UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A-1
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 33-40093
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PLM EQUIPMENT GROWTH FUND VI
(Exact name of registrant as specified in its charter)
California 94-3135515
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Steuart Street Tower
Suite 800, San Francisco, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Aggregate market value of voting stock: N/A
An index of exhibits filed with this Form 10-K is located at page 53.
Total number of pages in this report: 131.
<PAGE>
PART I
ITEM 1. BUSINESS
(A) Background
In April 1991, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly-owned subsidiary of PLM International, Inc. (PLM International or PLMI),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 8,750,000 limited partnership
units (the units) in PLM Equipment Growth Fund VI, a California limited
partnership (the Partnership, the Registrant, or EGF VI). The Partnership's
offering became effective on December 23, 1991. FSI, as General Partner, owns a
5% interest in the Partnership. The Partnership engages in the business of
investing in a diversified equipment portfolio consisting primarily of used,
long-lived, low-obsolescence capital equipment that is easily transportable by
and among prospective users.
The Partnership's primary objectives are:
(1) to invest in a diversified portfolio of low obsolescence equipment with
long lives and high residual values, at prices that the General Partner believes
to be below inherent values and to place the equipment on lease or under other
contractual arrangements with creditworthy lessees and operators of equipment.
All transactions over $1.0 million must be approved by PLM International's
Credit Review Committee (the Committee), which is made up of members of PLM
International's senior management. In determining a lessee's creditworthiness,
the Committee considers, among other factors, the lessee's financial statements,
internal and external credit ratings, and letters of credit;
(2) to generate sufficient net operating cash flow from lease operations to
meet liquidity requirements and to generate cash distributions to the limited
partners until such time as the General Partner commences the orderly
liquidation of the Partnership assets or unless the Partnership is terminated
earlier upon sale of all Partnership property or by certain other events;
(3) to create a significant degree of safety relative to other equipment
leasing investments through the purchase of a diversified equipment portfolio.
This diversification reduces the exposure to market fluctuations in any one
sector. The purchase of used, long-lived, low-obsolescence equipment, typically
at prices that are substantially below the cost of new equipment, also reduces
the impact of economic depreciation and can create the opportunity for
appreciation in certain market situations, where supply and demand return to
balance from oversupply conditions; and
(4) to increase the Partnership's revenue base by reinvesting a portion of
its operating cash flow in additional equipment during the first six years of
the Partnership's operation in order to grow the size of its portfolio. Since
net income and distributions are affected by a variety of factors, including
purchase prices, lease rates, and costs and expenses, growth in the size of the
Partnership's portfolio does not necessarily mean that in all cases the
Partnership's aggregate net income and distributions will increase upon the
reinvestment of operating cash flow.
The offering of units of the Partnership closed on May 24, 1993. As of December
31, 1998, there were 8,206,339 units outstanding. The General Partner
contributed $100 for its 5% general partner interest in the Partnership.
Beginning in the Partnership's seventh year of operation, which commences
January 1, 2000, the General Partner will stop reinvesting cash flow and surplus
funds, which, if any, less reasonable reserves, will be distributed to the
partners. In the ninth year of operations of the Partnership, which commences
January 1, 2002, the General Partner intends to begin the dissolution and
liquidation of the Partnership in an orderly fashion, unless the Partnership is
terminated earlier upon sale of all of the equipment or by certain other events.
Under certain circumstances, however, the term of the Partnership may be
extended. In no event will the Partnership be extended beyond December 31, 2011.
(This space intentionally left
blank.)
<PAGE>
Table 1, below, lists the equipment and the cost of equipment in the
Partnership's portfolio, and the cost of investments in unconsolidated
special-purpose entities as of December 31, 1998 (in thousands of dollars):
TABLE 1
<TABLE>
<CAPTION>
Units Type Manufacturer Cost
- -------------------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
<S> <C> <C> <C>
2 Container cargo carrier vessels O. C. Staalskibsvaerft A/F $ 16,036
1 Brown water vessel Moss Point Marine 10,058
1 DC-9-82 Stage III commercial aircraft McDonnell Douglas 13,951
1 737-200 Stage II commercial aircraft Boeing 5,406
1 Portfolio of aircraft rotables Various 2,273
422 Pressurized tank railcars Various 11,970
203 Nonpressurized tank railcars Various 3,582
139 Covered hopper railcars Various 3,086
189 Over-the-road refrigerated trailers Various 5,702
345 Dry piggyback trailers Stoughton 5,304
287 Over-the-road dry trailers Various 2,198
3,026 Various marine containers Various 8,301
186 Refrigerated marine containers Various 2,888
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Total owned equipment held for operating leases $ 90,755<F1>
=============
Investments in unconsolidated special-purpose entities:
0.64 Trust comprised of a 767-200ER
Stage III commercial aircraft Boeing $ 27,329<F3>
0.40 Equipment on direct finance lease:
Two DC-9 Stage III commercial aircraft McDonnell Douglas 4,505<F3>
0.53 Product tanker Boelwerf-Temse 10,476<F2>
0.50 Container cargo feeder vessel O. C. Staalskibsvaerft A/F 4,004<F2>
0.20 Handymax dry bulk carrier marine vessel Tsuneishi Shipbuilding Co., Ltd 3,553<F2>
0.30 Mobile offshore drilling unit AT & CH de France 6,166<F3>
0.25 Marine containers Various 2,489<F2>
-----------
Total investments in unconsolidated special-purpose entities $ 58,522<F1>
=============
<FN>
<F1> Includes equipment and investments purchased with the proceeds from capital
contributions, undistributed cash flow from operations, and Partnership
borrowings invested in equipment. Includes costs capitalized, subsequent to
the date of purchase, and equipment acquisition fees paid to PLM
Transportation Equipment Corporation (TEC), or PLM Worldwide Management
Services (WMS).
<F2> Jointly owned: EGF VI and an affiliated program.
<F3> Jointly owned: EGF VI and two affiliated programs.
</FN>
</TABLE>
The equipment is generally leased under operating leases with terms of one to
six years. Some of the Partnership's marine containers are leased to operators
of utilization-type leasing pools, which include equipment owned by unaffiliated
parties. In such instances, revenues received by the Partnership consist of a
specified percentage of revenues generated by leasing the pooled equipment to
sublessees after deducting certain direct operating expenses of the pooled
equipment.
As of December 31, 1998, approximately 58% of the Partnership's trailer
equipment operated in rental yards owned and maintained by PLM Rental, Inc., the
short-term trailer rental subsidiary of PLM International doing business as PLM
Trailer Leasing. Revenues collected under short-term rental agreements with the
rental yards' customers are credited to the owners of the related equipment as
received. Direct expenses associated with the equipment are charged directly to
the Partnership. An allocation of other indirect expenses of the rental yard
operations is charged to the Partnership monthly.
The lessees of the equipment include but are not limited to: Transamerica
Leasing, Burlington Northern Railroad Company, Northern Navigation Services,
Inc., Malaysian Air Systems Berhad, CSX Transportation, Inc., Union Pacific
Railroad Company, Trans World Airlines. Aero California, Westway Express
Incorporated, and Pacific Carriers Ltd.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the audited financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned or invested in by the Partnership is leased out
on an operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of the equipment. The short to mid-term nature of operating
leases generally commands a higher rental rate than the longer-term full payout
leases and offers lessees relative flexibility in their equipment commitment. In
addition, the rental obligation under an operating lease need not be capitalized
on the lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e., leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance service (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), GATX Corp., General Electric
Railcar Services Corporation, General Electric Capital Aviation Services
Corporation, Xtra Corporation, and other programs that lease the same types of
equipment.
(D) Demand
The Partnership operates in the following operating segments: aircraft leasing,
marine vessel leasing, marine container leasing, railcar leasing, trailer
leasing, and mobile offshore drilling unit leasing. Each equipment leasing
segment engage in short-term to mid-term operating leases to a variety of
customers. Except for those aircraft leased to passenger air carriers, the
Partnership's equipment and investments are used to transport materials and
commodities, rather than people.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Marine Vessels
The Partnership owns or has investments in small to medium-sized dry bulk
vessels, product tankers, and container vessels that trade in worldwide markets
and carry commodity cargoes. Demand for commodity shipping closely follows
worldwide economic growth patterns, which can alter demand by causing changes in
volume on trade routes. The General Partner operates the Partnership's vessels
through spot and period charters, an operating approach that provides the
flexibility to adapt to changing market situations.
The markets for both dry bulk vessels and product tankers weakened in 1998. Dry
bulk vessels experienced a decline in freight rates, as demand for commodity
shipments remained flat and fleet capacity increased marginally. Freight rates
for product tankers weakened during the course of the year, after a very strong
1997. Demand for product shipments decreased, while the fleet grew moderately.
The Asian recession has had significant effects on world shipping markets, and
demand is unlikely to improve until Pacific Rim economies experience a sustained
recovery.
(a) Dry Bulk Vessels
Freight rates for dry bulk vessels decreased for all ship sizes in 1998, with
the largest vessels experiencing the greatest declines. After a relatively
stable year in 1997, rates declined due to a decrease in cargo tonnage moving
from the Pacific Basin and Asia to western ports. The size of the overall dry
bulk carrier fleet decreased by 3%, as measured by the number of vessels, but
increased by 1%, as measured by deadweight (dwt) tonnage. While scrapping of
ships was a significant factor in 1998 (scrapping increased by 50% over 1997)
overall there was no material change in the size of the dry bulk vessel fleet,
as deliveries and scrapings were nearly equal.
Total dry trade (as measured in deadweight tons) was flat, compared to a 3%
growth in 1997. As a result, the market had no foundation for increasing freight
rates, and charter rates declined as trade not only failed to grow, but actually
declined due to economic disruptions in Asia. Overall activity is expected to
remain flat in 1999, with trade in two of the three major commodities static or
decreasing in volume. Iron ore volume is expected to decrease, and grain trade
is anticipated to be flat, while a bright spot remains in an estimated increase
in steam coal trade.
Ship values experienced a significant decline in 1998, as expectations for trade
growth were dampened. The decline in ship values was also driven by bargain
pricing for newbuilding in Asian yards.
The uncertainty in forecasts is the Asian economic situation; if there is some
recovery from the economic shake-up that started in the second half of 1997,
then 1999 has prospects for improvement. The delivery of ships in 1999 is
expected to be less than in 1998, and high scrapping levels should continue. Dry
bulk shipping is a cyclical business -- inducing capital investment during
periods of high freight rates and discouraging investment during periods of low
rates. The current environment thus discourages investment. However, the history
of the industry implies that this period will be followed by one of increasing
rates and investment in new ships, driven by growth in demand. Over time, demand
grows at an average of 3% a year, so when historic levels of growth in demand
resume, the industry is expected to experience a significant increase in freight
rates and ship values.
(b) Product Tankers
Product tanker markets experienced a year in which a fall in product trade
volume and an increase in total fleet size induced a decline in freight rates.
Charter rates for standard-sized product tankers averaged $10,139 per day in
1998, compared to $13,277 per day in 1997. The weakening in rates resulted
primarily from a decrease in product import levels to the United States and
Japan. Significantly lower crude oil prices worldwide induced higher volumes of
imports of crude oil to the United States, thereby lessening domestic demand for
refined products. Product trade in 1998 fell by an estimated 5% worldwide. The
crude oil trade, which is closely related to product trades, especially in
larger vessels, remained stable in 1998. Crude trade grew 1% in volume, led by
imports to Europe, which grew 6%.
Overall, the entire product tanker fleet grew only 1% in 1998. Supply growth in
1998 was moderated by high scrapping levels, especially of larger ships. In
1999, the fleet is expected to receive an additional 9% in capacity from newly
built deliveries, most of which will be in large tankers (above 80,000 dwt tons)
carrying crude products. Smaller tankers (below 80,000 dwt tons) are expected to
receive 7% in new deliveries over current fleet levels.
While these new deliveries represent a high percentage of the existing fleet,
the tanker markets are now beginning to feel the effects of the United States
Oil Pollution Act of 1990. Under the act, older tankers are restricted from
trading to the United States once they exceed 25 years old if they do not have
double bottoms and/or double hulls. Similar though somewhat less stringent
restrictions are in place in other countries with developed economies. The
retirement of older, noncomplying tankers may allow the fleet to absorb what
would otherwise be an excessive number of new orders in relation to current
demand prospects. Given that a large proportion of the current tanker fleet does
not meet these regulatory requirements, coupled with anticipated flat demand yet
continuing high delivery levels, charter rates for 1999 are not anticipated to
increase significantly from 1998 levels.
(c) Container and Container Feeder Vessels
Container vessels transport containerized cargo. They are called feeder vessels
when they move containers from small, outlying ports to main transportation hub
ports, from which containers are moved by regularly scheduled liner services.
Container vessels typically carry up to about 1,000 20-foot-equivalent unit
containers (TEUs). This trade has been characterized by growth in both supply
and demand for the past several years; however, in 1998, patterns changed. All
containerized trade, as measured by TEU movement, grew 8% in shipments from
Asia, but declined 14% in shipments to Asia, for a composite decline of 1% over
1997 levels. This flattening of trade represents a significant change in the
container shipping markets, which have shown robust growth ever since containers
were introduced as a shipping medium.
As with other shipping markets, the lack of growth in demand has occurred at the
same time that the capacity to meet previously projected growth has been
underway, and charter rates have decreased accordingly. The total fleet of
containerized vessels has increased in capacity by over 60% since 1988. While
some of this growth has come from very large vessels, which have created
container shipping demand due to lower unit costs, the expansion of the fleet
has eroded charter rates, since demand has not grown as quickly. For the larger
container vessels (above 1,000 TEU per ship), rate erosion may continue, because
ships on order could add as much as 16% to existing capacity through 2001. For
feeder ships (less than 1,000 TEU), only 9% of existing capacity is on order,
and most remaining orders will be delivered in 1999. While these deliveries will
suppress prospects for improving feeder vessel charter rates in 1999, the lack
of planned deliveries beyond then provides some potential for rate and value
increases.
(2) Aircraft
(a) Commercial Aircraft
The world's major airlines experienced a fourth consecutive year of profits,
showing a combined marginal net income (net income measured as a percentage of
revenue) of 6%, compared to the industry's historical annual rate of 1%.
Airlines recorded positive marginal net annual income of 2% in 1995, 4% in 1996,
6% in 1997, and 6% in 1998. The two factors that have led to this increase in
profitability are improvements in yield management systems and reduced operating
costs, particularly lowered fuel costs. These higher levels of profitability
have allowed many airlines to re-equip their fleets with new aircraft, resulting
in a record number of orders for manufacturers.
Major airlines increased their fleets from 7,181 aircraft in 1997 to 7,323 in
1998, which has resulted in more used aircraft available on the secondary
market. Despite these increases, the number of Stage II aircraft in these fleets
(similar to those owned by the Partnership) decreased by 26% from 1997 to 1998,
and sharper decreases are expected in 1999. This trend is due to Federal
Aviation Regulation section C36.5, which requires airlines to convert 100% of
their fleets to Stage III aircraft, which have lower noise levels than Stage II
aircraft, by the year 2000 in the United States and the year 2002 in Canada and
Europe. Stage II aircraft can be modified to Stage III with the installation of
a hushkit that significantly reduces engine noise. The cost of hushkit
installation ranges from $1.0 to $2.0 million for the types of aircraft owned by
the Partnership.
Orders for new aircraft have risen rapidly worldwide in recent years: 691 in
1995, 1,182 in 1996, 1,328 in 1997, and an estimated 1,500 in 1998. As a result
of this increase in orders, manufacturers have expanded their production, and
new aircraft deliveries have increased from 482 in 1995, 493 in 1996, and 674 in
1997, to an estimated 825 in 1998.
The industry now has in place two of the three conditions that led to financial
problems in the early 1990s: potential excess orders and record deliveries. The
missing element is a worldwide recession. Should a recession occur, the industry
will experience another period of excess aircraft capacity and surplus aircraft
on the ground.
The Partnership's fleet consists of several Stage II narrowbody (single-aisle
aircraft), one Stage III widebody aircraft, and one Stage III narrowbody
aircraft. The Stage II aircraft are scheduled to be leased or sold outside Stage
III-legislated areas before the year 2000. It is anticipated that the Stage III
widebody aircraft now on lease will also be sold during 1999.
(b) Rotables
Aircraft rotables, or components, are replacement spare parts held in an
airline's inventory. They are recycled parts that are first removed from an
aircraft or engine, overhauled, and then recertified, returned to an airline's
inventory, and ultimately refit to an aircraft in as-new condition. Rotables
carry identification numbers that allow them to be individually tracked during
their use.
The types of rotables owned and leased by the Partnership include landing gear,
certain engine components, avionics, auxiliary power units, replacement doors,
control surfaces, pumps, and valves. The market for the Partnership's rotables
remains stable.
In 1998, the Partnership acquired rotable spare parts that are used on Stage III
narrowbody (single-aisle) aircraft in Europe. This purchase reflects the
Partnership's strategy to acquire quality used Stage III narrowbody aircraft,
engines, and spare parts.
(3) Railcars
(a) Pressurized Tank Cars
Pressurized tank cars transport primarily two chemicals: liquefied petroleum gas
(natural gas) and anhydrous ammonia (fertilizer). Natural gas is used in a
variety of ways in businesses, electric plants, factories, homes, and now even
cars. The demand for fertilizer is driven by a number of factors, including
grain prices, the status of government farm subsidy programs, the amount of
farming acreage and mix of crops planted, weather patterns, farming practices,
and the value of the U.S. dollar.
In North America, 1998 carload originations of both chemicals and petroleum
products remained relatively constant, compared to 1997. The 98% utilization
rate of the Partnership's pressurized tank cars was consistent with this
statistic.
(b) General-Purpose (Nonpressurized) Tank Cars
Tank cars that do not require pressurization are used to transport a variety of
bulk liquid commodities and chemicals, including certain petroleum fuels and
products, liquified asphalt, lubricating and vegetable oils, molten sulfur, and
corn syrup. The largest consumers of chemical products are the manufacturing,
automobile, and housing sectors. Because the bulk liquid industry is so diverse,
its overall health is reflected by such general indicators as changes in the
Gross Domestic Product, personal consumption expenditures, retail sales,
currency exchange rates, and national and international economic forecasts.
In North America, railcar loadings for the commodity group that includes
chemicals and petroleum products remained essentially unchanged, compared to
1997. The Partnership's general purpose cars continue to be in high demand, with
utilization over 98% in 1998.
(c) Covered Hopper (Grain) Cars
Covered hopper railcars are used to transport grain to domestic food processors,
poultry breeders, cattle feed lots, and for export. Demand for covered hopper
cars softened In 1998, as total North American grain shipments declined 8%,
compared to 1997, with grain shipments within Canada contributing to most of
this decrease. This has put downward pressure on lease rates, which has been
exacerbated by a significant increase in the number of covered hopper cars built
in the last few years. Since 1988, there has been a nearly 20% increase in rail
transportation capacity assigned to agricultural service. In 1996, just over
one-half of all new railcars built were covered hopper cars; in 1997, this
percentage dropped somewhat, to 38% of all cars built.
The Partnership's covered hopper cars were not impacted by the decrease in lease
rates during 1998, as all of the cars continued to operate on long-term leases.
(5) Trailers
(a) Intermodal (Piggyback) Trailers
Intermodal (piggyback) trailers are used to ship goods either by truck or by
rail. Activity within the North American intermodal trailer market declined
slightly in 1998, with trailer shipments down 4% from 1997 levels, due primarily
to rail service problems associated with the mergers in this area. Utilization
of the intermodal per diem rental fleet, consisting of approximately 170,000
units, was 73%. Intermodal utilization in 1999 is expected to decline another 2%
from 1998 levels, due to a slight leveling off of overall economic activity in
1999, after a robust year in 1998.
The General Partner has initiated expanded marketing and asset management
efforts for its intermodal trailers, from which it expects to achieve improved
trailer utilization and operating results. During 1998, average utilization
rates for the Partnership's intermodal trailer fleet approached 80%.
(b) Over-the-Road Dry Trailers
The U.S. over-the-road nonrefrigerated (dry) trailer market continued to recover
in 1998, with a strong domestic economy resulting in heavy freight volumes. The
leasing outlook continues to be positive, as equipment surpluses of recent years
are being absorbed by a buoyant market. In addition to high freight volumes,
declining fuel prices have led to a strong trucking industry and improved
equipment demand.
The Partnership's nonrefrigerated van fleet experienced strong utilization
throughout 1998, with utilization rates remaining well above 70% throughout the
year.
(c) Over-the-Road Refrigerated Trailers
The temperature-controlled over-the-road trailer market remained strong in 1998
as freight levels improved and equipment oversupply was reduced. Many
refrigerated equipment users retired older trailers and consolidated their
fleets, making way for new, technologically improved units. Production of new
equipment is backlogged into the third quarter of 1999. In light of the current
tight supply of trailers available on the market, it is anticipated that
trucking companies and other refrigerated trailer users will look outside their
own fleets more frequently by leasing trailers on a short-term basis to meet
their equipment needs.
This leasing trend should benefit the Partnership, which makes most of its
trailers available for short-term leasing from rental yards owned and operated
by a PLM International subsidiary. The Partnership's utilization of refrigerated
trailers showed improvement in 1998, with utilization rates approaching 70%,
compared to 60% in 1997.
(6) Marine Containers
The marine container market began 1998 with industrywide utilization in the low
80% range. This percentage eroded somewhat during the year, while per diem
rental rates remained steady. One factor affecting the market was the
availability of historically low-priced marine containers from Asian
manufacturers. This trend is expected to remain in 1999, and will continue to
put pressure on economic results fleetwide.
The trend toward industrywide consolidation continued in 1998, as the U.S.
parent company of one of the industry's top ten container lessors announced that
it would be outsourcing the management of its container fleet to a competitor.
While this announcement has yet to be finalized, over the long term, such
industrywide consolidation should bring more rationalization to the container
leasing market and result in both higher fleetwide utilization and per diem
rates.
<PAGE>
(7) Mobile Offshore Drilling Unit (Rig)
For the first half of 1998, overall worldwide demand for mobile offshore
drilling units (rigs) continued the increases experienced in 1996 and 1997.
During the second half of the year, demand softened -- particularly in the
shallow-water U.S. Gulf markets -- due to decreases in worldwide oil prices and
U.S. gas prices. Day rates in the shallow-water sector showed significant
decreases; however, day rates for deep-water floating rigs maintained the gain
attained earlier in the year. Future prospects for offshore drilling markets are
favorable, since low oil and gas prices, along with economic growth in general,
tend to stimulate demand for oil and gas. In the short term, 1999 is expected to
be a flat year for growth in the offshore markets, with the exception of
long-term projects already planned or contracted by large international oil and
gas exploration and development companies.
The Partnership currently has an interest in one drillship, a floating drilling
rig. The floating rig market has experienced the most improvement of all rig
types since 1995. Technological advances and more efficient operations have
improved the economics of drilling and production in the deepwater locations in
which floating rigs are utilized. Overall, demand for floating rigs increased
from 128 rig-years in 1996 to 131 rig-years in 1997, and stayed at that level in
1998 (a rig-year is the equivalent of one rig employed for 12 consecutive
months). The increase in demand and utilization during this period prompted
significant increases in contract day rates and an associated increase in market
values for floating rigs. Currently 177 floating rigs (151 semisubmersibles and
26 drillships) are operating internationally and 39 floating rigs are on order
or undergoing conversion, scheduled for delivery between 1999 and 2001. All but
six of these newbuildings and conversions have already been contracted for more
than two years. This high level of commitment should prevent a significant
deterioration in the market as the rigs are delivered.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign government authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require it's removal from service or extensive modification to meet these
regulations at considerable cost to the Partnership. Such regulations include
but are not limited to:
(1) the U.S. Oil Pollution Act of 1990, which established liability for
operators and owners of vessels and mobile offshore drilling units that
create environmental pollution. This regulation has resulted in higher oil
pollution liability insurance. The lessee of the equipment typically
reimburses the Partnership for these additional costs;
(2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990,
which limits or eliminates the operation of commercial aircraft in the U.S.
that do not meet certain noise, aging, and corrosion criteria. In addition,
under U.S. Federal Aviation Regulations, after December 31, 1999, no person
may operate an aircraft to or from any airport in the contiguous United
States unless that aircraft has been shown to comply with Stage III noise
levels. The Partnership has a Stage II aircraft that does not meet Stage
III requirements. This Stage II aircraft is scheduled to be either modified
to meet Stage III requirements, sold, or re-leased in a country that does
not require this regulation before the year 2000. The cost to install a
hushkit to meet quieter Stage III requirements is approximately $1.5
million, depending on the type of aircraft;
(3) the Montreal Protocol on Substances that Deplete the Ozone Layer and
the U.S. Clean Air Act Amendments of 1990, which call for the control and
eventual replacement of substances that have been found to cause or
contribute significantly to harmful effects on the stratospheric ozone
layer and which are used extensively as refrigerants in refrigerated marine
cargo containers and over-the-road refrigerated trailers;
(4) the U.S. Department of Transportation's Hazardous Materials
Regulations, which regulate the classification and packaging requirements
of hazardous materials and which apply particularly to the Partnership's
tank railcars, issued a statement that requires the Partnership to
initially inspect approximately 23% of the tank railcars for a protective
coating to the outside of the tank, as well as the inside of the metal tank
jacket whenever a tank is insulated. If any of the inspected tank railcars
fail to meet the requirements, an additional percentage of the tank
railcars will need to be inspected. If all the tank railcars in the initial
inspection meet the issued requirements, the remaining railcars will be
eliminated from the inspection program. The Partnership owns 73 tank
railcars that need to be inspected. Tank railcars that fail the inspection,
will have to be repaired at a cost of approximately $25,000 each before it
can go back into service by August 2000. The Partnership plans to complete
the initial inspection of the tank railcars by the end of March 1999.
As of December 31, 1998, the Partnership is in compliance with the above
governmental regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased and its interest in entities that own equipment for leasing
purposes. As of December 31, 1998, the Partnership owned a portfolio of
transportation and related equipment and investments in equipment owned by
unconsolidated special-purpose entities (USPE's) as described in Item 1, Table
1. The Partnership acquired equipment with the proceeds of the Partnership
offering of $166.1 million through the third quarter of 1993, with proceeds from
the debt financing of $30.0 million, and by reinvesting a portion of its
operating cash flow in additional equipment.
The Partnership maintains its principal office at One Market, Steuart Street
Tower, Suite 800, San Francisco, California 94105-1301. All office facilities
are provided by FSI without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
PLM International, (the Company) and various of its affiliates are named as
defendants in a lawsuit filed as a purported class action on January 22, 1997 in
the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the
Koch action). Plaintiffs, who filed the complaint on their own and on behalf of
all class members similarly situated (the class), are six individuals who
invested in certain California limited partnerships (the Partnerships) for which
the Company's wholly-owned subsidiary, PLM Financial Services, Inc. (FSI), acts
as the general partner, including the Partnership, PLM Equipment Growth Funds V,
and IV, and PLM Equipment Growth & Income Fund VII (the Growth Funds). The state
court ex parte certified the action as a class action (i.e., solely upon
plaintiffs' request and without the Company being given the opportunity to file
an opposition). The complaint asserts eight causes of action against all
defendants, as follows: fraud and deceit, suppression, negligent
misrepresentation and suppression, intentional breach of fiduciary duty,
negligent breach of fiduciary duty, unjust enrichment, conversion, and
conspiracy. Additionally, plaintiffs allege a cause of action against PLM
Securities Corp. for breach of third party beneficiary contracts in violation of
the National Association of Securities Dealers rules of fair practice.
Plaintiffs allege that each defendant owed plaintiffs and the class certain
duties due to their status as fiduciaries, financial advisors, agents, and
control persons. Based on these duties, plaintiffs assert liability against
defendants for improper sales and marketing practices, mismanagement of the
Growth Funds, and concealing such mismanagement from investors in the Growth
Funds. Plaintiffs seek unspecified compensatory and recissory damages, as well
as punitive damages, and have offered to tender their limited partnership units
back to the defendants.
In March 1997, the defendants removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama, Southern
Division (Civil Action No. 97-0177-BH-C) based on the district court's diversity
jurisdiction, following which plaintiffs filed a motion to remand the action to
the state court. Removal of the action to federal court automatically nullified
the state court's ex parte certification of the class. In September 1997, the
district court denied plaintiffs' motion to remand the action to state court and
dismissed without prejudice the individual claims of the California plaintiff,
reasoning that he had been fraudulently joined as a plaintiff. In October 1997,
defendants filed a motion to compel arbitration of plaintiffs' claims, based on
an agreement to arbitrate contained in the limited partnership agreement of each
Growth Fund, and to stay further proceedings pending the outcome of such
arbitration. Notwithstanding plaintiffs' opposition, the district court granted
defendants' motion in December 1997.
Following various unsuccessful requests that the district court reverse, or
otherwise certify for appeal, its order denying plaintiffs' motion to remand the
case to state court and dismissing the California plaintiff's claims, plaintiffs
filed with the U.S. Court of Appeals for the Eleventh Circuit a petition for a
writ of mandamus seeking to reverse the district court's order. The Eleventh
Circuit denied plaintiffs' petition in November 1997, and further denied
plaintiffs subsequent motion in the Eleventh Circuit for a rehearing on this
issue. Plaintiffs also appealed the district court's order granting defendants'
motion to compel arbitration, but in June 1998 voluntarily dismissed their
appeal pending settlement of the Koch action, as discussed below.
On June 5, 1997, the Company and the affiliates who are also defendants in the
Koch action were named as defendants in another purported class action filed in
the San Francisco Superior Court, San Francisco, California, Case No. 987062
(the Romei action). The plaintiff is an investor in PLM Equipment Growth Fund V,
and filed the complaint on her own behalf and on behalf of all class members
similarly situated who invested in certain California limited partnerships for
which FSI acts as the general partner, including the Growth Funds. The complaint
alleges the same facts and the same nine causes of action as in the Koch action,
plus five additional causes of action against all of the defendants, as follows:
violations of California Business and Professions Code Sections 17200, et seq.
for alleged unfair and deceptive practices, constructive fraud, unjust
enrichment, violations of California Corporations Code Section 1507, and a claim
for treble damages under California Civil Code Section 3345.
On July 31, 1997, defendants filed with the district court for the Northern
District of California (Case No. C-97-2847 WHO) a petition (the petition) under
the Federal Arbitration Act seeking to compel arbitration of plaintiff's claims
and for an order staying the state court proceedings pending the outcome of the
arbitration. In connection with this motion, plaintiff agreed to a stay of the
state court action pending the district court's decision on the petition to
compel arbitration. In October 1997, the district court denied the Company's
petition to compel arbitration, but in November 1997, agreed to hear the
Company's motion for reconsideration of this order. The hearing on this motion
has been taken off calendar and the district court has dismissed the petition
pending settlement of the Romei action, as discussed below. The state court
action continues to be stayed pending such resolution. In connection with her
opposition to the petition to compel arbitration, plaintiff filed an amended
complaint with the state court in August 1997 alleging two new causes of action
for violations of the California Securities Law of 1968 (California Corporations
Code Sections 25400 and 25500) and for violation of California Civil Code
Sections 1709 and 1710. Plaintiff also served certain discovery requests on
defendants. Because of the stay, no response to the amended complaint or to the
discovery is currently required.
In May 1998, all parties to the Koch and Romei actions entered into a memorandum
of understanding (MOU) related to the settlement of those actions (the monetary
settlement). The monetary settlement contemplated by the MOU provides for
stipulating to a class for settlement purposes, and a settlement and release of
all claims against defendants and third party brokers in exchange for payment
for the benefit of the class of up to $6.0 million. The final settlement amount
will depend on the number of claims filed by authorized claimants who are
members of the class, the amount of the administrative costs incurred in
connection with the settlement, and the amount of attorneys' fees awarded by the
Alabama district court. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy.
The parties to the monetary settlement have also agreed in principal to an
equitable settlement (the equitable settlement) which provides, among other
things, (a) for the extension of the operating lives of the Partnership, PLM
Equipment Growth Fund V, and PLM Equipment Growth & Income Fund VII (the Funds)
by judicial amendment to each of their partnership agreements, such that FSI,
the general partner of each such Fund, will be permitted to reinvest cash flow,
surplus partnership funds or retained proceeds in additional equipment into the
year 2004, and will liquidate the partnerships' equipment in 2006; (b) that FSI
will be entitled to earn front end fees (including acquisition and lease
negotiation fees) in excess of the compensatory limitations set forth in the
North American Securities Administrators Association, Inc. Statement of Policy
by judicial amendment to the Partnership Agreements for each Fund; (c) for a one
time redemption of up to 10% of the outstanding units of each Fund at 80% of
such partnership's net asset value; and (d) for the deferral of a portion of
FSI's management fees. The equitable settlement also provides for payment of the
equitable settlement attorneys' fees from Partnership funds in the event that
distributions paid to investors in the Funds during the extension period reach a
certain internal rate of return.
Defendants will continue to deny each of the claims and contentions and admit no
liability in connection with the proposed settlements. The monetary settlement
remains subject to numerous conditions, including but not limited to: (a)
agreement and execution by the parties of a settlement agreement (the settlement
agreement), (b) notice to and certification of the monetary class for purposes
of the monetary settlement, and (c) preliminary and final approval of the
monetary settlement by the Alabama district court. The equitable settlement
remains subject to numerous conditions, including but not limited to: (a)
agreement and execution by the parties of the settlement agreement, (b) notice
to the current unitholders in the Funds (the equitable class) and certification
of the equitable class for purposes of the equitable settlement, (c)
preparation, review by the Securities and Exchange Commission (SEC), and
dissemination to the members of the equitable class of solicitation statements
regarding the proposed extensions, (d) disapproval by less than 50% of the
limited partners in each of the Funds of the proposed amendments to the limited
partnership agreements, (e) judicial approval of the proposed amendments to the
limited partnership agreements, and (f) preliminary and final approval of the
equitable settlement by the Alabama district court. The parties submitted the
settlement agreement to the Alabama district court on February 12, 1999, and the
preliminary class certification hearing is scheduled for March 24, 1999. If the
district court grants preliminary approval, notices to the monetary class and
equitable class will be sent following review by the SEC of the solicitation
statements to be prepared in connection with the equitable settlement. The
monetary settlement, if approved, will go forward regardless of whether the
equitable settlement is approved or not. The Company continues to believe that
the allegations of the Koch and Romei actions are completely without merit and
intends to continue to defend this matter vigorously if the monetary settlement
is not consummated.
The Partnership, together with affiliates, initiated litigation in various
official forums in India against a defaulting Indian airline lessee to repossess
Partnership property and to recover damages for failure to pay rent and failure
to maintain the aircraft in accordance with the relevant lease contract. The
Partnership has repossessed all of the property previously leased to the
airline, and the airline has ceased operations. In response to the Partnership's
collection efforts, the airline filed counter-claims against the Partnership in
excess of the Partnership's claims against the airline. The General Partner
believes that the airline's counterclaims are completely without merit, and the
General Partner will vigorously defend against such counterclaims.
The Partnership is involved as plaintiff or defendant in various other legal
actions incident to its business. Management does not believe that any of these
actions will be material to the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 1998.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED UNITHOLDER MATTERS
Pursuant to the terms of the partnership agreement, the General Partner is
generally entitled to a 5% interest in the profits and losses and cash
distributions of the Partnership. The General Partner is the sole holder of such
interests. Special allocations of income are made to the General Partner equal
to the deficit balance, if any, in the capital account of the General Partner.
The General Partner's annual allocation of net income will generally be equal to
the General Partner's cash distributions paid during the current year. The
remaining interests in the profits and losses and cash distributions of the
Partnership are allocated to the limited partners. As of December 31, 1998,
there were 8,037 limited partners holding units in the Partnership.
There are several secondary markets in which limited partnership units trade.
Secondary markets are characterized as having few buyers for limited partnership
interests and therefore are generally viewed as being inefficient vehicles for
the sale of limited partnership units. Presently, there is no public market for
the limited partnership units and none is likely to develop. To prevent the
units from being considered publicly traded and thereby to avoid taxation of the
Partnership as an association treated as a corporation under the Internal
Revenue Code, the limited partnership units will not be transferable without the
consent of the General Partner, which may be withheld in its absolute
discretion. The General Partner intends to monitor transfers of units in an
effort to ensure that they do not exceed the percentage or number permitted by
certain safe harbors promulgated by the Internal Revenue Service. A transfer may
be prohibited if the intended transferee is not an U.S. citizen or if the
transfer would cause any portion of the units of a "Qualified Plan" as defined
by the Employee Retirement Income Security Act of 1974 and Individual Retirement
Accounts to exceed the allowable limit. The Partnership may redeem a certain
number of units each year under the terms of the Partnership's Limited
Partnership Agreement, beginning November 24, 1995. If the number of units made
available for purchase by limited partners in any calendar year exceeds the
number that can be purchased with reinvestment plan proceeds, then the
Partnership may, subject to certain terms and conditions, redeem up to 2% of the
outstanding units each year. The purchase price to be offered by the Partnership
for these units will be equal to 110% of the unrecovered principal attributable
to the units. The unrecovered principal for any unit will be equal to the excess
of (i) the capital contribution attributable to the unit over (ii) the
distributions from any source paid with respect to the units. As of December 31,
1998, the Partnership had agreed to purchase approximately 23,700 units for an
aggregate price of $0.2 million. The General Partner anticipates that these
units will be repurchased in the first and second quarters of 1999. As of
December 31, 1998, the Partnership has repurchased a cumulative total of 111,908
units at a cost of $1.4 million. In addition to these units, the General Partner
may purchase additional limited partnership units on behalf of the Partnership
in the future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership:
TABLE 2
For the Years Ended December
31, (In thousands of dollars, except
weighted-average unit amounts)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating results:
Total revenues $ 24,545 $ 32,723 $ 31,436 $ 33,445 $ 37,467
Net gain on disposition of equipment 6,253 10,121 7,214 128 4,295
Loss on revaluation of equipment 4,276 -- -- -- 1,175
Equity in net income of unconsolidated
special-purpose entities 6,998 3,384 3,426 -- --
Net income (loss) 1,445 9,232 8,291 (1,974 ) (1,680 )
At year-end:
Total assets $ 88,337 $ 103,961 $ 113,525 $ 121,957 $ 139,848
Total liabilities 35,383 36,809 37,735 36,527 34,926
Note payable 30,000 30,000 31,286 30,000 30,000
Cash distribution $ 15,226 $ 17,384 $ 17,467 $ 17,518 $ 17,537
Cash distribution representing
a return of capital to the limited
partners $ 13,781 $ 8,152 $ 9,176 $ 16,642 $ 16,661
Per weighted-average limited partnership unit:
Net income (loss) $ 0.08 $ 1.01 $ 0.89 $ (0.34 ) $ (0.31 )
Cash distribution $ 1.76 $ 2.00 $ 2.00 $ 2.00 $ 2.00
Cash distribution representing
a return of capital $ 1.68 $ 0.99 $ 1.11 $ 2.00 $ 2.00
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund VI
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in various segments in which
it operates and its effect on the Partnership's overall financial condition.
(B) Results of Operations - Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to re-pricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be re-marketed. Major factors influencing the current market rate
for Partnership equipment include, but are not limited to, supply and demand for
similar or comparable types of transport capacity, desirability of the equipment
in the leasing market, market conditions for the particular industry segment in
which the equipment is to be leased, overall economic conditions, and various
regulations concerning the use of the equipment. Equipment that is idle or out
of service between the expiration of one lease and the assumption of a
subsequent lease can result in a reduction of contribution to the Partnership.
The Partnership experienced re-leasing or repricing activity in 1998 primarily
in its railcar, trailer, marine vessel, and container portfolios.
(a) Railcars: While this equipment experienced some re-leasing activity,
lease rates in this market remain relatively constant.
(b) Trailers: The Partnership's trailer portfolio operates in short-term
rental facilities or with short-line railroad systems. The relatively short
duration of most leases in these operations exposes the trailers to considerable
re-leasing activity.
(c) Marine vessels: Certain of the Partnership's marine vessels ended their
existing leases and were required to go into drydocking. These marine vessels
will be remarketed during 1999 exposing them to repricing and releasing risk.
(d) Marine containers: Some of the Partnership's marine containers that are
on lease are leased to operators of utilization-type leasing pools and, as such,
are highly exposed to repricing activity. The decline in marine container
contributions was due to equipment sales. Market conditions were relatively
constant in repricing activity during 1998.
(2) Equipment Liquidations and Nonperforming Lessees
Liquidation of Partnership equipment and investments in unconsolidated
special-purpose entities (USPEs), unless accompanied by an immediate replacement
of additional equipment earning similar rates (see Reinvestment Risk, below),
represents a reduction in the size of the equipment portfolio and may result in
a reduction of contribution to the Partnership. Lessees not performing under the
terms of their leases, either by not paying rent, not maintaining or operating
the equipment in accordance with the conditions of the leases, or other possible
departures from the lease terms, can result not only in reductions in
contribution, but also may require the Partnership to assume additional costs to
protect its interests under the leases, such as repossession or legal fees. The
Partnership experienced the following in 1998:
(a) Liquidations: During the year, the Partnership disposed of owned
equipment that included a commercial aircraft, an aircraft engine, marine
containers, trailers, and railcars, and an interest in a USPE trust that owned
four Stage II commercial aircraft for total proceeds of $29.1 million.
(b) Nonperforming lessees: A Brazilian lessee is having financial
difficulties. The lessee has contacted the General Partner and asked for an
extended repayment schedule for the lease payment arrearage. The General Partner
is currently in negotiation with the lessee to work out a suitable settlement
for both parties to collect the lease payments that are overdue.
(3) Reinvestment Risk
Reinvestment risk occurs when; the Partnership cannot generate sufficient
surplus cash after fulfillment of operating obligations and distributions to
reinvest in additional equipment during the reinvestment phase of Partnership
operations, equipment is sold or liquidated for less than threshold amounts,
proceeds from dispositions, or surplus cash available for reinvestment cannot be
reinvested at the threshold lease rates; or proceeds from sales or surplus cash
available for reinvestment cannot be deployed in a timely manner.
During the first six years of operations, the Partnership intends to increase
its equipment portfolio by investing surplus cash in additional equipment after
fulfilling operating requirements and paying distributions to the partners.
Subsequent to the end of the reinvestment period, the Partnership will continue
to operate for another two years and then begin an orderly liquidation over an
anticipated two-year period.
Other nonoperating funds for reinvestment are generated from the sale of
equipment prior to the Partnership's planned liquidation phase, the receipt of
funds realized from the payment of stipulated loss values on equipment lost or
disposed of during the time it is subject to lease agreements, or from the
exercise of purchase options in certain lease agreements. Equipment sales
generally result from evaluations by the General Partner that continued
ownership of certain equipment is either inadequate to meet Partnership
performance goals, or that market conditions, market values, and other
considerations indicate it is the appropriate time to sell certain equipment.
During 1998, the Partnership completed the purchase of an MD-82 Stage III
commercial aircraft for a cost of $13.4 million and paid acquisition and lease
negotiation fees of $0.7 million to FSI for the purchase of this equipment. The
Partnership made a deposit of $1.3 million toward this purchase in 1997, which
is included in the December 31, 1997 balance sheet as an equipment acquisition
deposit. Additionally, the Partnership purchased a portfolio of aircraft rotable
components for $2.2 million, a portfolio of marine containers for $5.0 million,
a group of railcars for $2.9 million, and a marine vessel for $9.6 million and
paid acquisition and lease negotiation fees of $1.1 million to FSI for the
purchase of this equipment.
Also during 1998, the Partnership entered into a commitment to purchase a marine
vessel for a cost of $6.7 million and made a deposit of $0.7 million toward this
purchase, which is included in the December 31, 1998 balance sheet as an
equipment acquisition deposit. The Partnership completed the purchase of this
equipment during February 1999 and paid $0.4 million in acquisition and lease
negotiation fees to FSI related to this acquisition.
(4) Equipment Valuation
In accordance with Financial Accounting Standards Board statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the General Partner reviews the carrying value of the
Partnership's equipment portfolio at least quarterly in relation to expected
future market conditions for the purpose of assessing the recoverability of the
recorded amounts. If the projected undiscounted future lease revenues plus
residual values are less than the carrying value of the equipment, a loss on
revaluation is recorded. Reductions of $4.3 million and $1.0 million to the
carrying value of owned equipment and partially owned equipment, respectively,
were required during 1998. No reductions were required to the carrying value of
equipment during 1997 or 1996.
As of December 31, 1998, the General Partner estimated the current fair market
value of the Partnership's equipment portfolio, including the Partnership's
interest in equipment owned by USPEs, to be $114.6 million. This estimate is
based on recent market transactions for equipment similar to the Partnership's
equipment portfolio and the Partnership's interest in equipment owned by USPEs.
Ultimate realization of fair market value by the Partnership may differ
substantially from the estimate due to specific market conditions, technological
obsolescence, and government regulations, among other factors, that the General
Partner cannot accurately predict.
(C) Financial Condition - Capital Resources, Liquidity, and Unit
Redemption Plan
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering of $166.1 million and permanent
debt financing of $30.0 million. No further capital contributions from the
limited partners are permitted under the terms of the Partnership's limited
partnership agreement. The Partnership's total outstanding indebtedness,
currently $30.0 million, can only be increased by a maximum of $5.0 million
subject to specific covenants in existing debt agreements unless the
Partnership's senior lender will issue a waiver.
The Partnership relies on operating cash flow to meet its operating obligations,
to make cash distributions to the limited partners, and increase the
Partnership's equipment portfolio with any remaining available surplus cash.
For the year ended December 31, 1998, the Partnership generated $14.3 million in
operating cash (net cash provided by operating activities plus non-liquidating
cash distributions from USPEs) to meet its operating obligations and make
distributions of $15.2 million to the partners, but also used undistributed
available cash from prior periods of approximately $0.9 million.
Pursuant the terms of the limited partnership agreement, beginning December 1,
1994, if the number of units made available for purchase by limited partners in
any calendar year exceeds the number that can be purchased with reinvestment
plan proceeds, then the Partnership may, subject to certain terms and
conditions, redeem up to 2% of the outstanding units each year. The purchase
price to be offered for such units will be equal to 110% of the unrecovered
principal attributed to the units. Unrecovered principal is defined as the
excess of the capital contribution attributable to a unit over the distributions
from any source paid with respect to that unit. As of December 31, 1998, the
Partnership had agreed to purchase approximately 23,700 units for an aggregate
price of approximately $0.2 million. The General Partner anticipates that these
units will be repurchased during the first and second quarters of 1999. In
addition to these units, the General Partner may purchase additional units on
behalf of the Partnership in the future.
The General Partner has entered into a joint $24.5 million credit facility (the
Committed Bridge Facility) on behalf of the Partnership, PLM Equipment Growth &
Income Fund VII (EGF VII) and Professional Lease Management Income Fund I (Fund
I), both affiliated investment programs; and TEC Acquisub, Inc. (TECAI), an
indirect wholly-owned subsidiary of the General Partner, which may be used to
provide interim financing of up to (i) 70% of the aggregate book value or 50% of
the aggregate net fair market value of eligible equipment owned by the
Partnership, plus (ii) 50% of unrestricted cash held by the borrower. The
Partnership, EGF VII, Fund I, and TECAI collectively may borrow up to $24.5
million of the Committed Bridge Facility. Outstanding borrowings by one borrower
reduce the amount available to each of the other borrowers under the Committed
Bridge Facility. The Committed Bridge Facility also provides for a $5.0 million
Letter of Credit Facility for the eligible borrowers. Individual borrowings may
be outstanding for no more than 179 days, with all advances due no later than
December 14, 1999. Interest accrues at either the prime rate or adjusted LIBOR
plus 1.625% at the borrower's option and is set at the time of an advance of
funds. Borrowings by the Partnership are guaranteed by the General Partner. As
of December 31, 1998, no eligible borrower had any outstanding borrowings. As of
March 17, 1999, the Partnership had outstanding borrowings of $3.7 million and
TECAI had outstanding borrowings of $9.4 million; no other eligible borrower had
any outstanding borrowings. The General Partner believes it will be able to
renew the Committed Bridge Facility upon its expiration with similar terms as
those in the current Committed Bridge Facility.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
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<PAGE>
(D) Results of Operations - Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1998 and 1997
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1998, when compared to the same
period of 1997. Gains or losses from the sale of equipment and certain expenses,
such as depreciation and amortization and general and administrative expenses
relating to the operating segments (see Note 5 to the audited financial
statements), are not included in the owned equipment operation discussion
because they are indirect in nature and not a result of operations, but the
result of owning a portfolio of equipment. The following table presents lease
revenues less direct expenses by segment (in thousands of dollars):
<TABLE>
<CAPTION>
For the Years
Ended December 31,
1998 1997
----------------------------
<S> <C> <C>
Rail equipment $ 3,254 $ 3,134
Aircraft, aircraft engines, and components 2,845 3,083
Trailers 2,478 2,890
Marine vessels 1,678 1,610
Marine containers 911 1,668
</TABLE>
Rail equipment: Rail equipment lease revenues and direct expenses were $4.1
million and $0.9 million, respectively, for the year ended December 31, 1998
compared to $4.1 million and $1.0 million, respectively, during the same period
of 1997. The increase in railcar contribution was due to lower repairs required
during 1998 when compared to the same period of 1997.
Aircraft, aircraft engines, and components: Aircraft lease revenues and direct
expenses were $4.0 million and $1.1 million, respectively, for the year ended
December 31, 1998, compared to $3.6 million and $0.5 million, respectively,
during the same period of 1997. The decrease in aircraft contribution was due to
the sale of a Stage II commercial aircraft during 1998 and the sale of a
portfolio of aircraft engines and components during the fourth quarter of 1997.
The sale of this equipment was offset, in part, by the purchase of an MD-82
Stage III commercial aircraft and a portfolio of aircraft rotable components
during the first quarter of 1998.
Trailers: Trailer lease revenues and direct expenses were $3.3 million and $0.8
million, respectively, for the year ended December 31, 1998, compared to $3.8
million and $0.9 million, respectively, during the same period of 1997. The
number of trailers owned by the Partnership has declined during 1998 and 1997
due to sales and dispositions. The result of this declining fleet has been a
decrease in trailer contribution.
Marine vessels: Marine vessel lease revenues and direct expenses were $5.2
million and $3.6 million, respectively, for the year ended December 31, 1998,
compared to $8.9 million and $7.3 million, respectively, during the same period
of 1997. The increase in marine vessel contribution was due to the receipt of a
$0.2 million loss-of-hire insurance refund during 1998 from Transportation
Equipment Indemnity Company, Ltd., an affiliate of the General Partner, due to
lower claims from the insured Partnership and other insured affiliated
partnerships. The decrease in marine vessel lease revenues and direct expenses
was due to sale of the Partnership's two marine vessels during the fourth
quarter of 1997, that were operating under a lease arrangement in which the
lessee paid a higher lease rate however, the Partnership paid for all operating
expenses. The decrease in lease revenues was offset in part, by the purchase of
an additional marine vessel during the second quarter of 1998 that is operating
under a bareboat charter in which the lessee pays a flat lease rate and also
pays for certain operating expenses while on lease.
Marine containers: Marine container lease revenues and direct expenses were $0.9
million and $13,000, respectively, for the year ended December 31, 1998,
compared to $1.7 million and $13,000, respectively, during the same quarter of
1997. The number of containers has declined during 1998 and 1997 due to sales
and dispositions. The result of this declining fleet has been a decrease in
container contribution.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $23.7 million for the year ended December 31, 1998
increased from $17.0 million for the same period in 1997. Significant variances
are explained as follows:
(i) A $4.8 million increase in depreciation and amortization expenses from
1997 levels reflects the purchase of certain assets during 1998. This increase
was offset in part by the sale of certain equipment during 1998 and 1997 and the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned.
(ii)Loss on revaluation of equipment increased $4.3 million during the year
ended December 31, 1998 and resulted from the Partnership reducing the carrying
value of marine containers and marine vessels to their estimated net realizable
value. No revaluation of equipment was required during 1997.
(iii)A $0.2 million decrease in management fees was due to lower lease
revenues earned by the Partnership during 1998, when compared to 1997.
(iv)A $0.3 million decrease in interest expense was due to a lower average
debt balance on the short-term credit facility when compared to 1997.
(v) A $0.6 million decrease in administrative expenses was due to lower
costs for professional services needed to collect past due receivables due from
certain nonperforming lessees.
(vi)A $1.3 million decrease in the provision for bad debts was due to the
collection of $0.7 million from past due receivables during the year ended
December 31, 1998 that had previously been reserved for as a bad debt, and the
General Partner's evaluation of the collectibility of receivables due from
certain lessees.
(c) Net Gain (Loss) on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the year ended December
31, 1998 totaled $6.3 million, and resulted from the sale of a commercial
aircraft, an aircraft engine, marine containers, trailers, and railcars, with an
aggregate net book value of $6.1 million, for $12.4 million which included $1.4
million of unused engine reserves. The net gain on the disposition of equipment
for the year ended December 31, 1997 totaled $10.1 million, which resulted from
the sale of aircraft components, marine containers, and trailers, with an
aggregate net book value of $5.4 million, for proceeds of $7.2 million, and the
sale of two marine vessels with a net book value of $10.3 million for proceeds
of $17.8 million. Included in the gain of $8.3 million from the sale of the
marine vessels is the unused portion of accrued drydocking of $0.8 million.
(d) Interest and Other Income
Interest and other income increased $0.3 million due to higher average cash
balances available for investment throughout most of 1998 when compared to 1997.
<PAGE>
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Years
Ended December 31,
1998 1997
------------------------------
<S> <C> <C>
Aircraft $ 8,642 $ 4,090
Mobile offshore drilling unit 243 1
Marine containers (20 ) --
Marine vessels (1,867 ) (707 )
=================================================================================== ==========
Equity in net income of USPEs $ 6,998 $ 3,384
=================================================================================== ==========
</TABLE>
Aircraft: As of December 31, 1998, the Partnership owned an interest in an
entity that owns a Boeing 767 commercial aircraft and an interest in a trust
that owns two commercial aircraft on a direct finance lease. As of December 31,
1997, the Partnership owned an interest in an entity that owns a Boeing 767
commercial aircraft, an interest in a trust that owns two commercial aircraft on
a direct finance lease, and an interest in a trust that held four commercial
aircraft. During the year ended December 31, 1998, lease revenues of $5.0
million and the gain from the sale of an interest in the trust that held four
commercial aircraft of $6.9 million, were offset by depreciation expense, direct
expenses, and administrative expenses of $3.2 million. During the same period of
1997, lease revenues of $7.6 million and the gain from the sale of an interest
in the trust that held six commercial aircraft of $3.4 million, were offset by
depreciation expense, direct expenses, and administrative expenses of $6.9
million. The decrease in lease revenues during the year ended December 31, 1998
was due to the sale of the Partnership's interest in a trust owning four
commercial aircraft during 1998 and the sale of the Partnership's interest in
another trust owning six commercial aircraft during the fourth quarter of 1997.
Depreciation expense, direct expenses, and administrative expenses also
decreased as a result of these sales.
Mobile offshore drilling unit: As of December 31, 1998 and 1997, the Partnership
owned an interest in a mobile offshore drilling unit. During the year ended
December 31, 1998, revenues of $1.2 million were offset by depreciation expense,
direct expenses, and administrative expenses of $1.0 million. During the same
period of 1997, revenues of $1.1 million were offset by depreciation expense,
direct expenses, and administrative expenses of $1.1 million. The contribution
from this equipment increased during 1998, when compared to the same period of
1997, due to a higher lease rate earned on this equipment and lower depreciation
expense due to the double-declining balance method of depreciation which results
in greater depreciation in the first years an asset is owned.
Marine containers: As of December 31, 1998, the Partnership owned an interest in
an entity that owns marine containers. During 1998, revenues of $0.1 million
were offset by depreciation expense, direct expenses, and administrative
expenses of $0.1 million. The Partnership purchased the interest in this entity
during the third quarter of 1998.
Marine vessels: As of December 31, 1998 and 1997, the Partnership owned an
interest in entities that own three marine vessels. During the year ended
December 31, 1998, revenues of $4.3 million were offset by depreciation expense,
direct expenses, and administrative expenses of $5.2 million and a loss on the
revaluation of a marine vessel of $1.0 million. During the same period of 1997,
revenues of $3.2 million were offset by depreciation expense, direct expenses,
and administrative expenses of $3.9 million. The primary reason for the
increases in revenues and depreciation expense, direct expenses, and
administrative expenses was due to the purchase of an interest in an additional
entity that owns a marine vessel during 1997. Loss on revaluation of equipment
of $1.0 million during the year ended December 31, 1998 resulted from the
Partnership reducing the carrying value of its interest in an entity owning a
marine vessel to its estimated net realizable value. No revaluation in the
carrying value of interests in marine vessels was required during 1997.
(f) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 1998 was $1.4 million, compared to a net income of $9.2 million
during the same period of 1997. The Partnership's ability to acquire, operate,
and liquidate assets, secure leases, and re-lease those assets whose leases
expire is subject to many factors, and the Partnership's performance during the
year ended December 31, 1998 is not necessarily indicative of future periods. In
the year ended December 31, 1998, the Partnership distributed $14.4 million to
the limited partners, or $1.76 per weighted-average limited partnership unit.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1997 and 1996
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1997, when compared to the same
period of 1996. Gains or losses from the sale of equipment and certain expenses,
such as depreciation and amortization and general and administrative expenses
relating to the operating segments (see Note 5 to the audited financial
statements), are not included in the owned equipment operation discussion
because they are indirect in nature and not a result of operations, but the
result of owning a portfolio of equipment. The following table presents lease
revenues less direct expenses by owned equipment type (in thousands of dollars):
<TABLE>
<CAPTION>
For the Years
Ended December 31,
1997 1996
----------------------------
<S> <C> <C>
Rail equipment $ 3,134 $ 2,774
Aircraft, aircraft engines, and components 3,083 3,982
Trailers 2,890 3,148
Marine containers 1,668 2,179
Marine vessels 1,610 3,816
</TABLE>
Rail equipment: Rail equipment lease revenues and direct expenses were $4.1
million and $1.0 million, respectively, for the year ended December, 31, 1997,
compared to $4.1 million and $1.3 million, respectively, during the same period
of 1996. Although the railcar fleet remained relatively the same size for both
years, the increase in railcar contribution resulted from fewer running repairs
during 1997 than were required on certain of the railcars in the fleet during
1996.
Aircraft, aircraft engines, and components: Aircraft lease revenues and direct
expenses were $3.6 million and $0.5 million, respectively, for the year ended
December 31, 1997, compared to $4.2 million and $0.2 million, respectively,
during 1996. The decrease in aircraft contribution was due to the sale of two
aircraft engines during the second quarter of 1996 and the sale of the aircraft
components during the fourth quarter of 1997.
Trailers: Trailer lease revenues and direct expenses were $3.8 million and $0.9
million, respectively, for the year ended December 31, 1997, compared to $4.2
million and $1.1 million, respectively, during 1996. The number of trailers
owned by the Partnership has been declining over the past 12 months due to sales
and dispositions. The result of this declining fleet has been a decrease in
trailer contribution.
Marine containers: Marine container lease revenues and direct expenses were $1.7
million and $13,000, respectively, for the year ended December 31, 1997,
compared to $2.2 million and $12,000, respectively, during 1996. The number of
marine containers owned by the Partnership has been declining over the past 12
months due to sales and dispositions. The result of this declining fleet has
been a decrease in marine container contribution.
Marine vessels: Marine vessel lease revenues and direct expenses were $8.9
million and $7.3 million, respectively, for the year ended December 31, 1997,
compared to $8.9 million and $5.1 million, respectively, during 1996. The
decrease in marine vessel contribution was due in part to the sale of two marine
vessels during the fourth quarter of 1997. The decrease in marine contribution
caused by these dispositions was offset in part by an increase in marine vessel
lease revenues due to the purchase of two marine vessels during the second
quarter of 1996 that were on lease for the full year of 1997, compared to being
on lease for only a partial period of 1996. The increase in lease revenues from
the purchased marine vessels was offset in part by lower day rates earned on two
marine vessels that were sold during 1997, when compared to 1996. Direct
expenses increased $2.2 million during the year ended 1997, due primarily to
repairs to two marine vessels that were not needed during 1996 and an increase
in the liability insurance for these marine vessels.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $17.0 million for the year ended December 31, 1997
decreased from $18.8 million for the same period in 1996. The significant
variances are explained as follows:
(i) A $2.6 million decrease in depreciation and amortization expenses from
1996 levels reflects the sale of certain assets during 1997 and 1996 and the
double-declining balance method of depreciation.
(ii)A $0.2 million decrease in management fees was due to lower lease
revenues.
(iii) A $0.7 million increase in administrative expenses was because of the
additional professional services needed to collect outstanding receivables due
from certain nonperforming lessees.
(iv)A $0.3 million increase in the allowance for bad debts was due to an
increase in uncollectable amounts due from certain lessees during 1997.
(c) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment for the year ended December 31,
1997 totaled $10.1 million, which resulted from the sale of aircraft components,
marine containers, and trailers, with an aggregate net book value of $5.4
million, for proceeds of $7.2 million, and the sale of two marine vessels with a
net book value of $10.3 million for proceeds of $17.8 million. Included in the
gain of $8.3 million from the sale of the marine vessels is the unused portion
of accrued drydocking of $0.8 million. For the year ended December, 31, 1996,
the $7.2 million net gain on the disposition of equipment resulted from the sale
or disposal of marine containers, aircraft engines, trailers, and railcars, with
an aggregate net book value of $6.0 million, for proceeds of $7.0 million., In
addition, one marine vessel with a net book value of $14.6 million was sold for
proceeds of $20.8 million. Included in the gain of $6.3 million from the sale of
the marine vessel was the unused portion of accrued drydocking of $0.1 million.
(d) Interest and Other Income
Interest and other income decreased $0.1 million during the year of 1997 when
compared to the same period of 1996. Interest income decreased $0.4 million
during 1997, due to lower cash balances available for investment. This decrease
was offset, in part, by the receipt of $0.3 million in business interruption
claims during 1997 resulting from the off-hire status of a marine vessel that
had various mechanical breakdowns.
(e) Equity in Net Income (Loss) of USPEs
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Years
Ended December, 31,
1997 1996
------------------------------
<S> <C> <C>
Aircraft $ 4,090 $ (1,853 )
Mobile offshore drilling unit 1 5,694
Marine vessels (707 ) (415 )
======================================================================================================
Equity in net income of USPEs $ 3,384 $ 3,426
======================================================================================================
</TABLE>
Aircraft: As of December 31, 1997, the Partnership owned an interest in an
entity that owns a Boeing 767 commercial aircraft, an interest in a trust that
owns two commercial aircraft on direct finance lease, and an interest in a trust
that holds four commercial aircraft. As of December 31, 1996, the Partnership
owned an interest in an entity that owned a Boeing 767 commercial aircraft, an
interest in a trust that held two commercial aircraft on direct finance lease,
and an interest in a trust that held ten commercial aircraft. During the year
ended December 31, 1997, lease revenues of $7.6 million and the gain from the
sale of an interest in a trust that held six commercial aircraft, of $3.4
million, were offset by depreciation expense, direct expenses, and
administrative expenses of $6.9 million. During the same period of 1996, lease
revenues of $6.3 million were offset by depreciation expense, direct expenses,
and administrative expenses of $8.2 million. The increase of $1.3 million in
revenues was due to the purchase of a trust that owns two commercial aircraft on
direct finance lease during 1997 and the purchase of a trust that holds five
commercial aircraft during the latter half of the first quarter of 1996. The
decrease of $1.3 million in depreciation expense, direct expenses, and
administrative expenses was primarily due to the double-declining balance method
of depreciation
Mobile offshore drilling unit: As of December 31, 1997, the Partnership owned an
interest in a rig that was purchased during the fourth quarter of 1996. In the
third quarter of 1996, the Partnership sold its interest in another rig. During
the year ended December 31, 1997, revenues of $1.1 million were offset by
depreciation expense, direct expenses, and administrative expenses of $1.1
million. During the same period of 1996, revenues of $0.8 million and the gain
from the sale of the rig of $5.8 million were offset by depreciation expense,
direct expenses, and administrative expenses of $0.9 million.
Marine vessels: As of December 31, 1997, the Partnership owned an interest in
entities that own three marine vessels, one of which was purchased during the
third quarter of 1997. As of December 31, 1996, the Partnership owned an
interest in two marine vessels. During the year ended December 31, 1997,
revenues of $3.2 million were offset by depreciation expense, direct expenses,
and administrative expenses of $3.9 million. During the same period of 1996,
revenues of $1.6 million were offset by depreciation expense, direct expenses,
and administrative expenses of $2.0 million. The primary reason revenues and
expenses increased during 1997 was due to the purchase of an interest in an
entity that owns a marine vessel during 1997.
(f) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 1997 was $9.2 million, compared to a net income of $8.3 million
during the same period in 1996. The Partnership's ability to operate, acquire
and liquidate assets, secure leases, and re-lease those assets whose leases
expire is subject to many factors, and the Partnership's performance in the year
ended December, 31, 1997 is not necessarily indicative of future periods. In the
year ended December 31, 1997, the Partnership distributed $16.5 million to the
limited partners, or $2.00 per weighted-average limited partnership unit.
(E) Geographic Information
Certain of the Partnership equipment operates in international markets. Although
these operations expose the Partnership to certain currency, political, credit
and economic risks, the General Partner believes that these risks are minimal or
has implemented strategies to control the risks. Currency risks are at a minimum
because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in U.S. dollars. Political risks are minimized
by avoiding operations in countries that do not have a stable judicial system
and established commercial business laws. Credit support strategies for lessees
range from letters of credit supported by U.S. banks to cash deposits. Although
these credit support mechanisms generally allow the Partnership to maintain its
lease yield, there are risks associated with slow-to-respond judicial systems
when legal remedies are required to secure payment or repossess equipment.
Economic risks are inherent in all international markets and the General Partner
strives to minimize this risk with market analysis prior to committing equipment
to a particular geographic area. Refer to Note 6 to the audited financial
statements, for information on the lease revenues, net income (loss), and net
book value of equipment in various geographic regions.
Revenues and net operating income by geographic region are impacted by the time
period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to change significantly in the future, as assets come
off lease and decisions are made either to redeploy the assets in the most
advantageous geographic location or sell the assets.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to U.S.- domiciled lessees consist of aircraft, trailers and railcars.
During 1998, U.S. lease revenues accounted for 33% of the total lease revenues
of wholly- and partially-owned equipment, while reporting a net loss of $3.5
million compared to the total aggregate net income for the Partnership of $1.4
million. The primary reason for this relationship is that a large gain was
realized from the sale of an asset in other geographic regions. In addition, the
Partnership depreciates its rail equipment over a 15-year period versus 12 years
for other equipment types owned and leased in other geographic regions.
The Partnership's owned equipment on lease to Canadian-domiciled lessees consist
of railcars. During 1998, Canadian lease revenues accounted for 7% of the total
lease revenues of wholly- and partially-owned equipment, while net income
accounted for $7.5 million of the total aggregate net income for the Partnership
of $1.4 million. The primary reason for this relationship is that a large gain
was realized from the sale of the commercial aircraft that were on lease in this
geographic region.
The Partnership's investment in an aircraft owned by a USPE on lease to South
American-domiciled lessees during 1998 accounted for 12% of the total lease
revenues of wholly- and partially-owned equipment. South American operations
accounted for $3.3 million of the total aggregate net income for the
Partnership.
The Partnership's owned equipment that was on lease to lessees domiciled in Asia
consists of aircraft. Lease revenues in this region accounted for 5% of the
total lease revenues of wholly- and partially-owned equipment and recorded a net
income of $5.0 million when compared to the total aggregate net income of the
Partnership of $1.4 million. The primary reason for this relationship is that a
large gain was realized from the sale of assets in this geographic region.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to lessees in the rest of the world consists of marine vessels, a rig, and
marine containers. During 1998, lease revenues from these operations accounted
for 43% of the total lease revenues of wholly- and partially-owned equipment,
while reporting a net loss from these operations of $6.7 million when compared
to the total aggregate net income for the Partnership of $1.4 million. The
primary reason for this relationship is that the Partnership recorded a loss on
the revaluation of certain owned marine vessels and marine containers of $4.3
million and investments in marine vessels owned by USPEs of $1.0 million.
(F) Effects of Year 2000
It is possible that the General Partner's currently installed computer systems,
software products, and other business systems, or the Partnership's vendors,
service providers, and customers, working either alone or in conjunction with
other software or systems, may not accept input of, store, manipulate, and
output dates on or after January 1, 2000 without error or interruption (a
problem commonly known as the "Year 2000" or "Y2K" problem). Since the
Partnership relies substantially on the General Partner's software systems,
applications, and control devices in operating and monitoring significant
aspects of its business, any Year 2000 problem suffered by the General Partner
could have a material adverse effect on the Partnership's business, financial
condition, and results of operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its software products and other
business systems in order to determine whether such systems will retain
functionality after December 31, 1999. The General Partner (a) is currently
integrating Year 2000-compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
either already been made Year 2000-compliant or Year 2000-compliant upgrades of
such systems are planned to be implemented by the General Partner before the end
of fiscal 1999. Although the General Partner believes that its Year 2000
compliance program can be completed by the end of 1999, there can be no
assurance that the compliance program will be completed by that date. To date,
the costs incurred and allocated to the Partnership to become Year 2000
compliant have not been material. Also, the General Partner believes the future
cost allocable to the Partnership to become Year 2000 compliant will not be
material.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner is currently contacting
equipment manufacturers of the Partnership's leased equipment portfolio to
assure Year 2000 compliance or to develop remediation strategies. The General
Partner does not expect that non-Year 2000 compliance of its leased equipment
portfolio will have an adverse material impact on its financial statements.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership or the General Partner to control, including the extent to which
third parties can address the Year 2000 problem. The General Partner is
communicating with vendors, services providers, and customers in order to assess
the Year 2000 compliance readiness of such parties and the extent to which the
Partnership is vulnerable to any third-party Year 2000 issues. There can be no
assurance that the software systems of such parties will be converted or made
Year 2000 compliant in a timely manner. Any failure by the General Partner or
such other parties to make their respective systems Year 2000 compliant could
have a material adverse effect on the business, financial position, and results
of operations from the Partnership. The General Partner will make an ongoing
effort to recognize and evaluate potential exposure relating to third-party Year
2000 noncompliance, and will develop a contingency plan if the General Partner
determines that third-party noncompliance will have a material adverse effect on
the Partnership's business, financial position, or results of operation.
The General Partner is currently developing a contingency plan to address the
possible failure of any systems due to the Year 2000 problems. The General
Partner anticipates these plans will be completed by September 30, 1999.
(G) Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133), which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. As of December 31, 1998,
the General Partner is reviewing the effect this standard will have on the
Partnership's consolidated financial statements.
(H) Inflation
Inflation had no significant impact on the Partnership's operations during 1998,
1997, or 1996.
(I) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.
(J) Outlook for the Future
Several factors may affect the Partnership's operating performance in 1999 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of some of these
factors makes it difficult for the General Partner to clearly define trends or
influences that may impact the performance of the Partnership's equipment. The
General Partner continuously monitors both the equipment markets and the
performance of the Partnership's equipment in these markets. The General Partner
may make an evaluation to reduce the Partnership's exposure to those equipment
markets in which it determines that it cannot operate equipment and achieve
acceptable rates of return. Alternatively, the General Partner may make a
determination to enter those equipment markets in which it perceives
opportunities to profit from supply-demand instabilities or other market
imperfections.
The Partnership intends to use excess cash flow, if any, after payment of
operating expenses, principal and interest on debt, and cash distributions to
the partners to acquire additional equipment during the first six years of
Partnership operations. The General Partner believes that these acquisitions may
cause the Partnership to generate additional earnings and cash flow for the
Partnership.
(1) Repricing and Reinvestment Risk
Certain of the Partnership's aircraft, marine vessel, marine containers in
pools, railcar, and trailer portfolios will be remarketed in 1999 as existing
leases expire, exposing the Partnership to repricing risk/opportunity.
Additionally, the General Partner may elect to sell certain underperforming
equipment or equipment whose continued operation may become prohibitively
expensive. In either case, the General Partner intends to re-lease or sell
equipment at prevailing market rates; however, the General Partner cannot
predict these future rates with any certainty at this time, and cannot
accurately assess the effect of such activity on future Partnership performance.
The proceeds from the sold or liquidated equipment will be redeployed to
purchase additional equipment, as the Partnership is in its reinvestment phase.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Currently, the General Partner has
observed rising insurance costs to operate certain vessels into U.S. ports
resulting from implementation of the U.S. Oil Pollution Act of 1990. Ongoing
changes in the regulatory environment, both in the United States and
internationally, cannot be predicted with any accuracy and preclude the General
Partner from determining the impact of such changes on Partnership operations,
purchases, or sale of equipment. Under U.S. Federal Aviation Regulations, after
December 31, 1999, no person may operate an aircraft to or from any airport in
the contiguous United States unless that aircraft has been shown to comply with
Stage III noise levels. The Partnership has a Stage II aircraft that does not
meet Stage III requirements. This Stage II aircraft is scheduled either to be
modified to meet Stage III requirements, sold, or re-leased in a country that
does not require this regulation before the year 2000. The U.S. Department of
Transportation's Hazardous Materials Regulations, which regulate the
classification and packaging requirements of hazardous materials and which apply
particularly to the Partnership's tank railcars, issued a statement that
requires the owner to inspect a certain percentage of the tank railcars for a
protective coating to the outside of the tank as well as the inside of the metal
tank jacket whenever a tank is insulated. The Partnership owns tank railcars
that need to be inspected and, if needed, repaired before they can go back into
service by August 2000.
(3) Additional Capital Resources and Distribution Levels
The Partnership's initial contributed capital was composed of the proceeds from
its initial offering of $166.1 million, supplemented by permanent debt in the
amount of $30.0 million. The General Partner has not planned any expenditures,
nor is it aware of any contingencies, that would cause it to require any
additional capital or debt (an additional $5.0 million of debt is allowable
under the Partnership's debt agreement covenants which could be borrowed under
the Partnership's warehouse credit facility) to that mentioned above.
Pursuant to the limited partnership agreement, the Partnership will cease to
reinvest surplus cash in additional equipment beginning in its seventh year of
operations, which commences on January 1, 2000. Prior to that date, the General
Partner intends to continue its strategy of selectively redeploying equipment
throughout the reinvestment phase of the Partnership to achieve competitive
returns. By the end of this reinvestment period, the General Partner intends to
have assembled an equipment portfolio capable of achieving a level of operating
cash flow for the remaining life of the Partnership sufficient to meet its
obligations and sustain a predictable level of distributions to the partners.
The General Partner will evaluate the level of distributions the Partnership can
sustain over extended periods of time and, together with other considerations,
may adjust the level of distributions accordingly. In the long term, the
difficulty in predicting market conditions precludes the General Partner from
accurately determining the impact of changing market conditions on liquidity or
distribution levels.
The Partnership's permanent debt obligation begins to mature in November 2001.
The General Partner believes that sufficient cash flow will be available in the
future for repayment of debt.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During 1998, 67% of the Partnership's total lease revenues from wholly-
and partially-owned equipment came from non-United States domiciled lessees.
Most of the Partnership's leases require payment in United States (U.S.)
currency. If these lessees currency devalues against the U.S. dollar, the
lessees could potentially encounter difficulty in making the U.S. dollar
denominated lease payments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 14(a) of this Annual Report on Form 10-K
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
(This space intentionally left blank)
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM INTERNATIONAL AND
PLM FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM International and of PLM Financial Services, Inc. (and key executive
officers of its subsidiaries) are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------------- ------- ------------------------------------------------------------------
<S> <C> <C>
Robert N. Tidball 60 Chairman of the Board, Director, President, and Chief Executive
Officer, PLM International, Inc.;
Director, PLM Financial Services, Inc.;
Vice President, PLM Railcar Management Services, Inc.;
President, PLM Worldwide Management Services Ltd.
Randall L.-W. Caudill 51 Director, PLM International, Inc.
Douglas P. Goodrich 52 Director and Senior Vice President, PLM International, Inc.;
Director and President, PLM Financial Services, Inc.; President,
PLM Transportation Equipment Corporation; President, PLM Railcar
Management Services, Inc.
Warren G. Lichtenstein 33 Director, PLM International, Inc.
Howard M. Lorber 50 Director, PLM International, Inc.
Harold R. Somerset 63 Director, PLM International, Inc.
Robert L. Witt 58 Director, PLM International, Inc.
J. Michael Allgood 50 Vice President and Chief Financial Officer, PLM International,
Inc. and PLM Financial Services, Inc.
Robin L. Austin 52 Vice President, Human Resources, PLM International, Inc. and PLM
Financial Services, Inc.
Stephen M. Bess 52 President, PLM Investment Management, Inc.; Vice President and
Director, PLM Financial Services, Inc.
Richard K Brock 36 Vice President and Corporate Controller, PLM International, Inc.
and PLM Financial Services, Inc.
James C. Chandler 50 Vice President, Planning and Development, PLM International,
Inc. and PLM Financial Services, Inc.
Susan C. Santo 36 Vice President, Secretary, and General Counsel, PLM
International, Inc. and PLM Financial Services, Inc.
Janet M. Turner 42 Vice President, Investor Relations and Corporate Communications,
PLM International, Inc. and PLM Investment Management, Inc.
</TABLE>
Robert N. Tidball was appointed Chairman of the Board in August 1997 and
President and Chief Executive Officer of PLM International in March 1989. At the
time of his appointment as President and Chief Executive Officer, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April 1989. Mr. Tidball was appointed a Director of PLM
Financial Services, Inc. in July 1997 and was elected President of PLM Worldwide
Management Services Limited in February 1998. He has served as an officer of PLM
Railcar Management Services, Inc. since June 1987. Mr. Tidball was Executive
Vice President of Hunter Keith, Inc., a Minneapolis-based investment banking
firm, from March 1984 to January 1986. Prior to Hunter Keith, he was Vice
President, General Manager, and Director of North American Car Corporation and a
director of the American Railcar Institute and the Railway Supply Association.
Randall L.-W. Caudill was elected to the Board of Directors in September 1997.
He is President of Dunsford Hill Capital Partners, a San Francisco-based
financial consulting firm serving emerging growth companies. Prior to founding
Dunsford Hill Capital Partners, Mr. Caudill held senior investment banking
positions at Prudential Securities, Morgan Grenfell Inc., and The First Boston
Corporation. Mr. Caudill also serves as a director of Northwest Biotherapeutics,
Inc., VaxGen, Inc., SBE, Inc., and RamGen, Inc.
Douglas P. Goodrich was elected to the Board of Directors in July 1996,
appointed Senior Vice President of PLM International in March 1994, and
appointed Director and President of PLM Financial Services, Inc. in June 1996.
Mr. Goodrich has also served as Senior Vice President of PLM Transportation
Equipment Corporation since July 1989 and as President of PLM Railcar Management
Services, Inc. since September 1992, having been a Senior Vice President since
June 1987. Mr. Goodrich was an executive vice president of G.I.C. Financial
Services Corporation of Chicago, Illinois, a subsidiary of Guardian Industries
Corporation, from December 1980 to September 1985.
Warren G. Lichtenstein was elected to the Board of Directors in December 1998.
Mr. Lichtenstein is the Chief Executive Officer of Steel Partners II, L.P.,
which is PLM International's largest shareholder, currently owning 16% of the
Company's common stock. Additionally, Mr. Lichtenstein is Chairman of the Board
of Aydin Corporation, a NYSE-listed defense electronics concern, as well as a
director of Gateway Industries, Rose's Holdings, Inc., and Saratoga Beverage
Group, Inc. Mr. Lichtenstein is a graduate of the University of Pennsylvania,
where he received a Bachelor of Arts degree in economics.
Howard M. Lorber was elected to the Board of Directors in January 1999. Mr.
Lorber is President and Chief Operating Officer of New Valley Corporation, an
investment banking and real estate concern. He is also Chairman of the Board and
Chief Executive Officer of Nathan's Famous, Inc., a fast food company.
Additionally, Mr. Lorber is a director of United Capital Corporation and Prime
Hospitality Corporation and serves on the boards of several community service
organizations. He is a graduate of Long Island University, where he received a
Bachelor of Arts degree and a Masters degree in taxation. Mr. Lorber also
received charter life underwriter and chartered financial consultant degrees
from the American College in Bryn Mawr, Pennsylvania. He is a trustee of Long
Island University and a member of the Corporation of Babson College.
Harold R. Somerset was elected to the Board of Directors of PLM International in
July 1994. From February 1988 to December 1993, Mr. Somerset was President and
Chief Executive Officer of California & Hawaiian Sugar Corporation (C&H Sugar),
a subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H Sugar in 1984
as Executive Vice President and Chief Operating Officer, having served on its
Board of Directors since 1978. Between 1972 and 1984, Mr. Somerset served in
various capacities with Alexander & Baldwin, Inc., a publicly held land and
agriculture company headquartered in Honolulu, Hawaii, including Executive Vice
President of Agriculture and Vice President and General Counsel. Mr. Somerset
holds a law degree from Harvard Law School as well as a degree in civil
engineering from the Rensselaer Polytechnic Institute and a degree in marine
engineering from the U.S. Naval Academy. Mr. Somerset also serves on the boards
of directors for various other companies and organizations, including Longs Drug
Stores, Inc., a publicly held company.
Robert L. Witt was elected to the Board of Directors in June 1997. Since 1993,
Mr. Witt has been a principal with WWS Associates, a consulting and investment
group specializing in start-up situations and private organizations about to go
public. Prior to that, he was Chief Executive Officer and Chairman of the Board
of Hexcel Corporation, an international advanced materials company with sales
primarily in the aerospace, transportation, and general industrial markets. Mr.
Witt also serves on the boards of directors for various other companies and
organizations.
J. Michael Allgood was appointed Vice President and Chief Financial Officer of
PLM International in October 1992 and Vice President and Chief Financial Officer
of PLM Financial Services, Inc. in December 1992. Between July 1991 and October
1992, Mr. Allgood was a consultant to various private and public-sector
companies and institutions specializing in financial operations systems
development. In October 1987, Mr. Allgood co-founded Electra Aviation Limited
and its holding company, Aviation Holdings Plc of London, where he served as
Chief Financial Officer until July 1991. Between June 1981 and October 1987, Mr.
Allgood served as a first vice president with American Express Bank Ltd. In
February 1978, Mr. Allgood founded and until June 1981 served as a director of
Trade Projects International/Philadelphia Overseas Finance Company, a joint
venture with Philadelphia National Bank. From March 1975 to February 1978, Mr.
Allgood served in various capacities with Citibank, N.A.
Robin L. Austin became Vice President, Human Resources of PLM Financial
Services, Inc. in 1984, having served in various capacities with PLM Investment
Management, Inc., including Director of Operations, from February 1980 to March
1984. From June 1970 to September 1978, Ms. Austin served on active duty in the
United States Marine Corps and served in the United States Marine Corp Reserves
from 1978 to 1998. She retired as a Colonel of the United States Marine Corps
Reserves in 1998. Ms. Austin has served on the Board of Directors of the
Marines' Memorial Club and is currently on the Board of Directors of the
International Diplomacy Council.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Investment Management, Inc. in
August 1989, having served as Senior Vice President of PLM Investment
Management, Inc. beginning in February 1984 and as Corporate Controller of PLM
Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate
Controller of PLM, Inc. beginning in December 1982. Mr. Bess was Vice
President-Controller of Trans Ocean Leasing Corporation, a container leasing
company, from November 1978 to November 1982, and Group Finance Manager with the
Field Operations Group of Memorex Corporation, a manufacturer of computer
peripheral equipment, from October 1975 to November 1978.
Richard K Brock was appointed Vice President and Corporate Controller of PLM
International and PLM Financial Services, Inc. in June 1997, having served as an
accounting manager beginning in September 1991 and as Director of Planning and
General Accounting beginning in February 1994. Mr. Brock was a division
controller of Learning Tree International, a technical education company, from
February 1988 through July 1991.
James C. Chandler became Vice President, Planning and Development of PLM
International in April 1996. From 1994 to 1996 Mr. Chandler worked as a
consultant to public companies, including PLM, in the formulation of business
growth strategies. Mr. Chandler was Director of Business Development at Itel
Corporation from 1987 to 1994, serving with both the Itel Transportation Group
and Itel Rail.
Susan C. Santo became Vice President, Secretary, and General Counsel of PLM
International and PLM Financial Services, Inc. in November 1997. She has worked
as an attorney for PLM International since 1990 and served as its Senior
Attorney since 1994. Previously, Ms. Santo was engaged in the private practice
of law in San Francisco. Ms. Santo received her J.D. from the University of
California, Hastings College of the Law.
Janet M. Turner became Vice President of Investor Services of PLM International
in 1994, having previously served as Vice President of PLM Investment
Management, Inc. since 1990. Before 1990, Ms. Turner held the positions of
manager of systems development and manager of investor relations at the Company.
Prior to joining PLM in 1984, she was a financial analyst with The
Toronto-Dominion Bank in Toronto, Canada.
The directors of PLM International, Inc. are elected for a three-year term and
the directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM International Inc. or PLM
Financial Services, Inc., PLM Transportation Equipment Corp., or PLM Investment
Management, Inc.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership had no
pension, profit sharing, retirement, or similar benefit plan in effect as of
December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 5% interest in the
profits and losses (subject to certain special allocations of
income), cash available for distributions, and net disposition
proceeds of the Partnership. As of December 31, 1998, no investor was
known by the General Partner to beneficially own more than 5% of the
limited partnership units of the Partnership.
(B) Security Ownership of Management
Neither the General Partner and its affiliates nor any executive
officer or director of the General Partner and its affiliates owned
any limited partnership units of the Partnership as of December 31,
1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
During 1998, the Partnership paid or accrued the following fees to
FSI or its affiliates: management fees, $1.0 million; equipment
acquisition fees, $1.5 million; lease negotiation fees, $0.3 million,
and administrative and data processing services performed on behalf
of the Partnership, $0.9 million. The Partnership received a
loss-of-hire insurance refund from Transportation Equipment Indemnity
Company Ltd. (TEI), a wholly-owned, Bermuda-based subsidiary of PLM
International, of $0.2 million due to lower claims from the insured
Partnership and other insured affiliated programs for insurance
coverages during previous years.
During 1998, the USPEs paid or accrued the following fees to FSI or
its affiliates (based on the Partnership's proportional share of
ownership): management fees, $0.5 million; administrative and data
processing services, $0.1 million; equipment acquisition fees, $0.1
million, and lease negotiation fees, $12,000. The USPEs also paid TEI
$7,000 for insurance coverages during 1998 and received a
loss-of-hire insurance refund of $32,000.
(This space intentionally left
blank.)
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1.Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on Form
10-K.
(B) Reports on Form 8-K
None.
(C) Exhibits
4. Limited Partnership Agreement of Partnership. Incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-40093) which became effective with the Securities and
Exchange Commission on December 23, 1991.
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc. Incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-40093) which became
effective with the Securities and Exchange Commission on December 23,
1991.
10.2 Note Agreement, dated as of August 1, 1993, regarding $30.0 million
in 6.7% senior notes due November 17, 2003.
10.3 Fourth Amended and Restated Warehousing Credit Agreement, dated as of
December 15, 1998, with First Union National Bank of North Carolina.
24. Powers of Attorney.
(This space intentionally left
blank.)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has signed on
behalf of the Partnership by duly authorized officers.
Dated: March 17, 1999 PLM EQUIPMENT GROWTH FUND VI
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Douglas P. Goodrich
---------------------------
Douglas P. Goodrich
President and Director
By: /s/ Richard K Brock
---------------------------
Richard K Brock
Vice President and
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
*_______________________
Robert N. Tidball Director, FSI March 17, 1999
*_______________________
Douglas P. Goodrich Director, FSI March 17, 1999
*_______________________
Stephen M. Bess Director, FSI March 17, 1999
*Susan Santo, by signing her name hereto, does sign this document on behalf of
the persons indicated above pursuant to powers of attorney duly executed by such
persons and filed with the Securities and Exchange Commission.
/s/ Susan C. Santo
- ----------------------
Susan C. Santo
Attorney-in-Fact
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' report 34
Balance sheets as of December 31, 1998 and 1997 35
Statements of income for the years ended
December 31, 1998, 1997, and 1996 36
Statements of changes in partners' capital for the
years ended December 31, 1998, 1997, and 1996 37
Statements of cash flows for the years ended
December 31, 1998, 1997, and 1996 38
Notes to financial statements 39-52
All other financial statement schedules have been omitted, as the required
information is not pertinent to the registrant or is not material, or because
the information required is included in the financial statements and notes
thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund VI:
We have audited the accompanying financial statements of PLM Equipment Growth
Fund VI (the Partnership), as listed in the accompanying index to financial
statements. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund VI as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/S/ KPMG LLP
- ---------------------------
SAN FRANCISCO, CALIFORNIA
March 12, 1999
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
<S> <C> <C>
Assets
Equipment held for operating leases, at cost $ 90,755 $ 71,597
Less accumulated depreciation (43,341 ) (33,895 )
-----------------------------------
Net equipment 47,414 37,702
Cash and cash equivalents 2,558 14,204
Restricted cash 1,416 792
Accounts receivable, less allowance for doubtful accounts of
$1,930 in 1998 and $2,524 in 1997 2,321 2,560
Investments in unconsolidated special-purpose entities 33,414 46,796
Net investment in direct finance lease 41 153
Lease negotiation fees to affiliate, less accumulated
amortization of $217 in 1998 and $92 in 1997 263 58
Debt issuance costs, less accumulated amortization
of $76 in 1998 and $61 in 1997 76 91
Debt placement fees to affiliate, less accumulated
amortization of $74 in 1998 and $59 in 1997 74 89
Prepaid expenses and other assets 93 181
Equipment acquisition deposits 667 1,335
-----------------------------------
Total assets $ 88,337 $ 103,961
===================================
Liabilities and partners' capital
Liabilities
Accounts payable and accrued expenses $ 1,147 $ 1,296
Due to affiliates 2,946 2,822
Lessee deposits and reserve for repairs 1,290 2,691
Note payable 30,000 30,000
-----------------------------------
Total liabilities 35,383 36,809
-----------------------------------
Partners' capital
Limited partners (limited partnership units of 8,206,339 and
8,247,264 as of December 31, 1998 and 1997, respectively) 52,954 67,152
General Partner -- --
-----------------------------------
Total partners' capital 52,954 67,152
-----------------------------------
Total liabilities and partners' capital $ 88,337 $ 103,961
===================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF INCOME
For the Years Ended December 31, (In
thousands of dollars, except weighted-average unit
amounts)
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Revenues
Lease revenue $ 17,528 $ 22,116 $ 23,592
Interest and other income 764 486 630
Net gain on disposition of equipment 6,253 10,121 7,214
------------------------------------------------
Total revenues 24,545 32,723 31,436
------------------------------------------------
Expenses
Depreciation and amortization 14,604 9,793 12,394
Repairs and maintenance 3,961 4,743 3,085
Equipment operating expenses 2,270 3,635 3,775
Insurance expense to affiliate (188 ) 224 186
Other insurance expenses 378 1,277 694
Management fees to affiliate 997 1,187 1,363
Interest expense 2,018 2,296 2,339
General and administrative expenses
to affiliates 853 860 953
Other general and administrative expenses 1,004 1,587 766
Loss on revaluation of equipment 4,276 -- --
Provision for (recovery of) bad debts (75 ) 1,273 1,016
------------------------------------------------
Total expenses 30,098 26,875 26,571
------------------------------------------------
Equity in net income of unconsolidated
special-purpose entities 6,998 3,384 3,426
--------------------------------------------------------------------------------------------------------------
Net income $ 1,445 $ 9,232 $ 8,291
================================================
Partners' share of net income
Limited partners $ 666 $ 8,363 $ 7,418
General Partner 779 869 873
------------------------------------------------
Total $ 1,445 $ 9,232 $ 8,291
================================================
Net income per weighted-average limited
partnership unit $ 0.08 $ 1.01 $ 0.89
================================================
Cash distribution $ 15,226 $ 17,384 $ 17,467
================================================
Cash distribution per weighted-average
limited partnership unit $ 1.76 $ 2.00 $ 2.00
================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1998, 1997, and 1996
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-----------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1995 $ 85,430 $ -- $ 85,430
Net income 7,418 873 8,291
Repurchase of limited partnership units (464 ) -- (464 )
Cash distribution (16,594 ) (873 ) (17,467 )
-----------------------------------------------------
Partners' capital as of December 31, 1996 75,790 -- 75,790
Net income 8,363 869 9,232
Repurchase of limited partnership units (486 ) -- (486 )
Cash distribution (16,515 ) (869 ) (17,384 )
-----------------------------------------------------
Partners' capital as of December 31, 1997 67,152 -- 67,152
Net income 666 779 1,445
Repurchase of limited partnership units (417 ) -- (417 )
Cash distribution (14,447 ) (779 ) (15,226 )
-----------------------------------------------------
Partners' capital as of December 31, 1998 $ 52,954 $ -- $ 52,954
=====================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands of dollars)
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 1,445 $ 9,232 $ 8,291
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 14,604 9,793 12,394
Loss on revaluation of equipment 4,276 -- --
Net gain on disposition of equipment (6,253 ) (10,121 ) (7,214 )
Equity in net income from unconsolidated special-purpose entities (6,998 ) (3,384 ) (3,426 )
Changes in operating assets and liabilities:
Restricted cash (624 ) 493 13
Accounts receivable, net (9 ) 946 160
Prepaid expenses and other assets 88 60 (14 )
Accounts payable and accrued expenses 133 (34 ) 196
Due to affiliates 124 645 217
Lessee deposits and reserve for repairs 16 240 448
-----------------------------------------
Net cash provided by operating activities 6,802 7,870 11,065
-----------------------------------------
Investing activities
Payments for purchase of equipment and capitalized repairs (31,739 ) (17 ) (13,927 )
Investments in and equipment purchased and placed in
unconsolidated special-purpose entities (3,778 ) (10,604 ) (26,287 )
Distribution from unconsolidated special-purpose entities 7,479 7,575 7,941
Distribution from liquidation of unconsolidated special-purpose
entities 16,679 1,736 11,677
Payments of acquisition fees to affiliate (1,486 ) -- (675 )
Payments for equipment acquisition deposits (667 ) (1,335 ) --
Principal payments received on direct finance lease 101 101 41
Payments of lease negotiation fees to affiliate (330 ) -- (152 )
Proceeds from disposition of equipment 10,936 25,017 27,379
-----------------------------------------
Net cash (used in) provided by investing activities (2,805 ) 22,473 5,997
-----------------------------------------
Financing activities
Proceeds from short-term note payable -- 10,551 12,506
Payments of short-term note payable -- (11,837 ) (11,220 )
Proceeds from short-term loan from affiliate -- 10,001 --
Payment of short-term loan to affiliate -- (10,001 ) --
Cash distribution paid to limited partners (14,447 ) (16,515 ) (16,594 )
Cash distribution paid to General Partner (779 ) (869 ) (873 )
Repurchase of limited partnership units (417 ) (486 ) (464 )
-----------------------------------------
Net cash used in financing activities (15,643 ) (19,156 ) (16,645 )
-----------------------------------------
Net (decrease) increase in cash and cash equivalents (11,646 ) 11,187 417
Cash and cash equivalents at beginning of year 14,204 3,017 2,600
---------------------------==============
Cash and cash equivalents at end of year $ 2,558 $ 14,204 $ 3,017
=========================================
Supplemental information
Interest paid $ 2,018 $ 2,297 $ 2,513
========================================================================================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Basis of Presentation
Organization
PLM Equipment Growth Fund VI, a California limited partnership (the
Partnership), was formed on April 17, 1991 to engage in the business of
owning, leasing or otherwise investing in primarily used transportation and
related equipment. PLM Financial Services, Inc. (FSI) is the General
Partner of the Partnership. FSI is a wholly-owned subsidiary of PLM
International, Inc. (PLM International).
Beginning in the Partnership's seventh year of operations, which commences
on January 1, 2000, the General Partner will stop reinvesting excess cash,
if any, which, less reasonable reserves, will be distributed to the
Partners. Beginning in the Partnership's ninth year of operations, which
commences on January 1, 2002, the General Partner intends to begin an
orderly liquidation of the Partnership's assets. The Partnership will
terminate on December 31, 2011, unless terminated earlier upon sale of all
equipment or by certain other events.
FSI manages the affairs of the Partnership. The net income (loss) and cash
distributions of the Partnership are generally allocated 95% to the limited
partners and 5% to the General Partner, (see Net Income (Loss) and
Distributions per Limited Partnership Unit, below). The General Partner is
also entitled to receive a subordinated incentive fee after the limited
partners receive a minimum return on, and a return of, their invested
capital.
The General Partner has determined that it will not adopt the reinvestment
plan for the Partnership. Beginning November 24, 1995, if the number of
units made available for purchase by limited partners in any calendar year
exceeds the number that can be purchased with reinvestment plan proceeds,
then the Partnership may redeem up to 2% of the outstanding units each
year, subject to certain terms and conditions. The purchase price to be
offered by the Partnership for these units will be equal to 110% of the
unrecovered principal attributable to the units. The unrecovered principal
for any unit will be equal to the excess of (i) the capital contribution
attributable to the unit over (ii) the distributions from any source paid
with respect to the units. For the years ended December 31, 1998, 1997 and
1996, the Partnership had repurchased 40,925, 39,702 and 31,281 limited
partnership units for $0.4 million, $0.5 million and $0.5 million,
respectively.
As of December 31, 1998, the Partnership agreed to repurchase approximately
23,700 units for an aggregate price of approximately $0.2 million. The
General Partner anticipates that these units will be repurchased in the
first and second quarters of 1999. In addition to these units, the General
Partner may purchase additional units on behalf of the Partnership in the
future.
These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
This requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Operations
The equipment of the Partnership is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned
subsidiary of FSI. IMI receives a monthly management fee from the
Partnership for managing the equipment (see Note 2). FSI, in conjunction
with its subsidiaries, sells equipment to investor programs and third
parties, manages pools of transportation equipment under agreements with
investor programs, and is a general partner of other programs.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Basis of Presentation (continued)
Accounting for Leases
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the leased asset is
recorded at cost and depreciated over its estimated useful life. Rental
payments are recorded as revenue over the lease term. Lease origination
costs are capitalized and amortized over the term of the lease.
Periodically, the Partnership leases equipment with lease terms that
qualify for direct finance lease classification, as required by Statement
of Financial Accounting Standards No. 13, "Accounting for Leases".
Depreciation and Amortization
Depreciation of transportation equipment held for operating leases is
computed on the double-declining balance method, taking a full month's
depreciation in the month of acquisition, based upon estimated useful lives
of 15 years for railcars and, typically, 12 years for most other types of
equipment. The depreciation method is changed to straight line when annual
depreciation expense using the straight-line method exceeds that calculated
by the double-declining balance method. Acquisition fees and certain other
acquisition costs have been capitalized as part of the cost of the
equipment. Lease negotiation fees are amortized over the initial equipment
lease term. Debt issuance costs and debt placement fees are amortized over
the term of the loan (see Note 8). Major expenditures that are expected to
extend the useful lives or reduce future operating expenses of equipment
are capitalized and amortized over the estimated remaining life of the
equipment.
Transportation Equipment
In accordance with the Financial Accounting Standards Board's Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", the General Partner reviews the carrying value
of the Partnership's equipment at least quarterly in relation to expected
future market conditions for the purpose of assessing recoverability of the
recorded amounts. If projected undiscounted future lease revenue plus
residual values are less than the carrying value of the equipment, a loss
on revaluation is recorded. Reductions of $4.3 million and $1.0 million to
the carrying value of owned equipment and partially owned equipment,
respectively, were required during 1998. No reductions to the carrying
value of equipment were required during either 1997, or 1996.
Equipment held for operating leases is stated at cost.
Investments in Unconsolidated Special-Purpose Entities
The Partnership has interests in unconsolidated special-purpose entities
(USPEs) that own transportation equipment. These interests are accounted
for using the equity method.
The Partnership's investment in USPEs includes acquisition and lease
negotiation fees paid by the Partnership to PLM Transportation Equipment
Corporation (TEC) and PLM Worldwide Management Services (WMS). TEC is a
wholly-owned subsidiary of FSI and WMS is a wholly-owned subsidiary of PLM
International. The Partnership's interest in USPEs are managed by IMI. The
Partnership's equity interest in the net income (loss) of USPEs is
reflected net of management fees paid or payable to IMI and the
amortization of acquisition and lease negotiation fees paid to TEC or WMS.
Repairs and Maintenance
Repair and maintenance costs related to railcars, marine vessels, and
trailers are usually the obligation of the Partnership. Maintenance costs
of most of the other equipment are the obligation of the lessee. If they
are not covered by the lessee, they are generally charged against
operations as incurred. To meet the maintenance requirements of certain
aircraft airframes and engines, reserve
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Basis of Presentation (continued)
Repairs and Maintenance (continued)
accounts are prefunded by the lessee. Estimated costs associated with
marine vessel dry docking are accrued and charged to income ratably over
the period prior to such dry-docking. The reserve accounts are included in
the balance sheet as lessee deposits and reserve for repairs.
Net Income (Loss) and Distributions Per Limited Partnership Unit
The net income (loss) of the Partnership is generally allocated 95% to the
limited partners and 5% to the General Partner. Special allocations of
income are made to the General Partner equal to the deficit balance, if
any, in the capital account of the General Partner. Cash distributions of
the Partnership are generally allocated 95% to the limited partners and 5%
to the General Partner and may include amounts in excess of net income. The
limited partners' net income (loss) is allocated among the limited partners
based on the number of limited partnership units owned by each limited
partner and on the number of days of the year each limited partner is in
the Partnership.
Cash distributions are recorded when paid. Monthly unitholders receive a
distribution check 15 days after the close of the previous month's business
and quarterly unitholders receive a distribution check 45 days after the
close of the quarter.
Cash distributions to investors in excess of net income are considered a
return of capital. Cash distributions to the limited partners of $13.8
million, $8.2 million, and $9.2 million in 1998, 1997, and 1996,
respectively, were deemed to be a return of capital.
Cash distributions related to the fourth quarter of 1998 of $2.0 million,
1997 and 1996 of $2.6 million for each year, were paid during the first
quarter of 1999, 1998, or 1997, respectively.
Net Income (Loss) Per Weighted-Average Partnership Unit
Net income (loss) per weighted-average Partnership unit was computed by
dividing net income (loss) attributable to limited partners by the
weighted-average number of Partnership units deemed outstanding during the
year. The weighted-average number of Partnership units deemed outstanding
during the years ended December 31, 1998, 1997, and 1996 was 8,216,472,
8,257,256, and 8,292,853, respectively.
Cash and Cash Equivalents
The Partnership considers highly liquid investments that are readily
convertible to known amounts of cash with original maturities of three
months or less as cash equivalents. The carrying amount of cash equivalents
approximates fair market value due to the short-term nature of the
investments.
Comprehensive Income
During 1998, the Partnership adopted Financial Accounting Standards Board's
Statement No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in
equity from nonowner sources. The Partnership's net income (loss) is equal
to comprehensive income for the years ended December 31, 1998, 1997, and
1996.
Restricted Cash
As of December 31, 1998 and 1997, restricted cash represented lessee
security deposits held by the Partnership.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
2. General Partner and Transactions with Affiliates
An officer of PLM Securities Corp., a wholly-owned subsidiary of the
General Partner, contributed $100 of the Partnership's initial capital.
Under the equipment management agreement, IMI, subject to certain
reductions, receives a monthly management fee attributable to either owned
equipment or interests in equipment owned by the USPEs equal to the lesser
of (i) the fees that would be charged by an independent third party for
similar services for similar equipment or (ii) the sum of (a) 5% of the
gross lease revenues attributable to equipment that is subject to operating
leases, (b) 2% of the gross lease revenues, as defined in the agreement,
that is subject to full payout net leases, and (c) 7% of the gross lease
revenues attributable to equipment for which IMI provides both management
and additional services relating to the continued and active operation of
program equipment, such as on-going marketing and re-leasing of equipment,
hiring or arranging for the hiring of crew or operating personnel for
equipment, and similar services. Partnership management fees payable were
$0.2 and $0.3 million as of December 31, 1998 and 1997, respectively. The
Partnership's proportional share of USPE management fees of $0.1 million
was payable as of December 31, 1998, and 1997. The Partnership's
proportional share of USPE management fee expense was $0.5 million, $0.5
million and $0.3 million during 1998, 1997, and 1996, respectively. The
Partnership reimbursed FSI $0.9 million, $0.9 million, and $1.0 million in
1998, 1997, and 1996, respectively, for data processing and administrative
expenses directly attributable to the Partnership. The Partnership's
proportional share of USPE data processing and administrative expenses
reimbursed to FSI was $0.1 million during 1998, 1997 and 1996.
The Partnership paid $0.2 million in 1997 and 1996, to Transportation
Equipment Indemnity Company Ltd. (TEI), which provides marine insurance
coverage for Partnership equipment and other insurance brokerage services.
TEI is an affiliate of the General Partner. No fees for owned equipment
were paid to TEI in 1998. The Partnership's proportional share of USPE
marine insurance coverage paid to TEI was $7,000, $0.1 million, and $0
during 1998, 1997, and 1996, respectively. A substantial portion of the
amount paid was to third-party reinsurance underwriters or placed in risk
pools managed by TEI on behalf of affiliated programs and PLM
International, which provide threshold coverages on marine vessel loss of
hire and hull and machinery damage. All pooling arrangement funds are
either paid out to cover applicable losses or refunded pro rata by TEI.
Also, during 1998, the Partnership and the USPEs received a $0.2 million
loss-of-hire insurance refund from TEI due to lower claims from the insured
Partnership and other insured affiliated programs. PLM International plans
to liquidate TEI in 1999. During 1998, TEI did not provide the same level
of insurance coverage as had been provided during 1997 and 1996. These
services were provided by an unaffiliated third party.
Debt placement fees were paid to the General Partner in an amount equal to
1% of the Partnership's long-term borrowings, less any costs paid to
unaffiliated parties related to obtaining the borrowing.
The Partnership and USPEs paid or accrued equipment acquisition and lease
negotiation fees of $1.9 million, $0.6 million, and $1.2 million during
1998, 1997, and 1996, respectively, to FSI, TEC and WMS.
As of December 31, 1998, approximately 58% of the Partnership's trailer
equipment was in rental facilities operated by PLM Rental, Inc., an
affiliate of the General Partner, doing business as PLM Trailer Leasing.
Revenues collected under short-term rental agreements with the rental
yards' customers are credited to the owners of the related equipment as
received. Direct expense associated with the equipment are charged directly
to the Partnership. An allocation of indirect expenses of the rental yard
operations is charged to the Partnership monthly.
The Partnership owned certain equipment in conjunction with affiliated
programs during 1998, 1997, and 1996 (see Note 4).
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
2. General Partner and Transactions with Affiliates (continued)
During 1997 the Partnership borrowed $1.0 million and $9.0 million from the
General Partner for 52 days and 3 days, respectively. The General Partner
charged the Partnership market interest rates. Total interest paid to the
General Partner was $17,000. There were no similar borrowings during 1998
or 1996.
The balance due to affiliates as of December 31, 1998 includes $0.2 million
due to FSI and its affiliates for management fees and $2.8 million due to a
USPE. The balance due to affiliates as of December 31, 1997 included $0.3
million due to FSI and its affiliates for management fees and $2.5 million
due to a USPE.
3. Equipment
The components of owned equipment as of December 31, are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Equipment Held for Operating Leases 1998 1997
----------------------------------------------------- --------------------------------
<S> <C> <C>
Marine vessels $ 26,094 $ 16,035
Aircraft, aircraft engines and components 21,630 11,919
Rail equipment 18,638 15,657
Trailers 13,204 16,203
Marine containers 11,189 11,783
---------------------------------
90,755 71,597
Less accumulated depreciation (43,341 ) (33,895 )
--------------------------------
Net equipment $ 47,414 $ 37,702
=================================
</TABLE>
Revenues are earned by placing the equipment under operating leases. A
portion of the Partnership's marine containers and marine vessels is leased
to operators of utilization-type leasing pools that include equipment owned
by unaffiliated parties. In such instances, revenues received by the
Partnership consist of a specified percentage of revenues generated by
leasing the pooled equipment to sublessees after deducting certain direct
operating expenses of the pooled equipment. Rents for railcars are based on
mileage traveled or a fixed rate; rents for all other equipment are based
on fixed rates.
As of December 31, 1998, all owned equipment in the Partnership's portfolio
was on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for 15 railcars and 59 marine containers with a net book
value of $0.3 million. As of December 31, 1997, all owned equipment in the
Partnership's portfolio was on lease or operating in PLM-affiliated
short-term trailer rental facilities, except for a railcar and 92 marine
containers with a net book value of $0.4 million.
During 1998, the Partnership entered into a commitment to purchase a marine
vessel for a cost of $6.7 million and made a deposit of $0.7 million toward
this purchase, which is included in the December 31, 1998 balance sheet as
equipment acquisition deposit. The Partnership completed the purchase of
this equipment during February 1999 and paid $0.3 million for acquisition
fees to FSI related to this acquisition.
Additionally, during 1998, the Partnership purchased a portfolio of
aircraft rotable components for $2.3 million, including acquisition fees of
$0.1 million; a portfolio of marine containers for $5.2 million, including
acquisition fees of $0.2 million; a group of railcars for $3.1 million,
including acquisition fees of $0.1 million; and a marine vessel for $10.1
million, including acquisition fees of $0.4 million. All acquisition fees
were paid to FSI.
The Partnership completed its commitment to purchase a MD-80 Stage III
commercial aircraft for $14.0 million during January 1998 including
acquisition fees of $0.6 million to FSI related to this acquisition. The
Partnership made a deposit of $1.3 million toward this purchase in 1997
which is
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
3. Equipment (continued)
included in the balance sheet as equipment acquisition deposits.
During 1998, the Partnership disposed of or sold a Boeing 737-200
commercial aircraft, an aircraft engine, marine containers, trailers, and
railcars, with an aggregate net book value of $6.1 million, for $12.4
million which includes $1.4 million of unused engine reserves.
During 1997, the Partnership disposed of or sold aircraft components,
marine containers, and trailers, with an aggregate net book value of $5.4
million, for proceeds of $7.2 million. The Partnership also sold two marine
vessels with a net book value of $10.3 million for proceeds of $17.8
million. Included in the gain of $8.3 million from the sale of the marine
vessels is the unused portion of accrued drydocking of $0.8 million.
Periodically, PLM International purchases groups of assets whose ownership
may be allocated among affiliated programs and PLM International. Generally
in these cases only assets that are on lease will be purchased by the
affiliated programs. PLM International will generally assume the ownership
and remarketing risks associated with off-lease equipment. Allocation of
the purchase price is determined by a combination of third-party industry
sources, recent transactions and published fair market value references.
During 1998, PLM International purchased a group of railcars that were
allocated to the Partnership at cost. During 1996, PLM International
realized a $0.7 million gain on the sale of 69 off-lease railcars purchased
by PLM International as part of a group of assets in 1994 that had been
allocated to the Partnership, PLM Equipment Growth Fund IV, PLM Equipment
Growth & Income Fund VII, Professional Lease Management Income Fund I, LLC,
and PLM International.
All wholly- and partially-owned equipment on lease is accounted for as
operating leases, except for one finance lease. Future minimum rentals
under noncancelable operating leases as of December 31, 1998, for wholly-
and partially-owned equipment during each of the next five years are
approximately $12.2 million in 1999, $7.6 million in 2000, $4.9 million in
2001, $2.6 million in 2002, $1.9 million in 2003, and $1.4 million
thereafter. Contingent rentals based upon utilization were $0.7 million in
1998, $2.8 million in 1997, and $7.0 million in 1996.
4. Investments in Unconsolidated Special-Purpose Entities
The net investments in USPEs include the following jointly-owned equipment
and related assets and liabilities as of December 31 (in thousands of
dollars):
<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
64% interest in a trust owning a 767-200ER Stage III commercial
aircraft $ 11,536 $ 12,854
53% interest in an entity owning a product tanker 7,678 9,881
40% interest in a trust owning two commercial Stage III aircraft
on direct finance lease 4,435 4,581
30% interest in an entity owning a mobile offshore drilling unit 4,279 5,050
25% interest in an entity owning marine containers 2,475 --
50% interest in an entity owning a container feeder vessel 1,421 2,812
20% interest in an entity owning a handymax dry bulk carrier 1,311 1,513
50% interest in a trust that owned four Stage II commercial aircraft 279 6,614
17% interest in a trust that owned a Stage II commercial aircraft -- 3,491
-------------------------------------------------------------------------------------- -----------
Net investments $ 33,414 $ 46,796
========== ===========
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
4. Investments in Unconsolidated Special-Purpose Entities (continued)
The Partnership has beneficial interests in two USPEs that own multiple
aircraft (the Trusts). One of these Trusts contain provisions, under
certain circumstances, for allocating specific aircraft to the beneficial
owners. During 1998, the Partnership increased its investment in a trust
owning four commercial aircraft by funding the installation of a hushkit on
an aircraft assigned to the Partnership in the trust for $1.3 million,
including acquisition and lease negotiation fees of $0.1 million that were
paid to FSI. In this Trust, the Partnership subsequently sold the two
commercial aircraft assigned to it with a net book value of $6.2 million
for proceeds of $13.1 million. During 1997, the Partnership's 17% interest
in one of the Trusts owning the commercial aircraft was sold for proceeds
of $5.2 million for its net investment of $1.8 million. The Partnership
received liquidating proceeds of $1.7 million during 1997. The remaining
liquidating proceeds of $3.5 were received during January 1998.
During 1998, the Partnership also purchased an interest in an entity owning
a portfolio of marine containers for $2.5 million, including acquisition
and lease negotiation fees of $0.1 million that were paid to FSI. The
remaining interest in this entity was purchased by an affiliated program.
During 1998, the Partnership reduced its interest in an entity owning a
container feeder vessel by $1.0 million to its net realizable value.
The following summarizes the financial information for the USPEs and the
Partnership's interest therein as of and for the year ended December 31 (in
thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
Net Net Net
Total Interest Total Interest Total Interest
USPEs of USPEs of USPEs of
Partnership Partnership Partnership
--------------------------- --------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Investments $ 67,308 $ 33,414 $ 95,743 $ 46,796 $ 97,980 $ 42,119
Lease revenues 22,809 9,934 27,145 10,935 24,157 8,728
Net income 22,942 6,998 6,411 3,384 5,955 3,426
</TABLE>
5. Operating Segments
The Partnership operates in five operating segments: trailer leasing,
railcar leasing, aircraft leasing, marine vessel leasing, marine container
leasing, and all other. Each equipment leasing segment engage in short-term
to mid-term operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on
profit or loss from operations before allocation of interest expense,
general and administrative expenses, and certain other expenses. The
segments are managed separately due to different business strategies for
each operation.
(This space intentionally left blank)
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
5. Operating Segments (continued)
The following tables present a summary of the operating segments (in
thousands of dollars):
<TABLE>
<CAPTION>
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1998 Leasing Leasing Leasing Leasing Leasing Other<F1> Total
------------------------------------ --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Lease revenue $ 3,968 $ 923 $ 5,231 $ 3,295 $ 4,111 $ -- $ 17,528
Interest income and other 19 89 64 10 20 562 764
Gain (loss) on disposition of 5,594 582 19 51 12 (5 ) 6,253
equipment
------------------------------------------------------------------------
Total revenues 9,581 1,594 5,314 3,356 4,143 557 24,545
Costs and expenses
Operations support 1,122 13 3,550 817 857 62 6,421
Depreciation and amortization 8,571 712 2,976 1,040 1,273 32 14,604
Interest expense -- -- -- -- -- 2,018 2,018
General and administrative expenses 491 76 389 820 355 723 2,854
Loss on revaluation of equipment -- 183 4,093 -- -- -- 4,276
Provision for (recovery of) bad (83 ) -- -- 22 (14 ) -- (75 )
debts
------------------------------------------------------------------------
Total costs and expenses 10,101 984 11,008 2,699 2,471 2,835 30.098
------------------------------------------------------------------------
Equity in net income (loss) of USPEs 8,642 (20 ) (1,867 ) -- -- 243 6,998
------------------------------------------------------------------------
========================================================================
Net income (loss) $ 8,122 $ 590 $ (7,561 )$ 657 $ 1,672 $ (2,035 ) $ 1,445
========================================================================
As of December 31, 1998
Total assets $ 26,534 $ 9,267 $ 25,194 $ 4,824 $ 10,913 $ 11,605 $ 88,337
========================================================================
<FN>
<F1> Includes interest income and costs not identifiable to a particular
segment, such as general and administrative, interest expense, and certain
operations support expenses. Also includes income from an investment in an
entity owning a mobile offshore drilling unit.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1997 Leasing Leasing Leasing Leasing Leasing Other<F2> Total
------------------------------------ --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Lease revenue $ 3,606 $ 1,681 $ 8,934 $ 3,760 $ 4,135 $ -- $ 22,116
Interest income and other -- 36 251 47 -- 152 486
Gain (loss) on disposition of 1,972 55 8,265 (171 ) -- -- 10,121
equipment
-------------------------------------------------------------------------
Total revenues 5,578 1,772 17,450 3,636 4,135 152 32,723
Costs and expenses
Operations support 618 12 7,326 870 1,001 52 9,879
Depreciation and amortization 1,582 1,147 4,060 1,522 1,452 30 9,793
Interest expense -- -- -- -- -- 2,296 2,296
General and administrative expenses 965 96 591 811 351 820 3,634
Provision for (recovery of) bad 1,188 (111 ) -- 153 43 -- 1,273
debts
-------------------------------------------------------------------------
Total costs and expenses 4,353 1,144 11,977 3,356 2,847 3,198 26,875
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs 4,090 -- (707 ) -- -- 1 3,384
-------------------------------------------------------------------------
=========================================================================
Net income (loss) $ 5,315 $ 628 $ 4,766 $ 280 $ 1,288 $ (3,045 ) $ 9,232
=========================================================================
As of December 31, 1997
Total assets $ 33,093 $ 4,393 $ 26,492 $ 7,098 $ 9,129 $ 23,756 $ 103,961
=========================================================================
<FN>
<F2> Includes interest income and costs not identifiable to a particular
segment, such as general and administrative, interest expense, and certain
operations support expenses.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
5. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1996 Leasing Leasing Leasing Leasing Leasing Other<F3> Total
------------------------------------ --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Lease revenue $ 4,215 $ 2,191 $ 8,915 $ 4,198 $ 4,073 $ -- $ 23,592
Interest income and other -- -- 67 19 -- 544 630
Gain (loss) on disposition of 591 136 6,267 180 40 -- 7,214
equipment
-------------------------------------------------------------------------
Total revenues 4,806 2,327 15,249 4,397 4,113 544 31,436
Costs and expenses
Operations support 234 12 5,098 1,050 1,299 47 7,740
Depreciation and amortization 2,560 1,504 4,718 1,975 1,678 (41 ) 12,394
Interest expense -- -- -- -- -- 2,339 2,339
General and administrative expenses 224 96 608 916 345 893 3,082
Provision for bad debts 628 416 -- 30 (59 ) 1 1,016
-------------------------------------------------------------------------
Total costs and expenses 3,646 2,028 10,424 3,971 3,263 3,239 26,571
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs (1,853 ) -- (415 ) -- -- 5,694 3,426
-------------------------------------------------------------------------
=========================================================================
Net income (loss) $ (693 )$ 299 $ 4,410 $ 426 $ 850 $ 2,999 $ 8,291
=========================================================================
As of December 31, 1996
Total assets $ 40,678 $ 7,370 $ 30,858 $ 9,486 $ 10,537 $ 14,596 $ 113,525
=========================================================================
<FN>
<F3> Includes interest income and costs not identifiable to a particular
segment, such as general and administrative, interest expense, and certain
operations support expenses. Also includes the gain from the sale of an
interest in an entity owning a mobile offshore drilling unit.
</FN>
</TABLE>
6. Geographic Information
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, railcars, and trailers to
lessees domiciled in five geographic regions: United States, Canada,
Mexico, Europe, and Asia. Marine vessels, mobile offshore drilling units,
and marine containers are leased or were leased to multiple lessees in
different regions that operate worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment and investments in USPEs grouped by domiciles
of the lessees as of and for the years ended December 31 (in thousands of
dollars):
<TABLE>
<CAPTION>
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 1998 1997 1996 1998 1997 1996
---------------------------- ------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 9,126 $ 7,132 $ 7,522 $ -- $ -- $ --
Canada 988 764 748 986 3,619 3,179
South America -- -- -- 3,283 3,149 3,149
Asia 1,260 2,658 3,207 -- -- 693
Europe -- 948 1,009 -- -- --
Rest of the world 6,154 10,614 11,106 5,665 4,167 1,707
------------------------------------- -------------------------------------
===================================== =====================================
Lease revenues $ 17,528 $ 22,116 $ 23,592 $ 9,934 $ 10,935 $ 8,728
===================================== =====================================
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
6. Geographic Information (continued)
The following table sets forth net income (loss) information by region for
the owned equipment and investments in USPEs for the years ended December
31 (in thousands of dollars):
<TABLE>
<CAPTION>
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 1998 1997 1996 1998 1997 1996
---------------------------- ------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ (3,494 ) $ 1,219 $ 1,129 $ -- $ -- $ --
Canada 324 461 195 7,191 3,159 (1,576 )
South America -- -- -- 801 224 (274 )
Mexico -- -- -- 651 707 (3 )
Asia 4,980 (1,219 ) 887 -- -- 5,723
Europe -- 2,370 294 -- -- --
Rest of the world (5,086 ) 6,076 5,401 (1,645 ) (706 ) (444 )
------------------------------------- -------------------------------------
Regional income (loss) (3,276 ) 8,907 7,906 6,998 3,384 3,426
Administrative and other (2,277 ) (3,059 ) (3,041 ) -- -- --
===================================== =====================================
Net income (loss) $ (5,553 ) $ 5,848 $ 4,865 $ 6,998 $ 3,384 $ 3,426
===================================== =====================================
</TABLE>
The net book value of these assets as of December 31 are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 1998 1997 1996 1998 1997 1996
---------------------------- ------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 22,048 $ 14,250 $ 17,964 $ -- $ 3,491 $ --
Canada 1,889 1,978 2,059 279 6,614 10,993
South America -- -- -- 11,536 12,854 15,453
Mexico -- -- -- 4,435 4,581 4,429
Asia 2,084 5,552 6,663 -- -- --
Europe -- -- 3,141 -- -- --
Rest of the world 21,393 15,922 33,180 17,164 19,256 11,244
------------------------------------- -------------------------------------
===================================== =====================================
Net book value $ 47,414 $ 37,702 $ 63,007 $ 33,414 $ 46,796 $ 42,119
===================================== =====================================
</TABLE>
7. Net Investment in a Direct Finance Lease
During 1996, the Partnership entered into a direct finance lease for 48
trailers. Gross lease payments of $0.3 million were to be received over a
three-year period, which commenced in May of 1996. This lease allows each
trailer to be purchased for $1.00 at the end of the lease.
The components of the net investment in the direct finance lease as of
December 31, are as follows (in thousands in dollars):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Total minimum lease payments $ 42 $ 163
Less unearned income (1 ) (10 )
========= =========
$ 41 $ 153
========= =========
</TABLE>
Future minimum rentals receivable under the direct finance lease as of
December 31, 1998 year are approximately $42,000 in 1999 and $0 thereafter.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
8. Debt
In August 1993, the Partnership entered into an agreement to issue a
long-term note totaling $30.0 million to two institutional investors. The
note bears interest at a fixed rate of 6.7% per annum and has a final
maturity in 2003. Interest on the note is payable monthly. The note will be
repaid in three principal payments of $10.0 million on November 17, 2001,
2002, and 2003. The agreement requires the Partnership to maintain certain
financial covenants related to fixed-charge coverage. Proceeds from the
sale of the note were used to fund equipment acquisitions and to repay
obligations of the Partnership under the credit facility (see discussion
below).
The General Partner estimates, based on recent transactions, that the fair
market value of the $30.0 million fixed-rate note is $30.2 million.
The General Partner has entered into a joint $24.5 million credit facility
(the Committed Bridge Facility) on behalf of the Partnership, PLM Equipment
Growth & Income Fund VII (EGF VII) and Professional Lease Management Income
Fund I (Fund I), both affiliated investment programs; and TEC Acquisub,
Inc. (TECAI), an indirect wholly-owned subsidiary of the General Partner,
which may be used to provide interim financing of up to (i) 70% of the
aggregate book value or 50% of the aggregate net fair market value of
eligible equipment owned by the Partnership, plus (ii) 50% of unrestricted
cash held by the borrower. The Partnership, EGF VII, Fund I, and TECAI
collectively may borrow up to $24.5 million of the Committed Bridge
Facility. Outstanding borrowings by one borrower reduce the amount
available to each of the other borrowers under the Committed Bridge
Facility. The Committed Bridge Facility also provides for a $5.0 million
Letter of Credit Facility for the eligible borrowers. Individual borrowings
may be outstanding for no more than 179 days, with all advances due no
later than December 14, 1999. Interest accrues at either the prime rate or
adjusted LIBOR plus 1.625% at the borrower's option and is set at the time
of an advance of funds. Borrowings by the Partnership are guaranteed by the
General Partner. As of December 31, 1998, no eligible borrower had any
outstanding borrowings under this facility. The General Partner believes it
will be able to renew the Committed Bridge Facility upon its expiration
with similar terms as those in the current Committed Bridge Facility.
9. Concentrations of Credit Risk
As of December 31, 1998, no single lessee accounted for more than 10% of
the consolidated revenues for the owned equipment and partially owned
equipment during 1998, 1997 and 1996. In 1998, however, Triton Aviation
Services, Ltd. purchased a commercial aircraft from the Partnership and the
gain from the sale accounted for 16% of total consolidated revenues during
1998. Also, in 1996, Noble Asset Company Ltd. purchased a mobile offshore
drilling unit from the Partnership and the gain from the sale accounted for
13% of total consolidated revenues and Masterbulk Pte Ltd. purchased a
marine vessel from the Partnership and the gain from the sale accounted for
14% of total consolidated revenues during 1996.
As of December 31, 1998 and 1997, the General Partner believes the
Partnership had no other significant concentrations of credit risk that
could have a material adverse effect on the Partnership.
10. Income Taxes
The Partnership is not subject to income taxes, as any income or loss is
included in the tax returns of the individual partners. Accordingly, no
provision for income taxes has been made in the financial statements of the
Partnership.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
10. Income Taxes (continued)
As of December 31, 1998, there were temporary differences of approximately
$35.0 million between the financial statement carrying values of certain
assets and liabilities and the federal income tax basis of such assets and
liabilities, primarily due to differences in depreciation methods,
equipment reserves, provisions for bad debts, lessee's prepaid deposits,
and the tax treatment of underwriting commissions and syndication costs.
11. Contingencies
PLM International, (the Company) and various of its affiliates are named as
defendants in a lawsuit filed as a purported class action on January 22,
1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No.
CV-97-251 (the Koch action). Plaintiffs, who filed the complaint on their
own and on behalf of all class members similarly situated (the class), are
six individuals who invested in certain California limited partnerships
(the Partnerships) for which the Company's wholly-owned subsidiary, PLM
Financial Services, Inc. (FSI), acts as the general partner, including the
Partnership, PLM Equipment Growth Funds V, and IV, and PLM Equipment Growth
& Income Fund VII (the Growth Funds). The state court ex parte certified
the action as a class action (i.e., solely upon plaintiffs' request and
without the Company being given the opportunity to file an opposition). The
complaint asserts eight causes of action against all defendants, as
follows: fraud and deceit, suppression, negligent misrepresentation and
suppression, intentional breach of fiduciary duty, negligent breach of
fiduciary duty, unjust enrichment, conversion, and conspiracy.
Additionally, plaintiffs allege a cause of action against PLM Securities
Corp. for breach of third party beneficiary contracts in violation of the
National Association of Securities Dealers rules of fair practice.
Plaintiffs allege that each defendant owed plaintiffs and the class certain
duties due to their status as fiduciaries, financial advisors, agents, and
control persons. Based on these duties, plaintiffs assert liability against
defendants for improper sales and marketing practices, mismanagement of the
Growth Funds, and concealing such mismanagement from investors in the
Growth Funds. Plaintiffs seek unspecified compensatory and recissory
damages, as well as punitive damages, and have offered to tender their
limited partnership units back to the defendants.
In March 1997, the defendants removed the Koch action from the state court
to the United States District Court for the Southern District of Alabama,
Southern Division (Civil Action No. 97-0177-BH-C) based on the district
court's diversity jurisdiction, following which plaintiffs filed a motion
to remand the action to the state court. Removal of the action to federal
court automatically nullified the state court's ex parte certification of
the class. In September 1997, the district court denied plaintiffs' motion
to remand the action to state court and dismissed without prejudice the
individual claims of the California plaintiff, reasoning that he had been
fraudulently joined as a plaintiff. In October 1997, defendants filed a
motion to compel arbitration of plaintiffs' claims, based on an agreement
to arbitrate contained in the limited partnership agreement of each Growth
Fund, and to stay further proceedings pending the outcome of such
arbitration. Notwithstanding plaintiffs' opposition, the district court
granted defendants' motion in December 1997.
Following various unsuccessful requests that the district court reverse, or
otherwise certify for appeal, its order denying plaintiffs' motion to
remand the case to state court and dismissing the California plaintiff's
claims, plaintiffs filed with the U.S. Court of Appeals for the Eleventh
Circuit a petition for a writ of mandamus seeking to reverse the district
court's order. The Eleventh Circuit denied plaintiffs' petition in November
1997, and further denied plaintiffs subsequent motion in the Eleventh
Circuit for a rehearing on this issue. Plaintiffs also appealed the
district court's order granting defendants' motion to compel arbitration,
but in June 1998 voluntarily dismissed their appeal pending settlement of
the Koch action, as discussed below.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
11. Contingencies (continued)
On June 5, 1997, the Company and the affiliates who are also defendants in
the Koch action were named as defendants in another purported class action
filed in the San Francisco Superior Court, San Francisco, California, Case
No. 987062 (the Romei action). The plaintiff is an investor in PLM
Equipment Growth Fund V, and filed the complaint on her own behalf and on
behalf of all class members similarly situated who invested in certain
California limited partnerships for which FSI acts as the general partner,
including the Growth Funds. The complaint alleges the same facts and the
same nine causes of action as in the Koch action, plus five additional
causes of action against all of the defendants, as follows: violations of
California Business and Professions Code Sections 17200, et seq. for
alleged unfair and deceptive practices, constructive fraud, unjust
enrichment, violations of California Corporations Code Section 1507, and a
claim for treble damages under California Civil Code Section 3345.
On July 31, 1997, defendants filed with the district court for the Northern
District of California (Case No. C-97-2847 WHO) a petition (the petition)
under the Federal Arbitration Act seeking to compel arbitration of
plaintiff's claims and for an order staying the state court proceedings
pending the outcome of the arbitration. In connection with this motion,
plaintiff agreed to a stay of the state court action pending the district
court's decision on the petition to compel arbitration. In October 1997,
the district court denied the Company's petition to compel arbitration, but
in November 1997, agreed to hear the Company's motion for reconsideration
of this order. The hearing on this motion has been taken off calendar and
the district court has dismissed the petition pending settlement of the
Romei action, as discussed below. The state court action continues to be
stayed pending such resolution. In connection with her opposition to the
petition to compel arbitration, plaintiff filed an amended complaint with
the state court in August 1997 alleging two new causes of action for
violations of the California Securities Law of 1968 (California
Corporations Code Sections 25400 and 25500) and for violation of California
Civil Code Sections 1709 and 1710. Plaintiff also served certain discovery
requests on defendants. Because of the stay, no response to the amended
complaint or to the discovery is currently required.
In May 1998, all parties to the Koch and Romei actions entered into a
memorandum of understanding (MOU) related to the settlement of those
actions (the monetary settlement). The monetary settlement contemplated by
the MOU provides for stipulating to a class for settlement purposes, and a
settlement and release of all claims against defendants and third party
brokers in exchange for payment for the benefit of the class of up to $6.0
million. The final settlement amount will depend on the number of claims
filed by authorized claimants who are members of the class, the amount of
the administrative costs incurred in connection with the settlement, and
the amount of attorneys' fees awarded by the Alabama district court. The
Company will pay up to $0.3 million of the monetary settlement, with the
remainder being funded by an insurance policy.
The parties to the monetary settlement have also agreed in principal to an
equitable settlement (the equitable settlement) which provides, among other
things, (a) for the extension of the operating lives of the Partnership,
PLM Equipment Growth Fund V, and PLM Equipment Growth & Income Fund VII
(the Funds) by judicial amendment to each of their partnership agreements,
such that FSI, the general partner of each such Fund, will be permitted to
reinvest cash flow, surplus partnership funds or retained proceeds in
additional equipment into the year 2004, and will liquidate the
partnerships' equipment in 2006; (b) that FSI will be entitled to earn
front end fees (including acquisition and lease negotiation fees) in excess
of the compensatory limitations set forth in the North American Securities
Administrators Association, Inc. Statement of Policy by judicial amendment
to the Partnership Agreements for each Fund; (c) for a one time redemption
of up to 10% of the outstanding units of each Fund at 80% of such
partnership's net asset value; and (d) for the deferral of a portion of
FSI's management fees. The equitable settlement also provides for payment
of the equitable settlement attorneys' fees from Partnership funds in the
event that distributions paid to investors in the Funds during the
extension period reach a certain internal rate of return.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
11. Contingencies (continued)
Defendants will continue to deny each of the claims and contentions and
admit no liability in connection with the proposed settlements. The
monetary settlement remains subject to numerous conditions, including but
not limited to: (a) agreement and execution by the parties of a settlement
agreement (the settlement agreement), (b) notice to and certification of
the monetary class for purposes of the monetary settlement, and (c)
preliminary and final approval of the monetary settlement by the Alabama
district court. The equitable settlement remains subject to numerous
conditions, including but not limited to: (a) agreement and execution by
the parties of the settlement agreement, (b) notice to the current
unitholders in the Funds (the equitable class) and certification of the
equitable class for purposes of the equitable settlement, (c) preparation,
review by the Securities and Exchange Commission (SEC), and dissemination
to the members of the equitable class of solicitation statements regarding
the proposed extensions, (d) disapproval by less than 50% of the limited
partners in each of the Funds of the proposed amendments to the limited
partnership agreements, (e) judicial approval of the proposed amendments to
the limited partnership agreements, and (f) preliminary and final approval
of the equitable settlement by the Alabama district court. The parties
submitted the settlement agreement to the Alabama district court on
February 12, 1999, and the preliminary class certification hearing is
scheduled for March 24, 1999. If the district court grants preliminary
approval, notices to the monetary class and equitable class will be sent
following review by the SEC of the solicitation statements to be prepared
in connection with the equitable settlement. The monetary settlement, if
approved, will go forward regardless of whether the equitable settlement is
approved or not. The Company continues to believe that the allegations of
the Koch and Romei actions are completely without merit and intends to
continue to defend this matter vigorously if the monetary settlement is not
consummated.
The Partnership, together with affiliates, initiated litigation in various
official forums in India against a defaulting Indian airline lessee to
repossess Partnership property and to recover damages for failure to pay
rent and failure to maintain the aircraft in accordance with the relevant
lease contract. The Partnership has repossessed all of the property
previously leased to the airline, and the airline has ceased operations. In
response to the Partnership's collection efforts, the airline filed
counter-claims against the Partnership in excess of the Partnership's
claims against the airline. The General Partner believes that the airline's
counterclaims are completely without merit, and the General Partner will
vigorously defend against such counterclaims.
The Partnership is involved as plaintiff or defendant in various other
legal actions incident to its business. Management does not believe that
any of these actions will be material to the financial condition of the
Company.
12. Subsequent Event
During February 1999, the Partnership borrowed $3.7 million under the
Committed Bridge Facility.
<PAGE>
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership. *
10. 1 Management Agreement between Partnership and *
PLM Investment Management, Inc.
10. 2 Note Agreement, dated as of August 1, 1993, regarding
$30.0 million in 6.7% senior notes due November 17, 2003. *
10. 3 Fourth Amended and Restated Warehousing Credit Agreement,
dated as of December 15, 1998, with First Union National
Bank of North Carolina. 54-128
24. Powers of Attorney. 129-131
- -------
* Incorporated by reference. See page 31 of this report.
FOURTH AMENDED AND RESTATED
WAREHOUSING CREDIT AGREEMENT
AMONG
PLM EQUIPMENT GROWTH FUND VI
PLM EQUIPMENT GROWTH & INCOME FUND VII
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
PLM FINANCIAL SERVICES, INC.
AND
THE LENDERS LISTED HEREIN,
AND
FIRST UNION NATIONAL BANK,
as Agent
December 15, 1998
<PAGE>
WAREHOUSING CREDIT AGREEMENT
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.............................................1
1.1 Defined Terms...........................................1
1.2 Accounting Terms........................................17
1.3 Other Terms.............................................17
1.4 Schedules And Exhibits..................................18
SECTION 2. AMOUNT AND TERMS OF CREDIT..............................18
2.1 Commitment To Lend......................................18
2.1.1 Revolving Facility.............................18
(a) Facility Commitments..................18
(b) Each Loan.............................19
2.1.2 Funding........................................20
2.1.3 Utilization Of The Loans.......................20
2.2 Repayment And Prepayment................................20
2.2.1 Repayment......................................20
2.2.2 Voluntary Prepayment...........................20
2.2.3 Mandatory Prepayments..........................20
2.3 Calculation Of Interest; Post-Maturity Interest.........21
2.4 Manner Of Payments......................................21
2.5 Payment On Non-Business Days............................21
2.6 Application Of Payments.................................21
2.7 Procedure For The Borrowing Of Loans....................22
2.7.1 Notice Of Borrowing............................22
2.7.2 Unavailability Of LIBOR Loans..................22
2.8 Conversion And Continuation Elections...................22
2.8.1 Election.......................................22
2.8.2 Notice Of Conversion...........................23
2.8.3 Interest Period................................23
2.8.4 Unavailability Of LIBOR Loans..................23
2.9 Discretion Of Lenders As To Manner Of Funding...........23
2.10 Distribution Of Payments................................24
2.11 Agent's Right To Assume Funds Available For Advances....24
2.12 Agent's Right To Assume Payments Will Be Made By Borrower..24
2.13 Capital Requirements....................................24
2.14 Taxes...................................................25
2.14.1 No Deductions..................................25
2.14.2 Miscellaneous Taxes............................25
2.14.3 Indemnity......................................25
2.14.4 Required Deductions............................25
2.14.5 Evidence of Payment............................26
2.14.6 Foreign Persons................................26
2.14.7 Income Taxes...................................26
2.14.8 Reimbursement Of Costs.........................27
2.14.9 Jurisdiction...................................27
2.15 Illegality..............................................27
2.15.1 LIBOR Loans....................................27
2.15.2 Prepayment.....................................27
2.15.3 Prime Rate Borrowing...........................28
2.16 Increased Costs.........................................28
2.17 Inability To Determine Rates............................28
2.18 Prepayment Of LIBOR Loans...............................28
SECTION 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT AND THE
MAKING OF LOANS...........................................................29
3.1 Effectiveness of This Agreement.........................29
3.1.1 Partnership, Company And Corporate Documents...29
3.1.2 Notes..........................................29
3.1.3 Security Documents.............................29
3.1.4 Opinion Of Counsel.............................29
3.1.5 Reaffirmation of Guaranty......................29
3.1.6 TEC AcquiSub Amendment.........................29
3.1.7 Bringdown Certificate..........................29
3.1.8 Fees...........................................29
3.1.9 Other Documents................................29
3.2 All Loans...............................................30
3.2.1 Notice Of Borrowing............................30
3.2.2 No Event Of Default............................30
3.2.3 Representations And Warranties.................30
3.2.4 Insurance......................................30
3.2.5 Other Instruments..............................30
3.3 Further Conditions To All Loans.........................30
3.3.1 General Partner Or Manager.....................30
3.3.2 Removal Of General Partner Or Manager..........30
3.3.3 Purchaser......................................31
SECTION 4. BORROWERS' AND FSI'S REPRESENTATIONS AND WARRANTIES.....31
4.1 General Representations And Warranties..................31
4.1.1 Existence And Power............................31
4.1.2 Loan Documents And Notes Authorized; Binding
Obligations....................................31
4.1.3 No Conflict; Legal Compliance..................31
4.1.4 Financial Condition............................32
4.1.5 Executive Offices..............................32
4.1.6 Litigation.....................................32
4.1.7 Material Contracts.............................32
4.1.8 Consents And Approvals.........................32
4.1.9 Other Agreements...............................33
4.1.10 Employment And Labor Agreements................33
4.1.11 ERISA..........................................33
4.1.12 Labor Matters..................................33
4.1.13 Margin Regulations.............................33
4.1.14 Taxes..........................................34
4.1.15 Environmental Quality..........................34
4.1.16 Trademarks, Patents, Copyrights, Franchises
And Licenses...................................35
4.1.17 Full Disclosure................................35
4.1.18 Other Regulations..............................35
4.1.19 Solvency.......................................35
4.1.20 Year 2000......................................35
4.2 Representations And Warranties At Time Of First Advance.35
4.2.1 Power And Authority............................35
4.2.2 No Conflict....................................36
4.2.3 Consents And Approvals.........................36
4.3 Survival Of Representations And Warranties..............36
SECTION 5. BORROWERS' AND FSI'S AFFIRMATIVE COVENANTS..............36
5.1 Records And Reports.....................................36
5.1.1 Quarterly Statements...........................36
5.1.2 Annual Statements..............................37
5.1.3 Borrowing Base Certificate.....................37
5.1.4 Compliance Certificate.........................37
5.1.5 Reports........................................37
5.1.6 Insurance Reports..............................37
5.1.7 Certificate Of Responsible Officer.............38
5.1.8 Employee Benefit Plans.........................38
5.1.9 ERISA Notices..................................38
5.1.10 Pension Plans..................................38
5.1.11 SEC Reports....................................38
5.1.12 Tax Returns....................................38
5.1.13 Additional Information.........................39
5.2 Existence; Compliance With Law..........................39
5.3 Insurance...............................................40
5.4 Taxes And Other Liabilities.............................40
5.5 Inspection Rights; Assistance...........................40
5.6 Maintenance Of Facilities; Modifications................40
5.6.1 Maintenance Of Facilities......................40
5.6.2 Certain Modifications To The Equipment.........41
5.7 Supplemental Disclosure.................................41
5.8 Further Assurances......................................41
5.9 Lockbox.................................................41
5.10 Environmental Laws......................................41
SECTION 6. BORROWER'S AND FSI'S NEGATIVE COVENANTS.................41
6.1 Liens; Negative Pledges; And Encumbrances...............41
6.2 Acquisitions............................................42
6.3 Limitations On Indebtedness.............................42
6.4 Use Of Proceeds.........................................43
6.5 Disposition Of Assets...................................43
6.6 Restriction On Fundamental Changes......................43
6.7 Transactions With Affiliates............................44
6.8 Maintenance Of Business.................................44
6.9 No Distributions........................................44
6.10 Events Of Default.......................................44
6.11 ERISA...................................................44
6.12 No Use Of Any Lender's Name.............................44
6.13 Certain Accounting Changes..............................44
6.14 Amendments Of Limited Partnership Or Operating Agreements..45
SECTION 7. FINANCIAL COVENANTS OF BORROWER AND FSI.................45
7.1 Maximum Funded Debt Ratio...............................45
7.2 Minimum Debt Service Ratio..............................45
7.3 Cash Balances...........................................45
SECTION 8. EVENTS OF DEFAULT AND REMEDIES..........................45
8.1 Events Of Default.......................................45
8.1.1 Failure To Make Payments.......................45
8.1.2 Other Agreements...............................46
8.1.3 Breach Of Covenants............................46
8.1.4 Breach Of Representations Or Warranties........46
8.1.5 Failure To Cure................................46
8.1.6 Insolvency.....................................47
8.1.7 Bankruptcy Proceedings.........................47
8.1.8 Material Adverse Effect........................47
8.1.9 Judgments, Writs And Attachments...............47
8.1.10 Legal Obligations..............................48
8.1.11 TEC AcquiSub Agreement.........................48
8.1.12 Change Of General Partner Or Manager...........48
8.1.13 Change Of Purchaser............................48
8.1.14 Criminal Proceedings...........................48
8.1.15 Action By Governmental Authority...............48
8.1.16 Governmental Decrees...........................49
8.2 Waiver Of Default.......................................49
8.3 Remedies................................................49
8.4 Set-Off.................................................50
8.5 Rights And Remedies Cumulative..........................50
SECTION 9. AGENT...................................................50
9.1 Appointment.............................................50
9.2 Delegation Of Duties....................................51
9.3 Exculpatory Provisions..................................51
9.4 Reliance By Agent.......................................51
9.5 Notice Of Default.......................................52
9.6 Non-Reliance On Agent And Other Lenders.................52
9.7 Indemnification.........................................52
9.8 Agent In Its Individual Capacity........................53
9.9 Resignation And Appointment Of Successor Agent..........53
SECTION 10. EXPENSES AND INDEMNITIES................................53
10.1 Expenses................................................53
10.2 Indemnification.........................................54
10.2.1 General Indemnity..............................54
10.2.2 Environmental Indemnity........................54
10.2.3 Survival; Defense..............................55
SECTION 11. MISCELLANEOUS...........................................55
11.1 Survival................................................55
11.2 No Waiver By Agent Or Lenders...........................55
11.3 Notices.................................................55
11.4 Headings................................................56
11.5 Severability............................................56
11.6 Entire Agreement; Construction; Amendments And Waivers..56
11.7 Reliance By Lenders.....................................57
11.8 Marshaling; Payments Set Aside..........................57
11.9 No Set-Offs By Borrowers................................57
11.10 Binding Effect, Assignment..............................57
11.11 Counterparts............................................59
11.12 Equitable Relief........................................59
11.13 Written Notice Of Claims; Claims Bar....................59
11.14 Waiver Of Punitive Damages..............................59
11.15 Relationship Of Parties.................................59
11.16 Obligations Of Each Borrower............................60
11.17 Co-Borrower Waivers.....................................61
11.18 Governing Law...........................................61
11.19 Waiver Of Jury Trial....................................62
<PAGE>
FOURTH AMENDED AND RESTATED
WAREHOUSING CREDIT AGREEMENT
THIS FOURTH AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT is
entered into as of December 15, 1998, by and among PLM EQUIPMENT GROWTH FUND VI,
a California limited partnership ("EGF VI"), PLM EQUIPMENT GROWTH & INCOME FUND
VII, a California limited partnership ("EGF VII"), and PROFESSIONAL LEASE
MANAGEMENT INCOME FUND I, L.L.C., a Delaware limited liability company ("Income
Fund I") (EGF V, EGF VI, EGF VII and Income Fund I each individually being a
"Borrower" and, collectively, the "Borrowers"), and PLM FINANCIAL SERVICES,
INC., a Delaware corporation and the sole general partner, in the case of EGF V,
EGF VI and EGF VII, and the sole manager, in the case of Income Fund I ("FSI"),
the banks, financial institutions and institutional lenders from time to time
party hereto and defined as Lenders herein and FIRST UNION NATIONAL BANK
("FUNB") not in its individual capacity, but solely as Agent.
This Agreement amends, restates and supersedes the Growth Fund Agreement (as
defined below).
RECITALS
A. Borrowers, Lenders and Agent entered into that Third Amended and
Restated Warehousing Credit Agreement dated as of December 2, 1997, as amended
to the date hereof (as so amended, the "Growth Fund Agreement"), pursuant to
which Lenders have agreed to extend and make available to Borrowers certain
advances of credit.
B. Borrowers and Lenders desire to amend and restate the Growth Fund
Agreement as set forth herein.
C. Lenders have agreed to make such credit available to Borrowers, but
only upon the terms and subject to the conditions hereinafter set forth and in
reliance on the representations and warranties set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants hereinafter set forth, and intending to be legally bound, the
parties hereto agree as follows:
section 1. DEFINITIONS.
1.1 Defined Terms. As used herein, the following terms have the following
meanings:
"Acquisition" means, with respect to any Borrower, any transaction, or
any series of related transactions, by which such Borrower, FSI or any of FSI's
Subsidiaries, including, without limitation, TEC AcquiSub, directly or
indirectly (a) acquires any ongoing business or all or substantially all of the
assets of any Person or division thereof, whether through a purchase of assets,
merger or otherwise, or (b) acquires (in one transaction or as the most recent
transaction in a series of transactions) control of at least a majority of the
stock of a corporation having ordinary voting power for the election of
directors, or (c) acquires control of at least a majority of the ownership
interests in any partnership or joint venture.
"Adjusted LIBOR" means, for each Interest Period in respect of LIBOR
Loans, an interest rate per annum (rounded upward to the nearest 1/16th of one
percent (0.0625%)) determined pursuant to the following formula:
Adjusted LIBOR = LIBOR
-------------------------------------
1.00 - Eurodollar Reserve Percentage
The Adjusted LIBOR shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Advance" means any Advance made or to be made by any Lender to any
Borrower as set forth in Section 2.1.1.
"Affiliate" means, with respect to any Person, (a) each Person that,
directly or indirectly, through one or more intermediaries, owns or controls,
whether beneficially or as a trustee, guardian or other fiduciary, five percent
(5.0%) or more of the stock having ordinary voting power in the election of
directors of such Person or of the ownership interests in any partnership or
joint venture, (b) each Person that controls, is controlled by or is under
common control with such Person or any Affiliate of such Person, or (c) each of
such Person's officers, directors, joint venturers and partners; provided,
however, that in no case shall any Lender or Agent be deemed to be an Affiliate
of any Borrower or FSI for purposes of this Agreement. For the purpose of this
definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise.
"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 December
15, 1998, by and between Borrowers, TEC AcquiSub, AFG and Agent.
"Agreement" means this Fourth Amended and Restated Warehousing Credit
Agreement dated as of December 15, 1998, including all amendments, modifications
and supplements hereto, renewals, extensions or restatements hereof, and all
appendices, exhibits and schedules to any of the foregoing, and shall refer to
the Agreement as the same may be in effect from time to time.
"Aircraft" means any corporate, commuter, or commercial aircraft or
helicopters, with modifications (as applicable) and replacement or spare parts
used in connection therewith, including, without limitation, engines, rotables
or propellers, and any engines, rotables and propellers used on a stand-lone
basis.
"Applicable Margin" means:
(a) with respect to Prime Rate Loans, zero percent (0.00%); and
(b) with respect to LIBOR Loans, one and five-eighths percent (1.625%).
"Assignment and Acceptance" has the meaning set forth in Section
11.10.2.
"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.
"Borrower" has the meaning set forth in the Preamble.
"Borrowing Base" means, as calculated separately for each Borrower
individually as at any date of determination, an amount not to exceed the sum
of:
(a) fifty percent (50.0%) of the unrestricted cash available
for the purchase of Eligible Inventory by such Borrower,
plus
(b) an amount equal to the lesser of (i) seventy percent
(70.0%) of the aggregate net book value or (ii) fifty percent (50.0%) of the
aggregate net fair market value of all Eligible Inventory then owned by such
Borrower or a Marine Subsidiary or owned of record by an Owner Trustee for the
beneficial interest of such Borrower or any Marine Subsidiary of such Borrower
(provided, however, that there shall be excluded from this clause (b) the
aggregate net book value or aggregate net fair market value, as the case may be,
of all items of Eligible Inventory which are either (i) off-lease or (ii)
subject to a Lease under which any applicable lease or rental payment is more
than ninety (90) days past due, but only to the extent and in the amount that
the aggregate net book value or net fair market value, as the case may be, of
such otherwise excluded Eligible Inventory exceeds fifteen percent (15.0%) of
the respective net book value or net fair market value of all Eligible Inventory
included in this clause (b) notwithstanding this proviso),
less
(c) the aggregate Consolidated Funded Debt of such Borrower
then outstanding, excluding the aggregate principal amounts of the Loans
outstanding for such Borrower under the Facility,
in each case computed, (1) with respect to any requested Loan, as of the
requested Funding Date (and shall include the item(s) of Eligible Inventory to
be acquired with the proceeds of the requested Loan), and (2) with respect to
the delivery of any monthly Borrowing Base Certificate to be furnished pursuant
to Section 5.1.3, as of the last day of the calendar month for which such
Borrowing Base Certificate is furnished (provided, that for the purpose of
computing the Borrowing Base, in the event that any Borrower or a Marine
Subsidiary of such Borrower shall own less than one hundred percent (100.0%) of
the record or beneficial interests in any item of Eligible Inventory, with one
or more of the other Equipment Growth Funds owning of record or beneficially the
remaining interests, there shall be included only such Borrower's or such Marine
Subsidiary's, as the case may be, ratable interest in such item of Eligible
Inventory).
"Borrowing Base Certificate" means, with respect to any Borrower, a
certificate with appropriate insertions setting forth the components of the
Borrowing Base of such Borrower as of the last day of the month for which such
certificate is submitted or as of a requested Funding Date, as the case may be,
which certificate shall be substantially in the form set forth in Exhibit B and
certified by a Responsible Officer of such Borrower.
"Business Day" means any day which is not a Saturday, Sunday or a legal
holiday under the laws of the States of California or North Carolina or is not a
day on which banking institutions located in the States of California or North
Carolina are authorized or permitted by law or other governmental action to
close and, with respect to LIBOR Loans, means any day on which dealings in
foreign currencies and exchanges may be carried on by Agent and Lenders in the
London interbank market.
"Casualty Loss" means any of the following events with respect to any
item of Eligible Inventory: (a) the actual total loss or compromised total loss
of such item of Eligible Inventory; (b) such item of Eligible Inventory shall
become lost, stolen, destroyed, damaged beyond repair or permanently rendered
unfit for use for any reason whatsoever; (c) the seizure of such item of
Eligible Inventory for a period exceeding sixty (60) days or the condemnation or
confiscation of such item of Eligible Inventory; or (d) such item of Eligible
Inventory shall be deemed under its lease to have suffered a casualty loss as to
the entire item of Eligible Inventory.
"Charges" means, with respect to any Borrower, all federal, state,
county, city, municipal, local, foreign or other governmental taxes, levies,
assessments, charges or claims, in each case then due and payable, upon or
relating to (a) the Loans made to such Borrower hereunder, (b) such Borrower's
employees, payroll, income or gross receipts, (c) such Borrower's ownership or
use of any of its Properties or assets or (d) any other aspect of such
Borrower's business.
"Closing" means the time at which each of the conditions precedent set
forth in Section 3 to the making of the first Loan hereunder shall have been
duly fulfilled or satisfied by each Borrower.
"Closing Date" means the date on which Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended, the
Treasury Regulations adopted thereunder and the Treasury Regulations proposed
thereunder (to the extent Requisite Lenders, in their sole discretion,
reasonably determine that such proposed regulations set forth the regulations
that apply in the circumstances), as the same may be in effect from time to
time.
"Commitment" means with respect to each Lender the amounts set forth on
Schedule A and "Commitments" means all such amounts collectively, as each may be
amended from time to time upon the execution and delivery of an instrument of
assignment pursuant to Section 11.10, which amendments shall be evidenced on
Schedule 1.1.
"Commitment Termination Date" means December 14, 1999.
"Compliance Certificate" means, with respect to any Borrower, a
certificate signed by a Responsible Officer of such Borrower, substantially in
the form of Exhibit E, with such changes as Agent may from time to time
reasonably request for the purpose of having such certificate disclose the
matters certified therein and the method of computation thereof.
"Consolidated EBITDA" means, for any Borrower, as measured as at any
date of determination for any period on a consolidated basis, the sum of (a) the
Consolidated Net Income of such Borrower, plus (b) all amounts treated as
expenses for depreciation and the amortization of intangibles of any kind, plus
(c) all accrued taxes on or measured by income, plus (d) Consolidated Interest
Expense, and in the cases of clauses (b), (c) and (d), above, each to the extent
included in the determination of Consolidated Net Income.
"Consolidated Funded Debt" means, for any Borrower, as measured at any
date of determination on a consolidated basis, the total amount of all interest
bearing obligations (including Indebtedness for borrowed money) of such
Borrower, capital lease obligations of such Borrower as a lessee and the stated
amount of all outstanding undrawn letters of credit issued on behalf of such
Borrower or for which such Borrower is liable.
"Consolidated Intangible Assets" means, for any Person, as measured at
any date of determination on a consolidated basis, all intangible assets of such
Person.
"Consolidated Interest Expense" means, for any Borrower, as measured at
any date of determination for any period on a consolidated basis, the gross
interest expense of such Borrower for the period (including all commissions,
discounts, fees and other charges in connection with standby letters of credit
and similar instruments), less interest income for that period.
"Consolidated Net Income" means, for any Borrower, as measured at any
date of determination for any period on a consolidated basis, the net income (or
loss) of such Borrower for such period taken as a single accounting period.
"Consolidated Net Worth" means, for any Person, as measured at any date
of determination, the difference between Consolidated Total Assets and
Consolidated Total Liabilities.
"Consolidated Tangible Net Worth" means, for any Person, as measured at
any date of determination, the difference between Consolidated Net Worth and
Consolidated Intangible Assets.
"Consolidated Total Assets" means, for any Person, as measured at any
date of determination on a consolidated basis, all assets of such Person.
"Consolidated Total Liabilities" means, for any Person, as measured at
any date of determination on a consolidated basis, all liabilities of such
Person.
"Contingent Obligation" means, as to any Person, (a) any Guaranty
Obligation of that Person and (b) any direct or indirect obligation or
liability, contingent or otherwise, of that Person, (i) in respect of any letter
of credit or similar instrument issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings, (ii) with
respect to the Indebtedness of any partnership or joint venture of which such
Person is a partner or a joint venturer, (iii) to purchase any materials,
supplies or other property from, or to obtain the services of, another Person if
the relevant contract or other related document or obligation requires that
payment for such materials, supplies or other property, or for such services,
shall be made regardless of whether delivery of such materials, supplies or
other property is ever made or tendered, or such services are ever performed or
tendered, or (iv) in respect of any interest rate protection contract that is
not entered into in connection with a bona fide hedging operation that provides
offsetting benefits to such Person. The amount of any Contingent Obligation
shall (subject, in the case of Guaranty Obligations, to the last sentence of the
definition of "Guaranty Obligation") be deemed equal to the maximum reasonably
anticipated liability in respect thereof, and shall, with respect to clause
(b)(iv) of this definition, be marked to market on a current basis.
"Debt Service Ratio" means, as measured separately for each Borrower as
at any date of determination, the ratio of (a) Consolidated EBITDA to (b) the
sum of (i) Consolidated Interest Expense plus (ii) an amount equal to three and
one-eighths percent (3.125%) of Consolidated Funded Debt (Consolidated EBITDA
and Consolidated Interest Expense to be measured on a quarterly basis for the
current fiscal quarter).
"Default Rate" has the meaning set forth in Section 2.3.
"Designated Deposit Account" means a demand deposit account maintained
by Borrowers with FUNB designated by written notice from Borrowers to Agent.
"Dollars" and the sign "$" means lawful money of the United States of
America.
"Effective Amount" means with respect to any Loans on any date, the
aggregate outstanding principal amount thereof after giving effect to any
borrowing and prepayments or repayments thereof occurring on such date.
"EGF" means PLM Equipment Growth Fund, a California limited
partnership.
"EGF II" means PLM Equipment Growth Fund, a California limited
partnership.
"EGF III" means PLM Equipment Growth Fund III, a California limited
partnership.
"EGF IV" means PLM Equipment Growth Fund IV, a California limited
partnership.
"EGF V" means PLM Equipment Growth Fund V, a California limited
partnership.
"EGF VI" has the meaning set forth in the Preamble to this Agreement
"EGF VII" has the meaning set forth in the Preamble to this Agreement.
"Eligible Assignee" means (a) a commercial bank organized under the
laws of the United States, or any State thereof; (b) a commercial bank organized
under the laws of any other country which is a member of the Organization for
Economic Cooperation and Development ("OECD"), or a political subdivision of any
such country, provided, however, that such bank is acting through a branch or
agency located in the country in which it is organized or another country which
is also a member of the OECD; (d) an insurance company organized under the laws
of the United States; (e) a commercial finance company, mutual or other
investment fund, lease financing company or other institutional investor
(whether a corporation, partnership, trust or other entity) that is engaged in
making, purchasing or otherwise investing in commercial loans in the ordinary
course of its business, provided that such Person is an "accredited investor"
(as defined in Regulation D under the Securities Act of 1933, as amended); (f)
any Lender party to this Agreement; (g) any Lender Affiliate and (h) any other
Person approved by Agent and Borrower, such approval not to be unreasonably
withheld; provided, however, that (i) Borrower's approval shall not be required
so long as an Event of Default has occurred and is continuing and (ii) an
Affiliate of Borrower shall not qualify as an Eligible Assignee.
"Eligible Inventory" means, with respect to any Borrower, all Trailers,
Aircraft and Aircraft engines, Railcars, cargo-containers, marine vessels and,
if approved by Requisite Lenders, other related Equipment, in each case owned by
such Borrower or a Marine Subsidiary of such Borrower (or jointly by such
Borrower and one or more of the other Equipment Growth Funds) or, subject to the
approval of Agent, any owner trust of which such Borrower is the sole
beneficiary or owner (or is the beneficiary or owner jointly with one or more of
the other Equipment Growth Funds), as applicable, or solely with respect to any
marine vessel registered in Liberia, The Bahamas, Hong Kong, Singapore or other
registry acceptable to Agent in its sole discretion, any nominee entity of which
such Borrower or a Marine Subsidiary of such Borrower is the sole beneficiary or
direct or indirect owner (or as the beneficiary or direct or indirect owner
jointly with one or more of the other Equipment Growth Funds).
"Employee Benefit Plan" means, with respect to any Borrower, any
Pension Plan and any employee welfare benefit plan, as defined in Section 3(1)
of ERISA, that is maintained for the employees of such Borrower, FSI or any of
FSI's Subsidiaries or any ERISA Affiliate of such Borrower.
"Environmental Claims" means, with respect to any Borrower, all claims,
however asserted, by any Governmental Authority or other Person alleging
potential liability or responsibility for violation of any Environmental Law or
for release or injury to the environment or threat to public health, personal
injury (including sickness, disease or death), property damage, natural
resources damage, or otherwise alleging liability or responsibility for damages
(punitive or otherwise), cleanup, removal, remedial or response costs,
restitution, civil or criminal penalties, injunctive relief, or other type of
relief, resulting from or based upon (a) the presence, placement, discharge,
emission or release (including intentional and unintentional, negligent and
non-negligent, sudden or non-sudden, accidental or non-accidental placement,
spills, leaks, discharges, emissions or releases) of any Hazardous Material at,
in, or from Property, whether or not owned by such Borrower, FSI or any
Subsidiary of FSI, or (b) any other circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means all foreign, federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and land use
matters, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control
Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and
Recovery Act, the Toxic Substances Control Act and the Emergency Planning and
Community Right-to-Know Act.
"Environmental Permit" has the meaning set forth in Section 4.1.15.
"Equipment" means, with respect to any Borrower, all items of
transportation related equipment owned directly or beneficially by such Borrower
or by any Marine Subsidiary of such Borrower and held for lease or rental, and
shall include items of equipment legal or record title to which is held by any
owner trust or nominee entity in which such Borrower or any Marine Subsidiary of
such Borrower holds the sole beneficial interest.
"Equipment Growth Funds" means any and all of EGF, EGF II, EGF III, EGF
IV, EGF V, EGF VI, EGF VII and Income Fund I.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, as the same may be in effect from time to time, and any successor
statute.
"ERISA Affiliate" means, as applied to any Person, any trade or
business (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control within the meaning of
the regulations promulgated under Section 414 of the Code.
"Eurodollar Reserve Percentage" means the maximum reserve percentage
(expressed as a decimal, rounded upward to the nearest 1/100th of one percent
(0.01%)) in effect from time to time (whether or not applicable to any Lender)
under regulations issued by the Federal Reserve Board for determining the
maximum reserve requirement (including any emergency, supplemental or other
marginal reserve requirement) with respect to Eurocurrency liabilities having a
term comparable to such Interest Period.
"Event of Default" means any of the events set forth in Section 8.1.
"Facility" means the total Commitments described in Schedule A, as such
Schedule A may be amended from time to time as set forth on Schedule 1.1, for
the revolving credit facility described in Section 2.1.1 to be provided by
Lenders to Borrowers, on a several but not joint basis, according to each
Lender's Pro Rata Share.
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotation") for such day under the caption "Federal Funds Effective Rate". If on
any relevant day the appropriate rate for such previous day is not yet published
in either H.15(519) or the Composite 3:30 p.m. Quotation, the rate for such day
will be the arithmetic mean of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m. (New York time) on that day by each of
three leading brokers of Federal funds transactions in New York City selected by
Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System and any successor thereto.
"Form 1001" has the meaning set forth in Section 2.14.6.
"Form 4224" has the meaning set forth in Section 2.14.6.
"FSI" has the meaning set forth in the Preamble.
"FUNB" has the meaning set forth in the Preamble.
"Funded Debt Ratio" means, as measured separately for each Borrower as
at any date of determination, the ratio of (a) the Consolidated Funded Debt of
such Borrower to (b) the sum of (i) the aggregate net fair market value of the
Equipment owned of record and beneficially by such Borrower or any Marine
Subsidiary of such Borrower or owned of record by an Owner Trustee for the
beneficial interest of such Borrower or any Marine Subsidiary of such Borrower
plus (ii) the unrestricted cash available for the purchase of Eligible Inventory
for such Borrower (provided, that for the purpose of computing the Funded Debt
Ratio, in the event that any Borrower or a Marine Subsidiary of such Borrower
shall own less than one hundred percent (100.0%) of the record or beneficial
interests in any item of Equipment, with one or more of the other Equipment
Growth Funds owning of record or beneficially the remaining interests, there
shall be included any such Borrower's or such Marine Subsidiary's, as the case
may be, ratable interest in such item of Equipment).
"Funding Date" means with respect to any proposed borrowing hereunder,
the date funds are advanced to any Borrower for any Loan requested by such
Borrower.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar function of comparable stature and authority within the accounting
profession), or in such other statements by such other entity as may be in
general use by significant segments of the U.S. accounting profession, which are
applicable to the circumstances as of the date of determination.
"Governmental Authority" means (a) any federal, state, county,
municipal or foreign government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, (c) any court or administrative
tribunal or (d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to whose jurisdiction that Person has consented.
"Guaranty" means that 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, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person, whether or not contingent,
(a) to purchase, repurchase or otherwise acquire such primary obligations or any
property constituting direct or indirect security therefor, or (b) to advance or
provide funds (i) for the payment or discharge of any such primary obligation,
or (ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet item, level
of income or financial condition of the primary obligor, or (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (d) otherwise to assure or hold harmless
the holder of any such primary obligation against loss in respect thereof. The
amount of any Guaranty Obligation shall be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such Guaranty
Obligation is made or, if not stated or if indeterminable, the maximum
reasonably anticipated liability in respect thereof.
"Hazardous Materials" means all those substances which are regulated
by, or which may form the basis of liability under, any Environmental Law,
including all substances identified under any Environmental Law as a pollutant,
contaminant, hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.
"IMI" means PLM Investment Management, Inc., a California corporation
and a wholly-owned Subsidiary of FSI.
"Income Fund I" has the meaning set forth in the Preamble to this
Agreement.
"Indebtedness" means, as to any Person, (a) all indebtedness of such
Person for borrowed money, (b) all leases of equipment of such Person as lessee,
(c) to the extent not included in clause (b), above, all capital leases of such
Person as lessee, (d) any obligation of such Person for the deferred purchase
price of Property or services (other than trade or other accounts payable in the
ordinary course of business and not more than ninety (90) days past due), (e)
any obligation of such Person that is secured by a Lien on assets of such
Person, whether or not that Person has assumed such obligation or whether or not
such obligation is non-recourse to the credit of such Person, (f) obligations of
such Person arising under acceptance facilities or under facilities for the
discount of accounts receivable of such Person and (g) any obligation of such
Person to reimburse the issuer of any letter of credit issued for the account of
such Person upon which a draw has been made.
"Indemnified Liability" has the meaning set forth in Section 10.2.
"Indemnified Person" has the meaning set forth in Section 10.2.
"Interest Differential" means, with respect to any prepayment of a
LIBOR Loan on a day other than an Interest Payment Date on which such LIBOR Loan
matures, the difference between (a) the per annum interest rate payable with
respect to such LIBOR Loan as of the date of the prepayment and (b) the Adjusted
LIBOR on, or as near as practicable to, the date of the prepayment for a LIBOR
Loan commencing on such date and ending on the last day of the applicable
Interest Period. The determination of the Interest Differential by Agent shall
be conclusive in the absence of manifest error.
"Interest Payment Date" means, with respect to any LIBOR Loan, the last
day of each Interest Period applicable to such Loan and, with respect to Prime
Rate Loans, the first Business Day of each calendar month following the Funding
Date of such Prime Rate Loan; provided, however, that if any Interest Period for
a LIBOR Loan exceeds three (3) months, interest shall also be paid on the date
which falls three (3) months after the beginning of such Interest Period.
"Interest Period" means, with respect to any LIBOR Loan, the one-month,
two-month or three-month period selected by the Requesting Borrower pursuant to
Section 2, in each instance commencing on the applicable Funding Date of the
Loan; provided, however, that any Interest Period which would otherwise end on a
day that is not a Business Day shall end on the next succeeding Business Day
except that in the instance of any LIBOR Loan, if such next succeeding Business
Day falls in the next calendar month, the Interest Period shall end on the next
preceding Business Day.
"Investment Company Act" means the Investment Company Act of 1940, as
amended (15 U.S.C.ss. 80a-1 et seq.), as the same may be in effect from time to
time, or any successor statute thereto.
"IRS" means the Internal Revenue Service and any successor thereto.
"Lease" means, for any Borrower, each and every item of chattel paper,
installment sales agreement, equipment lease or rental agreement (including
progress payment authorizations) relating to an item of Equipment of which such
Borrower is the record or beneficial lessor and in respect of which the lessee
and lease terms (including, without limitation, as to rental rate, maturity and
insurance coverage) are acceptable to Agent, in its reasonable discretion. The
term "Lease" includes (a) all payments to be made thereunder, (b) all rights of
such Borrower therein, and (c) any and all amendments, renewals, extensions or
guaranties thereof.
"Lender 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.
"Lenders" means the banks, financial institutions or other
institutional lenders which have executed signature pages to this Agreement and
such other Assignees, banks, financial institutions or other institutional
lenders as shall hereafter execute and deliver an Assignment and Acceptance with
respect to all or any portion of the Commitments and the Loans advanced and
maintained pursuant to the Commitments, in each case pursuant to and in
accordance with Section 11.10.
"Lending Office" means, with respect to any Lender, the office or
offices of the Lender specified as its lending office opposite its name on the
applicable signature page hereto, or such other office or offices of the Lender
as it may from time to time notify Borrowers and Agent.
"LIBOR" means, with respect to any Loan to be made, continued as or
converted into a LIBOR Loan, the London Inter-Bank Offered Rate (determined
solely by Agent), rounded upward to the nearest 1/16th of one percent (0.0625%),
at which Dollar deposits are offered to Agent by major banks in the London
interbank market at or about 11:00 a.m., London time, on the second Business Day
prior to the first day of the related Interest Period with respect to such Loan
in an aggregate amount approximately equal to the amount of such Loan and for a
period of time comparable to the number of days in the applicable Interest
Period. The determination of LIBOR by Agent shall be conclusive in the absence
of manifest error.
"LIBOR Loan" means a Loan that bears interest based on Adjusted LIBOR.
"Lien" means any mortgage, pledge, hypothecation, assignment for
security, security interest, encumbrance, levy, lien or charge of any kind,
whether voluntarily incurred or arising by operation of law or otherwise,
affecting any Property, including any agreement to grant any of the foregoing,
any conditional sale or other title retention agreement, any lease in the nature
of a security interest, and the filing of or agreement to file or deliver any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
"Limited Partnership Agreement" means (a) for EGF VI, the Amended and
Restated Limited Partnership Agreement dated as of December 20, 1991 and (b) for
EGF VII, the Third Amended and Restated Limited Partnership Agreement of EGF VII
dated as of May 10, 1993, as amended by the First Amendment to the Third Amended
and Restated Limited Partnership Agreement dated May 28, 1993 and by the Second
Amendment to Third Amended and Restated Limited Partnership Agreement dated as
of January 21, 1994.
"Loan" has the meaning set forth in Section 2.1.1.
"Loan Document" when used in the singular and "Loan Documents" when
used in the plural means any and all of this Agreement, the Notes, the Lockbox
Agreement and the Guaranty and any and all other agreements, documents and
instruments executed and delivered by or on behalf or support of any Borrower to
Agent or any Lender or any of their respective authorized designees evidencing
or otherwise relating to the Advances and the Liens granted to Agent, on behalf
of Lenders, with respect to the Advances, as the same may from time to time be
amended, modified, supplemented or renewed.
"Lockbox" has the meaning set forth in Section 5.9.
"Lockbox Agreement" means the Lockbox Agreement dated December 15,
1998, among Borrowers, FUNB and Agent on behalf and for the benefit of Lenders,
relating to the Lockbox.
"Marine Subsidiary" means, for any Borrower, a Subsidiary of such
Borrower (in which the remaining record or beneficial ownership interests may be
held by TEC AcquiSub or any Equipment Growth Fund) organized for the purpose of
holding legal record title to one or more marine vessels or to aircraft rotables
and spare parts.
"Material Adverse Effect" means, with respect to any Borrower, any set
of circumstances or events which (a) has or could reasonably be expected to have
any material adverse effect whatsoever upon the validity or enforceability of
any Loan Document, (b) is or could reasonably be expected to be material and
adverse to the condition (financial or otherwise) or business operations of such
Borrower or FSI, (c) materially impairs or could reasonably be expected to
materially impair the ability of such Borrower or FSI to perform its
Obligations, or (d) materially impairs or could reasonably be expected to
materially impair the ability of Agent or any Lender to enforce any of its or
their legal remedies pursuant to the Loan Documents.
"Maturity Date" means, with respect to each Loan advanced by Lenders
hereunder, the date which is one hundred seventy-nine (179) days after the
Funding Date of such Loan or such earlier or later date as requested by the
Requesting Borrower and approved by Requisite Lenders, in their sole and
absolute discretion; provided, however, in no event shall any Maturity Date be a
date which is later than the Commitment Termination Date.
"Maximum Availability" has the meaning set forth in Section 2.1.1.
"Multiemployer Plan" means, with respect to any Borrower, a
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and to which
such Borrower, FSI or any of FSI's Subsidiaries or any ERISA Affiliate of such
Borrower, FSI or any of FSI's Subsidiaries is making, or is obligated to make,
contributions or has made, or been obligated to make, contributions within the
preceding five (5) years.
"Note" has the meaning set forth in Section 2.1.1(a)(i), and any and
all replacements, substitutions and renewals thereof.
"Notice of Borrowing" means a notice given by any Borrower to Agent in
accordance with Section 2.7, substantially in the form of Exhibit F, with
appropriate insertions.
"Notice of Conversion/Continuation" means a notice given by any
Borrower to Agent in accordance with Section 2.8, substantially in the form of
Exhibit G, with appropriate insertions.
"Obligations" means, with respect to any Borrower, all loans, advances,
liabilities and obligations for monetary amounts owing by such Borrower to any
Lender or Agent, whether due or to become due, matured or unmatured, liquidated
or unliquidated, contingent or non-contingent, and all covenants and duties
regarding such amounts, of any kind or nature, arising under any of the Loan
Documents. This term includes, without limitation, all principal, interest
(including interest that accrues after the commencement of a case or proceeding
against such Borrower under the Bankruptcy Code), fees, including, without
limitation, any and all prepayment fees, facility fees, commitment fees,
arrangement fees, agent fees and attorneys' fees and any and all other fees,
expenses, costs or other sums chargeable to such Borrower under any of the Loan
Documents.
"Operating Agreement" means the Fifth Amended and Restated Operating
Agreement of Income Fund I, entered into as of January 24, 1995.
"Opinion of Counsel" means the favorable written legal opinion of Susan
Santo, general counsel of FSI, on behalf of FSI for itself and as the sole
general partner or managing member, as applicable, of each Borrower,
substantially in the form of Exhibit D.
"Other Taxes" has the meaning set forth in Section 2.14.2.
"Overadvance" has the meaning set forth in Sections 2.1.1(a)(iii) and
(iv).
"Owner Trustee" means any Person acting in the capacity of (a) a
trustee for any owner trust or (b) a nominee entity, in each case holding title
to any Eligible Inventory pursuant to a trust or similar agreement with any
Borrower or FSI.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor
thereto.
"Pension Plan" means, with respect to any Borrower, any employee
pension benefit plan, as defined in Section 3(2) of ERISA, that is maintained
for the employees of such Borrower, FSI or any of FSI's Subsidiaries or any
ERISA Affiliate of such Borrower, FSI or any of FSI's Subsidiaries, other than a
Multiemployer Plan.
"Permitted Liens" has the meaning set forth in Section 6.1.
"Permitted Rights of Others" means, as to any Property in which a
Person has an interest, (a) an option or right to acquire a Lien that would be a
Permitted Lien, (b) the reversionary interest of a lessor under a lease of such
Property and (c) an option or right of the lessee under a lease of such Property
to purchase such property at fair market value.
"Person" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or Governmental Authority.
"PLMI" means PLM International, Inc., a Delaware corporation.
"Potential Event of Default" means a condition or event which, after
notice or lapse of time or both, will constitute an Event of Default.
"Prepayment Date" has the meaning set forth in Section 2.2.2.
"Prime Rate" means, at any time, the rate of interest per annum
publicly announced from time to time by FUNB as its prime rate. Each change in
the Prime Rate shall be effective as of the opening of business on the day such
change in the Prime Rate occurs. The parties hereto acknowledge that the rate
announced publicly by FUNB as its Prime Rate is an index or base rate and shall
not necessarily be its lowest rate charged to FUNB's customers or other banks.
"Prime Rate Loan" means any borrowing which bears interest at a rate
determined with reference to the Prime Rate.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, whether tangible or intangible.
"Pro Rata Share" means, as to any Lender at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at such
time of the Effective Amount of such Lender's Loans divided by the Effective
Amount of all Loans, or if no Loans are outstanding, the percentage equivalent
(expressed as a decimal, rounded to the ninth decimal place) at such time of
such Lender's aggregate Commitments divided by the aggregate Commitments or, if
the Commitments have expired or been terminated and all Loans repaid in full,
the percentage equivalent (expressed as a decimal, rounded to the ninth decimal
place) of the Effective Amount of such Lender's Loans divided by the aggregate
Effective Amount of all Loans immediately before such repayment in full.
"Public Utility Holding Company Act" means the Public Utility Holding
Company Act of 1935, as amended (15 U.S.C.ss. 79 et seq.) as the same shall be
in effect from time to time, and any successor statute thereto.
"Railcar" means all railroad rolling stock, including, without
limitation, all coal, timber, plastic pellet, tank, hopper, flat and box cars
and locomotives.
"Reaffirmation of Guaranty" means the Acknowledgement and Reaffirmation
of Guaranty, dated as of December 15, 1998, executed by PLMI in favor of Lenders
reaffirming its obligations under the Guaranty.
"Regulations T, U and X" means, collectively, Regulations G, T, U and X
adopted by the Federal Reserve Board (12 C.F.R. Parts 220, 221 and 224,
respectively) and any other regulation in substance substituted therefor.
"Requesting Borrower" means any Borrower requesting a Loan pursuant to
Section 2.1.1.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule, regulation, guideline or determination of an arbitrator
or of a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property is
subject.
"Requisite Lenders" means any combination of Lenders whose combined Pro
Rata Share (and voting interest with respect thereto) of all amounts outstanding
under this Agreement, or, in the event there are no amounts outstanding, the
Commitments, is greater than sixty-six and two-thirds percent (66 2/3%) of all
such amounts outstanding or the total Commitments, as the case may be; provided,
however, that in the event there are only two (2) Lenders, Requisite Lenders
means both Lenders.
"Responsible Officer" means for (i) FSI, any of the President,
Executive Vice President, Chief Financial Officer, Secretary or Corporate
Controller of FSI having authority to request Advances or perform other duties
required hereunder, and (ii) Borrowers, any of the President, Executive Vice
President, Chief Financial Officer, Secretary or Corporate Controller of FSI as
the sole general partner of EGF V, EGF VI or EGF VII, as the case may be, or
sole manager of Income Fund I, in each case having authority to request Advances
or perform other duties required hereunder
"SEC" means the Securities and Exchange Commission and any successor
thereto.
"Solvent" means, as to any Person at any time, that (a) the fair value
of the Property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code; (b) the present fair saleable value of the
Property in an orderly liquidation of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured; (c) such Person is able to realize upon its
Property and pay its debts and other liabilities (including disputed, contingent
and unliquidated liabilities) as they mature in the normal course of business;
(d) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute unreasonably small capital.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, limited liability company or other business entity
(other than Equipment Growth Funds) of which an aggregate of fifty percent
(50.0%) or more of the beneficial interest (in the case of a partnership) or
fifty percent (50%) or more of the outstanding stock, units or other voting
interest having ordinary voting power to elect a majority of the directors,
managers or trustees of such Person (irrespective of whether, at the time, the
stock, units or other voting interest of any other class or classes of such
Person shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned legally or
beneficially by such Person and/or one or more Subsidiaries of such Person.
"Taxes" has the meaning set forth in Section 2.14.1.
"TEC" means PLM Transportation Equipment Corporation, a California
corporation and a wholly-owned Subsidiary of FSI.
"TEC AcquiSub" means TEC AcquiSub, Inc., a California special purpose
corporation and a wholly-owned Subsidiary of TEC.
"TEC AcquiSub Agreement" means the Third Amended and Restated
Warehousing Credit Agreement dated as of December 15, 1998, by and among TEC
AcquiSub, Lenders and Agent, and as the same may from time to time be further
amended, modified, supplemented, renewed, extended or restated.
"Termination Event" means, with respect to any Borrower, (a) a
"reportable event" described in Section 4043 of ERISA and the regulations issued
thereunder (other than a reportable event not subject to the provision for
30-day notice to the PBGC under such regulations), or (b) the withdrawal of such
Borrower, FSI or any of FSI's Subsidiaries or any of their ERISA Affiliates from
a Pension Plan during a plan year in which any of them was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a
notice of intent to terminate a Pension Plan or the treatment of a Pension Plan
amendment as a termination under Section 4041 of ERISA, or (d) the institution
of proceedings to terminate a Pension Plan by the PBGC, or (e) any other event
or condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan.
"Trailer" means (a) vehicles having a minimum length of twenty (20)
feet used in trailer or freight car service and constructed for the transport of
commodities or containers from point to point and (b) associated equipment.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the event
that, by reason of mandatory provisions of law, any and all of the attachment,
perfection or priority of the Lien of Agent, on behalf of Lenders, in and to any
collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of California, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
"Utilization Leases" means Leases for Equipment held for lease in
pooling or similar arrangements where the actual rental payments under such
Lease is based on and for the actual period of utilization of such item of
Equipment rather than the Lease term.
1.2 Accounting Terms. Any accounting term used in this Agreement shall have,
unless otherwise specifically provided herein, the meaning customarily given
such term in accordance with GAAP, and all financial data required to be
submitted by this Agreement shall be prepared and computed, unless otherwise
specifically provided herein, in accordance with GAAP. That certain terms or
computations are explicitly modified by the phrase "in accordance with GAAP"
shall in no way be construed to limit the foregoing. In the event that GAAP
changes during the term of this Agreement such that the covenants contained in
Section 7 would then be calculated in a different manner or with different
components, (a) the parties hereto agree to amend this Agreement in such
respects as are necessary to conform those covenants as criteria for evaluating
each Borrower's financial condition to substantially the same criteria as were
effective prior to such change in GAAP and (b) each Borrower shall be deemed to
be in compliance with the covenants contained in the aforesaid subsections
during the sixty (60) day period following any such change in GAAP if and to the
extent that each Borrower would have been in compliance therewith under GAAP as
in effect immediately prior to such change.
1.3 Other Terms. All other undefined terms contained in this Agreement shall,
unless the context indicates otherwise, have the meanings provided for by the
UCC to the extent the same are used or defined therein. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole, including the Exhibits and Schedules hereto, all of which
are by this reference incorporated into this Agreement, as the same may from
time to time be amended, modified or supplemented, and not to any particular
section, subsection or clause contained in this Agreement. The term "including"
shall not be limiting or exclusive, unless specifically indicated to the
contrary. The term "or" is disjunctive; the term "and" is conjunctive. The term
"shall" is mandatory; the term "may" is permissive. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and plural, and pronouns stated in the masculine, feminine
or neuter gender shall include the masculine, feminine and the neuter.
1.4 Schedules And Exhibits. Any reference to a "Section," "Subsection,"
"Exhibit," or "Schedule" shall refer to the relevant Section or Subsection of or
Exhibit or Schedule to this Agreement, unless specifically indicated to the
contrary.
Section 2. AMOUNT AND TERMS OF CREDIT.
2.1 Commitment To Lend.
2.1.1 Revolving Facility. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Borrowers set forth
herein, Lenders hereby agree to make Advances (as defined below) of immediately
available funds to Borrowers, on a revolving basis, from the Closing Date until
the Business Day immediately preceding the Commitment Termination Date, in the
aggregate principal amount outstanding at any time not to exceed the lesser of
(a) the total Commitments for the Facility less the aggregate principal amount
then outstanding under the TEC AcquiSub Agreement or (b) for any one Borrower,
its respective Borrowing Base (such lesser amount being the "Maximum
Availability"), as more fully set forth in this Section 2.1.1. The obligation of
Borrowers to repay the Advances made to any Borrower shall be several but not
joint.
(a) Facility Commitments.
(i) On the Funding Date requested by any Borrower (the "Requesting Borrower"),
after such Borrower shall have satisfied all applicable conditions precedent set
forth in Section 3, each Lender shall advance immediately available funds to
Agent (each such advance being an "Advance") evidencing such Lender's Pro Rata
Share of a loan ("Loan"). Agent shall immediately advance such immediately
available funds to such Borrower at the Designated Deposit Account (or such
other deposit account at FUNB or such other financial institution as to which
such Borrower and Agent shall agree at least three (3) Business Days prior to
the requested Funding Date) on the Funding Date with respect to such Loan. The
Requesting Borrower shall pay interest accrued on the Loan at the rates and in
the manner set forth in Section 2.1.1(b). Subject to the terms and conditions of
this Agreement, the unpaid principal amount of each Loan and all unpaid interest
accrued thereon, together with all other fees, expenses, costs and other sums
chargeable to the Requesting Borrower incurred in connection therewith shall be
due and payable no later than the Maturity Date of such Loan. Each Loan advanced
hereunder by each Lender shall be evidenced by the Requesting Borrower's
revolving promissory note in favor of such Lender substantially in the form of
Exhibit A (each a "Note").
(ii) The obligation of Lenders to make any Loan from time to time hereunder
shall be limited to the then applicable Maximum Availability. For the purpose of
determining the amount of the Borrowing Base available at any one time, the
amount available shall be the total amount of the Borrowing Base as set forth in
the Borrowing Base Certificate delivered to Agent pursuant to Section 3.2.1 with
respect to such requested Loan. Nothing contained in this Agreement shall under
any circumstance be deemed to require any Lender to make any Advance under the
Facility which, in the aggregate principal amount, either (1) taking into
account such Lender's portion of the principal amounts outstanding under this
Agreement and the making of such Advance, exceeds the lesser of (A) such
Lender's Commitment for the Facility and (B) such Lender's Pro Rata Share of the
Requesting Borrower's Borrowing Base, or (2) taking into account such Lender's
portion of the aggregate principal amounts outstanding under this Agreement,
under the TEC AcquiSub Agreement, and the making of such Advance, exceeds such
Lender's Commitment for the Facility.
(iii) If at any time and for any reason the aggregate principal amount of the
Loan(s) then outstanding to any Borrower shall exceed the Maximum Availability
for such Borrower (the amount of such excess, if any, being an "Overadvance"),
such Borrower shall immediately repay the full amount of such Overadvance,
together with all interest accrued thereon; provided, however, that if such
Overadvance occurs solely as a result of a decrease in the amount of the
Borrowing Base due solely to a decrease in the computation of the Borrowing Base
under clause (b), as set forth on a Borrowing Base Certificate delivered to
Agent pursuant to Section 5.1.3, then, to the extent of such decrease, such
Borrower shall not be required under this Section 2.1.1(a)(iii) to prepay such
Overadvance but Lenders shall have no obligation to make or fund any Loans
hereunder so long as such Overadvance condition shall remain in effect.
(iv) Amounts borrowed by Borrowers under this Facility may be repaid and, prior
to the Commitment Termination Date and subject to the applicable terms and
conditions precedent to borrowings hereunder, reborrowed; provided, however,
that no Loan shall have a Maturity Date which is later than the Commitment
Termination Date and no LIBOR Loan shall have an Interest Period ending after
the Maturity Date.
(v) Each request for a Loan hereunder shall constitute a reaffirmation by the
Requesting Borrower and the Responsible Officer requesting the same that the
representations and warranties contained in this Agreement are true, correct and
complete in all material respects to the same extent as though made on and as of
the date of the request, except to the extent such representations and
warranties specifically relate to an earlier date, in which event they shall be
true, correct and complete in all material respects as of such earlier date.
(b) Each Loan. Each Loan made by Lenders hereunder shall, at the Requesting
Borrower's option in accordance with the terms of this Agreement, be either in
the form of a Prime Rate Loan or a LIBOR Loan. Subject to the terms and
conditions of this Agreement, each Loan shall bear interest on the sum of the
unpaid principal balance thereof outstanding on each day from the date when
made, continued or converted until such Loan shall have been fully repaid at a
rate per annum equal to the Prime Rate, as the same may fluctuate on a daily
basis, or the Adjusted LIBOR, as the case may be, plus the Applicable Margin.
Interest on each Loan funded hereunder shall be due and payable by the
Requesting Borrower in arrears on each Interest Payment Date, with all accrued
but unpaid interest on such Loan being due and payable on the date such Loan is
repaid, whether by prepayment or at maturity, and with all accrued but unpaid
interest being due and payable by the Requesting Borrower on the Maturity Date
for such Loan.
Each Advance made by a Lender as part of a Loan hereunder and all
repayments of principal with respect to such Advance shall be evidenced by
notations made by such Lender on the books and records of such Lender; provided,
however, that the failure by such Lender to make such notations shall not limit
or otherwise affect the obligations of any Borrower with respect to the
repayments of principal or payments of interest on any Advance or Loan. The
aggregate unpaid amount of each Advance set forth on the books and records of a
Lender shall be presumptive evidence of such Lender's Pro Rata Share of the
principal amount owing and unpaid by any Borrower under its Note.
2.1.2 Funding. Promptly following the receipt of such documents required
pursuant to Section 3.2.1 and approval of a Loan by Agent, Agent shall notify by
telephone, telecopier, facsimile or telex each Lender of the (a) Requesting
Borrower, (b) the principal amount (including Lender's Pro Rata Share thereof)
and (c) Funding Date of the Loan requested by such Requesting Borrower. Not
later than 1:00 p.m., North Carolina time, on the Funding Date for any Loan,
each Lender shall make an Advance to Agent for the account of Requesting
Borrower in the amount of its Pro Rata Share of the Loan being requested. Upon
satisfaction of the applicable conditions precedent set forth in Section 3, all
Advances shall be credited in immediately available funds to the Designated
Deposit Account.
2.1.3 Utilization Of The Loans. The Loans made under the Facility may be used
solely for the purpose of acquiring the specific items of Equipment.
2.2 Repayment And Prepayment.
2.2.1 Repayment. Unless prepaid pursuant to Section 2.2.2, the principal amount
of each Loan hereunder made to a Requesting Borrower shall be repaid by the
Requesting Borrower to Lenders not later than the Maturity Date of such Loan.
2.2.2 Voluntary Prepayment. Subject to Section 2.18, any Borrower may in the
ordinary course of such Borrower's business, upon at least three (3) Business
Days' written notice, or telephonic notice promptly confirmed in writing to
Agent, which notice shall be irrevocable, prepay any Loan in whole or in part.
Such notice of prepayment shall specify the date and amount of such prepayment
and whether such prepayment is of Prime Rate Loans or LIBOR Loans, or any
combination thereof. Such prepayment of Loans, together with any amounts
required pursuant to Section 2.18, shall be in immediately available funds and
delivered to Agent not later than 1:00 p.m., North Carolina time, on the date
for prepayment stated in such notice (the "Prepayment Date"). With respect to
any prepayment under this Section 2.2.2, all interest on the amount prepaid
accrued up to but excluding the date of such prepayment shall be due and payable
on the Prepayment Date.
2.2.3 Mandatory Prepayments.
(a) In the event that any item of Eligible Inventory shall be sold or assigned
by any Borrower or any Marine Subsidiary of such Borrower, or the ownership
interests (whether Stock or otherwise) of any Borrower in any Marine Subsidiary
of such Borrower owning record or beneficial title to any item of Eligible
Inventory shall be sold or transferred, then such Borrower shall immediately
prepay the Loan made with respect to such Eligible Inventory so sold or assigned
or with respect to the Eligible Inventory owned by such Marine Subsidiary so
sold or transferred, together with any accrued interest on such Loan to the date
of prepayment and any amounts required pursuant to Section 2.18. The sale or
assignment of Eligible Inventory by an Owner Trustee, or the sale or assignment
of any Borrower's or any Marine Subsidiary's beneficial interest in any owner
trust (or nominee entity) holding title to Eligible Inventory, shall be
considered a sale or assignment, as the case may be, of such Eligible Inventory
by such Borrower or such Marine Subsidiary, as the case may be.
(b) In the event that any of the Eligible Inventory shall have sustained a
Casualty Loss, the applicable Borrower shall promptly notify Agent and Lenders
of such Casualty Loss and make arrangements reasonably acceptable to the Agent
to cause any and all cash proceeds received by such Borrower to be paid to
Lenders as a prepayment hereunder. To the extent not so prepaid, the Loan funded
with respect to such Eligible Inventory will nevertheless be paid by such
Borrower as provided in Section 2.2.1.
2.3 Calculation Of Interest; Post-Maturity Interest. Interest on the Loans shall
be computed on the basis of a 365/366-day year for all Prime Rate Loans and a
360-day year for all LIBOR Loans and the actual number of days elapsed in the
period during which such interest accrues. In computing interest on any Loan,
the date of the making of such Loan shall be included and the date of payment
shall be excluded. Each change in the interest rate of Prime Rate Loans based on
changes in the Prime Rate and each change in the Adjusted LIBOR based on changes
in the Eurodollar Reserve Percentage shall be effective on the effective date of
such change and to the extent of such change. Agent shall give Borrowers notice
of any such change in the Prime Rate; provided, however, that any failure by
Agent to provide Borrowers with notice hereunder shall not affect Agent's right
to make changes in the interest rate of any Loan based on changes in the Prime
Rate. Upon the occurrence and during the continuation of any Event of Default
under this Agreement, Advances under this Agreement will, at the option of
Requisite Lenders, bear interest at a rate per annum which is determined by
adding two percent (2.00%) to the Applicable Margin for such Loan (the "Default
Rate"). This may result in the compounding of interest. The imposition of a
Default Rate will not constitute a waiver of any Event of Default.
2.4 Manner Of Payments. All repayments or prepayments of principal and all
payments of interest, fees, costs, expenses and other sums chargeable to
Borrowers under this Agreement, the Notes or any of the other Loan Documents
shall be in lawful money of the United States of America in immediately
available funds and delivered to Agent, for the account of Lenders, not later
than 1:00 p.m., North Carolina time, on the date due at First Union National
Bank, One First Union Center, 301 South College Street, Charlotte, North
Carolina 28288, Attention: Maria Ostrowski, or such other place as shall have
been designated in writing by Agent.
2.5 Payment On Non-Business Days. Whenever any payment to be made under this
Agreement, the Note or any of the other Loan Documents shall be stated to be due
on a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall in such case be
included in the computation of the payment of interest thereon; provided,
however, that no Loan shall have remained outstanding after the Maturity Date of
such Loan.
2.6 Application Of Payments. All payments to or for the benefit of Lenders
hereunder shall be applied to the Obligations of any Borrower making payment in
the following order: (a) then due and payable fees as set forth in Section
2.1.1(a)(i) and, at the direction of such Borrower or upon prior notice given to
such Borrower by Agent, other then due and payable fees, expenses and costs; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments; provided that if an
Event of Default shall have occurred and be continuing, Lenders shall have the
exclusive right to apply any and all such payments against the then due and
owing Obligations of such Borrower as Lenders may deem advisable. To the extent
any Borrower fails to make payment required hereunder or under any of the other
Loan Documents, each Lender is authorized to, and at its sole option may, make
such payments on behalf of such Borrower. To the extent permitted by law, all
amounts advanced by any Lender hereunder or under other provisions of the Loan
Documents shall accrue interest at the same rate as Loans hereunder.
2.7 Procedure For The Borrowing Of Loans.
2.7.1 Notice Of Borrowing. Each borrowing of Loans shall be made upon any
Requesting Borrower's irrevocable written notice delivered to Agent in the form
of a Notice of Borrowing, executed by a Responsible Person of such Requesting
Borrower, with appropriate insertions (which Notice of Borrowing must be
received by Lender prior to 12:00 noon, Charlotte, North Carolina time, three
(3) Business Days prior to the requested Funding Date) specifying:
(a) the amount of the requested borrowing, which, if a LIBOR Loan is requested,
shall be not less than One Million Dollars ($1,000,000);
(b) the requested Funding Date, which shall be a Business Day;
(c) whether the borrowing is to be comprised of one or more LIBOR Loans or Prime
Rate Loans; and
(d) the duration of the Interest Period applicable to any such LIBOR Loans
included in such Notice of Borrowing. If the Notice of Borrowing shall fail to
specify the duration of the Interest Period for any borrowing comprised of LIBOR
Loans, such Interest Period shall be three (3) months.
2.7.2 Unavailability Of LIBOR Loans. Unless Agent shall otherwise consent,
during the existence of an Event of Default or Potential Event of Default,
Borrowers may not elect to have a Loan made as a LIBOR Loan.
2.8 Conversion And Continuation Elections.
2.8.1 Election. Each Borrower may, upon irrevocable written notice to Agent:
(a) elect to convert on any Business Day, any Prime Rate Loan (or any portion
thereof in an amount equal to at least One Million Dollars ($1,000,000)) into a
LIBOR Loan; or
(b) elect to convert on any Interest Payment Date any LIBOR Loan maturing on
such Interest Payment Date (or any portion thereof) into a Prime Rate Loan; or
(c) elect to continue on any Interest Payment Date any LIBOR Loan maturing on
such Interest Payment Date (or any portion thereof in an amount equal to at
least One Million Dollars ($1,000,000));
provided, that if the aggregate amount of LIBOR Loans outstanding to such
Borrower shall have been reduced, by payment, prepayment, or conversion of
portion thereof, to be less than $1,000,000, such LIBOR Loans shall
automatically convert into Prime Rate Loans, and on and after such date the
right of such Borrower to continue such Loans as, and convert such Loans into,
LIBOR Loans shall terminate.
2.8.2 Notice Of Conversion. Each conversion or continuation of Loans shall be
made upon any Borrower's irrevocable written notice delivered to Agent in the
form of a Notice of Conversion/Continuation, executed by a Responsible Person of
such Borrower, with appropriate insertions (which Notice of
Conversion/Continuation must be received by Lender prior to 12:00 noon,
Charlotte, North Carolina time, at least three (3) Business Days in advance of
the proposed conversion date or continuation date specifying:
(a) the proposed conversion date or continuation date;
(b) the aggregate amount of Loans to be converted or continued;
(c) the nature of the proposed conversion or continuation; and
(d) the duration of the requested Interest Period.
2.8.3 Interest Period. If upon the expiration of any Interest Period applicable
to any LIBOR Loan, the Requesting Borrower has failed to select a new Interest
Period to be applicable to such LIBOR Loan, such Borrower shall be deemed to
have elected to convert such LIBOR Loan into a Prime Rate Loan effective as of
the last day of such current Interest Period.
2.8.4 Unavailability Of LIBOR Loans. Unless Agent shall otherwise consent,
during the existence of an Event of Default or Potential Event of Default,
Borrowers may not elect to have a Loan converted into or continued as a LIBOR
Loan.
2.9 Discretion Of Lenders As To Manner Of Funding. Notwithstanding any provision
of this Agreement to the contrary, each Lender shall be entitled to fund and
maintain its funding of all or any part of its LIBOR Loans in any manner it
elects, it being understood, however, that for the purposes of this Agreement
all determinations hereunder shall be made as if such Lender actually funded and
maintained each LIBOR Loan through the purchase of deposits having a maturity
corresponding to the maturity of the LIBOR Loan and bearing an interest rate
equal to the LIBOR rate (whether or not, in any instance, Lender shall have
granted any participations in such Loan). Each Lender may, if it so elects,
fulfill any commitment to make LIBOR Loans by causing a foreign branch or
affiliate to make or continue such LIBOR Loans; provided, however, that in such
event such Loans shall be deemed for the purposes of this Agreement to have been
made by such Lender, and the obligation of Borrowers to repay such Loans shall
nevertheless be to such Lender and shall be deemed held by such Lender, to the
extent of such Loans, for the account of such branch or affiliate.
2.10 Distribution Of 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 the
Requesting Borrower a corresponding Advance. If Agent has made funds available
to such Borrower based on such assumption and such Advance is not in fact made
to Agent by such Lender, Agent shall be entitled to recover the corresponding
amount of such Advance on demand from such Lender. If such Lender does not
promptly pay such corresponding amount upon Agent's demand, Agent shall notify
such Requesting Borrower and such Requesting Borrower shall repay such Advance
to Agent. Agent also shall be entitled to recover from such Lender interest on
such Advance in respect of each day from the date such Advance was made by Agent
to such Requesting Borrower to the date such corresponding amount is recovered
by Agent at the Federal Funds Rate. Nothing in this Section 2.11 shall be deemed
to relieve any Lender from its obligation to fulfill its Commitment or to
prejudice any rights which Agent or such Requesting Borrower may have against
such Lender as a result of any default by such Lender under this Agreement.
2.12 Agent's Right To Assume Payments Will Be Made By Borrower. Unless Agent
shall have been notified by any Borrower prior to the date on which any payment
to be made by such Borrower hereunder is due that such Borrower does not intend
to remit such payment, Agent may, in its sole discretion, assume that such
Borrower has remitted such payment when so due and Agent may, in its sole
discretion and in reliance upon such assumption, make available to each Lender
on such payment date an amount equal to such Lender's Pro Rata Share of such
assumed payment. If such Borrower has not in fact remitted such payment to
Agent, each Lender shall forthwith on demand repay to Agent the amount of such
assumed payment made available to such Lender, together with interest thereon in
respect of each date from and including the date such amount was made available
by Agent to such Lender to the date such amount is repaid to Agent at the
Federal Funds Rate.
2.13 Capital Requirements. If any Lender determines that compliance with any law
or regulation or with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law) has or would
have the effect of reducing the rate of return on the capital of such Lender or
any corporation controlling such Lender as a consequence of, or with reference
to, such Lender's Commitment or its making or maintaining its Pro Rata Share of
the Loans below the rate which such Lender or such other corporation could have
achieved but for such compliance (taking into account the policies of such
Lender or corporation with regard to capital), then each Borrower shall, from
time to time, upon written demand by such Lender (with a copy of such demand to
Agent), immediately pay to such Lender (a) such additional amounts as shall be
sufficient to compensate such Lender or other corporation for such reduction
resulting from such Borrower's Loans or (b) in the case where such reduction
results from compliance with any such law, regulation, guideline or request
affecting only the Commitments and not the Loans, such additional amounts as
shall be sufficient to compensate such Lender or other corporation for such
reduction based on each Borrower's percentage of average usage of the
Commitments versus the total average usage by all Borrowers. A certificate
submitted by such Lender to any Borrower, stating that the amounts set forth as
payable to such Lender are true and correct, shall be conclusive and binding for
all purposes, absent manifest error. Each Lender agrees promptly to notify
effected Borrowers and Agent of any circumstances that would cause any Borrower
to pay additional amounts pursuant to this section, provided that the failure to
give such notice shall not affect Borrowers' obligation to pay any such
additional amounts.
2.14 Taxes.
2.14.1 No Deductions. Subject to Section 2.14.7, any and all payments by each
Borrower to each Lender or Agent under this Agreement shall be made free and
clear of, and without deduction or withholding for, any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender and
Agent, such taxes (including income taxes or franchise taxes) as are imposed on
or measured by each Lender's net income (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes").
2.14.2 Miscellaneous Taxes. In addition, Borrowers shall pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents (hereinafter referred to as "Other
Taxes").
2.14.3 Indemnity. Subject to Section 2.14.7, each Borrower shall indemnify and
hold harmless each Lender and Agent for the full amount of Taxes or Other Taxes
(including any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.14) paid by such Lender or Agent in relation to any
payments made by or Obligations of such Borrower and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Payment under this indemnification shall be made within thirty
(30) days from the date any Lender or Agent makes written demand therefor.
2.14.4 Required Deductions. If any Borrower shall be required by law to deduct
or withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Lender or Agent, then, subject to Section 2.14.7:
(a) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.14) such Lender or Agent, as the case may be, receives an
amount equal to the sum it would have received had no such deductions been made;
(b) such Borrower shall make such deductions, and
(c) such Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
2.14.5 Evidence of Payment. Within thirty (30) days after the date of any
payment by any Borrower of Taxes or Other Taxes, such Borrower shall furnish to
Agent the original or a certified copy of a receipt evidencing payment thereof,
or other evidence of payment satisfactory to Agent.
2.14.6 Foreign Persons. Each Lender which is a foreign person (i.e., a person
other than a United States person for United States Federal income tax purposes)
shall:
(a) No later than the date upon which such Lender becomes a party hereto deliver
to Borrowers through Agent two (2) accurate and complete signed originals of IRS
Form 4224 or any successor thereto ("Form 4224"), or two accurate and complete
signed originals of IRS Form 1001 or any successor thereto ("Form 1001"), as
appropriate, in each case indicating that such Lender is on the date of delivery
thereof entitled to receive payments of principal, interest and fees under this
Agreement free from withholding of United States Federal income tax;
(b) If at any time such Lender makes any changes necessitating a new Form 4224
or Form 1001, with reasonable promptness deliver to Borrowers through Agent in
replacement for, or in addition to, the forms previously delivered by it
hereunder, two accurate and complete signed originals of Form 4224; or two
accurate and complete signed originals of Form 1001, as appropriate, in each
case indicating that the Lender is on the date of delivery thereof entitled to
receive payments of principal, interest and fees under this Agreement free from
withholding of United States Federal income tax;
(c) Before or promptly after the occurrence of any event (including the passing
of time but excluding any event mentioned in (ii) above) requiring a change in
or renewal of the most recent Form 4224 or Form 1001 previously delivered by
such Lender, deliver to Borrowers through Agent two accurate and complete
original signed copies of Form 4224 or Form 1001 in replacement for the forms
previously delivered by the Lender; and
(d) Promptly upon any Borrower's or Agent's reasonable request to that effect,
deliver to such Borrower or Agent (as the case may be) such other forms or
similar documentation as may be required from time to time by any applicable
law, treaty, rule or regulation in order to establish such Lender's tax status
for withholding purposes.
2.14.7 Income Taxes. Borrowers will not be required to pay any additional
amounts in respect of United States Federal income tax pursuant to Section
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 Section 2.14.6
in respect of such Lending Office;
(b) If such Lender shall have delivered to Borrowers a Form 4224 in respect of
such Lending Office pursuant to Section 2.14.6 and such Lender shall not at any
time be entitled to exemption from deduction or withholding of United States
Federal income tax in respect of payments by Borrowers hereunder for the account
of such Lending Office for any reason other than a change in United States law
or regulations or in the official interpretation of such law or regulations by
any Governmental Authority charged with the interpretation or administration
thereof (whether or not having the force of law) after the date of delivery of
such Form 4224; or
(c) If such Lender shall have delivered to Borrowers a Form 1001 in respect of
such Lending Office pursuant to Section 2.14.6, and such Lender shall not at any
time be entitled to exemption from deduction or withholding of United States
Federal income tax in respect of payments by Borrowers hereunder for the account
of such Lending Office for any reason other than a change in United States law
or regulations or any applicable tax treaty or regulations or in the official
interpretation of any such law, treaty or regulations by any Governmental
Authority charged with the interpretation or administration thereof (whether or
not having the force of law) after the date of delivery of such Form 1001.
2.14.8 Reimbursement Of Costs. If, at any time, any Borrower requests any Lender
to deliver any forms or other documentation pursuant to Section 2.14.6(a), then
such Borrower shall, on demand of such Lender through Agent, reimburse such
Lender for any costs and expenses (including reasonable attorney fees)
reasonably incurred by such Lender in the preparation or delivery of such forms
or other documentation.
2.14.9 Jurisdiction. If any Borrower is required to pay additional amounts to
any Lender or Agent pursuant to Section 2.14.4, then such Lender shall use its
reasonable good faith efforts (consistent with legal and regulatory
restrictions) to change the jurisdiction of its Lending Office so as to
eliminate any such additional payment by such Borrower which may thereafter
accrue if such change, in the judgment of such Lender, is not otherwise
disadvantageous to such Lender.
2.15 Illegality.
2.15.1 LIBOR Loans. If any Lender shall determine that the introduction of any
Requirement of Law, or any change in any Requirement of Law or in the
interpretation or administration thereof, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for such Lender or its Lending Office to make LIBOR Loans, then, on notice
thereof by Lender to the Requesting Borrower, the obligation of such Lender to
make LIBOR Loans shall be suspended until such Lender shall have notified the
Requesting Borrower that the circumstances giving rise to such determination no
longer exists.
2.15.2 Prepayment. If a Lender shall determine that it is unlawful to maintain
any LIBOR Loan, Borrowers shall prepay in full all LIBOR Loans of such Lender
then outstanding, together with interest accrued thereon, either on the last day
of the Interest Period thereof if such Lender may lawfully continue to maintain
such LIBOR Loans to such day, or immediately, if such Lender may not lawfully
continue to maintain such LIBOR Loans, together with any amounts required to be
paid in connection therewith pursuant to Section 2.18.
2.15.3 Prime Rate Borrowing. If any Borrower is required to prepay any LIBOR
Loan immediately as provided in Section 2.15.2, then concurrently with such
prepayment, such Borrower shall borrow, in the amount of such prepayment, a
Prime Rate Loan.
2.16 Increased Costs. If any Lender shall determine that, due to either (a) the
introduction of or any change (other than any change by way of imposition of or
increase in reserve requirements included in the calculation of the LIBOR) in or
in the interpretation of any Requirement of Law or (b) the compliance with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to such Lender of agreeing to make or making, funding or maintaining any
LIBOR Loans, then Borrowers shall be liable on a joint and several basis for,
and shall from time to time, upon demand therefor by such Lender, pay to such
Lender such additional amounts as are sufficient to compensate such Lender for
such increased costs.
2.17 Inability To Determine Rates. If Agent shall have determined that for any
reason adequate and reasonable means do not exist for ascertaining the LIBOR for
any requested Interest Period with respect to a proposed LIBOR Loan or that the
LIBOR applicable for any requested Interest Period with respect to a proposed
LIBOR Loan does not adequately and fairly reflect the cost to Lenders of funding
such Loan, Agent will forthwith give notice of such determination to Borrowers
and each Lender. Thereafter, the obligation of Lenders to make or maintain LIBOR
Loans, as the case may be, hereunder shall be suspended until Agent, upon
instruction from Requisite Lenders, revokes such notice in writing. Upon receipt
of such notice, Borrowers may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted. If a Borrower does not revoke such
notice, Lenders shall make, convert or continue the Loans, as proposed by such
Borrower, in the amount specified in the applicable notice submitted by such
Borrower, but such Loans shall be made, converted or continued as Prime Rate
Loans instead of LIBOR Loans, as the case may be.
2.18 Prepayment Of LIBOR Loans. Each Borrower agrees, severally but not jointly,
that in the event that such Borrower prepays or is required to prepay any LIBOR
Loan by acceleration or otherwise or fails to draw down or convert to a LIBOR
Loan after giving notice thereof, it shall reimburse each Lender for its funding
losses due to such prepayment or failure to draw. Borrowers and Lenders hereby
agree that such funding losses shall consist of the sum of the discounted
monthly differences for each month during the applicable or requested Interest
Period, calculated as follows for each such month:
(a) Principal amount of such LIBOR Loan times (number of days between the date
of prepayment and the last day in the applicable Interest Period divided by
360), times the applicable Interest Differential, plus
(b) All actual out-of-pocket expenses (other than those taken into account in
the calculation of the Interest Differential) incurred by Lenders and Agent
(excluding allocation of any expense internal to Lenders and Agent) and
reasonably attributable to such payment, prepayment or failure to draw down or
convert as described above; provided that no prepayment fee shall be payable
(and no credit or rebate shall be required) if the product of the foregoing
formula is not a positive number.
Section 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT AND THE
MAKING OF LOANS.
3.1 Effectiveness of This Agreement. The effectiveness of this Agreement is
subject to the satisfaction of the following conditions precedent:
3.1.1 Partnership, Company And Corporate Documents. Agent shall have received,
in form and substance satisfactory to Lenders and their respective counsel a
certified copy of the records of all actions taken by each Borrower, FSI and
PLMI, including all resolutions of each Borrower and corporate resolutions of
FSI and PLMI, authorizing or relating to the execution, delivery and performance
of this Agreement and the other Loan Documents and the consummation of the
transactions contemplated hereby and thereby.
3.1.2 Notes. Agent shall have received new Notes, in form and substance
satisfactory to Lenders, and duly executed and delivered by each Borrower, which
Notes shall replace and supersede the Notes issued by Borrowers to Agent
pursuant to the Growth Fund Agreement.
3.1.3 Opinion Of Counsel. Agent shall have received an originally executed
Opinion of Counsel, in form and substance satisfactory to Lenders, dated as of
the Closing Date and addressed to Lenders, together with copies of any officer's
certificate or legal opinion of other counsel or law firm specifically
identified and expressly relied upon by such counsel.
3.1.4 Reaffirmation of Guaranty. Agent shall have received the Reaffirmation of
Guaranty, in form and substance satisfactory to Lenders, duly executed and
delivered by PLMI.
3.1.5 TEC AcquiSub Amendment. Agent shall have received the TEC AcquiSub
Agreement, duly executed and delivered by TEC AcquiSub, and all conditions
precedent to the effectiveness of the TEC AcquiSub Agreement shall have been
satisfied.
3.1.6 Bringdown Certificate. Separate certificates, dated as of the Closing
Date, of the Chief Financial Officer or Corporate Controller of FSI, in its
capacity as the sole general partner of EGF VI and EGF VII and as the sole
manager of Income Fund I, to the effect that (i) the representations and
warranties of each Borrower contained in Section 4 are true, accurate and
complete in all material respects as of the Closing Date as though made on such
date and (ii) no Event of Default or Potential Event of Default under this
Agreement has occurred.
3.1.7 Fees. Agent shall have received the Agent's Side Letter, duly executed by
Borrowers and TEC AcquiSub, and Agent shall have received the fees described in
the Agent's Side Letter.
3.1.8 Other Documents. Agent shall have received such other documents,
information and items from Borrowers and FSI as reasonably requested by Agent.
3.2 All Loans. Unless waived in writing by Requisite Lenders, the obligation of
any Lender to make any Advance is subject to the satisfaction of the following
further conditions precedent:
3.2.1 Notice Of Borrowing. At least three (3) Business Days before each Loan
hereunder with respect to any acquisition of Equipment by any Borrower, Agent
shall have received (i) Notice of Borrowing and (ii) a Borrowing Base
Certificate, with appropriate insertions, executed by the Chief Financial
Officer or Corporate Controller of such Borrower.
3.2.2 No Event Of Default. No event shall have occurred and be continuing or
would result from the making of any Loan on such Funding Date which constitutes
an Event of Default or Potential Event of Default under this Agreement or under
(and as separately defined in) the TEC AcquiSub Agreement or under (and as
separately defined in) the AFG Agreement, or which with notice or lapse of time
or both would constitute an Event of Default or Potential Event of Default under
this Agreement or under the TEC AcquiSub Agreement or the AFG Agreement.
3.2.3 Representations And Warranties. All representations and warranties
contained in the Loan Documents shall be true, accurate and complete in all
material respects with the same effect as though such representations and
warranties had been made on and as of such Funding Date (except to the extent
such representations and warranties specifically relate to an earlier date, in
which case they shall be true, accurate and complete in all material respects as
of such earlier date).
3.2.4 Insurance. The insurance required to be maintained by such Borrower
pursuant to the Loan Documents shall be in full force and effect.
3.2.5 Other Instruments. Agent shall have received such other instruments and
documents as it may have reasonably requested from Borrowers in connection with
the Loans to be made on such date.
3.3 Further Conditions To All Loans. Notwithstanding anything to the contrary
contained in this Agreement, unless waived in writing by Requisite Lenders, no
Lender shall have any obligation hereunder to make any Advance if any of the
following events shall occur:
3.3.1 General Partner Or Manager. FSI shall have ceased to be the sole general
partner of any of EGF V, EGF VI or EGF VII or the sole manager of Income Fund I,
whether due to the voluntary or involuntary withdrawal, substitution, removal or
transfer of FSI from or of all or any portion of FSI's general partnership
interest or capital contribution in such Borrower.
3.3.2 Removal Of General Partner Or Manager. Twenty five percent (25.0%) or more
of the limited partners (measured by such partners' percentage interest) of any
Equipment Growth Fund shall at any time vote to remove FSI as the general
partner of such Equipment Growth Fund or a majority in interest of Class A
members, as that term is defined in the Operating Agreement, of Income Fund I
shall at any time vote to remove FSI as manager of Income Fund I, in each case,
regardless of whether FSI is actually removed.
3.3.3 Purchaser. Requesting Borrower, TEC AcquiSub, FSI or their Subsidiaries
shall have ceased to be the purchaser of Eligible Inventory for such Requesting
Borrower.
Section 4. BORROWERS' AND FSI'S REPRESENTATIONS AND WARRANTIES.
4.1 General Representations And Warranties. Each Borrower, severally, as to
itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and
severally with each Borrower as to each such Borrower and as to itself, hereby
warrant and represent to Agent and each Lender as follows, and agree that each
of said warranties and representations shall be deemed to continue until full,
complete and indefeasible payment and performance of the Obligations and shall
apply anew to each borrowing hereunder:
4.1.1 Existence And Power. Each Borrower is a limited partnership or, in the
case of Income Fund I, a limited liability company, and FSI is a corporation,
each duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and is duly qualified and licensed as a foreign
corporation, partnership or limited liability company, as applicable, and
authorized to do business in each jurisdiction within the United States where
its ownership of Property and assets or conduct of business requires such
qualification. Each Borrower and FSI has the power and authority, rights and
franchises to own their Property and assets and to carry on their businesses as
now conducted. Each Borrower and FSI has the power and authority to execute and
deliver the Loan Documents (to the extent each is a party thereto) and all other
instruments and documents contemplated hereby or thereby.
4.1.2 Loan Documents And Notes Authorized; Binding Obligations. The execution,
delivery and performance of this Agreement and each of the other Loan Documents
to which any Borrower is a party and delivery and payment of such Borrower's
respective Notes have been duly authorized by all necessary and proper action on
the part of such Borrower. The execution, delivery and performance of this
Agreement and each of the other Loan Documents to which FSI is a party have been
duly authorized by all necessary and proper corporate action on the part of FSI.
The Loan Documents constitute legally valid and binding obligations of each
Borrower and FSI, as the case may be, enforceable against each Borrower and FSI,
to the extent any one of them is a party thereto, in accordance with their
respective terms, except as enforcement thereof may be limited by bankruptcy,
insolvency or other laws affecting the enforcement of creditors' rights
generally.
4.1.3 No Conflict; Legal Compliance. (a) The execution, delivery and performance
of this Agreement, and each of the other Loan Documents and the execution,
delivery and payment of the Notes will not: (i) contravene any provision of
FSI's certificate of incorporation or bylaws; (ii) contravene any provision of
any Borrowers' Limited Partnership Agreements or, in the case of Income Fund I,
Operating Agreement or other formation or organization document; or (iii)
contravene, conflict with or violate any applicable law or regulation, or any
order, writ, judgment, injunction, decree, determination or award of any
Governmental Authority, which contravention, conflict or violation, in the
aggregate, may have Material Adverse Effect; and (b) the execution and delivery
of this Agreement, and each of the other Loan Documents and the execution and
delivery of the Notes will not violate or result in the breach of, or constitute
a default under any indenture or other loan or credit agreement, or other
agreement or instrument which are, in the aggregate, material and to which any
Borrower or FSI is a party or by which any Borrower, FSI or their Property and
assets may be bound or affected. Neither any Borrower nor FSI is in violation or
breach of or default under any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or any contract, agreement, lease,
license, indenture or other instrument to which any one of them is a party, the
non-compliance with, the violation or breach of or the default under which
would, with reasonable likelihood, have a Material Adverse Effect.
4.1.4 Financial Condition. Each Borrower's and FSI's audited consolidated
financial statements as of December 31, 1997 and Borrowers' and FSI's unaudited
consolidated financial statements as of September 30, 1998, copies of which
heretofore have been delivered to Agent by such Borrower and FSI, respectively,
and all other financial statements and other data submitted in writing by any
Borrower and FSI to Agent or any Lender in connection with the request for
credit granted by this Agreement, are true, accurate and complete in all
material respects, and said financial statements and other data fairly present
the consolidated financial condition of such Borrower and FSI, as of the date
thereof, and have been prepared in accordance with GAAP, subject to fiscal
year-end audit adjustments. There has been no material adverse change in the
business, properties or assets, operations, prospects, profitability or
financial or other condition of any Borrower or FSI since December 31, 1997.
4.1.5 Executive Offices. The current location of each Borrower's and FSI's chief
executive offices and principal places of business is set forth on Schedule
4.1.5.
4.1.6 Litigation. Except as disclosed on Schedule 4.1.6, there are no claims,
actions, suits, proceedings or other litigation pending or, to the best of each
Borrower's and FSI's knowledge, after due inquiry, threatened against any
Borrower, FSI or any of FSI's Subsidiaries, including, without limitation, TEC
AcquiSub, at law or in equity before any Governmental Authority or, to the best
of each Borrower's and FSI's knowledge, after due inquiry, any investigation by
any Governmental Authority of any Borrower's or FSI's or any of FSI's
Subsidiaries', including, without limitation, TEC AcquiSub's, affairs,
Properties or assets which would, with reasonable likelihood, if adversely
determined, have a Material Adverse Effect. Other than any liability incident to
the litigation or proceedings disclosed on Schedule 4.1.6, neither any Borrower,
nor FSI nor any of FSI's Subsidiaries, including, without limitation, TEC
AcquiSub, has any Contingent Obligations which are not provided for or disclosed
in the financial statements delivered to Agent pursuant to Sections 4.1.4 and
5.1.
4.1.7 Material Contracts. Schedule 4.1.7 lists all currently effective contracts
and agreements (whether written or oral) to which each Borrower is a party and
which (i) could involve the payment or receipt by such Borrower after the date
of this Agreement of more than $250,000 or (ii) otherwise materially affect the
business, operations or financial condition of any Borrower (the "Material
Contracts"). Except as disclosed on Schedule 4.1.7, there are no material
defaults under any such Material Contract by any Borrower, to the best of each
Borrower's knowledge, by any other party to any such Material Contract. Each
Borrower has delivered to Agent true and correct copies of all such contracts or
agreements (or, with respect to oral contracts or agreements, written
descriptions of the material terms thereof).
4.1.8 Consents And Approvals. Except as set forth in Schedule 4.1.8, all
consents and approvals of, filings and registrations with, and other actions in
respect of, all Governmental Authorities required to be obtained by any
Borrower, FSI or any of FSI's Subsidiaries in order to make or consummate the
transactions contemplated under the Loan Documents have been, or prior to the
time when required will have been, obtained, given, filed or taken and are or
will be in full force and effect.
4.1.9 Other Agreements. Neither any Borrower, FSI nor any of FSI's Subsidiaries,
including, without limitation, TEC AcquiSub, is a party to or is bound by any
agreement, contract, lease, license or instrument, or is subject to any
restriction under its respective charter or formation documents, which has, or
is likely in the foreseeable future to have, a Material Adverse Effect. Neither
any Borrower nor FSI has entered into and, as of the Closing Date does not
contemplate entering into, any material agreement or contract with any Affiliate
of any Borrower or FSI on terms that are less favorable to such Borrower or FSI
than those that might be obtained at the time from Persons who are not such
Affiliates.
4.1.10 Employment And Labor Agreements. There are no collective bargaining
agreements or other labor agreements covering any employees of any Borrower, FSI
or any of FSI's Subsidiaries.
4.1.11 ERISA. No Borrower has an Employee Benefit Plan subject to ERISA. All
Pension Plans of FSI and any of FSI's Subsidiaries, that are intended to be
qualified under Section 401(a) of the Code have been determined by the IRS to be
qualified or FSI or any of FSI's Subsidiaries will obtain such determination
prior to instituting such a Pension Plan. All Pension Plans existing as of the
date hereof continue to be so qualified. No "reportable event" (as defined in
Section 4043 of ERISA) has occurred and is continuing with respect to any
Pension Plan for which the thirty-day notice requirement may not be waived other
than those of which the appropriate Governmental Authority has been notified.
All Employee Benefit Plans of FSI or any of FSI's Subsidiaries have been
operated in all material respects in accordance with their terms and applicable
law, including ERISA, and no "prohibited transaction" (as defined in ERISA and
the Code) that would result in any material liability to FSI or any of FSI's
Subsidiaries has occurred with respect to any such Employee Benefit Plan.
4.1.12 Labor Matters. There are no strikes or other labor disputes against any
Borrower, FSI or any of FSI's Subsidiaries or, to the best of each Borrower's
and FSI's knowledge, after due inquiry, threatened against any Borrower, FSI or
any of FSI's Subsidiaries, which would, with reasonable likelihood, have a
Material Adverse Effect. All payments due from any Borrower or FSI on account of
employee health and welfare insurance which would, with reasonable likelihood,
have a Material Adverse Effect if not paid have been paid or, if not due,
accrued as a liability on the books of such Borrower or FSI.
4.1.13 Margin Regulations. Neither any Borrower nor FSI own any "margin
security", as that term is defined in Regulation 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 T, U and X. Neither any Borrower nor
FSI will take or permit any agent acting on its behalf to take any action which
might cause this Agreement or any document or instrument delivered pursuant
hereto to violate any regulation of the Federal Reserve Board.
4.1.14 Taxes. All federal, state, local and foreign tax returns, reports and
statements required to be filed by any Borrower, FSI and, to the best of each
Borrower's and FSI's knowledge, after due inquiry, by any of FSI's Subsidiaries
have been filed with the appropriate Governmental Authorities where failure to
file would, with reasonable likelihood, have a Material Adverse Effect, and all
material Charges and other impositions shown thereon to be due and payable by
any Borrower, FSI or such Subsidiary have been paid prior to the date on which
any fine, penalty, interest or late charge may be added thereto for nonpayment
thereof, or any such fine, penalty, interest, late charge or loss has been paid,
or such Borrower, FSI or such Subsidiary is contesting its liability therefore
in good faith and has fully reserved all such amounts according to GAAP in the
financial statements provided to Agent pursuant to Section 5.1. Each Borrower,
FSI and, to the best of each Borrower's and FSI's knowledge, after due inquiry,
each of FSI's Subsidiaries has paid when due and payable all material Charges
upon the books of any Borrower, FSI or such Subsidiary and no Government
Authority has asserted any Lien against any Borrower, FSI or any of FSI's
Subsidiaries with respect to unpaid Charges. Proper and accurate amounts have
been withheld by each Borrower, FSI and, to the best of each Borrower's and
FSI's knowledge, after due inquiry, each of FSI's Subsidiaries from its
employees for all periods in full and complete compliance with the tax, social
security and unemployment withholding provisions of applicable federal, state,
local and foreign law and such withholdings have been timely paid to the
respective Governmental Authorities.
4.1.15 Environmental Quality.
(a) Except as specifically disclosed in Schedule 4.1.15, the on-going operations
of each Borrower, FSI and each of FSI's Subsidiaries comply in all material
respects with all Environmental Laws, except such non-compliance which would not
(if enforced in accordance with applicable law) result in liability in excess of
$250,000 in the aggregate.
(b) Except as specifically disclosed in Schedule 4.1.15, each Borrower, FSI and
each of FSI's Subsidiaries has obtained all licenses, permits, authorizations
and registrations required under any Environmental Law ("Environmental Permits")
and necessary for its ordinary course operations, all such Environmental Permits
are in good standing, and each Borrower, FSI and each of FSI's Subsidiaries is
in compliance with all material terms and conditions of such Environmental
Permits.
(c) Except as specifically disclosed in Schedule 4.1.15, neither any Borrower,
FSI or any of FSI's Subsidiaries nor any of their respective present Property or
operations is subject to any outstanding written order from or agreement with
any Governmental Authority nor subject to any judicial or docketed
administrative proceeding, respecting any Environmental Law, Environmental Claim
or Hazardous Material.
(d) Except as specifically disclosed in Schedule 4.1.15, there are no Hazardous
Materials or other conditions or circumstances existing with respect to any
Property, or arising from operations prior to the Closing Date, of any Borrower,
FSI or any of FSI's Subsidiaries that would reasonably be expected to give rise
to Environmental Claims with a potential liability of any Borrower, FSI or any
of FSI's Subsidiaries in excess of $250,000 in the aggregate for any such
condition, circumstance or Property.
4.1.16 Trademarks, Patents, Copyrights, Franchises And Licenses. Each Borrower
and FSI and, to the best of their knowledge, after due inquiry, each of FSI's
Subsidiaries possess and owns all necessary trademarks, trade names, copyrights,
patents, patent rights, franchises and licenses which are material to the
conduct of their business as now operated.
4.1.17 Full Disclosure. As of the Closing Date, no information contained in this
Agreement, the other Loan Documents or any other documents or written materials
furnished by or on behalf of any Borrower or FSI to Agent or any Lender pursuant
to the terms of this Agreement or any of the other Loan Documents contains any
untrue or inaccurate statement of a material fact or omits to state a material
fact necessary to make the statement contained herein or therein not misleading
in light of the circumstances under which made.
4.1.18 Other Regulations. Neither any Borrower nor FSI is: (a) a "public utility
company" or a "holding company," or an "affiliate" or a "subsidiary company" of
a "holding company," or an "affiliate" of such a "subsidiary company," as such
terms are defined in the Public Utility Holding Company Act or (b) an
"investment company," or an "affiliated person" of, or a "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act. The making of the Loans hereunder and the
application of the proceeds and repayment thereof by each Borrower and the
performance of the transactions contemplated by this Agreement and the other
Loan Documents will not violate any provision of the Investment Company Act or
the Public Utility Holding Company Act, or any rule, regulation or order issued
by the SEC thereunder.
4.1.19 Solvency. Each Borrower and FSI are Solvent.
4.1.20 Year 2000. Each Borrower has reviewed the areas within its business and
operations which could be adversely affected by, and has developed or is
developing a program to address on a timely basis, the "Year 2000 Problem" (that
is, the risk that computer applications used by Borrower may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date on or after December 31, 1999), and have made related
appropriate inquiry of material suppliers, vendors and customers. Based on such
review and program, each Borrower believes that the "Year 2000 Problem" would
not with reasonable likelihood have or result in a Material Adverse Effect.
4.2 Representations And Warranties At Time Of First Advance. At the time any
Borrower makes a request for an initial borrowing hereunder, each such Borrower,
severally, as to itself, but not jointly as to the other Borrowers and FSI, and
FSI, jointly and severally with each Borrower as to each such Borrower and as to
itself, hereby warrant and represent to Agent and each Lender as follows, and
agree that each of said warranties and representations shall be deemed to
continue until full, complete and indefeasible payment and performance of the
Obligations and shall apply anew to each additional borrowing hereunder:
4.2.1 Power And Authority. Each Borrower and FSI has the power and authority to
perform the terms of the Loan Documents (to the extent each is a party thereto)
and all other instruments and documents contemplated hereby or thereby.
4.2.2 No Conflict. The performance of this Agreement, and each of the other Loan
Documents and the payment of the Notes will not violate or result in the breach
of, or constitute a default under any indenture or other loan or credit
agreement, or other agreement or instrument which are, in the aggregate,
material and to which any Borrower or FSI is a party or by which any Borrower,
FSI or their Property and assets may be bound or affected.
4.2.3 Consents And Approvals. No approval, authorization or consent of any
trustee or holder of any indebtedness or obligation of any Borrower or FSI or of
any other Person under any such material agreement, contract, lease or license
or similar document or instrument to which such Borrower, FSI or any of FSI's
Subsidiaries is a party or by which such Borrower, FSI or any such Subsidiary is
bound, is required to be obtained by any such Borrower, FSI or any such
Subsidiary in order to make or consummate the transactions contemplated under
the Loan Documents.
4.3 Survival Of Representations And Warranties. So long as any of the
Commitments shall be available and until payment and performance in full of the
Obligations, the representations and warranties contained herein shall have a
continuing effect as having been true when made.
Section 5. BORROWERS' AND FSI'S AFFIRMATIVE COVENANTS.
Each Borrower, severally, as to itself, but not jointly as to the other
Borrowers and FSI, and FSI, jointly and severally with each Borrower as to each
Borrower and as to itself (and, where applicable, PLMI) covenant and agree that,
so long as any of the Commitments shall be available and until full, complete
and indefeasible payment and performance of the Obligations, unless Requisite
Lenders shall otherwise consent in writing, each Borrower and FSI shall do or
cause to have done all of the following:
5.1 Records And Reports. Maintain, and cause each of FSI's Subsidiaries to
maintain, a system of accounting administered in accordance with sound business
practices to permit preparation of financial statements in conformity with GAAP,
and deliver to Agent or caused to be delivered to Agent:
5.1.1 Quarterly Statements. As soon as practicable and in any event within sixty
(60) days after the end of each quarterly accounting period of each Borrower,
FSI and PLMI, except with respect to the final fiscal quarter of each fiscal
year, in which case as soon as practicable and in any event within one hundred
twenty (120) days after the end of such fiscal quarter, consolidated and
consolidating balance sheets of FSI and PLMI and a balance sheet of each
Borrower as at the end of such period and the related consolidated (and, as to
statements of income only for FSI, consolidating) statements of income and
stockholders' or members' equity of each Borrower and FSI and the related
consolidated statements of income, stockholders' or members' equity and cash
flows of PLMI (and, as to statements of income only, consolidating) for such
quarterly accounting period, setting forth in each case in comparative form the
consolidated figures for the corresponding periods of the previous year, all in
reasonable detail and certified by the Chief Financial Officer or Corporate
Controller of the general partner or manager of each Borrower, as applicable,
FSI and PLMI that they (i) are complete and fairly present the financial
condition of such Borrower, FSI and PLMI as at the dates indicated and the
results of their operations and changes in their cash flow for the periods
indicated, (ii) disclose all liabilities of each Borrower, FSI and PLMI that are
required to be reflected or reserved against under GAAP, whether liquidated or
unliquidated, fixed or contingent and (iii) have been prepared in accordance
with GAAP, subject to changes resulting from audit and normal year-end
adjustment;
5.1.2 Annual Statements. As soon as practicable and in any event within one
hundred twenty (120) days after the end of each fiscal year of each Borrower and
PLMI, consolidated and consolidating balance sheets of PLMI and a balance sheet
of each Borrower as at the end of such year and the related consolidated (and,
as to statements of income only for PLMI, consolidating) statements of income,
stockholders' or members' equity and cash flows of each Borrower, if applicable,
and PLMI for such fiscal year, setting forth in each case, in comparative form
the consolidated figures for the previous year, all in reasonable detail and (i)
in the case of such consolidated financial statements, accompanied by a report
thereon of an independent public accountant of recognized national standing
selected by each Borrower and PLMI and satisfactory to Agent, which report shall
contain an opinion which is not qualified in any manner or which otherwise is
satisfactory to Requisite Lenders, in their sole discretion, and (ii) in the
case of such consolidating financial statements, certified by the Chief
Financial Officer or Corporate Controller of PLMI;
5.1.3 Borrowing Base Certificate. As soon as practicable, and in any event not
later than fifteen (15) days after the end of each calendar month in which a
Loan has been, or is, outstanding, a Borrowing Base Certificate dated as of the
last day of such month, duly executed by a Chief Financial Officer or Corporate
Controller of the general partner or manager of each Borrower, with appropriate
insertions;
5.1.4 Compliance Certificate. As soon as practicable, and in any event not later
than forty-five (45) days after the end of each fiscal quarter of each Borrower,
a Compliance Certificate dated as of the last day of such fiscal quarter, and
executed by the Chief Financial Officer or Corporate Controller of the general
partner or manager of such Borrower, with appropriate insertions.
5.1.5 Reports. At Agent's request, promptly upon receipt thereof, copies of all
reports submitted to each Borrower, FSI or PLMI by independent public
accountants in connection with each annual, interim or special audit of the
financial statements of such Borrower, FSI or PLMI made by such accountants;
5.1.6 Insurance Reports. (i) On the date six months after the Closing Date and
thereafter upon Agent's reasonable request, which request will not be made more
than once during any calendar year (unless an Event of Default shall have
occurred and be continuing), a report from each Borrower's insurance broker, in
such detail as Agent may reasonably request, as to the insurance maintained or
caused to be maintained by each Borrower pursuant to this Agreement,
demonstrating compliance with the requirements hereof and thereof, and (ii) as
soon as possible and in no event later than fifteen (15) days prior to the
expiration date of any insurance policy of any Borrower, a written confirmation
that such policy is in process of renewal and is not terminated or subject to a
notice of non-renewal from such Borrower's insurance broker; provided, however,
that such Borrower shall give Agent prompt written notice if changes affecting
risk coverage will be made to such policy or if the policy will be terminated;
5.1.7 Certificate Of Responsible Officer. Promptly upon any officer of any
Borrower or FSI obtaining knowledge (a) of any condition or event which
constitutes an Event of Default or Potential Event of Default under this
Agreement, (b) that any Person has given any notice to any Borrower, FSI, TEC,
TEC AcquiSub or PLMI or taken any other action with respect to a claimed default
or event or condition of the type referred to in Section 8.1.2, (c) of the
institution of any litigation or of the receipt of written notice from any
Governmental Authority as to the commencement of any formal investigation
involving an alleged or asserted liability of any Borrower, FSI, TEC, TEC
AcquiSub or PLMI equal to or greater than $500,000 or any adverse judgment in
any litigation involving a potential liability of any Borrower, FSI, TEC, TEC
AcquiSub or PLMI equal to or greater than $500,000, or (d) of a material adverse
change in the business, operations, properties, assets or condition (financial
or otherwise) of any Borrower, FSI, TEC, TEC AcquiSub or PLMI, a certificate of
a Responsible Officer of any Borrower or FSI, as applicable, specifying the
notice given or action taken by such Person and the nature of such claimed
default, Event of Default, Potential Event of Default, event or condition and
what action such Borrower, FSI, TEC, TEC AcquiSub or PLMI has taken, is taking
and proposes to take with respect thereto;
5.1.8 Employee Benefit Plans. Promptly upon becoming aware of the occurrence of
any (a) Termination Event in connection with any Pension Plan or (b) "prohibited
transaction" (as such term is defined in ERISA and the Code) in connection with
any Employee Benefit Plan or any trust created thereunder, a written notice
specifying the nature thereof, what action any Borrower or any of its ERISA
Affiliates has taken, is taking or proposes to take with respect thereto, and,
when known, any action taken or threatened by the IRS or the PBGC with respect
thereto;
5.1.9 ERISA Notices. With reasonable promptness, copies of (a) all notices
received by any Borrower, FSI, any of FSI's Subsidiaries or any of their ERISA
Affiliates of the PBGC's intent to terminate any Pension Plan or to have a
trustee appointed to administer any Pension Plan, (b) each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) filed by any Borrower, FSI,
any of FSI's Subsidiaries or any of their ERISA Affiliates with the IRS with
respect to each Pension Plan covering employees of any Borrower, FSI or any of
FSI's Subsidiaries, and (c) all notices received by any Borrower, FSI, any of
FSI's Subsidiaries or any of their ERISA Affiliates from a Multiemployer Plan
sponsor concerning the imposition or amount of withdrawal liability pursuant to
Section 4202 of ERISA;
5.1.10 Pension Plans. Promptly upon receipt by any Borrower, FSI or any of FSI's
Subsidiaries, any challenge by the IRS to the qualification under Section 401 or
501 of the Code of any Pension Plan;
5.1.11 SEC Reports. As soon as available and in no event later than five (5)
days after the same shall have been filed with the SEC, a copy of each Form 8-K
Current Report, Form 10-K Annual Report, Form 10-Q Quarterly Report, Annual
Report to Shareholders, Proxy Statement and Registration Statement of any
Borrower and PLMI;
5.1.12 Tax Returns. Upon the request of Agent, copies of all federal, state,
local and foreign tax returns and reports in respect of income, franchise or
other taxes on or measured by income (excluding sales, use or like taxes) filed
by or on behalf of any Borrower and FSI; and
5.1.13 Additional Information. Such other information respecting the condition
or operations, financial or otherwise, of any Borrower and PLMI and its
Subsidiaries as Agent or any Lender may from time to time reasonably request,
and such information regarding the lessees under Leases as any Borrower from
time to time receives or Agent or any Lender reasonably requests.
All financial statements of Borrowers, FSI and PLMI to be delivered by
any Borrower and FSI to Agent pursuant to this Section 5.1 will be complete and
correct and present fairly the financial condition of each Borrower, FSI and
PLMI as of the date thereof; will disclose all liabilities of each Borrower, FSI
and PLMI that are required to be reflected or reserved against under GAAP,
whether liquidated or unliquidated, fixed or contingent; and will have been
prepared in accordance with GAAP. All tax returns submitted to Agent by
Borrowers and FSI will, to the best of each Borrower's and FSI's knowledge,
after due inquiry, be true and correct. Each Borrower and FSI hereby agree that
each time any one of them submits a financial statement or tax return to Agent,
such Borrower and FSI shall be deemed to represent and warrant to Lenders that
such financial statement or tax return complies with all of the preceding
requirements set forth in this paragraph.
Statements of financial performance required to be provided by Borrower
to Agent pursuant to this Section 5.1 shall (a) include a statement that the
Year 2000 remediation efforts of Borrower are proceeding as scheduled and no
Material Adverse Effect is expected to result from the "Year 2000 Problem"
(within the meaning of such term set forth in Section 4.20) or such remediation
efforts and (b) indicate whether an auditor, regulator or third party consultant
has issued a management letter or other communication regarding the Year 2000
exposure, program or progress of Borrower.
5.2 Existence; Compliance With Law. Each Borrower and FSI shall preserve and
maintain, and FSI shall cause each of FSI's Subsidiaries, including, without
limitation, TEC AcquiSub, to preserve and maintain, their existence and all of
their licenses, permits, governmental approvals, rights, privileges and
franchises necessary or desirable in the normal conduct of their businesses as
now conducted or presently proposed to be conducted (including, without
limitation, their qualification to do business in each jurisdiction in which
such qualification is necessary or desirable in view of its business); conduct,
and cause each of FSI's Subsidiaries, including, without limitation, TEC
AcquiSub, and any Owner Trustee to conduct, its business in an orderly and
regular manner; and comply, and cause each of FSI's Subsidiaries, including,
without limitation, TEC AcquiSub, and any Owner Trustee, to comply, with (a) as
to any Borrower, its Limited Partnership Agreement, Operating Agreement and
other organizational documents, as applicable, and as to FSI and each of its
Subsidiaries, including, without limitation, TEC AcquiSub, the provisions of its
respective certificate or articles of incorporation, as applicable, and bylaws
and (b) the requirements of all applicable laws, rules, regulations or orders of
any Governmental Authority and requirements for the maintenance of any
Borrower's, FSI's or such Subsidiary's insurance, licenses, permits,
governmental approvals, rights, privileges and franchises, except, in either
case, to the extent that the failure to comply therewith would not, in the
aggregate, with reasonable likelihood, have a Material Adverse Effect.
5.3 Insurance. Each Borrower and FSI shall maintain and keep in force, and cause
each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, to
maintain and keep in force insurance of the types and in amounts then
customarily carried in lines of business similar to that of Borrowers, FSI or
any of FSI's Subsidiaries as the case may be, including, but not limited to,
fire, extended coverage, public liability, property damage, environmental hazard
and workers' compensation, in each case carried with financially sound Persons
and in amounts satisfactory to Requisite Lenders (subject to commercial
reasonableness as to each type of insurance); provided, however, that the types
and amounts of insurance shall not provide any less coverage for any Borrower
than provided as of the Closing Date by the existing blanket policies of
insurance for PLMI and its Subsidiaries. All such policies as to liability
insurance shall carry endorsements naming Agent and each Lender as an additional
insured and, upon the reasonable request of Agent, all such policies of property
insurance shall carry endorsements naming Agent as principal loss payee as to
any property owned by Borrowers and financed by Lenders, and in each case
indicating that (a) any loss thereunder shall be payable to Agent or Lenders, as
the case may be, notwithstanding any action, inaction or breach of
representation or warranty by any Borrower or FSI; (b) there shall be no
recourse against any Lender for payment of premiums or other amounts with
respect thereto, and (c) at least fifteen (15) days' prior written notice of
cancellation, lapse or material change in coverage shall be given to Agent by
the insurer.
5.4 Taxes And Other Liabilities. Promptly pay and discharge and cause each of
FSI's Subsidiaries, including, without limitation, TEC AcquiSub, promptly to pay
and discharge all material Charges when due and payable, except (a) such as may
be paid thereafter without penalty or (b) such as may be contested in good faith
by appropriate proceedings and for which an adequate reserve has been
established and is maintained in accordance with GAAP. Each Borrower and FSI
shall promptly notify Agent of any material challenge, contest or proceeding
pending by or against any Borrower, FSI and PLMI or any of FSI's Subsidiaries
before any taxing authority.
5.5 Inspection Rights; Assistance. At any reasonable time and from time to time
during normal business hours, permit Agent or any Lender or any agent,
representative or employee thereof, to examine and make copies of and abstracts
from the financial records and books of account of each Borrower, FSI or any of
FSI's Subsidiaries, including, without limitation, TEC AcquiSub, and other
documents in the possession or under the control of any Borrower, FSI or any of
FSI's Subsidiaries, including, without limitation, TEC AcquiSub, relating to any
obligation of any Borrower or FSI arising under or contemplated by this
Agreement and to visit the offices of any Borrower or FSI to discuss the
affairs, finances and accounts of any Borrower or FSI with any of the officers
of any Borrower or FSI, and, upon reasonable notice and during normal business
hours (unless an Event of Default or Potential Event of Default shall have
occurred and be continuing, in which event no notice is required), to conduct
audits of and appraise Equipment. Such audits and appraisals shall be subject to
the lessee's right to quiet enjoyment as set forth in the respective lease.
5.6 Maintenance Of Facilities; Modifications.
5.6.1 Maintenance Of Facilities. Each Borrower and FSI shall keep and cause each
of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, to keep, all
of their respective Properties which are useful or necessary to such Borrower's,
FSI's or such Subsidiary's business, in good repair and condition, normal wear
and tear excepted, and from time to time make, and cause each such Subsidiary to
make necessary repairs thereto, and renewals and replacements thereof so that
each Borrower's, FSI's or such Subsidiary's Properties shall be fully and
efficiently preserved and maintained.
5.6.2 Certain Modifications To The Equipment. Subject to Section 5.6.1, each
Borrower and FSI shall promptly make, or cause to be made, all modifications,
additions and adjustments to the Eligible Inventory as may from time to time be
required by any Governmental Authority having jurisdiction over the operation,
safety or use thereof.
5.7 Supplemental Disclosure. From time to time as may be necessary (in the event
that such information is not otherwise delivered by Borrowers or FSI to Agent or
Lenders pursuant to this Agreement), so long as there are Obligations
outstanding hereunder, disclose to Agent in writing any material matter
hereafter arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described by any Borrower or FSI in
this Agreement or any of the other Loan Documents (including all Schedules and
Exhibits hereto or thereto) or which is necessary to correct any information set
forth or described by Borrowers or FSI hereunder or thereunder or in connection
herewith which has been rendered inaccurate thereby.
5.8 Further Assurances. In addition to the obligations and documents which this
Agreement expressly requires Borrowers or FSI to execute, deliver and perform,
each Borrower or FSI shall execute, deliver and perform, and shall cause FSI's
Subsidiaries to execute, deliver and perform, any and all further acts or
documents which Agent or Lenders may reasonably require to effectuate the
purposes of this Agreement or any of the other Loan Documents.
5.9 Lockbox. Each Borrower shall, unless otherwise directed in writing by Agent,
cause all remittances made by the obligor under any Lease to be made to a lock
box (the "Lockbox") maintained with FUNB pursuant to the Lockbox Agreement.
Unless otherwise directed by Agent in writing, all invoices and other
instructions submitted by any Borrower to the obligor relating to Lease payments
shall designate the Lockbox as the place to which such payments shall be made.
5.10 Environmental Laws. Each Borrower and FSI shall, and FSI shall cause each
of its Subsidiaries to, conduct its operations and keep and maintain its
Property in material compliance with all Environmental Laws.
Section 6. BORROWER'S AND FSI'S NEGATIVE COVENANTS.
So long as any of the Commitments shall be available and until full,
complete and indefeasible payment and performance of the Obligations, unless
Requisite Lenders shall otherwise consent in writing, each Borrower, severally,
as to itself, but not jointly as to the other Borrowers and FSI, and FSI,
jointly and severally with each Borrower as to such Borrower and to itself,
covenants and agrees as follows:
6.1 Liens; Negative Pledges; And Encumbrances. Each Borrower shall not create,
incur, assume or suffer to exist, and shall not permit any Marine Subsidiary of
such Borrower or Owner Trustee holding record title to any Eligible Inventory
for the beneficial interest of such Borrower to create, incur, assume or suffer
to exist, and FSI shall not permit any of its Subsidiaries (including, without
limitation, TEC and TEC AcquiSub) to create, incur, assume or suffer to exist,
any Lien of any nature upon or with respect to any of their respective Property,
whether now or hereafter owned, leased or acquired, except (collectively, the
"Permitted Liens"):
6.1.1 Existing Liens disclosed on Schedule 6.1, provided that the obligations
secured thereby are not increased;
6.1.2 Liens for Charges if payment shall not at the time be required to be made
in accordance with Section 5.4;
6.1.3 Liens in respect of pledges, obligations or deposits (a) under workers'
compensation laws, unemployment insurance and other types of social security or
similar legislation, (b) in connection with surety, appeal and similar bonds
incidental to the conduct of litigation, (c) in connection with bid, performance
or similar bonds and mechanics', laborers' and materialmen's and similar
statutory Liens not then delinquent, or (d) incidental to the conduct of the
business of such Borrower, any Marine Subsidiary of such Borrower, or any Owner
Trustee or any of FSI's Subsidiaries and which were not incurred in connection
with the borrowing of money or the obtaining of advances or credit; provided
that the Liens permitted by this Section 6.1.3 do not in the aggregate
materially detract from the value of any assets or property of or materially
impair the use thereof in the operation of the business of such Borrower, any
Owner Trustee or any of FSI's Subsidiaries; and provided further that the
adverse determination of any claim or liability, contingent or otherwise,
secured by any of such Liens would not either individually or in the aggregate,
with reasonable likelihood, have a Material Adverse Effect;
6.1.4 Permitted Rights of Others; and
6.1.5 Liens granted in favor of Agent on behalf of Lenders under the TEC
AcquiSub Agreement and the security agreement and other loan documents delivered
by TEC AcquiSub pursuant thereto.
6.2 Acquisitions. Each Borrower shall not, and shall not permit any Marine
Subsidiary of such Borrower to, and FSI shall not permit TEC and TEC AcquiSub
to, make any Acquisition or enter into any agreement to make any Acquisition,
other than with respect to the purchase of Equipment in the ordinary course of
business or the formation or acquisition of a Marine Subsidiary.
6.3 Limitations On Indebtedness. Each Borrower shall not create, incur, assume
or suffer to exist, nor permit any Marine Subsidiary of such Borrower or Owner
Trustee holding record title to any Eligible Inventory for the beneficial
interest of such Borrower to create, incur, assume or suffer to exist, and FSI
shall not permit any of its Subsidiaries (including, without limitation, TEC and
TEC AcquiSub) to create, incur, assume or suffer to exist, any Indebtedness or
Contingent Obligation; provided, however, that this Section 6.3 shall not be
deemed to prohibit:
6.3.1 The Obligations to Lenders and Agent arising hereunder and under the other
Loan Documents;
6.3.2 Existing Indebtedness disclosed on Schedule 6.3(a) and anticipated
Indebtedness disclosed on Schedule 6.3(b);
6.3.3 Indebtedness of any Subsidiary of FSI, provided that such Indebtedness is
non-recourse as to FSI, TEC and TEC AcquiSub;
6.3.4 The acquisition of goods, supplies or merchandise on normal trade credit;
6.3.5 The endorsement of negotiable instruments received in the ordinary course
of any Borrower's business as presently conducted;
6.3.6 Indebtedness incurred in respect of the deferred purchase price for an
item of Equipment, but only to the extent that the incurrence of such
Indebtedness is customary in the industry with respect to the purchase of this
type of equipment (provided that such Indebtedness shall only be permitted under
this Section 6.3.6 if, taking into account the incurrence of such Indebtedness,
the Borrower incurring such Indebtedness shall not be in violation of any of the
financial covenants set forth in Section 7 if measured as of the date of
incurrence as determined by GAAP); and
6.3.7 Any Guaranty Obligations of any Borrower in the form of performance
guaranties undertaken on behalf of a Marine Subsidiary of such Borrower in favor
of the charter party in connection with the leasing of a marine vessel on a time
charter;
6.4 Use Of Proceeds. Each Borrower and FSI shall not, and shall not permit any
Marine Subsidiary of such Borrower or Owner Trustee holding record title to any
Eligible Inventory for the beneficial interest of such Borrower or FSI to, use
the proceeds of any Loan except for the purpose set forth in Section 2.1.3, and
shall not, and shall not permit any such Marine Subsidiary or such Owner Trustee
to, use the proceeds to repay any loans or advances made by any other Person.
6.5 Disposition Of Assets. Each Borrower and FSI shall not, and shall not permit
any Marine Subsidiary of such Borrower or any Owner Trustee holding record title
to any Eligible Inventory for the beneficial interest of such Borrower or FSI
to, sell, assign or otherwise dispose of, any of its or their respective assets,
except for full, fair and reasonable consideration, or enter into any sale and
leaseback agreement covering any of its or their respective fixed or capital
assets.
6.6 Restriction On Fundamental Changes. Each Borrower and FSI shall not, and
shall not permit any Marine Subsidiary of such Borrower to, enter into any
transaction of merger, consolidation or recapitalization, directly or
indirectly, whether by operation of law or otherwise, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease, assign, transfer or otherwise dispose of, in one transaction or a series
of transactions, all or any part of its business, Property or assets, whether
now owned or hereafter acquired, or acquire by purchase or otherwise all or
substantially all the business, Property or assets of, or stock or other
evidence of beneficial ownership of, any Person, except sales (a) of Equipment
in the ordinary course of business (for the purposes of this Section 6.6, with
respect to any Borrower and any Marine Subsidiary of such Borrower, ordinary
course of business shall refer to the business of the Equipment Growth Funds and
all Marine Subsidiaries, collectively) and (b) any Subsidiary of FSI (other than
TEC AcquiSub) may be merged or consolidated with or into FSI or any wholly-owned
Subsidiary of FSI, or be liquidated, wound up or dissolved, or all or
substantially all of its business, property or assets may be conveyed, sold,
leased, transferred or otherwise disposed of, in one transaction or a series of
transactions, to, FSI or any wholly-owned Subsidiary of FSI; provided that, in
the case of such a merger or consolidation, FSI or such wholly-owned Subsidiary
shall be the continuing or surviving corporation. 6.7 Transactions With
Affiliates. Each Borrower shall not, and shall not permit any Marine Subsidiary
of such Borrower to, directly or indirectly, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any of its
Affiliates on terms that are less favorable to such Borrower or such Marine
Subsidiary than those that might be obtained at the time from Persons who are
not such Affiliates.
6.8 Maintenance Of Business. Each Borrower shall not, and FSI shall not permit
any of its existing Subsidiaries to, engage in any business materially different
than the business currently engaged in by such Person.
6.9 No Distributions. Each Borrower shall not make, pay or set apart any funds
for the payment of distribution to its partners or members if such distribution
would cause or result in an Event of Default or Potential Event of Default.
6.10 Events Of Default. Each Borrower and FSI shall not take or omit to take any
action, which act or omission would, with the lapse of time, or otherwise
constitute (a) a default, event of default or Event of Default under any of the
Loan Documents or (b) a default or an event of default under any other material
agreement, contract, lease, license, mortgage, deed of trust or instrument to
which either is a party or by which either or any of their Properties or assets
is bound, which default or event of default would, with reasonable likelihood,
have a Material Adverse Effect.
6.11 ERISA. If any Borrower or FSI or any of their ERISA Affiliates incurs any
obligation to contribute to any Pension Plan, then such Borrower or FSI, as the
case may be, shall not (a) terminate, or permit such ERISA Affiliate to
terminate, any Pension Plan so as to result in any liability that would, with
reasonable likelihood, have a Material Adverse Effect or (b) make or permit such
ERISA Affiliate to make a complete or partial withdrawal (within the meaning of
Section 4201 of ERISA) from any Multiemployer Plan so as to result in any
liability that would, with reasonable likelihood, have a Material Adverse
Effect.
6.12 No Use Of Any Lender's Name. Each Borrower and FSI shall not use or
authorize others to use any Lender's name or marks in any publication or medium,
including, without limitation, any prospectus, without such Lender's advance
written authorization.
6.13 Certain Accounting Changes. Each Borrower shall not change its fiscal year
end from December 31, nor make any change in its accounting treatment and
reporting practices except as permitted by GAAP; provided, however, that should
any Borrower change its accounting treatment or reporting practices in a way
that would cause a change in the calculation, or in the results of a
calculation, of any of the financial covenants set forth in Section 7, below,
then such Borrower shall continue to calculate such covenants as if such
accounting treatment or reporting practice had not been changed unless otherwise
agreed to by Requisite Lenders.
6.14 Amendments Of Limited Partnership Or Operating Agreements. Each Borrower
shall not, shall not cause to occur and shall not permit any amendment,
modification or supplement of or to any of the terms or provisions of such
Borrower's Limited Partnership Agreement or, in the case of Income Fund I, its
Operating Agreement, which amendment, modification or supplement would affect,
limit or otherwise impair such Borrower's ability to pay the Obligations or
perform its obligations under this Agreement or any of the other Loan Documents.
Section 7. FINANCIAL COVENANTS OF BORROWER AND FSI.
Each Borrower, severally, as to itself, but not jointly as to the other
Borrowers and FSI, and FSI, jointly and severally with each Borrower as to each
Borrower and as to itself, covenant and agree that, so long as the Commitments
hereunder shall be available, and until full, complete and indefeasible payment
and performance of the Obligations, including, without limitation, all Loans
evidenced by the Notes, unless Requisite Lenders shall otherwise consent in
writing, Borrowers and FSI shall perform the following financial covenants. Each
Borrower and FSI agree and understand that (except as expressly provided herein)
all covenants under this Section 7 shall be subject to quarterly compliance or
compliance as of the date of any request for a Loan pursuant to Section 3.2.1
(as measured on the last day of each fiscal quarter of such Borrower, or FSI, as
the case may be, or as of the date of any request for a Loan pursuant to Section
3.2.1), and in each case review by Lenders of the respective fiscal quarter's
consolidated financial statements delivered to Agent by each Borrower and FSI
pursuant to Section 5.1; provided, however, that the following financial
covenants shall apply only as to those Borrowers requesting a Loan or as to
which a Loan remains outstanding.
7.1 Maximum Funded Debt Ratio. Each Borrower shall maintain a Funded Debt Ratio
of not greater than 0.5:1.0.
7.2 Minimum Debt Service Ratio. Each Borrower shall maintain a Debt Service
Ratio of not less than 1.75:1.0.
7.3 Cash Balances. The Equipment Growth Funds of which FSI is the sole general
partner shall maintain aggregate unrestricted cash balances of $10,000,000.
section 8. EVENTS OF DEFAULT AND REMEDIES.
8.1 Events Of Default. As to any Borrower, the occurrence of any one or more of
the following shall constitute an Event of Default for each such Borrower
individually:
8.1.1 Failure To Make Payments. Such Borrower, any Marine Subsidiary of such
Borrower or any Owner Trustee holding record title to any Eligible Inventory for
the beneficial interest of such Borrower or FSI fails to pay any sum due to
Lenders or Agent arising under this Agreement, the Note of such Borrower or any
of the other Loan Documents when and as the same shall become due and payable,
whether by acceleration or otherwise and such failure shall not have been cured
to Lenders' satisfaction within five (5) calendar days; or
8.1.2 Other Agreements. (a) Such Borrower, any Marine Subsidiary of such
Borrower, FSI, TEC, TEC AcquiSub or any Owner Trustee holding record title to
any Eligible Inventory for the beneficial interest of such Borrower defaults in
the repayment of any principal of or the payment of any interest on any
Indebtedness of such Borrower, any such Marine Subsidiary, FSI, TEC, TEC
AcquiSub or any such Owner Trustee, respectively, or breaches any term of any
evidence of such Indebtedness or defaults in any payment in respect of any
Contingent Obligation (excluding, as to FSI, any Contingent Obligation of FSI
arising solely as a result of FSI's status as a general partner of any Person
other than such Borrower), in each case exceeding, in the aggregate outstanding
principal amount, $2,000,000, or such Borrower, any Marine Subsidiary, FSI, TEC,
TEC AcquiSub or any Owner Trustee breaches or violates any term or provision of
any evidence of such Indebtedness or Contingent Obligation or of any such loan
agreement, mortgage, indenture, guaranty or other agreement relating thereto if
the effect of such breach is to permit acceleration under the applicable
instrument, loan agreement, mortgage, indenture, guaranty or other agreement and
such failure shall not have been cured within the applicable cure period, or
there is an acceleration under the applicable instrument, loan agreement,
mortgage, indenture, guaranty or other agreement; or (b) PLMI defaults in the
repayment of any principal of or the payment of any interest on any Indebtedness
or defaults in any payment in respect of any Contingent Obligation, in each case
exceeding, in the aggregate outstanding principal amount, $2,000,000, or PLMI
breaches or violates any term or provision of any evidence of such Indebtedness
or Contingent Obligation or of any such loan agreement, mortgage, indenture,
guaranty or other agreement relating thereto with the result that such
Indebtedness or Contingent Obligation becomes or is caused to become then due
and payable in its entirety, whether by acceleration of otherwise; or
8.1.3 Breach Of Covenants. Such Borrower or FSI fails or neglects to perform,
keep or observe any of the covenants contained in Sections 2.1.3, 5.2, 5.3, 5.9,
6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9 or 6.13, or any of the financial
covenants contained in Section 7 of this Agreement; or
8.1.4 Breach Of Representations Or Warranties. Any representation or warranty
made by or on behalf of such Borrower or FSI in this Agreement or any statement
or certificate at any time given in writing pursuant hereto or in connection
herewith shall be false, misleading or incomplete in any material respect when
made; or
8.1.5 Failure To Cure. Except as provided in Sections 8.1.1 and 8.1.3, such
Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding
record title to any Eligible Inventory for the beneficial interest of such
Borrower or FSI fails or neglects to perform, keep or observe any covenant or
provision of this Agreement or of any of the other Loan Documents or any other
document or agreement executed by such Borrower, FSI or any Marine Subsidiary of
such Borrower or Owner Trustee holding record title to any Eligible Inventory
for the beneficial interest of such Borrower or FSI in connection therewith and
the same has not been cured to Requisite Lenders' satisfaction within thirty
(30) calendar days after such Borrower, FSI or any Marine Subsidiary of such
Borrower or Owner Trustee holding record title to any Eligible Inventory for the
beneficial interest of such Borrower or FSI shall become aware thereof, whether
by written notice from Agent or any Lender or otherwise; or
8.1.6 Insolvency. Such Borrower, any Marine Subsidiary of such Borrower, TEC
AcquiSub, any other Borrower (but only for so long as Obligations of such other
Borrower remain or Commitments to such other Borrower are available under this
Agreement), FSI, TEC, PLMI or any Owner Trustee holding record title to any
Eligible Inventory for the beneficial interest of such Borrower or FSI or any
other guarantor of any of such Borrower's or FSI's obligations to Lenders shall
(a) cease to be Solvent, (b) admit in writing its inability to pay its debts as
they mature, (c) make an assignment for the benefit of creditors, (d) apply for
or consent to the appointment of a receiver, liquidator, custodian or trustee
for it or for a substantial part of its Properties or business, or such a
receiver, liquidator, custodian or trustee otherwise shall be appointed and
shall not be discharged within sixty (60) days after such appointment; or
8.1.7 Bankruptcy Proceedings. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against such
Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, any other
Borrower (but only for so long as Obligations of such other Borrower remain or
Commitments to such other Borrower are available under this Agreement), FSI,
TEC, PLMI or any Owner Trustee holding record title to any Eligible Inventory
for the beneficial interest of such Borrower or FSI or any other guarantor of
any of such Borrower's or FSI's obligations to Lenders or any order, judgment or
decree shall be entered against such Borrower, any Marine Subsidiary of such
Borrower, TEC AcquiSub, any other Borrower (but only for so long as Obligations
of such other Borrower remain or Commitments to such other Borrower are
available under this Agreement), FSI, TEC, PLMI or any Owner Trustee holding
record title to any Eligible Inventory for the beneficial interest of such
Borrower or FSI or any other guarantor of any of such Borrower's or FSI's
obligations to Lenders decreeing its dissolution or division; provided, however,
with respect to an involuntary petition in bankruptcy, such petition shall not
have been dismissed within sixty (60) days after the filing of such petition; or
8.1.8 Material Adverse Effect. There shall have been a change in the assets,
liabilities, financial condition, operations, affairs or prospects of such
Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, FSI, TEC, PLMI
or any Owner Trustee holding record title to any Eligible Inventory for the
beneficial interest of such Borrower or FSI or any other guarantor of any of
such Borrower's or FSI's obligations to Lenders which, in the reasonable
determination of Requisite Lenders has, either individually or in the aggregate,
had a Material Adverse Effect; or
8.1.9 Judgments, Writs And Attachments. There shall be a money judgment, writ or
warrant of attachment or similar process entered or filed against such Borrower,
any Marine Subsidiary of such Borrower, TEC AcquiSub, FSI, TEC or any Owner
Trustee holding record title to any Eligible Inventory for the beneficial
interest of such Borrower or FSI which (net of insurance coverage) remains
unvacated, unbonded, unstayed or unpaid or undischarged for more than sixty (60)
days (whether or not consecutive) or in any event later than five (5) calendar
days prior to the date of any proposed sale thereunder, which, together with all
such other unvacated, unbonded, unstayed, unpaid and undischarged judgments or
attachments against such Borrower or any Marine Subsidiary of such Borrower
exceeds in the aggregate $1,000,000; against FSI exceeds in the aggregate
$500,000; against TEC or TEC AcquiSub exceeds in the aggregate $500,000; or
against any Owner Trustee holding record title to any Eligible Inventory for the
beneficial interest of such Borrower or FSI exceeds in the aggregate $1,000,000;
or against any combination of the foregoing Persons exceeds in the aggregate
$1,000,000; or
8.1.10 Legal Obligations. Any of the Loan Documents shall for any reason other
than the full, complete and indefeasible satisfaction of the Obligations
thereunder cease to be, or be asserted by such Borrower, FSI or any Marine
Subsidiary of such Borrower or Owner Trustee holding record title to any
Eligible Inventory for the beneficial interest of such Borrower or FSI not to
be, a legal, valid and binding obligation of such Borrower, FSI or any Marine
Subsidiary of such Borrower or Owner Trustee holding record title to any
Eligible Inventory for the beneficial interest of such Borrower or FSI,
respectively enforceable against such Person in accordance with its terms; or
8.1.11 TEC AcquiSub Agreement. The occurrence of any "Event of Default" as
defined under the TEC AcquiSub Agreement or any other loan or security document
related to the TEC AcquiSub Agreement; or
8.1.12 Change Of General Partner Or Manager. FSI shall cease to be the sole
general partner or the sole manager, as applicable, of such Borrower, whether
due to the voluntary or involuntary withdrawal, substitution, removal or
transfer of FSI from or of all or any portion of FSI's general partnership
interest or capital contribution in such Borrower; or
8.1.13 Change Of Purchaser. Requesting Borrower, TEC AcquiSub, FSI or their
Subsidiaries shall cease to be the purchaser of Eligible Inventory for such
Requesting Borrower.
8.1.14 Criminal Proceedings. A criminal proceeding shall have been filed in any
court naming any Borrower, FSI or any Marine Subsidiary of such Borrower or
Owner Trustee holding record title to any Eligible Inventory for the beneficial
interest of such Borrower or FSI as a defendant for which forfeiture is a
potential penalty under applicable federal or state law which, in the reasonable
determination of Requisite Lenders, may have a Material Adverse Effect; or
8.1.15 Action By Governmental Authority. Any Governmental Authority enters a
decree, order or ruling ("Government Action") which will materially and
adversely affect any Borrower's, any Marine Subsidiary of such Borrower's,
FSI's, TEC's, TEC AcquiSub's or PLMI's financial condition, operations or
ability to perform or pay such party's obligations arising under this Agreement
or any instrument or agreement executed pursuant to the terms of this Agreement
or which will similarly affect any Owner Trustee holding record title to any
Eligible Inventory for the beneficial interest of such Borrower or FSI. Such
Borrower or FSI shall have thirty (30) days from the earlier of the date (a)
Borrower or FSI, as applicable, first discovers it is the subject of Government
Action or (b) a Lender or any agency gives notice of Government Action to take
such steps as are necessary to obtain relief from the Government Action. For the
purpose of this paragraph, "relief from Government Action" means to discharge or
to obtain a dismissal of or release or relief from (i) any Government Action so
that the affected party or parties do not incur monetary liability (A) of more
than $1,000,000 in the case of any Borrower or any Marine Subsidiary of such
Borrower, (B) of more than $500,000 in the case of FSI, (C) of more than
$500,000 in the case of TEC, (D) of more than $250,000 in the case of TEC
AcquiSub, (E) of more than $1,000,000 in the case of PLMI, or (F) of more than
$1,000,000, in the aggregate, in the case of any combination of the foregoing
Persons, or (ii) any disqualification of or other limitation on the operation of
any Borrower, any Marine Subsidiary of such Borrower, FSI, TEC, TEC AcquiSub and
PLMI, or any of them, which in the reasonable determination of Requisite Lenders
may have a Material Adverse Effect; or
8.1.16 Governmental Decrees. Any Governmental Authority, including, without
limitation, the SEC, shall enter a decree, order or ruling prohibiting the
Equipment Growth Funds from releasing or paying to FSI any funds in the form of
management fees, profits or otherwise which, in the reasonable determination of
Requisite Lenders, may have a Material Adverse Effect.
8.2 Waiver Of Default. An Event of Default may be waived only with the written
consent of Requisite Lenders, or if expressly provided, of all Lenders. Any
Event of Default so waived shall be deemed to have been cured and not to be
continuing; but no such waiver shall be deemed a continuing waiver or shall
extend to or affect any subsequent like default or impair any rights arising
therefrom.
8.3 Remedies. Upon the occurrence and continuance of any Event of Default or
Potential Event of Default, Lenders shall have no further obligation to advance
money or extend credit to or for the benefit of the defaulting Borrower or any
other Borrower, regardless of whether such Event of Default or Potential Event
of Default has occurred with respect to such Borrower or another Borrower.
In addition, upon the occurrence and during the continuance of an Event
of Default, except an Event of Default arising under Section 8.1.11 hereof (the
remedies for which shall be limited to those set forth in the preceding
paragraph), Lenders or Agent, on behalf of Lenders, may, as to such defaulting
Borrower, or as to all Borrowers should such Event of Default result from the
actions or inactions of FSI, at the option of Requisite Lenders, do any one or
more of the following, all of which are hereby authorized by each Borrower and
FSI:
8.3.1 Declare all or any of the Obligations of such Borrower under this
Agreement, the Notes of such Borrower, the other Loan Documents and any other
instrument executed by such Borrower pursuant to the Loan Documents to be
immediately due and payable, and upon such declaration such obligations so
declared due and payable shall immediately become due and payable; provided that
if such Event of Default is under part 8.1.6 or 8.1.7 of Section 8.1, then all
of the Obligations of each Borrower shall become immediately due and payable
forthwith without the requirement of any notice or other action by Lenders or
Agent;
8.3.2 Terminate this Agreement as to any future liability or obligation of Agent
or Lenders as to such Borrower or as to each Borrower if such Event of Default
results from the actions, inactions or violation of any covenant of or by FSI
(excluding, as to FSI, Events of Default under Section 8.1.2 arising in relation
to Contingent Obligation of FSI arising solely as a result of FSI's status as a
general partner of any Person other than such Borrower); and
8.3.3 Exercise in addition to all other rights and remedies granted hereunder,
any and all rights and remedies granted under the Loan Documents or otherwise
available at law or in equity.
8.4 Set-Off.
8.4.1 During the continuance of an Event of Default, any deposits or other sums
credited by or due from any Lender to any Borrower or FSI (exclusive of deposits
in accounts expressly held in the name of third parties or held in trust for
benefit of third parties) may be set-off against the Obligations of such
Borrower and any and all other liabilities, due or existing or hereafter arising
and owing by such Borrower or FSI to Lenders. Each Lender agrees to notify
promptly Borrowers and FSI and Agent of any such set-off; provided, that the
failure to give such notice shall not affect the validity of any such set-off.
8.4.2 Each Lender agrees that if it shall, whether by right of set-off, banker's
lien or similar remedy pursuant to Section 8.4.1, obtain any payment as a result
of which the outstanding and unpaid principal portion of the Commitments of such
Lender shall be less than such Lender's Pro Rata Share of the outstanding and
unpaid principal portion of the aggregate of all Commitments, such Lender
receiving such payment shall simultaneously purchase from each other Lender a
participation in the Commitments held by such Lenders so that the outstanding
and unpaid principal amount of the Commitments and participations in Commitments
of such Lender shall be in the same proportion to the unpaid principal amount of
the aggregate of all Commitments then outstanding as the unpaid principal amount
under the Commitments of such Lender outstanding immediately prior to receipt of
such payment was to the unpaid principal amount of the aggregate of all
Commitments outstanding immediately prior to such Lender's receipt of such
payment; provided, however, that if any such purchase shall be made pursuant to
this Section 8.4.2 and the payment giving rise thereto shall thereafter be
recovered, such purchase shall be rescinded to the extent of such recovery and
the purchase price restored without interest. Each Borrower expressly consents
to the foregoing arrangements and agrees that any Lender holding a participation
in a Commitment deemed to have been so purchased may exercise any and all rights
of set-off, banker's lien or similar remedy with respect to any and all moneys
owing by Borrower to such Lender as fully as if such Lender held a Commitment in
the amount of such participation.
8.5 Rights And Remedies Cumulative. The enumeration of the rights and remedies
of Agent and Lenders set forth in this Agreement is not intended to be
exhaustive and the exercise by Agent and Lenders of any right or remedy shall
not preclude the exercise of any other rights or remedies, all of which shall be
cumulative, and shall be in addition to any other right or remedy given
hereunder or under the Loan Documents or that may now or hereafter exist in law
or in equity or by suit or otherwise. No delay or failure to take action on the
part of Agent and Lenders in exercising any right, power or privilege shall
operate as a waiver hereof, nor shall any single or partial exercise of any such
right, power or privilege preclude other or further exercise thereof or the
exercise of any other right, power or privilege or shall be construed to be a
waiver of any Event of Default or Potential Event of Default. No course of
dealing between any Borrower, FSI, Agent, or any Lender or their respective
agents or employees shall be effective to change, modify or discharge any
provision of this Agreement or any of the Loan Documents or to constitute a
waiver of any Event of Default or Potential Event of Default.
section 9. AGENT.
9.1 Appointment. Each of the Lenders hereby irrevocably designates and appoints
FUNB as the Agent of such Lender under this Agreement and the other Loan
Documents, and each such Lender irrevocably authorizes FUNB as the Agent for
such Lender to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and such other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement or such other Loan Documents, the Agent shall not
have any duties or responsibilities, except those expressly set forth herein and
therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or the other Loan Documents or otherwise exist
against Agent. To the extent any provision of this Agreement permits action by
Agent, Agent shall, subject to the provisions of this Section 9, take such
action if directed in writing to do so by Requisite Lenders.
9.2 Delegation Of Duties. Agent may execute any of its duties under this
Agreement and the other Loan Documents by or through agents or attorneys-in-fact
and shall be entitled to advice of counsel concerning all matters pertaining to
such duties. Agent shall not be responsible for the negligence or misconduct of
any agents or attorneys-in-fact selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any
action lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement or the other Loan Documents (except for its or
such Person's own gross negligence or willful misconduct), or (b) responsible in
any manner to any Lender for any recitals, statements, representations or
warranties made by any Borrower or any officer thereof contained in this
Agreement or the other Loan Documents or in any certificate, report, statement
or other document referred to or provided for in, or received by Agent under or
in connection with, this Agreement or the other Loan Documents or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or the other Loan Documents or for any failure of any Borrower to
perform its obligations hereunder or thereunder. Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement, or to inspect the Properties, books or records of any Borrower.
9.4 Reliance By Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to Borrowers), independent accountants and other experts
selected by Agent. Agent may deem and treat the payee of any promissory note
issued pursuant to this Agreement as the owner thereof for all purposes unless
such promissory note shall have been transferred in accordance with Section
11.10 hereof. Agent shall be fully justified in failing or refusing to take any
action under this Agreement and the other Loan Documents unless it shall first
receive such advice or concurrence of Requisite Lenders as it deems appropriate
or it shall first be indemnified to its satisfaction by Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action except for its own gross negligence or
willful misconduct. Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement in accordance with a request of
Requisite Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all Lenders.
9.5 Notice Of Default. Agent shall not be deemed to have knowledge or notice of
the occurrence of any Event of Default or Potential Event of Default hereunder
unless Agent has received notice from a Lender or any Borrower referring to this
Agreement, describing such Event of Default or Potential Event of Default and
stating that such notice is a "notice of default". In the event that Agent
receives such a notice, Agent shall promptly give notice thereof to Lenders. The
Agent shall take such action with respect to such Event of Default or Potential
Event of Default as shall be reasonably directed by Requisite Lenders; provided
that unless and until Agent shall have received such directions, Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Event of Default or Potential Event of Default as it shall
deem advisable in the best interests of Lenders.
9.6 Non-Reliance On Agent And Other Lenders. Each Lender expressly acknowledges
that neither Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to it
and that no act by Agent hereinafter taken, including any review of the affairs
of Borrower, shall be deemed to constitute any representation or warranty by
Agent to any Lender. Each Lender represents to Agent that it has, independently
and without reliance upon Agent or any other Lender, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of each Borrower and FSI and made its own
decision to make its Loans hereunder and enter into this Agreement. Each Lender
also represents that it will, independently and without reliance upon Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of each Borrower and FSI. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by Agent
hereunder or by the other Loan Documents, Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, financial and other condition or
creditworthiness of each Borrower and FSI which may come into the possession of
Agent or any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
9.7 Indemnification. Each Lender agrees to indemnify Agent in its capacity as
such (to the extent not reimbursed by Borrowers and without limiting the
obligation of Borrowers to do so), ratably according to the respective amounts
of their Pro Rata Share of the Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Loans)
be imposed on, incurred by or asserted against Agent in any way relating to or
arising out of this Agreement or the other Loan Documents, or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by Agent under or
in connection with any of the foregoing; provided that no Lender shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from Agent's bad faith, gross negligence or willful misconduct.
The agreements in this Section 9.7 shall survive the repayment of the Loans and
all other amounts payable hereunder.
9.8 Agent In Its Individual Capacity. Agent and its Affiliates may make loans
to, accept deposits from and generally engage in any kind of business with any
Borrower or FSI as though Agent were not Agent hereunder. With respect to
Advances made or renewed by it, Agent shall have the same rights and powers
under this Agreement and the other Loan Documents as any Lender and may exercise
the same as though it were not Agent, and the terms "Lender" and "Lenders" shall
include Agent in its individual capacity.
9.9 Resignation And Appointment Of Successor Agent. Agent may resign at any time
by giving thirty (30) days' prior written notice thereof to Lenders and
Borrowers; provided, however, that the retiring Agent shall continue to serve
until a successor Agent shall have been selected and approved pursuant to this
Section 9.9. Upon any such notice, Agent shall have the right to appoint a
successor Agent; provided, however, that if such successor shall not be a
signatory to this Agreement, such appointment shall be subject to the consent of
Requisite Lenders. Agent may be replaced by Requisite Lenders, with or without
cause; provided, however, that any successor agent shall be subject to
Borrowers' consent, which consent shall not be unreasonably withheld. Upon the
acceptance of any appointment as an Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Section 9 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement.
section 10. EXPENSES AND INDEMNITIES.
10.1 Expenses. Borrowers and Lenders agree that, as the following costs,
expenses, charges and other disbursements benefit each Borrower and as such
costs, expenses, charges and other disbursements cannot easily be ratably
allocated to the account of any Borrower or Borrowers, each Borrower, unless
otherwise specified in this Section 10.1, shall pay, as its Obligation, promptly
on demand, and in any event within thirty (30) days of the invoice date
therefor, (a) all costs, expenses, charges and other disbursements (including,
without limitation, all reasonable attorneys' fees and allocated expenses of
outside counsel and in-house legal staff) incurred by or on behalf of Agent or
any Lender in connection with the preparation of the Loan Documents and all
amendments and modifications thereof, extensions thereto or substitutions
therefor, and all costs, expenses, charges or other disbursements incurred by or
on behalf of Agent or any Lender (including, without limitation all reasonable
attorney's fees and allocated expenses of outside counsel and in-house legal
staff) in connection with the furnishing of opinions of counsel (including,
without limitation, any opinions requested by Lenders as to any legal matters
arising hereunder) and of Borrowers' performance of and compliance with all
agreements and conditions contained herein or in any of the other Loan Documents
on its part to be performed or complied with; (b) all other costs, expenses,
charges and other disbursements incurred by or on behalf of Agent or any Lender
in connection with the negotiation, preparation, execution, administration,
continuation and enforcement of the Loan Documents, and the making of the Loans
hereunder; (c) all costs, expenses, charges and other disbursements (including,
without limitation, all reasonable attorney's fees and allocated expenses of
outside counsel and in-house legal staff) incurred by or on behalf of Agent or
any Lender in connection with the assignment or attempted assignment to any
other Person of all or any portion of any Lender's interest under this Agreement
pursuant to Section 11.10; and (d) regardless of the existence of an Event of
Default or Potential Event of Default, all legal, appraisal, audit, accounting,
consulting or other fees, costs, expenses, charges or other disbursements
incurred by or on behalf of Agent or any Lender in connection with any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
Lenders, Agent, any Borrower or any other Person) seeking to enforce any
Obligations of, or collecting any payments due from, any Borrower under this
Agreement and the Notes, all of which amounts shall be deemed to be part of the
Obligations; provided, however, that Lenders shall be entitled to collect the
full amount of such costs, expenses, charges and other disbursements only once.
Notwithstanding anything to the contrary contained in this Section 10.1, so long
as no Event of Default or Potential Event of Default shall have occurred and be
continuing, all appraisals of the Eligible Inventory shall be at the expense of
Lenders. If an Event of Default or Potential Event of Default shall have
occurred and be continuing, such appraisals shall be at the expense of the
Requesting Borrower.
10.2 Indemnification. Whether or not the transactions contemplated hereby shall
be consummated:
10.2.1 General Indemnity. Each Borrower, as to itself, and FSI, jointly and
severally as to itself and each Borrower, shall pay, indemnify, and hold each
Lender, Agent and each of their respective officers, directors, employees,
counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, charges, expenses or disbursements
(including reasonable attorney's fees and the allocated cost of in-house
counsel) of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement and any
other Loan Documents, or the transactions contemplated hereby and thereby, and
with respect to any investigation, litigation or proceeding (including any case,
action or proceeding before any court or other Governmental Authority relating
to bankruptcy, reorganization, insolvency, liquidation, dissolution or relief of
debtors or any appellate proceeding) related to this Agreement or the Loans or
the use of the proceeds thereof, whether or not any Indemnified Person is a
party thereto (all the foregoing, collectively, the "Indemnified Liabilities");
provided, that Borrowers and FSI shall have no obligation hereunder to any
Indemnified Person with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of such Indemnified Person.
10.2.2 Environmental Indemnity.
(a) Each Borrower, to the extent of its pro rata share of ownership of Property
involved in any investigation, litigation or proceeding, as set forth below, and
FSI hereby jointly and severally agree to indemnify, defend and hold harmless
each Indemnified Person, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, charges, expenses
or disbursements (including reasonable attorneys' fees and the allocated cost of
in-house counsel and of internal environmental audit or review services), which
may be incurred by or asserted against such Indemnified Person in connection
with or arising out of any pending or threatened investigation, litigation or
proceeding, or any action taken by any Person, with respect to any Environmental
Claim arising out of or related to any Property owned, leased or operated by
such Borrower. No action taken by legal counsel chosen by Agent or any Lender in
defending against any such investigation, litigation or proceeding or requested
remedial, removal or response action shall (except for actions which constitute
fraud, willful misconduct, gross negligence or material violations of law)
vitiate or in any way impair Borrowers' or FSI's obligation and duty hereunder
to indemnify and hold harmless Agent and each Lender. Agent and all Lenders
agree to use reasonable efforts to cooperate with Borrowers respecting the
defense of any matter indemnified hereunder, except insofar as and to the extent
that their respective interests may be adverse to Borrowers' or FSI's in Agent's
or such Lender's sole discretion.
(b) In no event shall any site visit, observation, or testing by Agent or any
Lender be deemed a representation or warranty that Hazardous Materials are or
are not present in, on, or under the site, or that there has been or shall be
compliance with any Environmental Law. Neither Borrowers, FSI nor any other
Person is entitled to rely on any site visit, observation, or testing by Agent
or any Lender. Except as otherwise provided by law, neither Agent nor any Lender
owes any duty of care to protect Borrowers, or any one of them, or any other
Person against, or to inform Borrowers or any other party of, any Hazardous
Materials or any other adverse condition affecting any site or Property. Neither
Agent nor any Lender shall be obligated to disclose to Borrowers, FSI or any
other Person any report or findings made as a result of, or in connection with,
any site visit, observation, or testing by Agent or any Lender.
10.2.3 Survival; Defense. The obligations in this Section 10.2 shall survive
payment of all other Obligations. At the election of any Indemnified Person,
Borrowers shall defend such Indemnified Person using legal counsel satisfactory
to such Indemnified Person in such Person's reasonable discretion, at the sole
cost and expense of Borrowers, which cost and expense shall be allocated to
Borrowers according to such Borrower's pro rata share of ownership of any
Property in relation to which such obligations arise. All amounts owing under
this Section 10.2 shall be paid within thirty (30) days after written demand.
section 11. MISCELLANEOUS.
11.1 Survival. All covenants, agreements, representations and warranties made
herein shall survive the execution and delivery of the Loan Documents and the
making of the Loans hereunder.
11.2 No Waiver By Agent Or Lenders. No failure or delay on the part of Agent or
any Lender in the exercise of any power, right or privilege under this
Agreement, the Notes or any of the other Loan Documents shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
11.3 Notices. Except as otherwise provided in this Agreement, any notice or
other communication herein required or permitted to be given shall be in writing
and may be delivered in person, with receipt acknowledged, or sent by telex,
facsimile, telecopy, computer transmission or by United States mail, registered
or certified, return receipt requested, or by Federal Express or other
nationally recognized overnight courier service, postage prepaid and
confirmation of receipt requested, and addressed as set forth on the signature
pages to this Agreement or at such other address as may be substituted by notice
given as herein provided. The giving of any notice required hereunder may be
waived in writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration or other communication hereunder
shall be deemed to have been duly given or served on the date on which the same
shall have been personally delivered, with receipt acknowledged, or sent by
telex, facsimile, telecopy or computer transmission (with appropriate
answerback), three (3) Business Days after the same shall have been deposited in
the United States mail or on the next succeeding Business Day if the same has
been sent by Federal Express or other nationally recognized overnight courier
service. Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the persons designated
above to receive copies shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.
11.4 Headings. Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
11.5 Severability. Whenever possible, each provision of this Agreement, each
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, any Note or any of the other Loan Documents
shall be invalid, illegal or unenforceable under the applicable law of any
jurisdiction, the validity, legality and enforceability of the remaining
provisions, or of such provision in any other jurisdiction, shall not in any way
be affected or impaired thereby.
11.6 Entire Agreement; Construction; Amendments And Waivers.
11.6.1 This Agreement, the Notes and each of the other Loan Documents dated as
of the date hereof, taken together, constitute and contain the entire agreement
among Borrowers, Lenders and Agent and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications between the
parties, whether written or oral, respecting the subject matter hereof.
11.6.2 This Agreement is the result of negotiations between and has been
reviewed by each Borrower, FSI, and each Lender executing this Agreement as of
the Closing Date and Agent and their respective counsel; accordingly, this
Agreement shall be deemed to be the product of the parties hereto, and no
ambiguity shall be construed in favor of or against Borrowers, FSI, Lenders or
Agent. Borrowers, FSI, Lenders and Agent agree that they intend the literal
words of this Agreement and the other Loan Documents and that no parol evidence
shall be necessary or appropriate to establish Borrowers', FSI's any Lender's or
Agent's actual intentions.
11.6.3 No amendment, modification, discharge or waiver of or consent to any
departure by any Borrower or FSI from, any provision in this Agreement or any of
the other Loan Documents relating to (a) the definition of "Borrowing Base" or
"Requisite Lenders," (b) any increase of the amount of any Commitment, (c) any
reduction of principal, interest or fees payable hereunder, (d) any postponement
of any date fixed for any payment or prepayment of principal or interest
hereunder or (e) this Section 11.6.3 shall be effective without the written
consent of all Lenders. Any and all other amendments, modifications, discharges
or waivers of, or consents to any departures from any provision of this
Agreement or of any of the other Loan Documents shall not be effective without
the written consent of Requisite Lenders. Any waiver or consent with respect to
any provision of the Loan Documents shall be effective only in the specific
instance and for the specific purpose for which it was given. No notice to or
demand on any Borrower or FSI in any case shall entitle any Borrower or FSI to
any other or further notice or demand in similar or other circumstances. Any
amendment, modification, waiver or consent effected in accordance with this
Section 11.6 shall be binding upon each Lender then party hereto and each
subsequent Lender, on Borrower, and on FSI.
11.7 Reliance By Lenders. All covenants, agreements, representations and
warranties made herein by each Borrower or FSI shall, notwithstanding any
investigation by Lenders or Agent be deemed to be material to and to have been
relied upon by Lenders.
11.8 Marshaling; Payments Set Aside. Lenders shall be under no obligation to
marshal any assets in favor of any Borrower or any other person or against or in
payment of any or all of the Obligations. To the extent that any Borrower makes
a payment or payments to Lenders or Agent, or Lenders or Agent, on behalf of
Lenders, enforce their or its Liens or exercises their or its rights of set-off,
and such payment or payments or the proceeds of such enforcement or set-off or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under Title 11 of the United States Code or under any other similar
federal or state law, common law or equitable cause, then to the extent of such
recovery the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or set-off had not occurred.
11.9 No Set-Offs By Borrowers. All sums payable by Borrowers or FSI pursuant to
this Agreement, any 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 Notes and the other Loan Documents shall be binding
upon and shall inure to the benefit of the parties hereto and thereto and their
respective successors and assigns, except that no Borrower nor FSI shall assign
its rights hereunder or thereunder or any interest herein or therein without the
prior written consent of each Lender. Each Lender shall (a) have the right in
accordance with this Section 11.10 to sell and assign to any Eligible Assignee
all or any portion of its interest (provided that any such partial assignment
shall not be for a principal amount of less than Five Million Dollars
($5,000,000)) under this Agreement, its respective Notes and the other Loan
Documents, together with a ratable interest in the TEC AcquiSub Agreement and
the related Notes and other Loan Documents (as separately described and defined
in those agreements), subject to the prior written consent of the affected
Borrower, which consent shall not be unreasonably withheld, and (b) to grant any
participation or other interest herein or therein, except that each potential
participant to which a Lender intends to grant any rights under Sections 2.9,
2.10, 5.1 or 10.2 shall be subject to the prior written consent of the affected
Borrower, which consent shall not be unreasonably withheld; provided, however,
that no such sale, assignment or participation grant shall result in requiring
registration under the Securities Act of 1933, as amended, or qualification
under any state securities law.
11.10.2 Subject to the limitations of this Section 11.10.2, each Lender may sell
and assign, from time to time, all or any portion of its Pro Rata Share of the
Commitments to any of its Affiliates or, with the approval of the affected
Borrower and FSI (which approval shall not be unreasonably withheld), to any
other financial institution acceptable to Agent, subject to the assumption by
such assignee of the share of the Commitments so assigned. The assignment to
such Affiliate or other financial institution shall be evidenced by an
Assignment and Assumption in the form of Exhibit H ("Assignment and Acceptance")
executed by the assignor Lender (hereinafter from time to time referred to as
the "Assignor Lender") and such Affiliate or other financial institution (which,
upon such assignment shall become a Lender hereunder (hereinafter from time to
time referred to as the "Assignee Lender")). The Assignment and Assumption need
not include any of the economic or financial terms upon which such Assignee
Lender receives the assignment from the Assignor Lender, and such terms need not
be disclosed to or approved by such Borrower or FSI; provided only that such
terms do not diminish the obligations undertaken by such Assignee Lender in the
Assignment and Assumption or increase the obligations of Borrowers or FSI under
this Agreement. Upon execution of such Assignment and Assumption, (a) the
definition of "Commitments" in Section 1 hereof and the Pro Rata Shares set
forth therein shall be deemed to be amended to reflect each Lender's share of
the Commitments, giving effect to the assignment and (b) the Assignee Lender
shall, from the effective date of the instrument of assignment and assumption,
be subject to all of the obligations, and entitled to all of the rights, of a
Lender hereunder, except as may be expressly provided to the contrary in the
Assignment and Assumption. To the extent the obligations hereunder of the
Assignor Lender are assumed by the Assignee Lender, the Assignor Lender shall be
relieved of such obligations. Upon the assignment of any interest by any
Assignor Lender pursuant to this Section 11.10.2, such Assignor Lender agrees to
supplement Schedule 1.1 to show the date of such assignment, the Assignor
Lender, the Assignee Lender, the Assignee Lender's address for notice purposes
and the amount of the Commitments so assigned. In connection and as a condition
to each assignment hereunder, the Assignor Lender agrees to pay or to cause the
Assignee Lender to pay to Agent a processing fee of $3,500; provided that no
processing fee shall be charged for any assignment to a Lender or a Lender
Affiliate.
11.10.3 Subject to the limitations of this Section 11.10.3, any Lender may also
grant, from time to time, participation interests in the interests of such
Lender under this Agreement, the Notes and the other Loan Documents to any other
financial institution without notice to, or approval of, any Borrower or FSI.
The grant of such a participation interest shall be on such terms as the
granting Lender determines are appropriate, provided only that (a) the holder of
such participation interest shall not have any of the rights of a Lender under
this Agreement except, if the participation agreement expressly provides, rights
under Sections 2.9, 2.10, 5.1 and 10.2, and (b) the consent of the holder of
such a participation interest shall not be required for amendments or waivers of
provisions of the Loan Documents other than, if the participation agreement
expressly provides, those which (i) increase the monetary amount of any
Commitment, (ii) decrease any fee or any other monetary amount payable to
Lenders, or (iii) extend the date upon which any monetary amount is payable to
Lenders.
11.11 Counterparts. This Agreement and any amendments, waivers, consents or
supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. Each such agreement
shall become effective upon the execution of a counterpart hereof or thereof by
each of the parties hereto or thereto, delivery of each such counterpart to
Agent.
11.12 Equitable Relief. Borrowers and FSI recognize that, in the event any
Borrower or FSI fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any Note or any of the other Loan Agreements,
any remedy at law may prove to be inadequate relief to Lenders or Agent;
therefore, Borrowers and FSI agree that Lenders or Agent, if Lenders or Agents
so request, shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages.
11.13 Written Notice Of Claims; Claims Bar. EACH BORROWER AND FSI HEREBY AGREE
THAT EACH SHALL GIVE PROMPT WRITTEN NOTICE OF ANY CLAIM OR CAUSE OF ACTION IT
BELIEVES IT HAS, OR MAY SEEK TO ASSERT OR ALLEGE AGAINST ANY LENDER OR AGENT,
WHETHER SUCH CLAIM IS BASED IN LAW OR EQUITY, ARISING UNDER OR RELATED TO THIS
AGREEMENT, ANY 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, EACH BORROWER AND FSI HEREBY AGREE THAT EACH SHALL
NOT SEEK FROM LENDERS OR AGENT, UNDER ANY THEORY OF LIABILITY, INCLUDING,
WITHOUT LIMITATION, ANY THEORY IN TORTS, ANY PUNITIVE DAMAGES.
11.15 Relationship Of Parties. The relationship between Borrowers and FSI, on
the one hand, and Lenders and Agent, on the other, is, and at all time shall
remain solely that of a borrower and lenders. Neither Lenders nor Agent shall
under any circumstances be construed to be partners or joint venturers of
Borrowers or FSI or any of their Affiliates; nor shall Lenders nor Agent under
any circumstances be deemed to be in a relationship of confidence or trust or a
fiduciary relationship with Borrowers or FSI or any of their Affiliates, or to
owe any fiduciary duty to any Borrower or any of its Affiliates. Lenders and
Agent do not undertake or assume any responsibility or duty to Borrowers or FSI
or any of their Affiliates to select, review, inspect, supervise, pass judgment
upon or otherwise inform Borrowers or any of their Affiliates of any matter in
connection with its or their Property, any collateral held by Agent or any
Lender or the operations of Borrowers or FSI or any of their Affiliates.
Borrowers and each of their Affiliates shall rely entirely on their own judgment
with respect to such matters, and any review, inspection, supervision, exercise
of judgment or supply of information undertaken or assumed by any Lender or
Agent in connection with such matters is solely for the protection of Lenders
and Agent and neither Borrowers nor any Affiliate is entitled to rely thereon.
11.16 Obligations Of Each Borrower. Each Borrower and FSI agrees that its
liability hereunder shall be the immediate, direct, and primary obligation of
such Borrower or FSI, as the case may be, and shall not be contingent upon the
Agent's or any Lender's exercise or enforcement of any remedy it may have
against any other Borrower, FSI or any other person, or against any collateral
or any security for the Obligations. Without limiting the generality of the
foregoing, the Obligations shall remain in full force and effect without regard
to and shall not be impaired or affected by, nor shall such Borrower or FSI be
exonerated or discharged by, any of the following events:
11.16.1 Insolvency, bankruptcy, reorganization, arrangement, adjustment,
composition, assignment for the benefit of creditors, death, liquidation,
winding up or dissolution of any Borrower or any guarantor of the Obligations of
any Borrower;
11.16.2 Any limitation, discharge, or cessation of the liability of any other
Borrower or any guarantor for the Obligations of such other Borrower due to any
statute, regulation or rule of law, or any invalidity or unenforceability in
whole or in part of the documents evidencing the Obligations of such other
Borrower or any guaranty of the Obligations of such other Borrower;
11.16.3 Any merger, acquisition, consolidation or change in structure of any
Borrower or any guarantor of the Obligations of any Borrower or any sale, lease,
transfer or other disposition of any or all of the assets, shares or interests
in or of any Borrower or any guarantor of the Obligations of any Borrower;
11.16.4 Any assignment or other transfer, in whole or in part, of any Lender's
interests in and rights under this Agreement or any of the other Loan Documents,
including, without limitation, any assignment or other transfer, in whole or in
part, of Banks' interests in and to any collateral;
11.16.5 Any claim, defense, counterclaim or setoff, other than that of prior
performance, that any Borrower or any guarantor of the Obligations of any
Borrower may have or assert, including, but not limited to, any defense of
incapacity or lack of corporate or other authority to execute any documents
relating to the Obligations of any Borrower or any collateral;
11.16.6 Agent's or any Lender's amendment, modification, renewal, extension,
cancellation or surrender of any agreement, document or instrument relating to
this Agreement, the Obligations of any Borrower or any collateral, or any
exchange, release, or waiver of any collateral;
11.16.7 Agent's or any Lender's exercise or nonexercise of any power, right or
remedy with respect to the Obligations of any Borrower or any collateral,
including, but not limited to, the compromise, release, settlement or waiver
with or of any Borrower or any other person;
11.16.8 Agent's or any Lender's vote, claim, distribution, election, acceptance,
action or inaction in any bankruptcy case related to the Obligations of any
Borrower or any collateral; and
11.16.9 Any impairment or invalidity of any collateral or any failure to perfect
any of Agent's liens thereon.
11.17 Co-Borrower Waivers. Each Borrower and FSI hereby expressly waives (a)
diligence, presentment, demand for payment and protest affecting any other
Borrower's or FSI's liability under the Loan Documents; (b) discharge due to any
disability of any Borrower or FSI; (c) any defenses of any other Borrower or FSI
to obligations under the Loan Documents not arising under the express terms of
the Loan Documents or from a material breach thereof by Agent or any Lender
which under applicable law has the effect of discharging any other Borrower from
the Obligations of any Borrower as to which this Agreement is sought to be
enforced; (d) the benefit of any act or omission by Agent or any Lender which
directly or indirectly results in or aids the discharge of any other Borrower
from any of the Obligations of any such Borrower by operation of law or
otherwise; (e) all notices whatsoever, including, without limitation, notice of
acceptance of the incurring of the Obligations of any Borrower; (f) any right it
may have to require Agent or any Lender to disclose to it any information that
Agent or Lenders may now or hereafter acquire concerning the financial condition
or any circumstances that bear on the risk of nonpayment by any other Borrower,
including the release of such other Borrower from its Obligations hereunder; and
(g) any requirement that Agent and Lenders exhaust any right, power or remedy or
proceed against any other Borrower or any other security for, or any guarantor
of, or any other party liable for, any of the Obligations of any Borrower, or
any portion thereof (including without limitation any requirements set forth in
Section 26-7 of the North Carolina General Statutes). Each Borrower specifically
agrees that it shall not be necessary or required, and Borrowers shall not be
entitled to require, that Agent or any Lender (i) file suit or proceed to assert
or obtain a claim for personal judgment against any other Borrower for all or
any part of the Obligations of any Borrower; (ii) make any effort at collection
or enforcement of all or any part of the Obligations of any Borrower from any
Borrower; (iii) foreclose against or seek to realize upon any collateral or any
other security now or hereafter existing for all or any part of the Obligations
of any Borrower; (iv) file suit or proceed to obtain or assert a claim for
personal judgment against any Borrower or any guarantor or other party liable
for all or any part of the Obligations of any Borrower; (v) exercise or assert
any other right or remedy to which Agent or any Lender is or may be entitled in
connection with the Obligations of any Borrower or any security or guaranty
relating thereto to assert; or (vi) file any claim against assets of one
Borrower before or as a condition of enforcing the liability of any other
Borrower under this Agreement or the Notes.
11.18 Governing Law. Except as otherwise expressly provided in any of the Loan
Documents, in all respects, including all matters of construction, validity and
performance, this Agreement and the Obligations arising hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California applicable to contracts made and performed in such state,
without regard to the principles thereof regarding conflict of laws, and any
applicable laws of the United States of America.
11.19 Waiver Of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH
BORROWER AND FSI, BY EXECUTION HEREOF, AND THE AGENT AND EACH LENDER, BY
ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS
AGREEMENT, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY WITH RESPECT HERETO. THIS PROVISION IS A MATERIAL
INDUCEMENT TO THE AGENT AND EACH LENDER TO ACCEPT THIS AGREEMENT AND THE NOTES
EXECUTED AND DELIVERED BY EACH BORROWER PURSUANT TO THIS AGREEMENT.
<PAGE>
WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
BORROWER PLM EQUIPMENT GROWTH FUND VI
BY PLM FINANCIAL SERVICES, INC.,
ITS GENERAL PARTNER
By /s/ Richard Brock
---------------------------------
Richard Brock
Vice President
PLM EQUIPMENT GROWTH & INCOME FUND VII
BY PLM FINANCIAL SERVICES, INC.,
ITS GENERAL PARTNER
By /s/ Richard Brock
----------------------------------
Richard Brock
Vice President
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
BY PLM FINANCIAL SERVICES, INC.,
ITS MANAGER
By /s/ Richard Brock
-------------------------------------
Richard Brock
Vice President
Notice to any Borrower to be sent to:
[Insert name of Borrower]
c/o PLM Financial Services, Inc.
One Market Plaza
Steuart Street Tower, Suite 900
San Francisco, CA 94105
Attention: Richard Brock
Vice President
Telephone: 415/974-1399
Telecopy: 415/882-0860
With a copy to:
TEC AcquiSub, Inc.
One Market Plaza
Steuart Street Tower, Suite 900
San Francisco, CA 94105
Attention: General Counsel
Telephone: 415/896-1138
Facsimile: 415/882-0860
FSI PLM FINANCIAL SERVICES, INC.
By /s/ Richard Brock
----------------------------------
Richard Brock
Vice President
Notice to be sent to:
PLM Financial Services, Inc.
One Market Plaza
Steuart Street Tower, Suite 900
San Francisco, CA 94105
Attention: Richard Brock
Vice President
Telephone: 415/974-1399
Telecopy: 415/882-0860
AGENT FIRST UNION NATIONAL BANK
By /s/ Bill A. Shirley
----------------------------------
Printed Name: Bill A. Shirley
Title: Senior Vice President
Notice to be sent to:
First Union National Bank
One First Union Center
301 South College Street
Charlotte, NC 28288
Attention: Russ Morrison
Telephone: 704/383-9687
Facsimile: 704/374-4092
LENDERS FIRST UNION NATIONAL BANK
By /s/ Bill A. Shirley
-----------------------------------
Printed Name: Bill A. Shirley
Title: Senior Vice President
Notice to be sent to:
First Union National Bank
One First Union Center
301 South College Street
Charlotte, NC 28288
Attention: Russ Morrison
Telephone: 704/383-9687
Facsimile: 704/374-4092
<PAGE>
ACKNOWLEDGEMENT OF AMENDMENT
AND REAFFIRMATION OF GUARANTY
(Growth Funds)
SECTION 1. PLM International, Inc. ("PLMI") hereby acknowledges and
confirms that it has reviewed and approved the terms and conditions of this
Fourth Amended and Restated Warehousing Credit Agreement ("Agreement").
SECTION 2. PLMI hereby consents to this Agreement and agrees that its
Guaranty of the Obligations of Borrowers under the Growth Fund Agreement shall
continue in full force and effect under the Agreement, shall be valid and
enforceable and shall not be impaired or otherwise affected by the execution of
this Agreement or any other document or instrument delivered in connection
herewith.
SECTION 3. PLMI represents and warrants that, after giving effect to
this Agreement, all representations and warranties contained in its Guaranty are
true, accurate and complete as if made the date hereof.
GUARANTOR PLM INTERNATIONAL, INC.
By Robert N. Tidball
-----------------------------
Robert N. Tidball
President
<PAGE>
SCHEDULE A
(COMMITMENTS)
Pro Rata
Lender Commitment Share
First Union National Bank $24,500,000 100%
<PAGE>
INDEX OF EXHIBITS
Exhibit A.........Form of Revolving Promissory Note
Exhibit B.........Form of Borrowing Base Certificate
Exhibit C.........Form of Opinion of Counsel
Exhibit D.........Form of Compliance Certificate
Exhibit E.........Form of Notice of Borrowing
Exhibit F.........Form of Notice of Conversion/Continuation
Exhibit G.........Form of Assignment and Acceptance
<PAGE>
INDEX OF SCHEDULES
Schedule A Commitments
Schedule 1.1 Amendments to Schedule A
Schedule 4.1.5 Executive Offices and Principal Places of Business
Schedule 4.1.6 Litigation
Schedule 4.1.7 Material Contracts
Schedule 4.1.8 Consent and Approvals
Schedule 4.1.15 Environmental Disclosures
Schedule 6.1 Existing Liens
Schedule 6.3(a) Existing Indebtedness
Schedule 6.3(b) Anticipated Indebtedness
<PAGE>
EXHIBIT A
REVOLVING PROMISSORY NOTE
[LENDER]
$____________ San Francisco, California
Date: December __, 1998
[BORROWER], a _____________________ (the "Borrower"), FOR VALUE
RECEIVED, hereby unconditionally promises to pay to the order of [LENDER]
("[_________________]"), in lawful money of the United States of America, the
aggregate outstanding principal amount of [_________________]'s Pro Rata Share
of all Loans made to the Borrower under the Credit Agreement referred to below,
payable in the amounts, on the dates and in the manner set forth below.
This revolving promissory note (this "Note") is one of the Notes
referred to and defined in that certain Fourth Amended and Restated Warehousing
Credit Agreement dated as of December 15, 1998 (as the same may from time to
time be further amended, modified, supplemented, renewed, extended or restated,
the "Credit Agreement") by and among PLM Equipment Growth Fund VI, PLM Equipment
Growth & Income Fund VII and Professional Lease Management Income Fund I,
L.L.C., as co-borrowers, PLM Financial Services, Inc., the banks, financial
institutions and other institutional lenders from time to time party thereto and
defined therein as Lenders (such entities, together with their respective
successors and assigns being collectively referred to herein as "Lenders"), and
FUNB in its capacity as Agent on behalf and for the benefit of Lenders
("Agent"). All capitalized terms used but not defined herein shall have the same
meaning as given to them in the Credit Agreement.
1. Principal Payments. Subject to the terms and conditions of the
Credit Agreement, including, without limitation, terms relating to mandatory
prepayments of principal (Section 2.2.3), the entire principal amount
outstanding under each Loan evidenced by this Note shall be due and payable on
the Maturity Date with respect to such Loan, with any and all unpaid and not
previously due and payable principal amounts under each such Loan being due and
payable on the Commitment Termination Date.
2. Interest Rate. The Borrower further promises to pay interest on the
sum of the daily unpaid principal balance of all Loans evidenced by this Note
outstanding on each day in lawful money of the United States of America, from
the Closing Date until all such principal amounts shall have been repaid in
full, which interest shall be payable at the rates per annum and on the dates
determined pursuant to the Credit Agreement.
3. Place Of Payment. All amounts payable hereunder shall be payable to
the Agent, on behalf of [_________________], at the office of First Union
National Bank, One First Union Center, 301 South College Street, Charlotte,
North Carolina 28288, Attention: Maria Ostrowski, or such other place of payment
as may be specified by the Agent in writing.
4. Application Of Payments; Acceleration. Payments on this Note shall
be applied in the manner set forth in the Credit Agreement. The Credit Agreement
contains provisions for acceleration of the maturity of the Loans upon the
occurrence of certain stated events and also provides for mandatory and optional
prepayments of principal prior to the stated maturity on the terms and
conditions therein specified.
Each Advance made by [_________________] to the Borrower constituting
[_________________]'s Pro Rata Share of a Loan made to the Borrower pursuant to
the Credit Agreement shall be recorded by [_________________] on its books and
records. The failure of [_________________] to record any such Advance or any
repayment or prepayment made on account of the principal balance thereof shall
not limit or otherwise affect the obligation of the Borrower under this Note and
under the Credit Agreement to pay the principal, interest and other amounts due
and payable thereunder.
5. Default. The Borrower's failure to pay timely any of the principal
amount due under this Note or any accrued interest or other amounts due under
this Note on or within five (5) calendar days after the date the same becomes
due and payable shall constitute a default under this Note. Upon the occurrence
of a default hereunder or an Event of Default under the Credit Agreement with
respect to the Borrower, all unpaid principal, accrued interest and other
amounts owing hereunder shall, at the option of the Required Lenders, be
immediately collectible by the Lenders and the Agent pursuant to the Credit
Agreement and applicable law.
6. Waivers. The Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note, and shall pay
all costs of collection when incurred by or on behalf of the Lenders, including,
without limitation, reasonable attorneys' fees, costs and other expenses as
provided in the Credit Agreement.
7. Governing Law. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
8. Successors And Assigns. The provisions of this Note shall inure to
the benefit of and be binding on any successor to the Borrower and shall extend
to any holder hereof.
BORROWER [BORROWER]
By: PLM FINANCIAL SERVICES, INC.,
a Delaware corporation
Its [General Partner][Manager]
By
J. Michael Allgood
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Robert N.
Tidball, Susan Santo, J. Michael Allgood and Richard Brock, jointly and
severally, his true and lawful attorneys-in-fact, each with power of
substitution, for him in any and all capacities, to do any and all acts and
things and to execute any and all instruments which said attorneys, or any of
them, may deem necessary or advisable to enable PLM Financial Services, Inc., as
Manager of PLM Equipment Growth Fund VI, to comply with the Securities Exchange
Act of 1934, as amended (the "Act"), and any rules and regulations thereunder,
in connection with the preparation and filing with the Securities and Exchange
Commission of annual reports on Form 10-K on behalf of PLM Equipment Growth Fund
VI, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned, in any
and all capacities, to such annual reports, to any and all amendments thereto,
and to any and all documents or instruments filed as a part of or in connection
therewith; and the undersigned hereby ratifies and confirms all that each of the
said attorneys, or his substitute or substitutes, shall do or cause to be done
by virtue hereof. This Power of Attorney is limited in duration until May 1,
1999 and shall apply only to the annual reports and any amendments thereto filed
with respect to the fiscal year ended December 31, 1998.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
23rd day of February, 1999.
/s/ Douglas P. Goodrich
----------------------
Douglas P. Goodrich
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Robert N.
Tidball, Susan Santo, J. Michael Allgood and Richard Brock, jointly and
severally, his true and lawful attorneys-in-fact, each with power of
substitution, for him in any and all capacities, to do any and all acts and
things and to execute any and all instruments which said attorneys, or any of
them, may deem necessary or advisable to enable PLM Financial Services, Inc., as
Manager of PLM Equipment Growth Fund VI, to comply with the Securities Exchange
Act of 1934, as amended (the "Act"), and any rules and regulations thereunder,
in connection with the preparation and filing with the Securities and Exchange
Commission of annual reports on Form 10-K on behalf of PLM Equipment Growth Fund
VI, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned, in any
and all capacities, to such annual reports, to any and all amendments thereto,
and to any and all documents or instruments filed as a part of or in connection
therewith; and the undersigned hereby ratifies and confirms all that each of the
said attorneys, or his substitute or substitutes, shall do or cause to be done
by virtue hereof. This Power of Attorney is limited in duration until May 1,
1999 and shall apply only to the annual reports and any amendments thereto filed
with respect to the fiscal year ended December 31, 1998.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
23rd day of February, 1999.
/s/ Robert N. Tidball
------------------------
Robert N. Tidball
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Robert N.
Tidball, Susan Santo, J. Michael Allgood and Richard Brock, jointly and
severally, his true and lawful attorneys-in-fact, each with power of
substitution, for him in any and all capacities, to do any and all acts and
things and to execute any and all instruments which said attorneys, or any of
them, may deem necessary or advisable to enable PLM Financial Services, Inc., as
Manager of PLM Equipment Growth Fund VI, to comply with the Securities Exchange
Act of 1934, as amended (the "Act"), and any rules and regulations thereunder,
in connection with the preparation and filing with the Securities and Exchange
Commission of annual reports on Form 10-K on behalf of PLM Equipment Growth Fund
VI, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned, in any
and all capacities, to such annual reports, to any and all amendments thereto,
and to any and all documents or instruments filed as a part of or in connection
therewith; and the undersigned hereby ratifies and confirms all that each of the
said attorneys, or his substitute or substitutes, shall do or cause to be done
by virtue hereof. This Power of Attorney is limited in duration until May 1,
1999 and shall apply only to the annual reports and any amendments thereto filed
with respect to the fiscal year ended December 31, 1998.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
23rd day of February, 1999.
/s/ Stephen M. Bess
------------------------
Stephen M. Bess
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,558
<SECURITIES> 0
<RECEIVABLES> 4,251
<ALLOWANCES> (1,930)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 90,755
<DEPRECIATION> (43,341)
<TOTAL-ASSETS> 88,337
<CURRENT-LIABILITIES> 0
<BONDS> 30,000
0
0
<COMMON> 0
<OTHER-SE> 52,954
<TOTAL-LIABILITY-AND-EQUITY> 88,337
<SALES> 0
<TOTAL-REVENUES> 24,545
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 28,155
<LOSS-PROVISION> (75)
<INTEREST-EXPENSE> 2,018
<INCOME-PRETAX> 1,445
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,445
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
