.
(l) Custodian Agreement. The Servicer and Trustee shall have
entered into a Custodian Agreement, in substantially the form of
Exhibit A to the Agreement, with a custodian and on terms reasonably
acceptable to the Administrative Agent.
(m) 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.
<PAGE>
SECTION 18. Representations and Warranties of the Transferor
and the Servicer. The Transferor and Servicer severally represent and warrant to
and agree with the Administrative Agent that:
(i) Each of the representations and warranties included in
the Agreement, this Supplement and the Asset Purchase Agreement shall
be true and correct in all material respects as of the Closing Date.
(ii) Each of the Transferor and the Servicer has the power
and authority to execute and deliver this Supplement, the Agreement and
the 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 Notes and the consummation of the transactions
contemplated by this Supplement, the Agreement and the 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 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 or
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 any 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.
<PAGE>
(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.
(viii) 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 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;
<PAGE>
(ii) it shall not amend, supplement or otherwise modify or
terminate the Agreement, unless in strict compliance with the terms
thereof;
(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; and
(iv) to the extent, if any, that the rating provided with
respect to the Class A Notes by a Rating Agency is conditional upon the
furnishing of documents or the taking of any other actions by the
Transferor, to furnish such documents and take such other actions.
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 Administrative 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 Administrative 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 Administrative 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;
<PAGE>
(vii) it shall provide notice to the Administrative 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 Class A 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
Administrative 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 Administrative 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. Administrative Agent. (a) Each Purchaser hereby
irrevocably designates and appoints the Administrative Agent as the agent of
such Purchaser under this Supplement and each such Purchaser hereby irrevocably
authorizes the Administrative Agent, as the agent for such Purchaser, to take
such action on its behalf under the provisions of this Supplement and to
exercise such powers and perform such duties as are expressly delegated to such
Administrative Agent by the terms of this Supplement, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary in this Supplement, the Administrative Agent shall not have any
duties or responsibilities, except those expressly set forth in this Supplement,
nor any fiduciary relationship with any Purchaser (except as Administrative
Agent), the Transferor or the Servicer, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Supplement or otherwise be deemed to exist against the Administrative Agent.
(b) Consultation with Experts. The Administrative Agent may
consult with legal counsel (who may be counsel for the Transferor or Servicer),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts.
<PAGE>
(c) Liability of the Administrative Agent. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Purchasers or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into or verify
(i) any statement, warranty or representation made in connection with this
Supplement; (ii) the performance or observance of any of the covenants or
agreements of the Transferor or the Servicer; (iii) the satisfaction of any
condition specified in Section 17, except receipt of items required to be
delivered to the Administrative Agent; or (iv) the validity, effectiveness or
genuineness of this Supplement, the Agreement or any other instrument or writing
furnished in connection herewith. The Administrative Agent shall not incur any
liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, telex or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.
(d) Indemnification. Each Purchaser shall, ratably in
accordance with its Principal Amount, indemnify the Administrative Agent (to the
extent not reimbursed by the Transferor) against any cost, expense (including
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from the Administrative Agent's gross negligence or
willful misconduct) that the Administrative Agent may suffer or incur in
connection with this Supplement or any action taken or omitted by the
Administrative Agent hereunder.
(e) Credit Decision. Each Purchaser acknowledges that it has,
independently and without reliance upon the Administrative Agent, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Supplement. Each Purchaser also
acknowledges that it will, independently and without reliance upon the
Administrative Agent, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking any action under this Supplement.
(f) Reliance by the Administrative Agent. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including, without limitation, counsel to any
of the Purchasers and counsel to the Transferor or the Servicer), independent
accountants and other experts selected by such Administrative
<PAGE>
Agent, as the case may be. The obligations of the Administrative Agent are only
those expressly set forth herein. The Administrative Agent shall be fully
justified in failing or refusing to take any action under this Supplement unless
it shall first receive such advice or concurrence of the Required Purchasers as
it deems appropriate or it shall first be indemnified to its satisfaction by the
Purchasers against any and all liability and expense (other than such liability
or expense arising from such Administrative Agent's own gross negligence or
willful misconduct) which may be incurred by it by reason of taking or
continuing to take any such action. The Administrative Agent shall in all cases
be fully protected in acting, or in refraining from acting, under this Agreement
in accordance with a request of the Required Purchasers, and such request and
any action taken or failure to act pursuant thereto shall be binding upon all
the Purchasers and all successors and assigns of the Purchasers.
(g) Notice of Default or Accelerated Payment Event. The
Administrative Agent shall not be deemed to have knowledge or notice of the
occurrence of any Servicer Default, Accelerated Payment Event or Pay Out Event
unless the Administrative Agent has received notice from a Purchaser, the
Transferor or the Servicer referring to the Agreement or this Supplement,
describing such Servicer Default, Accelerated Payment Event or Pay Out Event and
stating that such notice is a "notice of a Servicer Default" or a "notice of a
Pay Out Event" or a "notice of an Accelerated Payment Event", as the case may
be. In the event that the Administrative Agent receives such a notice, the
Administrative Agent shall give notice thereof to the Purchasers, the Trustee
and the Servicer. The Administrative Agent shall take such action with respect
to such Servicer Default, Accelerated Payment Event or Pay Out Event as shall be
reasonably directed by the Required Purchasers, provided that unless and until
the Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Servicer Default, Accelerated Payment
Event or Pay Out Event as it shall deem advisable in the best interests of the
Purchasers.
(h) The Administrative Agent in its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Transferor, the Servicer
or any of their Affiliates as though such Administrative Agent were not an
Administrative Agent. With respect to any interest the Administrative Agent may
from time to time hold in any Series 1995-1 Note, the Administrative Agent shall
have the same rights and powers under this Supplement as any Purchaser and may
exercise the same as if it were not an Administrative Agent, and the term
"Purchaser" and "Purchasers" shall include the Administrative Agent in its
individual capacity.
<PAGE>
(i) Successor Administrative Agent. (i) First Union National
Bank of North Carolina may assign all or a portion of its rights and obligations
as Administrative Agent at any time to its Affiliate or a Qualified Institution
acceptable to the Servicer and the Trustee. Any such assignee shall be entitled
to all the benefits and protections afforded the Administrative Agent pursuant
to this Section 23. Any such assignment shall become effective upon First Union
National Bank of North Carolina's giving notice of such assignment to the
Transferor, the Trustee, the Collateral Trustee, the Servicer and the
Purchasers.
(ii) The Administrative Agent may resign as Administrative
Agent upon 10 days' notice to the Purchasers and the Trustee and pursuant to the
following sentence. The Administrative Agent's resignation shall not become
effective until a successor is approved pursuant hereto. If the Administrative
Agent shall give notice to the Purchasers of its intention to resign as
Administrative Agent under this Agreement, then the Required Purchasers shall
appoint a successor agent for the Purchasers which successor agent shall be
approved by the Transferor and the Servicer, which approval shall not be
unreasonably withheld; provided that if the Required Purchasers shall not have
appointed, or the Required Purchasers shall have appointed but the Transferor
and the Servicer shall not have approved, any such successor agent within 60
days of the original notice given by the Administrative Agent of its intention
to resign, then the Administrative Agent may appoint a successor agent for the
Purchasers, subject to the approval of the Required Purchasers and, provided
that no Pay Out Event has occurred and is continuing, the Transferor and the
Servicer shall have approved such successor agent, which approval shall not be
unreasonably withheld. Notwithstanding the foregoing, if the Required
Purchasers, the Transferor and the Servicer determine in good faith that the
Administrative Agent has carried out its duties in a manner characterized by
gross negligence or willful misconduct, then the Required Purchasers, the
Transferor and the Servicer may appoint a successor agent. Upon any appointment
pursuant to the two preceding sentences, such successor agent shall succeed to
the rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon its
appointment, and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Supplement or any of their successors and assigns. After any retiring
Administrative Agent's resignation or dismissal hereunder as Administrative
Agent, the provisions of this Section 23 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Administrative Agent
under this Supplement.
SECTION 24. Payments. Each payment to be made hereunder
shall be made on the required payment date in lawful
<PAGE>
money of the United States and in immediately available funds, for the account
of the Purchasers at the office of the Administrative Agent set forth below its
signature hereto. On each Distribution Date, the Administrative Agent shall
remit in like funds to each Purchaser its applicable pro rata share (based on
each such Purchaser's applicable Class A Commitment Percentage or Class B
Commitment Percentage) of each such payment received by the Administrative Agent
for the account of the Purchasers.
SECTION 25. Costs and Expenses. The Transferor agrees to pay
all out-of-pocket costs and expenses of the Administrative Agent (including,
without limitation, in all of the following cases, reasonable fees and
disbursements of one counsel to the Administrative Agent) in connection with (a)
due diligence with respect to the Transferor, the Servicer, the Trust, the
Leases and the related Equipment, (b) the preparation, execution, delivery,
administration, waiver, amendment and modification of this Supplement, the
Agreement and the Notes and the syndication of the Class A Notes to Purchasers,
(c) the sale of Series 1995-1 Notes hereunder, (d) the perfection as against all
third parties whatsoever of the Series 1995-1 Noteholders' right, title and
interest in, to and under the Series 1995-1 Notes and the Trust Assets and (e)
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 Class A Purchasers and the
Required Class B 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, Required
Class A Purchasers, Required Class B Purchasers, Principal Amount, Class A
Principal Amount, Class B Principal Amount, Aggregate Class A Principal Amount,
Aggregate Class B Principal Amount, Average Principal Amount, Class A Average
Principal Amount, Class B 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 Class A Purchasers or the Required Class B Purchasers,
(i) to cure any ambiguity, to revise any Exhibits or Schedules, to correct or
supplement any
<PAGE>
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
Administrative 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 Class A Purchasers and the Required Class B Purchasers shall
approve such amendment, consent, or waiver, as the case may be, then 100% of the
Principal Amount of Series 1995-1 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 Class A
Purchasers and the Required Class B Purchasers shall approve such amendment,
consent, or waiver, as the case may be, then 100% of the Principal Amount of
Series 1995-1 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) Subject to Section 27(c), any Purchaser may, in the
ordinary course of its business and in accordance with applicable law, at any
time sell to one or more financial institutions or other entities
("Participants") participations in its interest in the Series 1995-1 Notes and
its rights hereunder (with the consent of the Transferor (not to be unreasonably
withheld)) pursuant to documentation in form and substance satisfactory to such
Purchaser and the Participant. In the event of any such sale by a Purchaser to a
Participant, such Purchaser's obligations under this Supplement shall remain
unchanged and such Purchaser shall remain solely responsible for the performance
thereof. The Transferor agrees that each Purchaser is entitled, in its own name,
to enforce for the benefit of, or as agent for, any Participant any and all
rights, claims and interest of such Participant in respect of the Trust and the
Transferor's obligations under this Supplement. Such Purchaser shall not grant
to any Participant voting rights in any
<PAGE>
participation agreement, except with respect to matters that require the consent
of each of the Purchasers.
(c) In addition to any requirements or restrictions set forth
herein, the Class B Notes, including participations therein, shall be subject to
the Note transfer restrictions set forth in Section 6.13 of the Agreement,
provided, however, that 20% of the principal amount of the Class B Notes are
Restricted Subclass Notes; therefore, 80% of the Class B Notes may be
transferred free of the note transfer restrictions set forth in Section 6.13(b)
of the Agreement. In connection with any purchases of Class B Notes pursuant to
this Section 27, the purchaser thereof will deliver to the seller thereof a
Certification substantially in the form of Exhibit D, and the seller thereof
will deliver to the purchaser thereof a certification substantially in the form
of Exhibit E, in each case on the date of such purchase and sale.
(d) Any Purchaser may, in the ordinary course of its business
and in accordance with applicable law, at any time sell all or any part of its
rights and obligations under this Supplement and the Series 1995-1 Notes to (i)
its Affiliates and to any other Purchaser and (ii) with the consent of the
Transferor (not to be unreasonably withheld) and upon prior written notice to
the Administrative Agent, one or more banks or other entities (an "Acquiring
Purchaser"), in each case pursuant to a commitment transfer supplement,
substantially in the form of Exhibit F, (the "Commitment Transfer Supplement"),
executed by such Acquiring Purchaser, such assigning Purchaser and the
Administrative Agent (and, in the case of an Acquiring Purchaser that is not
then an existing Purchaser or an Affiliate thereof, by the Transferor and the
Servicer), and delivered to the Administrative Agent for its acceptance and
recording in the Register. Upon such execution, delivery, acceptance and
recording, from and after the Transfer Issuance Date determined pursuant to such
Commitment Transfer Supplement, (x) the Acquiring Purchaser thereunder shall be
a party hereto and, to the extent provided in such Commitment Transfer
Supplement, have the rights and obligations of a Purchaser hereunder with a
Commitment as set forth therein and (y) the transferor Purchaser thereunder
shall, to the extent provided in such Commitment Transfer Supplement, be
released from its obligations under this Supplement. Such Commitment Transfer
Supplement shall be deemed to amend this Supplement (including the Schedules
attached hereto) to the extent, and only to the extent, necessary to reflect the
addition of such Acquiring Purchaser as a "Purchaser" and the resulting
adjustment of Commitment Percentages arising from the purchase by such Acquiring
Purchaser of all or a portion of the rights and obligations of such transferor
Purchaser under this Supplement and the Class A Notes and/or the Class B Notes.
The minimum Commitment that may be transferred pursuant to a Commitment Transfer
Supplement shall be the lesser of (i) $10,000,000 and (ii) the Commitment of
such Purchaser.
<PAGE>
(e) The Administrative Agent shall maintain a copy of each
Commitment Transfer Supplement delivered to it.
(f) Upon its receipt of a Commitment Transfer Supplement
executed by a transferor Purchaser and an Acquiring Purchaser (and, in the case
of a Transferee that is not then an existing Purchaser or an affiliate thereof,
by the Transferor and the Servicer), together with payment to the Administrative
Agent of a registration and processing fee of $3,000, the Administrative Agent
shall (i) promptly accept such Commitment Transfer Supplement and (ii) on the
Transfer Issuance Date determined pursuant thereto record the information
contained therein in the Register and give notice of such acceptance and
recordation to the Purchasers, the Servicer and the Transferor.
(g) 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.
(h) If, pursuant to this subsection, any interest in this
Supplement or any Series 1995-1 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
Administrative Agent, the Transferor and the Servicer) that under applicable law
and treaties no taxes will be required to be withheld by the Administrative
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 1995-1
Note, (ii) to furnish to the transferor Purchaser (and, in the case of any
Acquiring Purchaser not registered in the Register, the Administrative 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
Administrative 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 Administrative Agent, the Transferor and the
<PAGE>
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.
(i) Notwithstanding anything contained in this Supplement to
the contrary, unless an Opinion of Counsel is delivered that the Class B Notes
will be treated as debt for federal income tax purposes, the Class B Notes may
only be held by U.S. Persons.
SECTION 28. Reserved.
SECTION 29. Repurchase by Servicer. Upon any repurchase of the
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.
SECTION 30. Repurchase by Transferor. Upon any repurchase of
the 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 16.
SECTION 31. Permitted Successor Servicer. With respect to
Series 1995-1, 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 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 Adjusted Principal Amount, plus (b) the accrued and unpaid interest on the
Series 1995-1 Notes through and including the day preceding the day on which
such repurchase occurs which will be transferred to the Distribution Account.
SECTION 33. Final Distribution. Written notice of any
termination, specifying the Distribution Date upon which the Series 1995-1
Noteholders may surrender their Series 1995-1 Notes for payment of the final
distribution and cancellation shall be
<PAGE>
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 1995-1 Notes shall be made.
SECTION 34. Representations of Class B Purchasers. Unless an
Opinion of Counsel is delivered that the Class B Notes will be treated as debt
for federal income tax purposes, each Class B Purchaser represents that it has
neither acquired nor will it sell, trade, assign or otherwise dispose of the
Class B Notes (or any interest therein) or cause the Class B Notes (or any
interest therein) to be marketed on or through (i) an "established securities
market" within the meaning of section 7704(b)(1) of the Code, including, without
limitation, an over-the-counter market or an interdealer quotation system that
regularly disseminates firm buy or sell quotations or (ii) a "secondary market"
within the meaning of section 7704(b)(2) of the Code, including a market wherein
the Class B Notes (or any interests therein) are regularly quoted by any person
making a market in such interests and a market wherein any person regularly
makes available bid or offer quotes with respect to the Class B Notes (or any
interest therein) and stands ready to effect buy or sell transactions at the
quoted prices for itself or on behalf of others. In addition, each Class B
Purchaser acknowledges that the Class B Notes shall be subject to the Note
transfer restrictions set forth in Section 6.13 of the Agreement.
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.
<PAGE>
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.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Series 1995-1
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 NATIONAL BANK
OF NORTH CAROLINA, as
Administrative Agent
By:__________________________
Title:_______________________
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, as
Initial Purchaser
By:__________________________
Title:_______________________
<PAGE>
SCHEDULE 1
to
SERIES 1995-1 SUPPLEMENTAL INDENTURE
PURCHASERS' COMMITMENTS
Class A Class B Total
Purchaser Commitment Commitment Commitment
First Union $68,000,000 $12,000,000 $80,000,000
National Bank of
North Carolina
<PAGE>
EXHIBIT A
to
SERIES 1995-1 SUPPLEMENTAL INDENTURE
FORM OF SERIES 1995-1 CLASS A NOTE
$____________ [New York, New York]
December __, 1995
THIS CLASS A NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED. NEITHER THIS CLASS A 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 CLASS A 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 1995-1 CLASS A NOTE
FOR VALUE RECEIVED, the undersigned, the AFG Master Trust (the
"Trust"), hereby promises to pay on December 31, 2003, 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 the Note. The principal amount shall be prepayable
based on a schedule determined by amortizing pools of leases as described in the
Indenture.
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 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 "Class A Noteholder")
is the holder of this Class A 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
<PAGE>
of July 1, 1995, as supplemented by the Series 1995-1 Supplemental Indenture
thereto (collectively, the "Indenture"), by and among, American Finance Group,
Inc. ("AFG"), AFG Credit Corporation, First Union Bank of North Carolina, as
administrative agent, and Bankers Trust Company, as trustee and as collateral
trustee.
THIS CLASS A 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 CLASS A 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 1995-1 Notes with the intention that the Series 1995-1 Class A Notes will
qualify under applicable tax law as indebtedness, and each Series 1995-1 Class A
Noteholder by acceptance of its Series 1995-1 Note agrees to treat and to take
no action inconsistent with the treatment of the Class A 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 Class A 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 Class A 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 1995-1 Notes" (the "Series 1995-1 Notes"), consisting of two
classes, the Series 1995-1 Class A Notes, (the "Class A Notes") and the Series
1995-1 Class B Notes, (the "Class B Notes"), each of 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 1995-1 Noteholders. This Note is one of the Class A Notes.
The Class B Notes are subordinated in right of payment to the Class A Notes.
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
<PAGE>
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 Class A 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 Class A Noteholder its pro rata share
of the Class A Percentage of the Target Repayment Amount for Series 1995-1 for
such Distribution Date.
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 instalment or call owing to such entity.
Subject to the limitations set forth herein, the transfer of
this Class A Note shall be registered in the Register upon surrender of this
Class A 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 Class A Noteholder or such Class A Noteholder's attorney duly
authorized in writing, and thereupon one or more new Class A 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
Class A 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 Class A 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
<PAGE>
been deposited in the Distribution Account sufficient to pay the aggregate Class
A principal amount plus Note Interest accrued through such Distribution Date in
full and (ii) the day on which final payment is made under the Class A Notes,
but in no event later than December 31, 2003.
Upon the occurrence of any one or more of the Pay Out Events
specified in the Indenture all amounts then remaining unpaid on this Class A
Note shall become, or may be declared to be, immediately due and payable all as
provided therein.
THIS CLASS A 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 Class A 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 Class A 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:
<PAGE>
Trustee's Certificate of Authentication
This is one of the Series 1995-1 Class A Notes referred to in
the within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
<PAGE>
EXHIBIT B
to
SERIES 1995-1 SUPPLEMENTAL INDENTURE
FORM OF SERIES 1995-1 CLASS B NOTE
$__________ [New York, New York]
December __, 1995
THIS CLASS B NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED. NEITHER THIS CLASS B 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 CLASS B 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 1995-1 CLASS B NOTE
FOR VALUE RECEIVED, the undersigned, the AFG Master Trust (the
"Trust"), hereby promises to pay on December 31, 2003, 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 principal
amount equal to the aggregate unpaid principal amount of the Note. The principal
amount shall be prepayable based on a schedule determined by amortizing pools of
leases pursuant to of the Indenture.
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 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 "Class B
Noteholder") is the holder of this Class B Note secured by the assets of a 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
<PAGE>
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 1995-1 Supplemental Indenture thereto (collectively,
the "Indenture"), by and among, American Finance Group, Inc. ("AFG"), AFG Credit
Corporation, First Union Bank of North Carolina, as administrative agent, and
Bankers Trust Company, as trustee and collateral trustee.
THIS CLASS B 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 CLASS B 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 1995-1 Notes with the intention that the Series 1995-1 Class B Notes will
qualify under applicable tax law as indebtedness, and each Series 1995-1 Class B
Noteholder by acceptance of its Series 1995-1 Note agrees to treat and to take
no action inconsistent with the treatment of the Class B 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 Class B 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 Class B 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 1995-1 Notes" (the "Series 1995-1 Notes"), consisting of two
classes, the Series 1995-1 Class A Notes, (the "Class A Notes") and the Series
1995-1 Class B Notes, (the "Class B Notes"), each of which represents the right
to receive interest payments and a return of principal as described herein and
in the Indenture, a 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 1995-1 Noteholders. This Note is one of the Class B Notes.
The Class B Notes are subordinated in right of payment to the Class A Notes.
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
<PAGE>
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 Class B Noteholder of
record 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 Class B
Noteholder its pro rata share of the Class B Percentage of the Target Repayment
Amount for Series 1995-1 for such Distribution Date.
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 instalment or call owing to such entity.
Subject to the limitations set forth herein and to the
restrictions on transfer set forth in the Indenture, the transfer of this Class
B Note shall be registered in the Register upon surrender of this Class B 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 Class B Noteholder or such Class B Noteholder's attorney duly authorized
in writing, and thereupon one or more new Class B 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
Class B 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 Class B Note created by the
Indenture and the Trust shall terminate on the earlier of (i)
<PAGE>
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 Class B principal amount
plus Note Interest accrued through such Distribution Date in full and (ii) the
day on which final payment is made under the Class B Notes, but in no event
later than December 31, 2003.
Upon the occurrence of any one or more of the Pay Out Events
specified in the Indenture all amounts then remaining unpaid on this Class B
Note shall become, or may be declared to be, immediately due and payable all as
provided therein.
THIS CLASS B 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 certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual or facsimile signature of a
duly authorized signatory, this Class B 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 Class B 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:
<PAGE>
Trustee's Certificate of Authentication
This is one of the Series 1995-1 Class B Notes referred to in
the within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
<PAGE>
EXHIBIT D
to
SERIES 1995-1 SUPPLEMENT
FORM OF CERTIFICATION OF PURCHASER OF CLASS B NOTES
[Name of Purchaser] ("Purchaser"), hereby represents
and warrants that:
(i) Purchaser has purchased [number of Class B Notes]
from [Name of Seller] ("Seller") on this [date] for its own account and
Purchaser is the sole beneficial owner of the Class B Notes described
above;
(ii) Purchaser is not a trust, estate, partnership, or
"S Corporation" (within the meaning of Section 1361(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) for United States
("U.S.") federal income tax purposes;
(iii) Purchaser did not purchase the Class B Notes
through (x) PORTAL or (y) the "over-the-counter" market;
(iv) Purchaser does not make a market in the Class B
Notes by regularly quoting, or otherwise making available, prices at
which it will purchase (or sell) the Class B Notes, and it did not
purchase the Class B Notes described above from or through any person,
including any brokers or dealers, who makes a market in the Class B
Notes by regularly quoting or otherwise making available any such price
quotations; and
(v) Purchaser will not transfer its beneficial
ownership of the Class B Notes described herein to any person, except
as permitted under the legend set forth on each Class B Note.
In addition, by signing this certification, Purchaser hereby
acknowledges that the Registrar (as defined in the Pooling Agreement) may refuse
to register Seller's sale of the Class B Notes described herein to Purchaser
and, consequently, such sale shall not be effective, if (x) any of the
representations set forth in (i)-(v) above, or any of the representations set
forth in (i)-(iv) of the Seller's Certification, are untrue or inaccurate as of
the date of either such Certification, (y) the Registrar either knows, or has a
reasonable, good-faith belief, that any such representations are untrue or
inaccurate as of such
<PAGE>
date (or dates), and (z) the Registrar properly notifies Purchaser and Seller of
its refusal to record such sale of the Class B Notes within the time allowed for
providing such notification.
[Name of Purchaser]
By:_______________________
Name:
Title:
<PAGE>
EXHIBIT E
to
SERIES 1995-1 SUPPLEMENT
FORM OF CERTIFICATION OF SELLER OF CLASS B NOTES
[Name of Seller] ("Seller"), hereby represents and
warrants that:
(i) Seller has sold or transferred its beneficial
ownership of [number of Class B Notes] to [Name of Purchaser]
("Purchaser") on this [date];
(ii) Seller did not sell the Class B Notes through (x)
PORTAL or (y) the "over-the-counter" market;
(iii) Seller does not make a market in the Class B Notes
by regularly quoting, or otherwise making available, prices at which it
will sell (or purchase) the Class B Notes, and
(iv) Seller did not sell or transfer the Class B Notes
described above to or through any person, including any brokers or
dealers, who makes a market in the Class B Notes by regularly quoting
or otherwise making available such price quotations.
In addition, by signing this certification, Seller hereby
acknowledges that the Registrar (as defined in the Pooling Agreement) may refuse
to register its sale of the Class B Notes described herein to Purchaser and,
consequently, such sale shall not be effective, if (x) any of the
representations set forth in (i)-(iv) above, or any of the representations set
forth in (i)- (v) of the Purchaser's Certification, are untrue or inaccurate as
of the date of either such Certification, (y) the Registrar either knows, or has
a reasonable, good-faith belief, that any such representations are untrue or
inaccurate as of such date (or dates), and (z) the Registrar properly notifies
Seller and Purchaser of its refusal to record such sale of the Class B Notes
within the time allowed for providing such notification.
[Name of Seller]
By:_______________________
Name:
Title:
<PAGE>
EXHIBIT F
to
SERIES 1995-1 SUPPLEMENT
FORM OF COMMITMENT TRANSFER SUPPLEMENT
COMMITMENT TRANSFER SUPPLEMENT, dated as of , , among [NAME OF PURCHASER] (the
"Transferor"), each purchaser listed as an Acquiring Purchaser on the signature
pages hereof (each, an "Acquiring Purchaser"), [IF ANY ACQUIRING PURCHASER IS
NOT A PURCHASER OR AN AFFILIATE OF A PURCHASER: AFG Credit Corporation, a
Delaware corporation ("AFG Credit"), American Finance Group, Inc. ("AFG"), a
Delaware corporation (the "Servicer")] and First Union National Bank of North
Carolina, as Administrative Agent for the Purchasers under the Series 1995-1
Supplement to the Pooling and Servicing Agreement described below (in such
capacity, the "Administrative Agent").
W I T N E S S E T H :
WHEREAS, this Commitment Transfer Supplement is being executed
and delivered in accordance with subsection 27(d) of the Series 1995-1
Supplemental Indenture, dated as of July 1, 1995 (as from time to time amended,
supplemented or otherwise modified in accordance with the terms thereof, the
"Supplement"; terms defined therein being used herein as therein defined), among
AFG Credit, the Servicer, the Transferor, the other Purchasers from time to time
parties thereto, Bankers Trust Company, as trustee and as collateral trustee
(the "Trustee") and the Administrative Agent, to the Pooling and Servicing
Agreement and Indenture of Trust, dated as of July 1, 1995 (as from time to time
amended, supplemented or otherwise modified, the "Pooling and Servicing
Agreement"), among AFG Credit, the Servicer and the Trustee;
WHEREAS, each Acquiring Purchaser (if it is not already a
Purchaser party to the Supplement) wishes to become a Purchaser party to the
Supplement; and
WHEREAS, the Transferor is selling and assigning to each
Acquiring Purchaser, rights, obligations and commitments under the Supplement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Upon the execution and delivery of this Commitment Transfer
Supplement by each Acquiring Purchaser, [IF ANY ACQUIRING PURCHASER IS NOT A
PURCHASER OR AN AFFILIATE OF A PURCHASER, AFG Credit, the Servicer] the
Transferor and the Administrative Agent, (the date of such execution and
delivery, the "Transfer Issuance Date"), each Acquiring Purchaser shall be a
Purchaser party to the Supplement for all purposes thereof.
<PAGE>
2. The Transferor acknowledges receipt from each Acquiring
Purchaser of an amount equal to the purchase price, as agreed between the
Transferor and such Acquiring Purchaser (the "Purchase Price"), of the portion
being purchased by such Acquiring Purchaser (such Acquiring Purchaser's
"Purchased Percentage") of the undivided interest in the Class A Note and/or
Class B Note, as the case may be, owned by, and other amounts owing to, the
Transferor under the Supplement. The Transferor hereby irrevocably sells,
assigns and transfers to each Acquiring Purchaser, without recourse,
representation or warranty, and each Acquiring Purchaser hereby irrevocably
purchases, takes and assumes from the Transferor, such Acquiring Purchaser's
Purchased Percentage of the commitment of the Transferor to increase its Class A
Principal Amount and/or Class B Principal Amount, under, and the portion of the
undivided interest in, the Class A Note and/or the Class B Note, as the case may
be owned by, and other amounts owing to, the Transferor, in each case under the
Supplement together with all instruments, documents and collateral security
pertaining thereto.
3. The minimum Commitment that may be transferred pursuant to
this Commitment Transfer Supplement is the lesser of $10,000,000 and the
Transferor's Commitment.
4. The Transferor has made arrangements with each Acquiring
Purchaser with respect to (i) the portion, if any, to be paid, and the date or
dates for payment, by the Transferor to such Acquiring Purchaser of any
Commitment Fees heretofore received by the Transferor pursuant to the Supplement
prior to the Transfer Issuance Date and (ii) the portion, if any, to be paid,
and the date or dates for payment, by such Acquiring Purchaser to the Transferor
of Commitment Fees or Class A Note Interest and/or Class B Note Interest, as the
case may be received by such Acquiring Purchaser pursuant to the Supplement from
and after the Transfer Issuance Date.
5. From and after the Transfer Issuance Date, amounts that
would otherwise be payable to or for the account of the Transferor pursuant to
the Supplement shall, instead, be payable to or for the account of the
Transferor and the Acquiring Purchasers, as the case may be, in accordance with
their respective interests as reflected in this Commitment Transfer Supplement,
whether such amounts have accrued prior to the Transfer Issuance Date or accrue
subsequent to the Transfer Issuance Date.
6. Prior to or concurrently with the execution and delivery
hereof, the Administrative Agent will, at the expense of the Transferor, provide
to each Acquiring Purchaser (if it is not already a Purchaser party to the
Supplement or an Affiliate thereof) photocopies of all documents delivered to
the Administrative Agent on the Issuance Date in satisfaction of the conditions
precedent set forth in the Supplement.
<PAGE>
7. Each of the parties to this Commitment Transfer Supplement
agrees that at any time and from time to time upon the written request of any
other party, it will execute and deliver such further documents and do such
further acts and things as such other party may reasonably request in order to
effect the purposes of this Commitment Transfer Supplement.
8. By executing and delivering this Commitment Transfer
Supplement, the Transferor and each Acquiring Purchaser confirm to and agree
with each other and the Purchasers as follows: (i) other than the representation
and warranty that it is the legal and beneficial owner of the interest being
assigned hereby free and clear of any adverse claim, the Transferor makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Supplement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Supplement, the Pooling and Servicing Agreement, the
Class A Note and/or the Class B Note, as the case may be, or any instrument or
document furnished pursuant thereto; (ii) the Transferor makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of AFG Credit or the Servicer or the performance or observance by AFG
Credit or the Servicer of any of their obligations under the Supplement, the
Pooling and Servicing Agreement or any other instrument or document furnished
pursuant hereto; (iii) each Acquiring Purchaser confirms that it has received a
copy of the Supplement, the Pooling and Servicing Agreement and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Commitment Transfer Supplement; (iv)
each Acquiring Purchaser will, independently and without reliance upon the
Administrative Agent, the Transferor or any other Purchaser and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the
Supplement and the Pooling and Servicing Agreement; (v) each Acquiring Purchaser
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under the Supplement as are delegated to
the Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto, all in accordance with Section 23 of the
Supplement; and (vi) each Acquiring Purchaser agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Supplement are required to be performed by it as a Purchaser.
9. Schedule I hereto sets forth the revised Commitment
Percentages of the Transferor and each Acquiring Purchaser as well as
administrative information with respect to each Acquiring Purchaser.
10. This Commitment Transfer Supplement shall be governed by,
and construed in accordance with, the laws of the State of California.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Commitment Transfer Supplement to be executed by their respective duly
authorized officers as of the date first set forth above.
[NAME OF SELLING PURCHASER], as Transferor
By:
Title:
[NAME OF PURCHASING PURCHASER], as
Acquiring Purchaser
By:
Title:
as Administrative Agent
By: _____________________________
Title:
[IF NECESSARY:
CONSENTED AND ACKNOWLEDGED:
AMERICAN FINANCE GROUP, INC.
By:
Title:
AFG CREDIT CORPORATION
By:
Title:]
<PAGE>
SCHEDULE I
LIST OF ADDRESSES FOR NOTICES
AND OF COMMITMENT PERCENTAGES
, as Administrative Agent
Address:
[TRANSFEROR]
Address:
Prior [Class A] [Class B] Commitment Percentage:
Revised [Class A] [Class B] Commitment Percentage:
[ACQUIRING PURCHASER]
Address:
[Prior] [Class A] [Class B] Commitment Percentage:
[Revised [Class A] [Class B] Commitment Percentage:]
<PAGE>
EXHIBIT 10.8
AMENDMENT NO. 1 TO
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
AMENDMENT, dated as of September 1, 1995 (the "Amendment") to
the Pooling and Servicing Agreement and Indenture of Trust, dated as of July 1,
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. Paragraph (f) of Section 9.1 of the Agreement is amended by
adding the word "or" after the semicolon at the end of the paragraph.
2. A new paragraph (g) is added to Section 9.1, which reads in
its entirety as follows:
(g) on any date that is subsequent to the first date
upon which the Aggregate Pool Balance equals or exceeds
$20,000,000, the Aggregate Pool Balance shall be less than
$20,000,000;
3. The language immediately following Section 9.1, paragraph
(g) is replaced in its entirety with the following language:
then, and in any such event described in subparagraph (a), (b) or (d), after the
applicable grace period set forth in such subparagraphs, either the Trustee or
the Holders of a principal amount of Notes aggregating more than 662/3% of the
Aggregate Principal Amount by notice then given in writing to the Transferor and
the Servicer (and to the Trustee if given by the Noteholders) may declare that a
pay out event (a "Trust Pay Out Event") has occurred as of the date of such
notice and in the case of any event described in subparagraph (c), (e), (f) or
(g) a Pay Out Event shall occur immediately upon the occurrence of such event
without any notice or other action on the part of the Trustee or the
Noteholders. Notwithstanding the foregoing, a delay in or failure of performance
referred to in subsection 9.1(a)(i) for a period of ten Business Days, or under
subsection 9.1(a)(ii) or 9.1(b) for a period of 60 days, in each case without
giving effect to any grace period specified in such subsections, shall not
constitute a Pay Out Event for purposes of this sentence until the expiration of
<PAGE>
such period, if such failure could not be prevented by the exercise of
reasonable diligence by the Transferor or the Servicer and such failure was
caused by (i) an act of God or the public enemy, acts of declared or undeclared
war, public disorder, rebellion, riot or sabotage, epidemics, landslides,
lightning, fire, hurricanes, tornadoes, earthquakes, nuclear disasters or
meltdowns, floods, power outages, bank closings, or similar causes or (ii)
computer malfunction, communication malfunction or other electronic system
malfunction or similar causes. The preceding sentence shall not relieve the
Transferor or the Servicer from using all reasonable efforts to perform their
respective obligations in a timely manner in accordance with the terms of this
Agreement and any Supplement and the Transferor or the Servicer shall provide
the Trustee and each Rating Agency with an Officer's Certificate giving prompt
notice of such failure, together with a description of its efforts to so perform
its obligations. Notice of any such Pay Out Event shall be given by the Servicer
to the Rating Agencies.
4. Except as expressly amended, modified and supplemented
hereby, the provisions of the Agreement are and shall remain in full force and
effect.
5. 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.
6. The captions in this Amendment are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their constructions or effect.
7. Capitalized terms used in this Amendment without definition
shall have the meanings assigned to them in the Agreement.
8. This Amendment may be executed in two or more counterparts
(and by different parties on separate counterparts), each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
<PAGE>
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:
<PAGE>
EXHIBIT 10.9
AMENDMENT NO. 2 TO
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
AMENDMENT, dated as of December 5, 1995 (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 (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. Paragraph (b) of Section 6.3 of the Agreement is amended by
deleting the references therein to Section 6.14 and Section 7.2.
2. Paragraph (a) of Section 6.14 of the Agreement is amended
by deleting the words "other Holder" at the end of the first sentence thereof
and replacing them with the words "holder of a constituent interest".
3. Paragraph (c) of Section 6.14 of the Agreement is deleted
in its entirety and replaced with the following Paragraph (c):
(c) As a condition precedent to the creation of the
constituent interests pursuant to this Section 6.14, (A) the Trustee and the
Transferor shall have received an opinion of outside tax counsel to the effect
that (i) the constituent interests will be characterized as indebtedness or an
interest in a partnership (not taxable as a corporation) for federal income tax
purposes, (ii) the creation of the constituent interests will not cause
outstanding Notes to be characterized as other than indebtedness for federal
income tax purposes and (iii) the creation of the constituent interests will not
be treated as a taxable sale, exchange or other disposition of the Trust Assets
for federal income tax purposes, (B) in the reasonable belief of the Transferor,
as evidenced by an Officer's Certificate, such creation of constituent interests
would not cause a Pay Out Event to occur, or an event which, with notice or
lapse of time or both, would constitute a Pay Out Event, and (C) the Rating
Agency Condition shall have been satisfied.
<PAGE>
4. Paragraph (a)(iii) of Section 7.2 of the Agreement is
amended by adding the words "(other than the proviso at the end thereof)"
immediately after the reference to Section 6.3(b) therein.
5. Except as expressly amended, modified and supplemented
hereby, the provisions of the Agreement are and shall remain in full force and
effect.
6. 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.
7. The captions in this Amendment are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their constructions or effect.
8. Capitalized terms used in this Amendment without definition
shall have the meanings assigned to them in the Agreement.
9. This Amendment may be executed in two or more counterparts
(and by different parties on separate counterparts), each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
<PAGE>
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:
<PAGE>
EXHIBIT 10.10
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
<PAGE>
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
2
<PAGE>
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. 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.
14. 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".
15. 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.
16. 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".
3
<PAGE>
17. Section 2.6(b)(viii) of the Agreement is deleted in its entirety.
18. 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.
19. 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.
20. Section 2.7(c)(iv) of the Agreement is deleted in its entirety.
21. 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.
22. 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 ".".
23. 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.
24. 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".
25. 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
4
<PAGE>
be classified as an association taxable as a corporation for federal income tax
purposes; provided, further,".
26. 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".
27. 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."
28. 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.
29. 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."
30. 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.
31. 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".
32. Section 6(d) of Exhibit B to the Agreement is deleted in its
entirety.
33. 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)".
34. 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.
5
<PAGE>
35. Except as expressly amended, modified and supplemented hereby, the
provisions of the Agreement are and shall remain in full force and effect.
36. 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.
37. Capitalized terms used in this Amendment without definition shall
have the meanings assigned to them in the Agreement.
38. 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.
6
<PAGE>
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: CFO
-------------------------
AMERICAN FINANCE GROUP, INC.
as Servicer
By:
---------------------------
Title: CFO
-------------------------
BANKERS TRUST COMPANY,
as Trustee
By:
---------------------------
Title:
-------------------------
BANKERS TRUST COMPANY,
as Collateral Trustee
By:
---------------------------
Title:
-------------------------
<PAGE>
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: /s/ Kevin Weeks
---------------------------
Title: Kevin Weeks
-------------------------
Assistant Vice President
BANKERS TRUST COMPANY,
as Collateral Trustee
By: /s/ Kevin Weeks
---------------------------
Title: Kevin Weeks
-------------------------
Assistant Vice President
<PAGE>
<TABLE>
<CAPTION>
Exhibit I
<S> <C>
- -------------------------------------------------- ============================
Percentage of Aggregate
Pool Balance
Category
- -------------------------------------------------- ============================
1. Included Leases of any individual Lessee that
are rated AA- or higher by Standard & Poor's 20%
and Aa3 or higher by Moody's
- -------------------------------------------------- ============================
- -------------------------------------------------- ============================
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
- -------------------------------------------------- ============================
</TABLE>
- ----------------------
* Based upon Primary Standard Industrial Classification Code Number.
** As determined by AFG Credit Corporation in accordance with its
customary procedures.
9
<PAGE>
Exhibit II
[To be provided]
10
<PAGE>
EXHIBIT 10.11
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
===============================================================================
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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].
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<PAGE>
(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.
<PAGE>
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;
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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
<PAGE>
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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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]
<PAGE>
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:
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<PAGE>
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:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date of Increase Principal Amount Principal Amount Principal Amount Outstanding Principal
Decrease, or of Increase of Decrease of Repayment Amount
Prepayment
</TABLE>
<PAGE>
EXHIBIT 10.12
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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."
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
(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).
<PAGE>
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
<PAGE>
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.
<PAGE>
(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]
<PAGE>
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
<PAGE>
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.
<PAGE>
(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.
<PAGE>
EXHIBIT A
Form of VFCC's Cost of Funds Form
[to be provided]
<PAGE>
EXHIBIT 10.13
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") made as of December 30,
1997, by and between AMERICAN FINANCE GROUP, INC., a Delaware corporation having
a principal place of business at 24 School Street, 7th Floor, Boston,
Massachusetts 02108 ("Purchaser"), and VARILEASE CORPORATION, a Michigan
corporation having a principal place of business at 28525 Orchard Lake Road,
Farmington Hills, Michigan, 48334 ("Seller").
Background:
Seller, as lessor, has entered into Schedule Nos. 83, 84, 85 and 86 each
dated September 16, 1997 to the Master Lease Agreement (the "Master Lease")
dated as of December 14, 1995 (such Schedule and the Master Lease solely to the
extent incorporated therein by reference being hereinafter collectively referred
to as the "Lease") with America Online, Inc., as lessee ("Lessee"), with respect
to the leasing by Lessee of various Ascend and U.S.
Robotics Industrial Modems (as further described in the Lease, the "Equipment").
Seller has financed its purchase of the Equipment leased under the
Schedules with Interpool, Inc. (the "Lender") pursuant to those certain Limited
Recourse Term Notes each dated September 30, 1997 ("Notes"), to that certain
Limited Recourse Loan and Security Agreement dated September 30, 1997 ("Security
Agreement"), and that Notice and Acknowledgement dated September 25, 1997
("Consent") in the total original principal amounts of $10,360,388.89 (the
Notes, together with the Security Agreement and the Consent hereinafter
collectively referred to as the "Debt Documents") and the debt represented
thereby, the "Debt").
Seller now wishes to sell and assign, and Purchaser wishes to purchase
and assume, all of the Seller's right, title and interest in and to the
Equipment, and all of Seller's right, title, interest duties and obligations in,
to and under the Lease, subject to the Debt and the Lender's security interest
in and to the Schedule and the Equipment, all on the terms and conditions
hereinafter set forth.
Agreement:
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. ASSIGNMENT AND ASSUMPTION AGREEMENT AND BILL OF SALE. Seller hereby
agrees to sell, and hereby Purchaser agrees to purchase, all of Seller's right,
title and interest in and to the Equipment (including, but not limited to, the
residual value of the Equipment at the termination of the Lease), and Seller
hereby further agrees to assign, and Purchaser agrees to accept and assume, all
of Seller's right, title, interest, duties and obligations in, to and under the
Lease and all documents and instruments executed and delivered in connection
therewith (including, but not limited to, any and all agreements with the
vendors (if any) solely as they relate to the Equipment, opinions, certificates,
and other documents and instruments, collectively the "Lease Documents), subject
to the Debt. Simultaneously upon receipt by Seller of the Purchase Price of the
Equipment set forth below and delivery by Seller and Purchaser of the executed
documentation substantially in the form set forth as schedules hereto or
otherwise required hereunder, and satisfaction of the conditions precedent
specified in Section 7 hereof (the "Closing"), Seller will execute and deliver
to Purchaser on the Closing Date (as hereinafter defined) an Assignment and
Assumption Agreement and Bill of Sale (the "Assignment") in substantially the
form attached hereto as Schedule 1.
2. PURCHASE PRICE. The purchase price of the Equipment is $10,494,698.31
("Purchase Price"), payable in immediately available funds on the Closing Date
in the amount of $494,724.28, to be further described as $107,854.62 related to
Schedule No. 83, $96,229.84 related to Schedule No. 84, $145,319.91 related to
Schedule No. 85 and $145,319.91 related to Schedule No. 86, attributable to the
equity purchase price of the Equipment to be further described in the manner set
forth by Seller pursuant to a purchase price disbursement letter in
substantially the form attached hereto as Schedule 2; and by the assumption by
Purchaser of Seller's non-recourse liability to Lender pursuant to Transferee
Agreements in substantially the form attached hereto as Schedule 3 in the
aggregate principal amount of $2,180,089.93 related to Schedule No. 83,
$1,945,115.44 related to Schedule No. 84, $2,937,384.33 related to Schedule No.
85 and $2,937,384.33 related to Schedule No. 86, which non-recourse liability is
scheduled to be amortized and retired during the Base Term of the Master Lease
by the collateral assignment to Lender of the Lessee's rental obligations under
the Lease.
3. TAXES. Seller shall be responsible for all Taxes (as hereinafter
defined), payable or accrued, and for the submission for all necessary filings
to the applicable taxing authorities, relating to (i) its acquisition or
ownership, or Lessee's use or leasing of the Equipment, and (ii) the payment of
monthly rentals or other sums due under the Lease, including without limitation
all sales, use and property taxes, including interest and penalties thereon
("Taxes"), for all periods through and including the Closing Date. Accrued and
unpaid Taxes as of the Closing Date which are the responsibility of Seller
hereunder shall result in an adjustment to the Purchase Price as defined in
Section 2 hereof. As between Purchaser and Seller, Purchaser shall be
responsible for all Taxes and for the submission of all filings required by the
applicable taxing authorities with respect to Taxes after the Closing Date. All
Taxes of any nature whatsoever, including without limitation all sales or
transfer taxes arising out of or in connection with the sale or assignment of
the Lease or the Equipment contemplated herein, shall be solely for the account
of the Seller. Seller shall indemnify Purchaser from and against all costs,
claims or liabilities arising out of or relating to this Section 3 which result
from any obligation, liability, act, failure to act, or breach, violation or
untruth of any of the terms, conditions or covenants of this Section 3.
Purchaser shall provide to Seller a valid resale certificate for the applicable
states where the Equipment may be located, or other evidence reasonably
requested by Seller to establish that the sale of the Equipment is not subject
to tax.
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4. SUBORDINATION. Purchaser and Seller acknowledge and agree that
Purchasers' right, title and interest in the Equipment, the Lease, and all
proceeds thereof and therefrom, will be subject and subordinate in all respects
to the Debt and Lender's security interest and the rights of the Lessee under
the Lease.
5. ASSUMPTION OF DEBT. Purchaser hereby agrees to assume the Debt
subject to the benefit of the non-recourse provisions thereof, and acknowledges
receipt of the Debt Documents. Notwithstanding anything to the contrary
contained herein, in no event shall Purchaser assume or incur any liability for
breaches by Seller of its representations, warranties, or covenants contained in
the Debt Documents. Each of Purchaser and Seller shall indemnify the other for
any recourse liability incurred by the indemnified party under the Debt
Documents as a result of any breach of the representations, warranties, or
covenants contained therein caused by the indemnifying party's acts or
omissions.
6. CONSENT OF LENDER. As a condition precedent to Closing hereunder,
Seller and Purchaser agree to execute and deliver on the Closing Date a
Transferee Agreement, which shall have been duly executed by Lender.
7. CONSENT OF LESSEE. As a condition precedent to Closing hereunder,
Seller agrees to deliver to Purchaser on the Closing Date a Notice and
Acknowledgment of Assignment of even date herewith in substantially the form
attached hereto as Schedule 4 (the "Notice") executed by the Lessee.
8. ADDITIONAL CONDITIONS PRECEDENT. Purchaser's obligations hereunder
are subject to satisfaction by Seller of the following conditions precedent on
or before the Closing Date:
A. Lessee shall have inspected, approved and accepted the
Equipment for lease pursuant to a Certificate of Acceptance under the Lease on
or before Closing Date;
B. Seller shall have delivered to Purchaser one certified copy of
the Lease and the Lease Documents (including the original executed copy of the
Schedule marked "Counterpart No. 1" and all schedules and attachments thereto,
the Certificate of Acceptance, and a certified true and complete copy of the
Master Lease, all as may have been amended from time to time up to and including
the Closing Date) in substantially the form that has been presented to
Purchaser, comprising all of the fully executed "originals" thereof except only
those in the possession of Lender or Lessee;
C. Seller shall have delivered to Purchaser documentation
reasonably supporting the validity and enforceability of Lessee's obligations
under the Lease, the Lease Documents and the Notice, which may include, without
limitation, a secretary's certificate regarding incumbency and corporate
resolutions and an opinion of counsel;
D. Seller shall have delivered to Purchaser documentation
reasonably supporting the validity and enforceability of Seller's obligations
under the Lease Documents and the Transfer Documents, which shall include,
without limitation, a secretary's certificate regarding incumbency and corporate
resolutions and an opinion of counsel;
E. Seller shall have delivered to Purchaser appropriate
"Lessee/Lessor" UCC-1 financing statements signed by Seller and Lessee, as
assigned to Purchaser;
<PAGE>
F. Lessee shall not, between the date hereof and the Closing Date, have
(i) ceased doing business as a going concern or, in the reasonable opinion of
Purchaser, suffered a material adverse change in its financial or operating
condition through and including the Closing Date; (ii) made an assignment for
the benefit of creditors, admitted in writing its inability to pay its debts as
they mature or generally failed to pay its debts as they become due; (iii)
initiated any voluntary bankruptcy or insolvency proceeding; (iv) failed to
obtain the discharge of any bankruptcy or insolvency proceeding initiated
against it by others within 60 days of the date such proceedings were initiated;
or (v) requested or consented to the appointment of a trustee or receiver with
respect to itself or for a substantial part of Lessee's property.
G. Seller shall have provided Purchaser with (i) copies of vendor
invoices, (ii) purchase documentation, (iii) equipment specifications, (iv)
documentation evidencing Seller's payment to vendor for the Equipment and (v)
other materials reasonably requested by Purchaser establishing Seller's title in
and to the Equipment and supporting that the Purchase Price of the Equipment
does not exceed the fair market value thereof;
H. All required licenses, approvals, consents and notifications
necessary in respect of the transactions contemplated hereby shall have been
obtained or made, and executed or certified copies thereof shall have been
delivered to Purchaser;
I. Seller shall have performed and complied in all material
respects with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing; and
J. Seller shall have provided Purchasers with documentation
requested by Purchasers confirming the filing and payment of all sales, use,
property and other taxes relating to the Equipment and the Lease.
9. REPRESENTATIONS AND WARRANTIES.
(A) Seller represents and warrants that:
(1) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Michigan with adequate
power to enter into each of this Agreement, the Lease Documents, the
Assignment, and each instrument, document or agreement attached or
otherwise related hereto (hereinafter the "Transfer Documents") to which
it is a party and is duly qualified to do business in every jurisdiction
in which its failure to so qualify would have a material adverse effect
upon the business or property of Seller.
(2) The Transfer Documents executed by Seller have been duly
authorized, executed and delivered by Seller, and assuming their due
authorization, execution and delivery by each of the other parties
thereto, constitute a valid, legal and binding agreement, enforceable in
accordance with its terms, except as enforcement thereof may be limited
by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights.
(3) The entering into and performance by Seller of the Transfer
Documents executed by Seller does not violate any judgment, order, law
or regulation applicable to Seller or any provision of Seller's
Certificate of Incorporation or By-Laws or result in any breach of, or
constitute a default under any indenture, mortgage, deed of trust, bank
loan or credit agreement or other instrument to which Seller is a party.
<PAGE>
(4) Seller is not in default under any indenture, mortgage, loan
agreement or other instrument, in each case of a material nature, to
which the Seller is a party, nor is Seller in violation of any law,
order, injunction, decree, rule or regulation applicable to Seller of
any court or administrative body, which default or violation materially
and adversely affects the business, property or assets, operations or
condition, financial or otherwise, of Seller. No Event of Default, as
defined in the Lease (or an event which, with the passage of time or the
giving of notice, or both, would constitute an Event of Default) would
occur upon the execution and delivery of each such Transfer Document.
(5) There is no litigation, proceedings or investigation pending
or, to the knowledge of Seller, threatened against or involving Seller
or its assets or properties that, individually or in the aggregate, if
adversely determined, would restrain, enjoin or materially frustrate the
consummation by Seller of the transactions contemplated herein, the
performance of the obligations contained herein or the enjoyment of the
benefits contained herein. There are no outstanding judgments, decrees,
orders of any courts or any governmental authority against Seller or
affecting Seller's ability to transfer and lease the Equipment.
(6) No approval, consent or withholding of objection is required
from any governmental authority with respect to the entering into or
performance by Seller of the Transfer Documents to which it is a party.
(7) Seller has good and marketable title to the Equipment, free
and clear of all liens, claims and encumbrances except such liens,
claims or encumbrances which Lessee is required to discharge pursuant to
the Lease and the security interest of, and prior assignment to, the
Lender. The purchase price for the Equipment has been paid in full.
Seller has not heretofore sold, assigned, or encumbered the title and
interest to be conveyed pursuant to this Agreement, except to the
Lender.
(8) The Master Lease, the Schedules and the Notice delivered to
Purchaser in connection herewith are true, correct and complete as of
the date hereof and such documents delivered to Purchaser contain the
entire agreement made between Seller and Lessee in connection with the
lease of the Equipment.
(9) To the best of Seller's knowledge based on Lessee's
secretary's certificate of incumbency and authority, the Lease was
executed by officers of the Lessee who had authority to execute the
same, and the Lease is valid, binding and enforceable in accordance with
its terms.
(10) No Event of Default (as such term is defined in the Lease)
or event which, with the giving of notice or the passage of time, or
both, would become an Event of Default, has occurred; all rentals due as
of the Closing Date have been or will be paid in full when due; there
has been no prepayment of rent and the aggregate amount of unpaid
rentals for the Lease is as specified in the Notice, and rentals are due
in scheduled payments following the Closing Date in accordance with the
terms of the Lease.
(11) All taxes which are the responsibility of Seller relating to
(i) the acquisition, ownership, use or leasing of the Equipment through
the closing date, and (ii) the payment of monthly rentals or other sums
due under the Lease, including without limitation all sales, use and
property taxes, including interest and penalties thereon, have been or
when due will promptly be remitted to the applicable taxing authorities
with the necessary filings.
<PAGE>
(12) The representations and warranties of Seller contained in
the Debt Documents are true and correct as of the date hereof and no
Event of Default has occurred under the Security Agreement dated
September 30, 1997 between Lender and Seller.
(B) Purchaser represents and warrants that:
(1) Purchaser is a corporation duly organized and validly
existing under the laws of the State of Delaware, with adequate power to
enter into the Transfer Documents to which it is a party and is duly
qualified to do business in every jurisdiction in which its failure to
so qualify would have a material adverse effect upon the business or
property of Purchaser.
(2) The Transfer Documents executed by Purchaser have been duly
authorized, executed and delivered by Purchaser and, assuming their due
authorization, execution and delivery by each of the other parties
thereto, constitute a valid, legal and binding agreement, enforceable in
accordance with its terms, except as enforcement thereof may be limited
by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights.
(3) The entering into and performance by Purchaser of each of
this Agreement and each instrument, document or agreement attached or
otherwise related hereto executed by Purchaser does not violate any
judgment, order, law or regulation applicable to Purchaser or any
provision of Purchaser's Second Amended and Restated Partnership
Agreement, as amended or result in any breach of, or constitute a
default under any indenture, mortgage, deed of trust, bank loan or
credit agreement or other instrument to which Purchaser is a party.
(4) There is no litigation, proceedings or investigation pending
or, to the knowledge of Purchaser, threatened against or involving
Purchaser or its assets or properties that, individually or in the
aggregate, if adversely determined, would restrain, enjoin or materially
frustrate the consummation by Purchaser of the transactions contemplated
herein, the performance of the obligations contained herein or the
enjoyment of the benefits contained herein. There are no outstanding
judgments, decrees, orders of any courts or any governmental authority
against Purchaser or affecting Purchaser's ability to acquire the
Equipment.
(5) No approval, consent or withholding of objection is required
from any governmental authority of the United States of America or the
Commonwealth of Massachusetts with respect to the entering into or
performance by Purchaser of this Agreement and each instrument, document
or agreement attached or otherwise related hereto to which it is a
party.
(6) So long as there is no Event of Default under the Lease,
Purchaser shall not disturb the peaceful and quiet use and enjoyment of
the Equipment by Lessee.
10. INDEMNITY
Seller hereby agrees to indemnify, defend and hold Purchaser, its
officers, directors, shareholders, partners, employees, agents, trustees,
beneficial owners, executive committee members, successors and assigns
(collectively, the "Indemnities") harmless from and against any and all claims,
losses, damages or liabilities suffered or incurred by Purchaser resulting or
arising from the breach, violation or untruth of any of the terms, conditions,
representations or warranties binding upon or made by Seller contained in this
Agreement or any of the other Transfer Documents to which it is a party or any
instrument, document or agreement attached hereto or otherwise related hereto to
which Seller is a party, except any such claims, losses, damages or liabilities
resulting from Purchaser's negligence or misconduct. Purchaser hereby agrees to
indemnify, defend and hold Seller and its Indemnities harmless from and against
any and all claims, losses, damages or liabilities suffered or incurred by
Seller resulting or arising from the breach, violation or untruth of any of the
terms, conditions, representations or warranties binding upon or made by
Purchaser contained in this Agreement or any of the other Transfer Documents to
which it is a party or any instrument, document or agreement attached hereto or
otherwise related hereto to which Purchaser is a party, except any such claims,
losses, damages or liabilities resulting from Seller's negligence or misconduct.
11. ARBITRATION
In the event that any dispute arises under any of the Transfer Documents
including, without limitation, any claim of default or breach of a covenant or
representation hereunder, either party in the case of a dispute, or the claiming
party in the case of a claim of default or breach shall submit the matter for
arbitration in Boston, Massachusetts, by and pursuant to the rules of the
American Arbitration Association ("AAA"). The single arbitrator who hears the
case will be selected by AAA and AAA shall be advised that the parties have
agreed in advance that any matter submitted to AAA for resolution shall be heard
in a reasonably expeditious manner. The powers of the arbitrator shall expressly
include both the right to issue injunctive orders and to order the payment of
money damages. The resolution of the matter by arbitration shall be binding upon
the parties hereto and judgment upon the award of the arbitrator may be entered
in any court of competent jurisdiction. Costs of arbitration and legal fees
shall be awarded to the prevailing party; provided, however, that the arbitrator
shall have the power to make a different allocation of costs and legal fees
whenever it is fair or reasonable to do so as determined by the arbitrator.
<PAGE>
12. MISCELLANEOUS.
A. This Agreement, together with Schedules 1, 2, 3 and 4 hereto,
constitute the entire agreement between Seller and Purchaser with respect to the
proposed purchase and sale, and assignment and assumption, of the Equipment and
the Lease. Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any such
jurisdiction shall not invalidate or render unenforceable such provision in any
such jurisdiction.
B. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
C. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, including all
matters of construction, validity, performance and enforcement.
D. The titles appearing in this Agreement and in any other
documents relating to this transaction are inserted only as a matter of
convenience and in no way define, limit or describe the scope or intent of such
sections or articles nor in any way affect this agreement or any other documents
relating to this transaction.
E. The parties hereto agree to execute and deliver, or cause to
be executed and delivered, such further instruments or documents and take such
other action as may be reasonably required effectively to carry out the
transactions contemplated herein.
F. The parties hereto covenant and agree to promptly remit to the
other party payments incorrectly received by such party after the Closing Date.
Without the prior written consent of the other party, neither Seller nor
Purchaser shall take any action which impairs the rights of the other party (or
its assignee or successor) with respect to any Schedule executed pursuant to the
Master Lease in and to which such party has no right, title or interest,
provided, that the foregoing covenant shall not require either party to obtain
the consent of the other party prior to exercising any of its rights and
remedies under the Master Lease if such exercise relates solely to a Schedule
executed pursuant to the Master Lease then owned by such party. Purchaser may,
at all reasonable times after giving Seller prior written notice thereof,
inspect and audit such of Seller's books as are directly relevant to the lease.
G. This Agreement may be amended or rescinded only by written
instrument signed by all the parties hereto.
H. Notwithstanding any other conditions contained herein, it is
hereby agreed that the representations, warranties, indemnities and assurances
of each party hereto shall survive the expiration or termination of this
Agreement and inure to the benefit of and be binding upon each of the parties
hereto and their respective successors and assigns.
I. All notices and communications delivered hereunder or with
respect hereto shall be in writing and shall be forwarded by certified mail,
return receipt requested, postage prepaid, or personally delivered, and
addressed to Seller and Purchaser at the addresses set forth below or to such
other address as shall be provided to the parties:
<PAGE>
Notice (con't)
To Purchaser:
American Finance Group, Inc.
24 School Street
Boston, Massachusetts 02108
Attention: Operations
To Seller:
Varilease Corporation
28525 Orchard Lake Road
Farmington Hills, Michigan 48334
Attention: _____________
J. Whether or not the transaction contemplated hereby is
consummated, each of the Seller and Purchaser shall bear and be responsible for
its own costs and expenses incurred in connection with the negotiation,
preparation, execution and delivery of this Agreement, and any documents
delivered pursuant or related hereto, and shall not have any right of
reimbursement or indemnity for such costs and expenses as against each other.
K. This Agreement may be executed in counterparts each of which
shall be deemed an original, but all of which together shall constitute one and
the same agreement.
L. This Agreement contemplates a sale of 100% ownership interest
in the Equipment and the lease and shall in no way be construed as an extension
of credit by Purchaser to Seller. Seller waives and releases any right, title or
interest that it may have (whether pursuant to a cross-collateralization
provision or otherwise) in and to the Equipment and/or the Lease.
13. RESIDUAL SHARING
Upon the expiration of the Base Term, Seller shall be entitled to fifty percent
(50%) of all net proceeds in excess of $1,057,103.16 to be further described as
$230,458.59 related to Schedule No. 83, $205,619.31 related to Schedule No. 84,
$310,512.63 related to Schedule No. 85 and $310,512.63 related to Schedule No.
86, (i) generated from the sale of the Equipment or (ii) from the present value
of future rentals pursuant to any lease or re-lease of the Equipment discounted
at 19.475% per annum.
In the event the Lease terminates early either by voluntary termination,
casualty, or otherwise ("Early Termination"), and the sum of the proceeds of any
such Early Termination, inclusive of termination proceeds, casualty proceeds and
penalties ("Termination Proceeds"), exceed the total amount owed under the lease
to the Lender, Seller shall be entitled to fifty percent (50%) of all
Termination Proceeds after Buyer has received a net annualized return of 19.475%
("Target Yield") on the cash portion of its Purchase Price, hereunder. The
dollar amount needed to meet the Target Yield shall be calculated by future
valuing the cash paid by Buyer to Seller on the Closing Date to the date the
Termination Proceeds are received.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and do each hereby warrant and represent that their respective
signatures appearing below have been and are on the date of this Agreement, and
will be on the Closing Date, duly authorized by all necessary and appropriate
action to execute this Agreement.
PURCHASER: SELLER:
AMERICAN FINANCE GROUP, INC. VARILEASE CORPORATION
BY:________________________ BY:_________________________
TITLE: Vice President TITLE:______________________
<PAGE>
Schedule 1
ASSIGNMENT AND ASSUMPTION AGREEMENT AND BILL OF SALE
ASSIGNMENT AND ASSUMPTION AGREEMENT AND BILL OF SALE ("Assignment")
dated as of December 30, 1997, by and between AMERICAN FINANCE GROUP, INC., a
Delaware corporation having a principal place of business at 24 School Street,
Boston, Massachusetts 02108 ("Purchaser"), and VARILEASE CORPORATION, a Michigan
corporation having a principal place of business at 28525 Orchard Lake Road,
Farmington Hills, Michigan 48334 ("Seller"). (Capitalized terms used and not
otherwise defined herein shall have the meanings ascribed to them in a Purchase
and Sale Agreement between Seller and Purchaser dated as of December 30, 1997).
l. ASSIGNMENT OF LEASE
Seller hereby assigns, transfers and sets over unto Purchaser, and
Purchaser hereby assumes, all of Seller's right, title, interest and obligations
in, to and under those certain Schedule Nos. 83, 84, 85 and 86, each as amended
by Amendment No. 1 thereto, to the Master Lease Agreement (the "Master Lease")
dated as of December 14, 1995, as amended by Amendment No. 1 thereto dated
October 1, 1996 (such Schedules and the Master Lease solely as incorporated
therein by reference hereinafter referred to as the "Lease") between Seller, as
lessor, and America Online, Inc., as lessee ("Lessee"), with respect to the
leasing by Lessee of various Ascend and U.S. Robotics Industrial Modems (as
further described in the Lease, the "Equipment"). Seller's assignment of its
right, title, interest and obligations in Schedules shall be subject to a
security interest in favor of Interpool, Inc. (the "Lender"), as referenced in
the Purchase and Sale Agreement among Seller and Purchasers of even date
herewith. Seller represents and warrants that, so long as no breach or event of
default, or event which, with the giving of notice or the passage of time or
both, would constitute an event of default, has occurred and is continuing under
the Lease, Seller shall warrant Lessee's right of quiet use and possession of
the Equipment thereunder against all persons claiming by or through Seller.
2. SALE OF THE EQUIPMENT
In consideration of the sum of $10,494,698.31 ("Purchase Price"),
payable in immediately available funds in the amount of $494,724.28, to be
further described as $107,854.62 related to Schedule No. 83, $96,229.84 related
to Schedule No. 84, $145,319.91 related to Schedule No. 85 and $145,319.91
related to Schedule No. 86, attributable to the equity purchase price of the
Equipment, and by the assumption by Purchaser of Seller's non-recourse liability
to Lender pursuant to the Transferee Agreement in the principal amount
$2,180,089.93 related to Schedule No. 83, $1,945,115.44 related to Schedule No.
84, $2,937,384.33 related to Schedule No. 85 and $2,937,384.33 related to
Schedule No. 86, Seller ereby sells and transfers to Purchaser all of its right,
title and interest in and to the Equipment, together with all warranties,
express or implied, received from the manufacturer or vendor thereof. Seller
hereby represents and warrants to Purchasers that Seller is conveying good title
to the Equipment, free and clear of all liens and encumbrances other than (i)
the leasehold estate of Lessee under the Lease, and (ii) the security interest
of the Lender in and to the Schedules and the Equipment leased thereunder.
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF SELLER
(a) Seller, in order to induce Purchaser to enter into this Agreement,
hereby represents and warrants to Purchaser that (i) each of this Agreement and
each agreement and instrument related hereto has been duly authorized, executed
and delivered by the Seller, and is enforceable against Seller in accordance
with their respective terms; (ii) the Lease, together with Lessee's Notice and
Acknowledgment of Assignment, represent the entire agreement between the Seller
as lessor and Lessee with respect to the leasing of the Equipment; (iii) of the
only duplicate originals of the Rental Schedule, one has been delivered to the
Lessee, one has been delivered to the Lender, and any other originals thereof
will be delivered to the Purchaser herewith; (iv) the Lease is in full force and
effect, without modification or amendment; (v) Lessee has accepted the Equipment
for lease and is thereby bound by the terms and conditions of the Lease; (vi) no
event of default has occurred and is continuing thereunder; (vii) the rents
payable under the Lease are not subject to any defenses, set-offs or
counterclaims; (viii) except for the security interest of Lender, Seller has not
granted any liens on the Equipment or made any assignment of the Lease; (ix) as
of the date hereof there are no sales taxes or other governmental charges due
with respect to the Equipment other than those payable by Lessee under the Lease
and excluding any taxes that are based on or measured by the net income of
lessor under the Lease; (x) beginning with and including the rental payment due
January 1, 1998, there are 46 payments of Base Monthly Rental due Purchaser from
Lessee under each Schedule; and (xi) there has been no prepayment of any rents
not yet due and payable. Purchaser agrees to provide Seller with a resale tax
exemption certificate for the applicable states where the Equipment may be
located.
(b) EXCEPT AS SPECIFICALLY SET FORTH HEREIN AND IN THE PURCHASE AND SALE
AGREEMENT OF EVEN DATE HEREWITH, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER CONCERNING THE EQUIPMENT,
INCLUDING, WITHOUT LIMITATION, THE SELECTION, QUALITY, OR CONDITION OF THE
EQUIPMENT, OR ITS MERCHANTABILITY, ITS SUITABILITY, ITS FITNESS FOR ANY
PARTICULAR PURPOSE, THE OPERATION OR PERFORMANCE OF THE EQUIPMENT OR PATENT
INFRINGEMENT OR THE LIKE.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser, in order to induce Seller to enter into this Agreement,
hereby represents and warrants to Seller that each of this Agreement and each
agreement and instrument related hereto has been duly authorized, executed and
delivered by Purchaser, and is enforceable against it in accordance with their
respective terms.
5. ASSUMPTION OF THE LEASE BY PURCHASER
The Purchaser hereby assumes all the right, title and interest of the
Seller under the Lease.
6. GOVERNING LAW. EXECUTION IN COUNTERPARTS.
This Agreement is to be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts. This Agreement may be executed in
multiple counterparts, each of which, taken together, shall constitute one and
the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Assignment and Assumption
Agreement and Bill of Sale to be executed and delivered as of the date first
above written.
AMERICAN FINANCE GROUP, INC. VARILEASE CORPORATION
PURCHASER: SELLER:
By: _______________________________ By:__________________________
Title: Vice President Title:_________________________
<PAGE>
Schedule 2
December 30, 1997
American Finance Group, Inc.
24 School Street
Boston, MA 02108
Attn: Vice President - Operations
RE: Instructions for Disbursement of Proceeds of sale and assignment
by Varilease Corporation ("Seller"), and purchase and assumption
by American Finance Group, Inc., of Schedule Nos. 83, 84, 85 and
86, each as amended by Amendment No. 1 thereto, to the Master
Lease Agreement dated as of December 14, 1995, as amended by
Amendment No. 1 dated October 1, 1996 between Seller, as lessor,
and America Online, Inc., as lessee ("Lessee") and Equipment
leased thereunder.
Ladies and Gentlemen:
The proceeds of the above-referenced sale and assignment payable by
American Finance Group, Inc. are $_______.__, payable in immediately available
funds in the amount of $_______.__ attributable to the equity purchase price of
the Equipment and $______.__ as an Acquisition Fee with respect thereto in the
manner set forth below. Please disburse the referenced equity proceeds directly
to the undersigned as follows:
AMOUNT WIRE TRANSFER
$---------- -----------------------
-----------------------
ABA #_________________
ACT # _________________
For the Account of:_______
-----------------------
Reference:______________
$ TOTAL
Very truly yours,
VARILEASE CORPORATION
By:_______________________________
Title:______________________________
<PAGE>
Schedule 3
TRANSFEREE AGREEMENT
<PAGE>
EXHIBIT A TO TRANSFEREE AGREEMENT
<PAGE>
Schedule 4
NOTICE AND ACKNOWLEDGEMENT OF ASSIGNMENT
<PAGE>
EXHIBIT 10.14
INTERCOMPANY RELATIONSHIP AGREEMENT
by and between
AMERICAN FINANCE GROUP, INC.
and
PLM INTERNATIONAL, INC.
Dated as of __, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE IDEFINITIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1.1 Certain Definitions.................................... 1
ARTICLE IICOSTS AND EXPENSES
SECTION 2.1 Allocation of Costs and Expenses....................... 5
ARTICLE IIICORPORATE SERVICES
SECTION 3.1 Services............................................... 6
SECTION 3.2 Compensation........................................... 6
ARTICLE IVCORPORATE GOVERNANCE
SECTION 4.1 PLMI Consent to Certain Actions........................ 6
ARTICLE VEQUITY PURCHASE RIGHTS
SECTION 5.1 Equity Purchase Rights................................. 7
SECTION 5.2 Procedure.............................................. 8
SECTION 5.3 Closing................................................ 9
ARTICLE VIFINANCIAL AND OTHER INFORMATION
SECTION 6.1 Twenty Percent Threshold............................... 10
SECTION 6.2 PLMI Annual Statements................................. 15
SECTION 6.3 Forty Percent Threshold................................ 16
SECTION 6.4 Fifty Percent Threshold................................ 16
SECTION 6.5 Ten Percent Threshold.................................. 17
SECTION 6.6 Confidentiality........................................ 18
ARTICLE VIIREGISTRATION RIGHTS
SECTION 7.1 Requested Registrations................................ 18
SECTION 7.2 Registration Procedures................................ 20
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 7.3 Cooperation from PLMI.................................. 23
SECTION 7.4 Restriction on Disposition of Registrable Shares....... 23
SECTION 7.5 Selection of Underwriters.............................. 23
SECTION 7.6 Registration Expenses.................................. 24
SECTION 7.7 Conversion of Other Securities......................... 24
SECTION 7.8 Rule 144............................................... 24
SECTION 7.9 Transfer of Registration Rights........................ 24
ARTICLE VIIIBUSINESS AND REGISTRATION STATEMENT INDEMNIFICATION
SECTION 8.1 General Cross Indemnification.......................... 25
SECTION 8.2 Registration Statement Indemnification................. 26
SECTION 8.3 Contribution........................................... 27
SECTION 8.4 Procedure.............................................. 28
SECTION 8.5 Other Matters.......................................... 29
ARTICLE IXOTHER PROVISIONS
SECTION 9.1 Intercompany Borrowings................................ 29
SECTION 9.2 Keepwell Payments...................................... 30
ARTICLE XMISCELLANEOUS
SECTION 10.1 Notices................................................ 30
SECTION 10.2 Binding Nature of Agreement............................ 31
SECTION 10.3 Descriptive Headings................................... 31
SECTION 10.4 Remedies............................................... 31
SECTION 10.5 Governing Law.......................................... 31
SECTION 10.6 Counterparts........................................... 31
SECTION 10.7 Severability........................................... 31
SECTION 10.8 Amendment and Modification............................. 32
SECTION 10.9 Entire Agreement; No Third Party Beneficiaries......... 32
SECTION 10.10 No Assignment.......................................... 32
SECTION 10.11 Recapitalization, Dilution Adjustments, etc............ 32
SECTION 10.12 Further Assurances..................................... 32
</TABLE>
ii
<PAGE>
INTERCOMPANY RELATIONSHIP AGREEMENT
THIS INTERCOMPANY RELATIONSHIP AGREEMENT is entered into as of
____________, 1998 by and between AMERICAN FINANCE GROUP, INC., a Delaware
corporation ("AFG"), and PLM INTERNATIONAL, INC., a Delaware corporation
("PLMI").
RECITALS
PLMI is the owner of all of the issued and outstanding shares of
capital stock of AFG as of the date hereof. In contemplation of AFG ceasing to
be so wholly owned by PLMI and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto, intending to
be legally bound hereby, hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION I.1 Certain Definitions. In addition to the terms defined
-------------------
elsewhere in this Agreement, the following terms shall have the following
meanings:
"Agreement" and "hereof" and "herein" means this Intercompany
--------- ------ ------
Relationship Agreement, including all amendments, modifications and supplements
and any exhibits or schedules to any of the foregoing, and shall refer to this
Agreement as the same may be in effect at the time such reference becomes
operative.
"Average Market Price" of any security on any date means the average
--------------------
of the daily closing prices for the 10 consecutive trading days selected by AFG
commencing not less than 20 days nor more than 30 trading days before the day in
question. The closing price for each day shall be the last reported sales price
regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either case
on the New York Stock Exchange, Inc. or, if such security is not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such security is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the
National Association of Securities Dealers, Inc. Automated Quotations National
Market System or, if such security is not listed or admitted to trading on any
national
<PAGE>
securities exchange or quoted on such National Market System, the average of the
closing bid and asked prices in the over-the-counter market as furnished by any
New York Stock Exchange member firm selected from time to time by AFG for that
purpose. For the purpose of this definition, the term "trading day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on
which securities are not traded on such exchange or in such market.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
------------
Friday that is not a day on which banking institutions in New York City are
authorized or obligated by law or executive order to close.
"Common Stock" means the common stock, par value $.01 per share, of
------------
AFG.
"Corporate Services" means the services described in Exhibit A
------------------
hereto.
"Equity Purchase Shares" means shares of Common Stock or any
----------------------
securities convertible into or exchangeable for shares of Common Stock or any
options, warrants or rights to acquire shares of Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Fair Market Value" means, with respect to shares of Common Stock, the
-----------------
fair market value thereof as jointly determined by AFG and PLMI or, in the event
AFG and PLMI are unable to agree, as determined by a mutually acceptable
nationally recognized investment banking or other financial advisory firm.
"Form S-1" means AFG's registration statement on Form S-1 (No. 333-
--------
_____) relating to the registration of certain shares of Common Stock under the
Securities Act.
"GAAP" means United States generally accepted accounting principles.
----
"Indebtedness" means, with respect to any Person, any liability of
------------
such Person in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments, including (a) any liability of such Person
under any agreement related to the fixing of interest rates on any Indebtedness,
(b) any capitalized lease obligations of such Person (if and to the extent the
same would appear on a balance
2
<PAGE>
sheet of such Person prepared in accordance with GAAP), (c) reimbursement
obligations of such Person in respect of letters of credit (regardless of
whether such items would appear on a balance sheet of such Person) and (d)
guarantees by such Person with respect to the items described in (a), (b) and
(c) above (regardless of whether such guarantees would appear on a balance sheet
of such Person).
"Initial Public Offering" means the contemplated initial public
-----------------------
offering by AFG of Common Stock registered under the Securities Act.
"Keepwell" means any guaranty, keepwell, net worth or financial
--------
condition maintenance agreement of or by any member of the PLMI Affiliated Group
provided to any Person (including but not limited to any insurance regulatory
authority) with respect to any actual or contingent obligation of AFG or any
other Subsidiary of AFG.
"Old Warehouse Credit Facility" means the warehouse credit facility
-----------------------------
provided for by the Amended and Restated Warehousing Credit Facility, dated as
of December 2, 1997, by and between AFG and First Union Bank of North Carolina,
as agent for the lenders thereunder.
"Outstanding Common Stock" means the shares of Common Stock issued and
------------------------
outstanding, and shall not include shares of Common Stock held by AFG as
treasury stock or by any Subsidiary of AFG.
"Person" means any individual, corporation, partnership, joint
------
venture, limited liability company, association or other business entity and any
trust, unincorpo rated organization or government, including any agency or
political subdivision thereof.
"PLMI Affiliated Group" means, collectively, PLMI and all of its
---------------------
direct and indirect subsidiaries now or hereafter existing, other than AFG and
its Subsidiaries.
"Prospectus" means the prospectus or prospectuses included in any
----------
Registration Statement, as amended or supplemented by any prospectus supplement
and by all other amendments and supplements to such prospectus, including post-
effective amendments and all material incorporated by reference in such
prospectus or prospectuses.
3
<PAGE>
"Public Company Stock" means any class or series of Common Stock for
--------------------
which reports are required to be filed under Section 13 or Section 15(d) of the
Exchange Act.
"Registrable Shares" means any shares of Common Stock or any other
------------------
equity security issued by AFG held by any member of the PLMI Affiliated Group or
by any transferee thereof described in Section 7.9 hereof.
"Registration Statement" means any registration statement of AFG filed
----------------------
with the SEC under the Securities Act, including but not limited to any
registration statement that relates to any of the Registrable Shares and the
registration statement relating to the Initial Public Offering, including in
each such case the Prospectus relating thereto, amendments and supplements to
such Registration Statement, including post-effective amendments, all exhibits
and all materials incorporated by reference in such Registration Statement and
Prospectus.
"Regulation S-K" means Regulation S-K of the General Rules and
--------------
Regulations under the Securities Act.
"Regulation S-X" means Regulation S-X of the General Rules and
--------------
Regulations under the Securities Act.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securitization Facility" means that certain Pooling and Servicing
-----------------------
Agreement and Indenture of Trust, dated as of July 1, 1995, by and between AFG
Credit Corporation and First Union National Bank of North Carolina, as amended
and supplemented.
"Subsidiary" of AFG shall include all corporations, partnerships,
----------
joint ventures, limited liability companies, associations and other entities (a)
in which AFG owns (directly or indirectly) fifty percent or more of the
outstanding voting stock, voting power, partnership interests or similar
ownership interests, (b) of which AFG otherwise directly or indirectly controls
or directs the policies or operations or (c) which would be considered
subsidiaries of AFG within the meaning of Regulation S-K or Regulation S-X.
4
<PAGE>
"Transactions" means, collectively, (a) all capital contributions to,
------------
or purchases of capital stock of, AFG by any member of the PLMI Affiliated
Group, (b) the borrowings made by AFG under the Securitization Facility and the
Warehouse Credit Facility and (c) the Initial Public Offering.
"Underwritten Registration" or "Underwritten Offering" means a
----------------------------------------------------
registration in which securities of AFG are sold to underwriters for re-offering
to the public.
"Warehouse Credit Facility" means the warehouse credit facility
-------------------------
provided for by the Warehousing Credit Agreement, dated as of [______], 1998, by
and between AFG and First Union National Bank of North Carolina, as agent for
the lenders thereunder.
"Wholly Owned Subsidiary" of AFG shall include all Subsidiaries of AFG
-----------------------
in which AFG owns (directly or indirectly) all of the outstanding voting stock,
voting power, partnership interests or similar ownership interests, except for
director's qualifying shares in nominal amounts.
ARTICLE II
COSTS AND EXPENSES
SECTION II.1 Allocation of Costs and Expenses. AFG shall pay (or, to
--------------------------------
the extent incurred by and paid for by any member of the PLMI Affiliated Group,
shall promptly reimburse such member of the PLMI Affiliated Group for any and
all amounts so paid) for all fees, costs and expenses incurred by AFG or any
member of the PLMI Affiliated Group in connection with the Transactions,
including but not limited to any and all fees, costs and expenses related to (a)
the preparation and negotiation of this Agreement and of all of the
documentation related to Transactions and all related transactions, (b) the
preparation and execution or filing of any and all further documents,
agreements, forms, applications, contracts or consents associated with the
Transactions and all related transactions, (c) the preparation, printing and
filing of the Registration Statement for the Initial Public Offering and any
other Registration Statements relating to any of the Transactions, including all
fees and expenses of complying with applicable federal, state or foreign
securities laws and applicable rules and regulations of domestic or foreign
securities exchanges, including the National Association of Securities Dealers,
Inc. Automated Quotations National Market System, together with fees and
expenses of counsel retained to effect such compliance, (d) the preparation,
printing and
5
<PAGE>
distribution of each of the Prospectuses for the Initial Public Offering and any
other Transactions and (e) the listing of the Common Stock and any other
securities of AFG on any domestic or foreign securities exchange, including the
National Association of Securities Dealers, Inc. Automated Quotations National
Market System; provided, however, that AFG shall have no obligation to pay
-------- -------
any underwriting fees, discounts, commissions or expenses attributable to the
sale of Registrable Shares, including but not limited to the fees and expenses
of any underwriters and such underwriters' counsel.
ARTICLE III
CORPORATE SERVICES
SECTION III.1 Services. During the three-year period immediately
--------
following the date hereof, PLMI shall provide AFG the Corporate Services;
provided, however, that the nature and scope of each of the Corporate Services
- -------- -------
shall not be greater than that provided by PLMI to AFG prior to the date hereof
and shall not be greater than that provided by PLMI to its own internal
organizations during such three-year period.
SECTION III.2 Compensation. In consideration of the provision of the
------------
Corporate Services by PLMI to AFG hereunder during the three-year period
specified in Section 3.1 hereof, AFG shall pay PLMI an annual service fee in the
amount of $500,000, which fee shall be payable by AFG in four equal installments
of $125,000 each on or before the thirtieth day of each January, April, July and
September.
ARTICLE IV
CORPORATE GOVERNANCE
SECTION IV.1 PLMI Consent to Certain Actions. Until the earlier to
-------------------------------
occur of (a) the date on which the members of the PLMI Affiliated Group shall
cease to own, in the aggregate, at least 35% of the voting power of the
Outstanding Common Stock and (b) the date on which the members of the PLMI
Affiliated Group shall cease to own, in the aggregate, at least 35% of all of
the issued and outstanding shares of Common Stock (not including, for purposes
of determining such percentages, any shares of Common Stock held as treasury
stock by AFG or held by any Subsidiary of AFG), AFG shall not permit any of the
following to occur without the prior written consent of PLMI:
6
<PAGE>
(i) any consolidation or merger of AFG with or into any Person or of
any Person with or into AFG (other than a merger or consolidation of AFG with or
into a Wholly Owned Subsidiary of AFG);
(ii) any consolidation or merger of any Subsidiary of AFG with or into
any Person or of any Person with or into any Subsidiary of AFG (other than a
merger or consolidation of a Subsidiary of AFG with or into a Wholly Owned
Subsidiary of AFG);
(iii) any sale, lease, exchange or other disposition by AFG or any
Subsidiary of AFG, directly or indirectly, in a single transaction or series of
related transactions, of all or substantially all of the assets of AFG or any
Subsidiary of AFG (other than transactions to which AFG and one or more Wholly
Owned Subsidiaries of AFG are the only parties);
(iv) any alteration or amendment of the Amended and Restated
Certificate of Incorporation of AFG or the Amended and Restated By-Laws of AFG;
(v) any issuance by AFG or any Subsidiary of AFG of any shares of its
respective capital stock or any options, warrants or rights to acquire such
capital stock or securities convertible into or exchangeable for capital stock,
except (x) up to 910,000 options to purchase shares of Common Stock of AFG
issuable pursuant to employee and director stock option, profit sharing and
other benefit plans of AFG and its Subsidiaries and the issuance of the shares
of Common Stock underlying such options, (y) the issuance of shares of capital
stock of a Wholly Owned Subsidiary of AFG to AFG or another Wholly Owned
Subsidiary of AFG and (z) in the Initial Public Offering;
(vi) the election or appointment of persons to, or the filling of a
vacancy in, the offices of President or Chief Executive Officer of AFG;
provided, however, that this provision shall in no way limit the ability of AFG
- -------- -------
to effect the removal of any person from either or both of such offices; or
(vi) the dissolution, liquidation or winding up of AFG.
ARTICLE V
EQUITY PURCHASE RIGHTS
7
<PAGE>
SECTION V.1 Equity Purchase Rights. So long as the members of the
----------------------
PLMI Affiliated Group own, in the aggregate, directly or indirectly, at least
35% of the voting power of the Outstanding Common Stock and 35% of the issued
and outstanding Common Stock, the members of the PLMI Affiliated Group shall
have the equity purchase rights set forth in this Article V (the "Equity
Purchase Rights"); provided, however, that the members of the PLMI Affiliated
-------- -------
Group shall not be entitled to Equity Purchase Rights to the extent that the
principal national securities exchange in the United States on which the Common
Stock is listed, if any, prohibits or limits the granting by AFG of such Equity
Purchase Rights.
SECTION V.2 Procedure. As soon as practicable after determining to
---------
issue Equity Purchase Shares, but in any event at least five Business Days prior
to issuing Equity Purchase Shares to any Person other than to a member of the
PLMI Affiliated Group (and other than Equity Purchase Shares issued by AFG (i)
under its employee stock option or other benefit plans, (ii) if AFG then has
outstanding Public Company Stock, under dividend reinvestment plans that offer
Common Stock to security holders at a discount from Average Market Price (as
defined below) no greater than is then customary for public corporations, (iii)
pursuant to the Initial Public Offering or (iv) otherwise than for cash
consideration), AFG shall notify PLMI by written notice of such proposed sale
(which notice shall specify, to the extent practicable, the purchase price for,
and terms and conditions of, such Equity Purchase Shares) and shall offer to
sell to PLMI (which offer may be assigned by PLMI to another member of the PLMI
Affiliated Group) at the purchase price (net of any underwriting discounts or
commissions), if any, to be paid by the transferee(s) of such Equity Purchase
Shares an amount of Equity Purchase Shares determined as provided below.
Immediately after the amount of Equity Purchase Shares to be sold to other
Persons is known to AFG, it shall notify PLMI (or such assignee) of such amount.
If such offer is accepted in writing within five Business Days after the notice
of such proposed sale (or such longer period as is necessary for the members of
the PLMI Affiliated Group to obtain regulatory approvals), AFG shall sell to
such member of the PLMI Affiliated Group an amount of Equity Purchase Shares
(the "Equity Purchase Share Amount") equal to the product of (A) the quotient of
(x) the number of shares of Common Stock owned by the members of the PLMI
Affiliated Group, in the aggregate, immediately prior to the issuance of the
Equity Purchase Shares by (y) the aggregate number of shares of Outstanding
Common Stock owned by Persons other than by members of the PLMI Affiliated Group
immediately prior to the issuance of the Equity Purchase Shares, multiplied by
(B) the aggregate number of Equity Purchase Shares being issued by AFG to
Persons other than members of the PLMI Affiliated Group rounded up to the
nearest whole Equity Purchase Share. If, at the time of the
8
<PAGE>
determination of any Equity Purchase Share Amount, any other Person has
preemptive or other equity purchase rights similar to the Equity Purchase
Rights, such Equity Purchase Share Amount shall be recalculated to take into
account the amount of Common Stock to be sold to such Persons, rounding up such
Equity Purchase Share Amount to the nearest whole Equity Purchase Share. If AFG
determines in good faith that, in light of the advice of an investment banking
firm advising it or of its other financial advisors, it must consummate the
issuance and sale of the Equity Purchase Shares prior to the members of the PLMI
Affiliated Group having obtained any necessary regulatory approvals, AFG shall
notify PLMI in writing of such determination and shall then be free so to
consummate such issuance and sale without the members of the PLMI Affiliated
Group having the right then to purchase its proportionate share of such Equity
Purchase Shares; provided, however, that in such event the members of
-------- -------
the PLMI Affiliated Group shall have the right to purchase from AFG, within 60
Business Days (or such longer period (up to one year) as is necessary for the
members of the PLMI Affiliated Group to obtain regulatory approvals) Common
Stock in an amount equal to the amount of Common Stock it would have received
had it been able to purchase (and, in the case of Equity Purchase Shares other
than Common Stock, securities exercisable or exchangeable for or convertible
into Common Stock) the Equity Purchase Shares offered to it pursuant to this
Article V, at a per share purchase price equal to the lower of (i) the sum of
the purchase price (net of any underwriting discounts or commissions), if any,
paid by the transferee(s) plus the exercise price, if any, of such Equity
Purchase Shares, and (ii) the Average Market Price per share of Common Stock
and, if there is no Average Market Price, the Fair Market Value per share of
Common Stock, in each case, at the time of purchase by the members of the PLMI
Affiliated Group.
SECTION V.3 Closing. The purchase and sale of any Equity Purchase
-------
Shares pursuant to this Article V shall take place at 9:00 A.M. on the latest of
(i) the fifth Business Day following the acceptance of such offer, (ii) the
Business Day on which such Equity Purchase Shares are issued to Persons other
than the members of the PLMI Affiliated Group and (iii) the fifth Business Day
following the expiration of any required governmental or other regulatory
waiting periods or the obtaining of any required governmental or other
regulatory consents or approvals, at the offices of PLMI indicated in Section
10.1 hereof, or at such other time and place as PLMI and AFG will agree. At the
time of purchase, AFG shall deliver to PLMI (or such assignee) certificates
registered in the name of the appropriate members of the PLMI Affiliated Group
representing the shares purchased, and the members of the PLMI Affiliated Group
shall transfer to AFG the purchase price in United States dollars by bank check
or wire transfer of immediately available funds, as specified by AFG, to an
account
9
<PAGE>
designated by AFG not less than five Business Days prior to the date of
purchase. AFG and the members of the PLMI Affiliated Group shall use their best
efforts to comply as soon as practicable with all federal and state laws and
regulations and stock exchange listing requirements applicable to any purchase
and sale of securities under this Article V.
ARTICLE VI
FINANCIAL AND OTHER INFORMATION
SECTION VI.1 Twenty Percent Threshold. AFG agrees that during any
------------------------
period in which the members of the PLMI Affiliated Group own, in the aggregate,
at least 20% of the voting power of the Outstanding Common Stock or 20% of the
Common Stock then outstanding, or during any period in which any member of the
PLMI Affiliated Group is required to account for its investment in AFG under the
equity method of accounting (determined in accordance with GAAP consistently
applied after consultation with PLMI Auditors (as defined below)):
(a) Maintenance of Books and Records. AFG shall, and shall cause
--------------------------------
each of its Subsidiaries to, (i) make and keep books, records and accounts,
which, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of AFG and such Subsidiaries and (ii) devise and
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (w) transactions are executed in accordance with
management's general or specific authorization, (x) transactions are recorded as
necessary (1) to permit preparation of financial statements in conformity with
GAAP or any other criteria applicable to such statements and (2) to maintain
accountability for assets, (y) access to assets is permitted only in accordance
with management's general or specific authorization and (z) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Notwithstanding the foregoing, the provisions of this paragraph (a) shall be
inapplicable at any time when PLMI is providing AFG hereunder the services
specified in Item (10) of Exhibit A hereto.
(b) Fiscal Year. AFG shall, and shall cause each of its Subsidiaries
-----------
to, maintain a fiscal year which commences on January 1 and ends on December 31
of each calendar year; provided, however, that, if on the date hereof any
-------- -------
Subsidiary of AFG has a fiscal year which ends on a date other than December 31,
AFG
10
<PAGE>
shall use its best efforts to cause such Subsidiary to change its fiscal
year to one which ends on December 31 provided that such change is reasonably
practical.
(c) Summary Monthly Financial Information. As soon as practicable,
-------------------------------------
and within seven Business Days after the end of each of the first eleven months
in each fiscal year of AFG and within eight Business Days after the end of the
last month in each fiscal year of AFG, AFG shall deliver to PLMI a summary of
consolidated net income and consolidated pre-tax income for AFG and its
Subsidiaries for such month and the year-to-date period. Notwithstanding the
foregoing, the provisions of this paragraph (c) shall be inapplicable at any
time when PLMI is providing AFG hereunder the services specified in Item (10) of
Exhibit A hereto.
(d) Detailed Monthly Financial Information. As soon as practicable,
--------------------------------------
and within 15 Business Days after the end of each of the first eleven months in
each fiscal year of AFG and within ten Business Days after the end of the last
month in each fiscal year, AFG shall deliver to PLMI (i) a summary consolidated
balance sheet and consolidated statement of income for AFG and its Subsidiaries
as of and for the year-to-date period, and (ii) a comparative (A) summary of net
income, (B) summary of financial operations, (C) summary of key business
indicators, (D) balance sheet and (E) summary of return on assets, return on
equity and ratio of assets to equity. Notwithstanding the foregoing, the
provisions of this paragraph (d) shall be inapplicable at any time when PLMI is
providing AFG hereunder the services specified in Item (10) of Exhibit A hereto.
(e) Unaudited Quarterly Financial Statements. As soon as
----------------------------------------
practicable, and within 18 days after the end of each of the first three fiscal
quarters in each fiscal year of AFG, AFG shall deliver to PLMI drafts of (i) the
consolidated financial statements of AFG and its Subsidiaries (and notes
thereto) for such periods and for the period from the beginning of the current
fiscal year to the end of such quarter, setting forth in each case in
comparative form for each such fiscal quarter of AFG the consolidated figures
(and notes thereto) for the corresponding quarter and periods of the previous
fiscal year in reasonable detail and in accordance with Article 10 of Regulation
S-X, and (ii) a discussion and analysis by management of AFG's and its
Subsidiaries' financial condition and results of operations for such fiscal
period, including but not limited to an explanation of any material adverse
change, all in reasonable detail and prepared in accordance with Item 303(b) of
Regulation S-K. The information set forth in clauses (i) and (ii) above is
herein referred to as the "Quarterly Financial Statements." AFG shall deliver to
PLMI all revisions to such drafts as soon as any such revisions are prepared or
made. No later than two Business Days prior to the date AFG publicly files
11
<PAGE>
the Quarterly Financial Statements with the SEC or otherwise, AFG shall deliver
to PLMI the final form of the Quarterly Financial Statements certified by the
chief financial or accounting officer of AFG as presenting fairly, in all
material respects, the financial condition and results of operations of AFG and
its consolidated Subsidiaries. Notwithstanding the foregoing, the provisions of
this paragraph (e) shall be inapplicable at any time when PLMI is providing AFG
hereunder the services specified in Item (10) of Exhibit A hereto.
(f) Audited Annual Financial Information. As soon as is practicable,
------------------------------------
AFG shall deliver to PLMI (i) within 40 days after the end of each fiscal year
of AFG, drafts of (x) the consolidated financial statements of AFG (and notes
thereto) for such year, setting forth in each case in comparative form the
consolidated figures (and notes thereto) for the previous fiscal year in
reasonable detail and in accordance with Regulation S-X and (y) a discussion and
analysis by management of AFG's consolidated financial condition and results of
operations for such year, including but not limited to an explanation of any
material adverse change, all in reasonable detail and prepared in accordance
with Item 303(a) of Regulation S-K and (ii) within 35 days after the end of each
fiscal year of AFG, a draft of a discussion and analysis of AFG's consolidated
financial condition and results of operations for such year, including but not
limited to an explanation of any material adverse change, all in reasonable
detail and prepared in accordance with Item 303(a) of Regulation S-K, for
inclusion in the annual report to stockholders of any member of the PLMI
Affiliated Group. The information set forth in (i) and (ii) above is herein
referred to as the "AFG Annual Financial Statements." AFG shall deliver to PLMI
-------------------------------
all revisions to such drafts as soon as any such revisions are prepared or made.
AFG shall deliver to PLMI, no later than 80 days after the end of each fiscal
year of AFG, the final form of the AFG Annual Financial Statements accompanied
by an opinion thereon by AFG's independent certified public accountants.
Notwithstanding the foregoing, the provisions of this paragraph (f) shall be
inapplicable at any time when PLMI is providing AFG hereunder the services
specified in Item (10) of Exhibit A hereto.
(g) Other Financial Information. AFG shall provide to PLMI upon
---------------------------
request such other information and analyses as PLMI may reasonably request on
behalf of any member of the PLMI Affiliated Group in order to analyze the
financial statements and condition of AFG and its Subsidiaries and shall provide
PLMI and its accountants with an opportunity to meet with management of AFG and
its accountants in connection therewith. AFG shall deliver to PLMI all
Quarterly Financial Statements and audited annual financial statements of each
Subsidiary of AFG that is itself required to file financial statements with the
SEC or otherwise make such financial statements
12
<PAGE>
publicly available, with such financial statements to be provided in the same
manner and detail and on the same time schedule as those financial statements of
AFG required to be delivered to PLMI pursuant to this Section 6.1.
Notwithstanding the foregoing, the provisions of this paragraph (g) shall be
inapplicable at any time when PLMI is providing AFG hereunder the services
specified in Item (10) of Exhibit A hereto.
(h) General Financial Statement Requirements. All information
----------------------------------------
provided by AFG or any of its Subsidiaries to PLMI pursuant to Sections 6.1(c)-
(g) inclusive shall be consistent in terms of format and detail and otherwise
with the procedures in effect on the date hereof with respect to the provision
of such financial and other information by AFG and its Subsidiaries to PLMI
(and, where appropriate, as presently presented in financial and other reports
delivered to the Board of Directors of PLMI), with such changes therein as may
be reasonably requested by PLMI from time to time. Notwithstanding the
foregoing, the provisions of this paragraph (h) shall be inapplicable at any
time when PLMI is providing AFG hereunder the services specified in Item (10) of
Exhibit A hereto.
(i) Budgets and Projections. AFG shall, as promptly as practicable,
-----------------------
deliver to PLMI copies of all annual and other budgets and financial projections
(consistent in terms of format and detail and otherwise with the procedures in
effect on the date hereof) relating to AFG or any of its Subsidiaries and shall
provide PLMI an opportunity to meet with management of AFG to discuss such
budgets and projections.
(j) Public Information and SEC Reports. AFG and each of its
----------------------------------
Subsidiaries that files information with the SEC shall deliver to PLMI (to the
attention of its General Counsel), as soon as substantially final drafts are
prepared, copies of all reports, notices and proxy and information statements to
be sent or made available by AFG or any of its Subsidiaries to their
securityholders and all regular, periodic and other reports filed under Sections
13, 14 and 15 of the Exchange Act (including Reports on Forms 10-K, 10-Q and 8-K
and Annual Reports to Stockholders), and all Registration Statements and
Prospectuses to be filed by AFG or any of its Subsidiaries with the SEC or any
securities exchange pursuant to the listed company manual (or similar
requirements) of such exchange (collectively, "AFG Public Documents"), and, as
--------------------
soon as practicable, but in no event later than one Business Day prior to the
date the same are printed, sent or filed, whichever is earliest, final copies of
all AFG Public Documents. Notwithstanding the foregoing, the provisions of this
paragraph (j) shall be inapplicable at any time when PLMI is providing AFG
hereunder the services specified in Item (11) of Exhibit A hereto.
13
<PAGE>
(k) Press Releases and Certain Additional Documents. Prior to
-----------------------------------------------
issuance, AFG shall deliver to PLMI copies of all press releases and other
statements to be made available by AFG or any of its Subsidiaries to the public,
including but not limited to information concerning material developments in the
business, properties, results of operations, financial condition or prospects of
AFG or any of its Subsidiaries. No report, registration, information or proxy
statement, Prospectus or other document that refers, or contains information
with respect, to any member of the PLMI Affiliated Group shall be filed with the
SEC or otherwise made public by AFG or any of its Subsidiaries without the prior
written consent of PLMI with respect to those portions of such document that
contain information concerning any member of the PLMI Affiliated Group, except
as may be required by law, rule or regulation (in such cases AFG shall use its
best efforts to notify the relevant member of the PLMI Affiliated Group and get
such member's consent before making a filing with the SEC or otherwise making
any such information public).
(l) Other Information. With reasonable promptness, AFG shall deliver
-----------------
to PLMI such additional financial and other information and data with respect to
AFG and its Subsidiaries and their businesses, properties, financial positions,
results of operations and prospects as from time to time may be reasonably
requested by PLMI.
(m) Earnings Releases. PLMI agrees that, unless required by law,
-----------------
rule or regulation or unless AFG shall have consented thereto, no member of the
PLMI Affiliated Group shall publicly release any quarterly, annual or other
financial information of AFG or any of its Subsidiaries ("AFG Information")
---------------
delivered to PLMI pursuant to this Section 6.1 prior to the time that PLMI
publicly releases financial information of PLMI for the relevant period. AFG
and PLMI shall consult on the timing of their annual and quarterly earnings
releases and shall give each other an opportunity to review the information
therein relating to AFG and its Subsidiaries and to comment thereon. In the
event that any member of the PLMI Affiliated Group is required by law to release
such AFG Information publicly prior to the public release of PLMI's financial
information and fails to obtain AFG's consent to release such AFG Information,
PLMI shall give AFG notice of such release of AFG Information as soon as
practicable but no later than immediately prior to such release of AFG
Information.
(n) PLMI Affiliated Group Public Filings. AFG shall cooperate fully
------------------------------------
with PLMI to the extent reasonably requested by PLMI in the preparation of any
PLMI Affiliated Group member's public earnings releases, quarterly reports on
Form 10-Q, Annual Reports to Stockholders, Annual Reports on Form 10-K, any
Current
14
<PAGE>
Reports on Form 8-K and any other proxy, information and registration
statements, reports, notices, prospectuses and any other filings made by any
member of the PLMI Affiliated Group with the SEC, any national securities
exchange or otherwise made publicly available (collectively, "PLMI Public
-----------
Filings"). AFG agrees to provide to PLMI all information that PLMI reasonably
- -------
requests in connection with any such PLMI Public Filings or that, in the
judgment of PLMI's General Counsel, is required to be disclosed therein under
any law, rule or regulation. Such information shall be provided by AFG in a
timely manner to enable PLMI to prepare, print and release such PLMI Public
Filings on such date as PLMI shall determine. If and to the extent requested by
PLMI, AFG shall diligently review all drafts of such PLMI Public Filings and
prepare in a diligent and timely fashion any portion of such PLMI Public Filing
pertaining to AFG. Prior to any printing or public release of any PLMI Public
Filing, an appropriate executive officer of AFG shall, if requested by PLMI,
certify that the information relating to AFG in such PLMI Public Filing is
accurate, true and correct in all material respects. Unless required by law,
rule or regulation, AFG shall not publicly release any financial or other
information that conflicts with the information with respect to AFG that is
included in any PLMI Public Filing without PLMI's prior written consent.
SECTION VI.2 PLMI Annual Statements. In connection with any PLMI
----------------------
Affiliated Group member's preparation of its audited annual financial statements
and its Annual Reports to Stockholders (collectively the "PLMI Annual
Statements"), during any period in which the members of the PLMI Affiliated
Group own, in the aggregate, at least 20% of the voting power of the Outstanding
Common Stock of AFG then outstanding (or such lesser percentage during any time
that any member of the PLMI Affiliated Group is required, in accordance with
GAAP, to account for its investment in AFG under the equity method of
accounting), AFG agrees as follows:
(a) Coordination of Auditors' Opinions. AFG shall use its best
----------------------------------
efforts to (i) enable its independent certified public accountants (the "AFG
---
Auditors") to complete their audit such that they will date their opinion on the
- --------
AFG Annual Financial Statements on the same date that PLMI independent certified
public accountants (the "PLMI Auditors") date their opinion on the PLMI Annual
-------------
Statements and (ii) enable PLMI to meet its timetable for the printing, filing
and public dissemina tion of the PLMI Annual Statements.
(b) Cooperation in Preparation of PLMI Affiliated Group Annual
----------------------------------------------------------
Statements. AFG will provide to PLMI on a timely basis all information that any
- ----------
member of the PLMI Affiliated Group reasonably requires to meet its schedule for
the preparation, printing, filing and public dissemination of the PLMI Annual
15
<PAGE>
Statements. In this respect, AFG shall provide all required financial
information with respect to AFG and its consolidated Subsidiaries to the AFG
Auditors in a sufficient and reasonable time and in sufficient detail to permit
the AFG Auditors to take all steps and perform all review necessary to provide
sufficient assistance to the PLMI Auditors with respect to information to be
included or contained in the PLMI Annual Statements, such assistance to the PLMI
Auditors to be in conformity with current and past practices.
(c) Access to Personnel and Working Papers. AFG shall authorize the
--------------------------------------
AFG Auditors to make available to the PLMI Auditors both the personnel who
performed or are performing the annual audit of AFG and, consistent with
customary professional practice and courtesy of such auditors with respect to
the furnishing of work papers, work papers related to the annual audit of AFG,
in all cases within a reasonable time after the AFG Auditor's opinion date, so
that the PLMI Auditors are able to perform the procedures they consider
necessary to take responsibil ity for the work of the AFG Auditors as it
relates to the PLMI Auditors' report on the PLMI Annual Statements, all within
sufficient time to enable PLMI to meet its timetable for the printing, filing
and public dissemination of the PLMI Annual Statements.
SECTION VI.3 Forty Percent Threshold. AFG agrees that during any
-----------------------
period in which the members of the PLMI Affiliated Group own, in the aggregate,
at least 40% of the voting power of the Outstanding Common Stock (or in which,
notwithstanding such percentage, any member of the PLMI Affiliated Group is
required, in accordance with GAAP, to consolidate AFG's financial statements
with its financial statements):
(a) Internal Auditors. AFG shall provide PLMI's internal auditors
-----------------
access to AFG's and its Subsidiaries' books and records so that PLMI may conduct
reasonable audits relating to the financial statements provided by AFG pursuant
to Sections 6.1(c)-(g) hereof, inclusive, as well as to the internal accounting
controls and operations of AFG and its Subsidiaries.
(b) Accounting Estimates and Principles. AFG shall give PLMI as much
-----------------------------------
prior notice as reasonably practical of any proposed determination of, or any
significant changes in, accounting estimates or accounting principles from those
in effect on the date hereof. In this connection, AFG shall consult with PLMI
and, if requested by PLMI, AFG shall consult with its independent public
accountants with respect thereto. AFG shall not make any such determination or
changes without PLMI's prior written consent if such a determination or change
would be sufficiently material to be required to be disclosed in AFG's financial
statements as filed with the SEC or
16
<PAGE>
otherwise publicly disclosed therein. If PLMI so requests, AFG shall be required
to obtain the concurrence of AFG Auditors as to such determination or change
prior to its implementation.
SECTION VI.4 Fifty Percent Threshold. AFG agrees that during any
-----------------------
period in which the members of the PLMI Affiliated Group own, in the aggregate,
at least 50% of the voting power of the Outstanding Common Stock (or in which,
notwithstanding such percentage, any member of the PLMI Affiliated Group is
required, in accordance with GAAP, to consolidate AFG's financial statements
with its financial statements):
(a) Management Certification. AFG's chief financial or accounting
------------------------
officer shall submit a quarterly representation in the form prescribed by PLMI
attesting to the accuracy and completeness of the financial and accounting
records referred to therein.
(b) Detailed Quarterly Financial Information. As soon as
----------------------------------------
practicable, and within nine Business Days after the end of the first three
fiscal quarters in each fiscal year of AFG, AFG shall deliver to PLMI (i) a
detailed consolidated balance sheet and consolidated statement of income
consistent with PLMI's present chart of accounts (with such changes in such
chart of accounts as may be requested by PLMI from time to time) and related
analyses of intercompany accounts and investment securities for AFG and its
Subsidiaries as of and for the year-to-date period, and (ii) statistical
information necessary for inclusion in any PLMI Affiliated Group member's
quarterly earnings press release, along with appropriate supporting
documentation.
(c) Detailed Annual Financial Information. As soon as practicable,
-------------------------------------
and within 90 Business Days after the end of each fiscal year of AFG, AFG shall
deliver to PLMI (i) a detailed consolidated balance sheet and consolidated
statement of income consistent with PLMI's present chart of accounts (with such
changes in such chart of accounts as may be requested by PLMI from time to time)
and related analyses of intercompany accounts and investment securities for AFG
and its Subsidiaries as of and for the full fiscal year, and (ii) statistical
information necessary for inclusion in any PLMI Affiliated Group member's annual
earnings press release, along with appropriate supporting documentation.
(d) Accountants' Reports. Promptly, but in no event later than five
--------------------
Business Days following the receipt thereof, AFG shall deliver to PLMI copies of
all reports submitted to AFG or any of its Subsidiaries by their independent
certified public accountants, including but not limited to each report submitted
to AFG or any of
17
<PAGE>
its Subsidiaries concerning its accounting practices and systems and any comment
letter submitted to management in connection with their annual audit and all
responses by management to such reports and letters.
SECTION VI.5 Ten Percent Threshold. AFG agrees that, during any
---------------------
period in which the members of the PLMI Affiliated Group own, in the aggregate,
at least 10% but less than 20% of the voting power of the Outstanding Common
Stock, AFG shall:
(a) furnish to PLMI as soon as publicly available, copies of all
financial statements, reports, notices and proxy statements sent by AFG in a
general mailing to all its stockholders, of all reports on Forms 10-K, 10-Q and
8-K, and of all final Prospectuses filed pursuant to Rule 424 under the
Securities Act; and
(b) permit PLMI to visit and inspect any of the properties, corporate
books, and financial and other records of AFG and its Subsidiaries, and to
discuss the affairs, finances and accounts of any such corporations with the
officers of AFG and the AFG Auditors, all at such times and as often as PLMI may
reasonably request.
SECTION VI.6 Confidentiality. All information provided by AFG
---------------
pursuant to this Article VI shall, except if the purpose for which such
information is furnished to PLMI pursuant to this Agreement contemplates such
disclosure and except for disclosure to the other members of the PLMI Affiliated
Group by PLMI, be kept confidential by PLMI and the other members of the PLMI
Affiliated Group, and PLMI and the other members of the PLMI Affiliated Group
shall not disclose any such information in any manner whatsoever, until such
information is disclosed by AFG or otherwise becomes generally available to the
public, except as such disclosure may be required by law, rule or regulation.
Any information furnished to PLMI by AFG pursuant to Sections 6.1(g), 6.1(i),
6.1(l), 6.2(c), 6.4 and 6.5(b) hereof shall be used solely for financial
reporting, planning, control and record keeping purposes of the members of the
PLMI Affiliated Group.
ARTICLE VII
REGISTRATION RIGHTS
SECTION VII.1 Requested Registrations.
-----------------------
18
<PAGE>
(a) Right to Request Registration. At any time and from time to time
-----------------------------
after the date hereof, upon the written request of any member of the PLMI
Affiliated Group requesting that AFG effect the registration under the
Securities Act of all or part of the Registrable Shares (a "Demand
------
Registration"), AFG shall use its best efforts to effect, as expeditiously as
possible, the registration under the Securities Act of such number of
Registrable Shares requested to be so registered; provided, however, that AFG
-------- -------
shall not be required to file a Registration Statement pursuant to this Section
7.1(a), (i) within a period of six months after the effective date of any other
Registration Statement of AFG requested hereunder, (ii) relating to an offering
on a delayed or continuous basis pursuant to Rule 415 (or any successor rule to
similar effect) promulgated under the Securities Act if AFG is not, at the time,
eligible to register shares of Common Stock on Form S-3 (or a successor form) or
(iii) with respect to any offering that is not reasonably expected to yield
gross proceeds of at least $10 million.
Promptly after receipt of any such request for a Demand Registration,
AFG shall give written notice of such request to all other holders of Common
Stock having rights to have their shares included in such registration and
shall, subject to the provisions of Section 7.1(c) hereof, include in such
registration all such Registrable Shares with respect to which each member of
the PLMI Affiliated Group or such other stockholder has requested to be so
registered.
(b) Effective Registration. A registration requested pursuant to
----------------------
this Section 7.1 shall not be deemed to have been effected (and, therefore, not
requested for purposes of Section 7.1(a) above) (i) unless the registration
statement relating thereto has become effective under the Securities Act, (ii)
if after it has become effective such registration is interfered with by any
stop order, injunction or other order or requirement of the SEC or other
governmental agency or court for any reason other than a misrepresentation or an
omission by any member of the PLMI Affiliated Group and, as a result thereof,
the Registrable Shares requested to be registered cannot be completely
distributed in accordance with the plan of distribution, (iii) if the conditions
to closing specified in the purchase agreement or underwriting agreement entered
into in connection with such registration are not satisfied or waived other than
by reason of some act or omission by any member of the PLMI Affiliated Group or
(iv) if, pursuant to Section 7.1(c) hereof, less than all of the Registrable
Shares requested be registered were actually registered.
(c) Priority. If a requested registration pursuant to this Section
--------
7.1 involves an underwritten offering and the managing underwriter shall advise
AFG that in its opinion the number of securities requested to be included in
such registration
19
<PAGE>
exceeds the number that can be sold in such offering without having an adverse
effect on such offering, including the price at which such securities can be
sold, then AFG will be required to include in such registration the maximum
number of shares that such underwriter advises can be so sold, allocated (i)
first, to Registrable Shares requested by the members of the PLMI Affiliated
Group to be included in such registration, (ii) second, among all shares of
Common Stock requested to be included in such registration by any other
stockholder of AFG owning shares of Common Stock eligible for such registration,
pro rata on the basis of the number of shares of Common Stock requested to be
- --- ----
included in such registration and (iii) third, among other securities, if any,
requested and otherwise eligible to be included in such registration (including
securities to be sold for the account of AFG).
(d) Preemption of Demand Registration. Notwithstanding the
---------------------------------
foregoing, if the Board of Directors of AFG determines in its good faith
judgment, (i) after consultation with a nationally recognized investment banking
firm, that there will be an adverse effect on a then contemplated public
offering of AFG's securities, (ii) that the disclosures that would be required
to be made by AFG in connection with such registration would be materially
harmful to AFG because of transactions then being considered by, or other events
then concerning, AFG, or (iii) that registration at the time would require the
inclusion of pro forma or other information, which requirement AFG is reasonably
--- -----
unable to comply with, then AFG may defer the filing (but not the preparation)
of the Registration Statement that is required to effect any registration
pursuant to this Section 7.1 for a reasonable period of time, but not in excess
of 90 calendar days (or any longer period agreed to by the requesting holders of
Registrable Shares), provided that at all times AFG is in good faith using all
--------
reasonable efforts to file such Registration Statement as soon as practicable.
(e) Other Registration Rights. AFG shall not, without the prior
-------------------------
written consent of PLMI, grant to any Person the right, other than as set forth
herein and except to employees, directors, agents and consultants of AFG, to
request AFG to register any securities of AFG except such rights as are not more
favorable than the rights granted to the members of the PLMI Affiliated Group
herein.
SECTION VII.2 Registration Procedures. If and whenever AFG is
-----------------------
required to use its best efforts to effect or cause the registration of any
Registrable Shares under the Securities Act as provided in this Agreement, AFG
shall:
(a) prepare and file with the SEC as expeditiously as possible, but
in no event later than 90 calendar days after receipt of a request for
registration with
20
<PAGE>
respect to such Registrable Shares, a Registration Statement on any form for
which AFG then qualifies or which counsel for AFG shall deem appropriate, which
form shall be available for the sale of the Registrable Shares in accordance
with the intended methods of distribution thereof, and use its best efforts to
cause such Registration Statement to become effective as soon as practicable;
provided, however, that before filing with the SEC a Registration Statement
- -------- -------
or Prospectus or any amendments or supplements thereto, including any documents
incorporated by reference therein, AFG shall (x) furnish to PLMI and to one
counsel selected by PLMI (or by PLMI and holders of other securities covered by
such Registration Statement, but in no event to more than one firm of attorneys
for all such selling securityholders) copies of all such documents proposed to
be filed, which documents shall be subject to the review of PLMI and such
counsel, and (y) notify PLMI of any stop order issued or threatened by the SEC
and take all reasonable actions required to prevent the entry of such stop order
or to remove it if entered;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the Prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective for a period of
not less than 180 calendar days or such shorter period which shall terminate
when all Registrable Shares covered by such Registration Statement have been
sold (but not before the expiration of the 90-day period referred to in Section
4(3) of the Securities Act and Rule 174, or any successor thereto, thereunder,
if applicable), and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement;
(c) furnish, without charge, to PLMI and each underwriter, if any,
such number of copies of such Registration Statement, each amendment and
supplement thereto (including one conformed copy to PLMI and one signed copy to
each managing underwriter, and in each case, including all exhibits thereto),
and the Prospectus included in such Registration Statement (including each
preliminary Prospectus), in conformity with the requirements of the Securities
Act, and such other documents as PLMI may reasonably request in order to
facilitate the disposition of the Registrable Shares registered thereunder;
(d) use its best efforts to register or qualify such Registrable
Shares covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions as the selling securityholders, and the
managing underwriter,
21
<PAGE>
if any, reasonably request and do any and all other acts and things that may be
reasonably necessary or advisable to enable the selling securityholders and each
underwriter, if any, to consummate the disposition in such jurisdictions of the
Registrable Shares registered thereunder; provided, however, that AFG
-------- -------
shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (d), (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction;
(e) immediately notify the managing underwriter, if any, PLMI and the
selling securityholders at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
that comes to AFG's attention if, as a result of such event, the Prospectus
included in such Registration Statement contains an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and AFG shall
promptly prepare and furnish to the selling securityholders a supplement or
amendment to such Prospectus so that, as thereafter delivered, such Prospectus
shall not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that if AFG determines in good faith
-------- -------
that the disclosure that would be required to be made by AFG would be materially
harmful to AFG because of transactions then being considered by, or other events
then concerning, AFG, or a supplement or amendment to such Prospectus at such
time would require the inclusion of pro forma or other information, which
--- -----
requirement AFG is reasonably unable to comply with, then AFG may defer, for a
reasonable period of time not to exceed 90 calendar days, furnishing to the
selling securityholders a supplement or amendment to such Prospectus; provided,
--------
further, that at all times AFG is in good faith using all reasonable efforts to
- -------
file such amendment as soon as practicable;
(f) use its best efforts to cause all such securities being
registered to be listed on each securities exchange on which similar securities
issued by AFG are then listed, and enter into such customary agreements,
including a listing application and indemnification agreement, in customary form
(provided that the applicable listing requirements are satisfied), and to
--------
provide a transfer agent and registrar for such Registrable Shares covered by
such Registration Statement no later than the effective date of such
Registration Statement;
(g) make available for inspection by PLMI and any holder of
securities covered by such Registration Statement, any underwriter participating
in any
22
<PAGE>
distribution pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by such persons (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
- -----------
and properties of AFG and its Subsidiaries (collectively, "Records"), if any, as
-------
shall be reasonably necessary to enable them to exercise their due diligence
responsibilities, and cause AFG's and its Subsidiaries' officers, directors and
employees to supply all information and respond to all inquiries reasonably
requested by any such Inspector in connection with such Registration Statement.
Notwithstanding the foregoing, AFG shall have no obligation to disclose any
Records to the Inspectors in the event AFG determines that such disclosure is
reasonable likely to have an adverse effect on AFG's ability to assert the
existence of an attorney-client privilege with respect thereto;
(h) if requested, use its best efforts to obtain a "cold comfort"
letter from AFG's independent public accountants in customary form and covering
such matters of the type customarily covered by "cold comfort" letters;
(i) make available senior management personnel to participate in, and
cause them to cooperate with the underwriters in connection with, "road show"
and other customary marketing activities, including "one-on-one" meetings with
prospective purchasers of the Registrable Shares;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its securityholders, as
soon as reasonably practicable, an earnings statement covering a period of at
least 12 months, beginning with the first month after the effective date of such
Registration Statement (as the term "effective date" is defined in Rule 158(c)
under the Securities Act), which earning statement shall satisfy the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder; and
(k) use its best efforts to create, without charge, a depositary
arrangement whereby depositary shares representing fractional shares of
Registrable Shares will be issued to the public, to execute and provide, without
charge, customary documentation in respect thereof and such other documentation
that PLMI may reasonably request in order to facilitate the disposition of the
depositary shares created thereunder.
SECTION VII.3 Cooperation from PLMI. PLMI shall use its best efforts
---------------------
to furnish or cause to be furnished promptly to AFG such information concerning
23
<PAGE>
PLMI as AFG or its agents may reasonably request in connection with the
preparation of any Registration Statement pursuant to Section 7.2 hereof.
SECTION VII.4 Restriction on Disposition of Registrable Shares. PLMI
------------------------------------------------
agrees that, upon receipt of any notice from AFG of the happening of any event
of the kind described in Section 7.2(e) hereof, PLMI shall, and shall cause each
member of the PLMI Affiliated Group to, discontinue disposition of Registrable
Shares pursuant to the Registration Statement covering such Registrable Shares
until receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 7.2(e) hereof, or until otherwise notified by AFG, and,
if so directed by AFG, PLMI shall, and shall cause each member of the PLMI
Affiliated Group to, deliver to AFG (at AFG's expense) all copies (including but
not limited to any and all drafts), other than permanent file copies, then in
their possession, of the Prospectus covering such Registrable Shares at the time
of receipt of such notice. In the event AFG gives any such notice, the period
mentioned in Section 7.2(b) hereof shall be extended by the greater of (x) three
months or (y) the number of days during the period from and including the date
of the giving of such notice pursuant to Section 7.2(e) hereof to and including
the date when the selling securityholders will have received the copies of the
supplemented or amended Prospectus contemplated by Section 7.2(e) hereof.
SECTION VII.5 Selection of Underwriters. If any offering pursuant to
-------------------------
a registration requested pursuant to Section 7.1 hereof is to be an Underwritten
Offering, PLMI shall have the right to select a managing underwriter or
underwriters to administer the offering.
SECTION VII.6 Registration Expenses. AFG shall pay the following
---------------------
registration expenses incurred in connection with a registration hereunder: (a)
all registration and filing fees, (b) fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable Shares),
(c) printing expenses, (d) internal expenses (including without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), (e) the fees and expenses incurred in connection with the
listing of the Registrable Shares on any national securities exchange or
interdealer quotation system, (f) the reasonable fees and disbursements of
counsel for AFG and customary fees and expenses for independent certified public
accountants retained by AFG (including the expenses of any comfort letters or
costs associated with the delivery by independent certified public accountants
of a comfort letter or comfort letters), (g) the reasonable fees and
disbursements of not more than one firm of attorneys acting as legal counsel for
all of the selling securityholders, collectively, (h) the fees and
24
<PAGE>
expenses of any registrar and transfer agent and (i) the underwriting fees,
discounts and commissions applicable to any Common Stock sold for the account of
AFG. Except as otherwise provided in clause (i) of this Section 7.6, AFG shall
have no obligation to pay any underwriting fees, discounts, commissions or
expenses attributable to the sale of Registrable Shares, including but not
limited to the fees and expenses of any underwrit ers and such underwriters'
counsel.
SECTION VII.7 Conversion of Other Securities. If any holder of
------------------------------
Registrable Shares offers any options, rights, warrants or other securities
issued by it or any other Person that are offered with, convertible into or
exercisable or exchangeable for any Registrable Shares, the Registrable Shares
underlying such options, rights, warrants or other securities shall be eligible
for registration pursuant to Section 7.1 hereof.
SECTION VII.8 Rule 144. If and for so long as AFG is subject to the
--------
reporting requirements of the Exchange Act, AFG shall take such measures and
file such information, documents and reports as shall be required by the SEC as
a condition to the availability of Rule 144 (or any successor provision) under
the Securities Act.
SECTION VII.9 Transfer of Registration Rights.
-------------------------------
(a) Any member of the PLMI Affiliated Group may transfer all or any
portion of its rights under this Article VII and Article VIII hereof to any
transferee (each, a "transferee") of Registrable Shares. Any transfer of
----------
registration rights pursuant to this Section 7.9 shall be effective upon receipt
by AFG of written notice from such member of the PLMI Affiliated Group stating
the name and address of any transferee and identifying the amount of Registrable
Shares with respect to which the rights under this Article VII (and Article VIII
hereof) are being transferred and the nature of the rights so transferred. In
connection with any such transfer, the term "PLMI" or "member of the PLMI
Affiliated Group" as used in this Agreement shall, where appropriate to assign
such rights and obligations to such transferee, be deemed to refer to the
transferee holder of such Registrable Shares. Any member of the PLMI Affiliated
Group and such transferees may exercise the registration rights provided for
herein in such proportion as they shall agree among themselves.
(b) After such transfer, each member of the PLMI Affiliated Group
shall retain its rights under this Agreement with respect to all other
Registrable Shares owned by such member of the PLMI Affiliated Group.
25
<PAGE>
(c) Upon the request of any member of the PLMI Affiliated Group, AFG
shall execute a Registration Rights Agreement with such transferee or a proposed
transferee substantially similar to the applicable sections of this Agreement.
ARTICLE VIII
BUSINESS AND REGISTRATION STATEMENT INDEMNIFICATION
SECTION VIII.1 General Cross Indemnification.
-----------------------------
(a) PLMI agrees to indemnify and hold harmless AFG and its
Subsidiaries and each of the officers, directors, employees and agents of AFG
and its Subsidiaries against any and all costs and expenses arising out of
third-party claims (including but not limited to attorneys' fees, interest,
penalties and costs of investigation or preparation for defense), judgments,
fines, losses, damages, liabilities, demands, assessments and amounts paid in
settlement (collectively, "Losses"), in each case, based on, arising out of,
------
resulting from or in connection with any claim, action, cause of action, suit,
proceeding or investigation, whether civil, criminal, administrative,
investigative or other (collectively, "Actions"), based on, arising out of,
-------
pertaining to or in connection with any breach by PLMI of this Agreement.
(b) AFG agrees to indemnify and hold harmless each member of the PLMI
Affiliated Group and each of the officers, directors, employees and agents of
each member of the PLMI Affiliated Group against any and all Losses, in each
case, based on, arising out of, resulting from or in connection with any Actions
based on, arising out of, pertaining to or in connection with (i) any
activities, action or inaction on the part of AFG or any of its Subsidiaries or
any of their officers, directors, employees, affiliates (other than a member of
the PLMI Affiliated Group), fiduciaries or agents, (ii) any breach by AFG of
this Agreement or any other agreement between AFG or any of its Subsidiaries and
any member of the PLMI Affiliated Group or (iii) any Keepwell.
The indemnity agreement contained in this Section 8.1 shall be
applicable whether or not any Action or the facts or transactions giving rise to
such Action arose prior to, on or subsequent to the date of this Agreement.
SECTION VIII.2 Registration Statement Indemnification.
--------------------------------------
(a) AFG agrees to indemnify and hold harmless each member of the PLMI
Affiliated Group, each Person to whom registration rights will have been
26
<PAGE>
transferred pursuant to Section 7.9 hereof and each person, if any, who controls
any of the foregoing within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (collectively, the "Registration Indemnitees")
------------------------
from and against any and all Losses arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such Losses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission that has been made
therein or omitted therefrom in reliance upon and in conformity with information
relating to a Registration Indemnitee furnished in writing to AFG by or on
behalf of a Registration Indemnitee expressly for use in connection therewith.
(b) Each Registration Indemnitee agrees, severally and not jointly,
to indemnify and hold harmless AFG, its directors, its officers who sign any
Registration Statement, and any person who controls AFG within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from AFG to each Registration Indemnitee, but
only with respect to information relating to such Registration Indemnitee
furnished in writing by or on behalf of such Registration Indemnitee expressly
for use in any Registration Statement or Prospectus. If any Action will be
brought against AFG, any of its directors, any such officer or any such
controlling person based on any Registration Statement or Prospectus and in
respect of which indemnity may be sought against a Registration Indemnitee
pursuant to this paragraph (b), PLMI shall have the rights and duties given to
AFG by Section 8.4 hereof (except that if AFG shall have assumed the defense
thereof such Registration Indemnitee shall not be required to do so, but may
employ separate counsel therein and participate in the defense thereof, but the
fees and expenses of such counsel shall be at such Registration Indemnitee's
expense), and AFG, its directors, any such officer and any such controlling
person shall have the rights and duties given to such Registration Indemnitee by
Section 8.4 hereof.
SECTION VIII.3 Contribution.
------------
(a) If the indemnification provided for in this Article VIII is
unavailable to an indemnified party under Section 8.2 hereof in respect of any
Losses referred to therein, then an indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses (i) in such proportion as is
appropriate to reflect the relative benefits received by AFG on the one hand and
the applicable Registration Indemnitee
27
<PAGE>
on the other hand from the offering of the securities covered by the applicable
Registration Statement and Prospectus or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of AFG on the one hand and the applicable
Registration Indemnitee on the other in connection with the statements or
omissions that resulted in such Losses, as well as any other relevant equitable
considerations. The relative benefits received by AFG on the one hand and a
Registration Indemnitee on the other shall be deemed to be in the same
proportion as the total net proceeds from the applicable securities offering
(before deducting expenses) received by AFG bear to the total net proceeds from
such offering (before deducting expenses) received by such Registration
Indemnitee. The relative fault of AFG on the one hand and the applicable
Registration Indemnitee on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by AFG on the one hand or by such Registration Indemnitee
on the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(b) AFG and each Registration Indemnitee agree that (i) it would not
be just and equitable if contribution pursuant to this Section 8.3 were
determined by a pro rata allocation or by any other method of allocation that
--- ----
does not take account of the equitable considerations referred to in paragraph
(a) above and (ii) the amount paid or payable by an indemnified party as a
result of the Losses referred to in paragraph (a) above shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
any related claim or defending any related Action. Notwithstanding the
provisions of this Section 8.3, a Registration Indemnitee shall not be required
to contribute any amount in excess of the amount by which the proceeds to such
Registration Indemnitee exceeds the amount of any damages that Registration
Indemnitee has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission; provided, however,
-------- -------
that the limitation on required contribution set forth in this sentence shall
not apply to Losses referred to in paragraph (a) above and related to the
Initial Public Offering. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
SECTION VIII.4 Procedure. If any Action shall be brought against a
---------
Registration Indemnitee or any other person entitled to indemnification pursuant
to this
28
<PAGE>
Article VIII (collectively with the Registration Indemnitees, the
"Indemnitees") in respect of which indemnity may be sought against AFG, such
- ------------
Indemnitee shall promptly notify AFG, and AFG shall assume the defense thereof,
including the employment of counsel and payment of all fees and expenses. Such
Indemnitee shall have the right to employ separate counsel in any such action,
suit or proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such person unless (i) AFG
has agreed in writing to pay such fees and expenses, (ii) AFG has failed to
assume the defense and employ counsel, or (iii) the named parties to an Action
(including any impleaded parties) include both an Indemnitee and AFG and such
Indemnitee shall have been advised by its counsel that representation of such
indemnified party and AFG by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them (in which case AFG shall not have the right to assume the
defense of such Action on behalf of such Indemnitee). It is understood,
however, that AFG shall, in connection with any one such Action or separate but
substantially similar or related Actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Indemnitees not having actual or potential
differing interests among themselves, and that all such fees and expenses shall
be reimbursed as they are incurred. AFG shall not be liable for any settlement
of any such Action effected without its written consent, but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such Action, AFG agrees to indemnify and hold harmless each Indemnitee, to the
extent provided in the preceding paragraph, from and against any Losses by
reason of such settlement or judgment.
SECTION VIII.5 Other Matters.
-------------
(a) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened Action
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such Action.
(b) Any Losses for which an indemnified party is entitled to
indemnification or contribution under this Article VIII shall be paid by the
indemnifying party to the indemnified party as such Losses are incurred. The
indemnity and contribution agreements contained in this Article VIII shall
remain operative and in full
29
<PAGE>
force and effect, regardless of (i) any investigation made by or on behalf of
any Indemnitee, AFG, its directors or officers, or any person controlling AFG,
and (ii) any termination of this Agreement.
(c) The parties hereto shall, and shall cause their respective
Subsidiaries to, cooperate with each other in a reasonable manner with respect
to access to unprivileged information and similar matters in connection with any
Action. The provisions of this Article VIII are for the benefit of, and are
intended to create third-party beneficiary rights in favor of, each of the
indemnified parties referred to herein.
ARTICLE IX
OTHER PROVISIONS
SECTION IX.1 Intercompany Borrowings. From and after the effective
-----------------------
date of the Warehouse Credit Facility, no member of the PLMI Affiliated Group
shall be obligated to make advances to AFG or any Subsidiary of AFG pursuant to,
or to permit AFG or any Subsidiary of AFG to otherwise participate in, the Old
Warehouse Credit Facility. To the extent that any member of the PLMI Affiliated
Group makes any such advances or otherwise allows such use of the Old Warehouse
Credit Facility by AFG or any Subsidiary of AFG, AFG agrees that (i) AFG shall
pay any and all costs, fees and expenses (including an appropriate charge for
interest) associated with or incurred under the Old Warehouse Credit Facility on
a basis that is consistent with the past cost allocation practices of the
members of the PLMI Affiliated Group, (ii) AFG shall, and shall cause each of
its Subsidiaries to, comply with all of the terms and conditions of the Old
Warehouse Credit Facility and (iii) the continued use of the Old Warehouse
Credit Facility by AFG or any Subsidiary of AFG shall be subject to the
continuing consent of PLMI, which may be revoked by PLMI at any time, in whole
or in part, in the sole and absolute discretion of PLMI.
SECTION IX.2 Keepwell Payments. AFG agrees to reimburse any member
-----------------
of the PLMI Affiliated Group who has provided a Keepwell for any and all amounts
paid or payable (including all fees, costs and expenses incurred) by such member
of the PLMI Affiliated Group in connection with the performance by such member
of its obligations under any Keepwell.
ARTICLE X
MISCELLANEOUS
30
<PAGE>
SECTION X.1 Notices. All notices and other communications provided
-------
for hereunder shall be dated and in writing and shall be deemed to have been
given (a) when delivered, if delivered personally, sent by confirmed telecopy or
sent by registered or certified mail, return receipt requested, postage prepaid,
(b) on the next Business Day, if sent by overnight courier and (c) when
received, if delivered otherwise. Such notices shall be delivered to the
address set forth below, or to such other address as a party shall have
furnished to the other party in accordance with this Section.
If to PLMI or any other member of the PLMI Affiliated Group, to:
PLM International, Inc.
One Market
Steuart Street Tower, Suite 800
San Francisco, California 94105
Attention: General Counsel
Telephone: (415) 974-1399
Telecopier: (415) 882-0860
If to AFG, to:
American Finance Group, Inc.
24 School Street
Boston, Massachusetts 02108
Attention: President
Telephone: (617) 557-9300
Telecopier: (617) 557-9348
SECTION X.2 Binding Nature of Agreement. This Agreement shall be
---------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto or their successors in interest, except as expressly otherwise provided
herein.
SECTION X.3 Descriptive Headings. The descriptive headings of the
--------------------
several articles and sections of this Agreement are inserted for reference only
and shall not limit or otherwise affect the meaning hereof.
SECTION X.4 Remedies. Without limiting the rights of each party
--------
hereto to pursue any and all other legal and equitable rights available to such
party for the other party's failure to perform its obligations under this
Agreement, the parties
31
<PAGE>
hereto acknowledge and agree that the remedy at law for any failure to perform
their obligations hereunder would be inadequate and that each of them,
respectively, shall be entitled to specific performance, injunctive relief or
other equitable remedies in the event of any such failure. Without limiting the
generality of the foregoing, AFG acknowledges and agrees that (a) its covenants
and obligations hereunder are special, unique and relate to matters of
extraordinary importance to PLMI, that in the event AFG fails to perform,
observe or discharge any of its obligations under this agreement, PLMI will be
irreparably harmed and that no remedy at law will provide adequate relief to
PLMI and (b) PLMI shall be entitled to a temporary restraining order and
temporary and permanent injunctive and other equitable relief in case of any
failure by AFG to perform, observe or discharge any of its covenants or
obligations hereunder and without the necessity of proving actual damages. The
remedies provided herein shall be cumulative and shall not preclude assertion by
either party hereto of any other rights or the seeking of any other remedies,
either legal or equitable, against the other party hereto.
SECTION X.5 Governing Law. This Agreement shall be construed and
-------------
enforced in accordance with, and the rights and duties of the parties shall be
governed by, the laws of the State of Delaware, without regard to its principles
of conflicts of law.
SECTION X.6 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION X.7 Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of such provision in every other respect
and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
SECTION X.8 Amendment and Modification. Subject to applicable law,
--------------------------
this Agreement may be amended, modified or supplemented only by written
agreement executed by each of the parties hereto.
SECTION X.9 Entire Agreement; No Third Party Beneficiaries. This
----------------------------------------------
Agreement, including any schedules or exhibits annexed hereto, constitutes the
entire agreement and understanding of the parties hereto in respect of the
transactions
32
<PAGE>
contemplated by this Agreement. There are no restrictions, promises,
representations, warranties, covenants or undertakings, written or oral, between
the parties hereto in respect thereof other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties hereto with respect to such subject matter.
This Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
SECTION X.10 No Assignment. Except as otherwise provided in Section
-------------
7.9 hereof, neither this Agreement nor any of the rights, interests or
obligations of either party hereto may be assigned by such party without the
prior written consent of the other party hereto; provided, however, that PLMI
-------- -------
may assign all or part of its rights or obligations hereunder to one or more
other members of the PLMI Affiliated Group without the prior consent of AFG.
SECTION X.11 Recapitalization, Dilution Adjustments, etc. In the event
--------------------------------------------
that any capital stock or other securities are issued in respect of, in exchange
for, or in substitution of, any shares of Common Stock by reason of any
reorganization, recapitalization, reclassification, merger, consolidation, spin-
off, partial or complete liquidation, stock dividend, split-up, sale of assets,
distribution to stockholders or combination of the shares of Common Stock, then,
in each such case, appropriate adjustments shall be made so as to fairly and
equitably preserve, as far as practicable, the original rights and obligations
of the parties hereto under this Agreement.
SECTION X.12 Further Assurances. Each party hereto shall, on notice
------------------
of request from the other party hereto, take such further action not
specifically required hereby at the expense of the requesting party, as the
requesting party may reasonably request for the implementation of the
transactions contemplated hereby.
33
<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective duly authorized representatives as of
the day and year first above written.
AMERICAN FINANCE GROUP, INC.
By:
------------------------------
Name:
Title:
PLM INTERNATIONAL, INC.
By:
-----------------------------
Name:
Title:
34
<PAGE>
EXHIBIT A
CORPORATE SERVICES
ACCOUNTING SERVICES
(1) Processing of payroll (annual fee does not include direct [ADP] costs,
which will be charged directly to AFG)
(2) Processing of all accounts payable
(3) Cash management, including cash forecasts and reconciliations
(4) Debt compliance for the [bridge facility] and management of all drawdowns
and fundings on the [bridge]
(5) Filing of all debt compliance related to the Securitization Facility,
including the "waterfall". (PLM accounting will continue to complete the
agreed upon procedure review with KPMG, with the cost of KPMG's review to
be charged directly to AFG)
(6) Access to J.D. Edwards accounting software program
(7) Assistance in preparation of annual budget
(8) Assistance in preparation of any required forecasts
(9) Maintenance of Eagle software system, including completion of Phase 2
programming project
(10) Performance of all general ledger work, including:
(a) lease classifications and recording of income
(b) monthly reconciliation of all balance sheet accounts
(c) detailed reconciliation between Eagle detail reports and general
ledger
(d) recording and reconciling cash applications
(e) production of monthly budget versus actual reports
(f) preparation of all audit schedules required on a quarterly and annual
basis
(11) Preparation of 10-Q's and 10-K's
(12) Collaboration with KPMG on all audit matters (KPMG audit fees to be charged
directly to AFG)
(13) Assistance in UBK matters such as monthly transfer of rents and sales tax
payments
(14) Preparation of all state and federal income tax return for AFG each
Subsidiary of AFG
(15) Planning with respect to state and federal income taxes
(16) Consulting services on tax issues, as required
A-1
<PAGE>
HUMAN RESOURCES SERVICES
(17) Performance of all administrative functions related to hiring new
employees, including:
(1) preparation of employment letters
(2) insurance enrollment
(3) new employee orientation
(18) Negotiation of insurance coverage on an annual basis; administer any health
plan changes and assist in insurance claims. Process premium payments
(19) Administration of Flexible Spending Plan enrollment and processing monthly
flex plan claims and reconciling claims to reimbursements
(20) Administration of Vision Service Plan enrollment
(21) Updating employee handbook and communicating any changes as dictated by
regulatory changes. Keeping abreast of all federal and state labor laws
affecting AFG employees
(22) Updating job descriptions as required by ADA
(23) Administration of termination documentation to include information on
COBRA, HIPPA, certificate of coverage as required by law, letter re: right
to apply for unemployment as required by law. Termination documentation
also includes separate correspondence to spouses regarding the above same
information.
(24) Administration of 401(k) enrollment and communication of performance of and
changes to the plan. Processing of 401(k) loan requests. Also includes
any requirement for discrimination tests to ensure compliance with ERISA
regulations.
(25) Processing of payroll on the human resources side[?]
(26) Processing of any office services requests (e.g. business cards, stationery
and office supplies/equipment)
(27) Handling of any worker's compensation claims and any unemployment claims
contested by former AFG employees
(28) Processing of all leave of absence correspondence and monitoring
(29) Miscellaneous responsibilities related to employment verification requests,
company policy inquiries, training requests and enrollment, potential
vacation/personal/sick day discrepancy inquiries, overtime/pay check
questions, etc.
(30) Continued implementation and monitoring of Ergonomics program
A-2
<PAGE>
LEGAL SERVICES
(31) General corporate services, including corporate filings, powers [?], by-law
and charter maintenance and other services required to maintain good
standing of AFG and its Subsidiaries
(32) Legal, contract and litigation overview
(33) Consulting on all legal matters, new transactions and other issues
(34) All outside legal invoices, for work performed by non-PLMI attorneys, to be
billed directly to AFG
MIS SERVICES
(35) Access to programs and data files on PLMI's AS/400 computer
(36) Weekly backup of LAAMS and Eagle programs and data files
(37) Offsite storage of LAAMS and Eagle programs and data files
(38) Disaster recovery services to ensure uninterrupted access to programs and
data files
(39) Loading of monthly Vertex tapes
(40) Programming of enhancements to the LAAMS system (not to exceed 50 hours per
week during any peak period; not to exceed 25 hours per week on average)
(41) Maintenance and enhancement (as necessary) to the LAAMS-Eagle interface
(42) Maintenance of suitable text environments necessary to development of
improvements in programs, restatement of data, etc.
(43) Technical support for maintaining an acceptably fast and secure data
network from the AFG's Boston-based network into PLMI's San Francisco-based
network
(44) Network access to the J.D. Edwards system (upgrades to JDE to be provided
so that AFG accounting software is kept current)
<PAGE>
Exhibit 21.1
AMERICAN FINANCE GROUP, INC. SUBSIDIARIES
<TABLE>
<CAPTION>
NAME STATE OR BUSINESS
JURISDICTION NAME
WHERE ORGANIZED
<S> <C> <C>
AFG Credit Corp. ................... Delaware Same
AFG Acquisition Corp. ............... Delaware Same
AFG/Ireland II, Inc. ............... Massachusetts Same
AFG/Eireann Limited Partnership II.. Massachusetts Same
AFG/Ireland III, Inc. .............. Massachusetts Same
AFG Eireann Limited Partnership III. Massachusetts Same
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Consolidated Financial and Operating
Data" and "Experts" in this registration statement.
San Francisco, California
May 5, 1998
<TABLE> <S> <C>
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<S> <C> <C> <C>
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<PERIOD-END> DEC-31-1995 DEC-31-1996 DEC-31-1997
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0 0 0
0 0 0
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