Document:

WAREHOUSING CREDIT AGREEMENT

                                      AMONG

                          PLM EQUIPMENT GROWTH FUND VI
                     PLM EQUIPMENT GROWTH & INCOME FUND VII
               PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
                                  ACQUISUB, LLC
                          PLM FINANCIAL SERVICES, INC.

                                       AND

                           THE LENDERS LISTED HEREIN,

                                       AND

                                 IMPERIAL BANK,
                                    as Agent

                                 April 13, 2001

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                                               WAREHOUSING CREDIT AGREEMENT

                                                    TABLE OF CONTENTS

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SECTION 1.        DEFINITIONS.....................................................................................1

         1.1      Defined Terms...................................................................................1

         1.2      Accounting Terms...............................................................................19

         1.3      Other Terms....................................................................................20

         1.4      Schedules And Exhibits.........................................................................20

SECTION 2.        AMOUNT AND TERMS OF CREDIT.....................................................................20

         2.1      Commitment To Lend.............................................................................20

                  2.1.1    Revolving Facility....................................................................20

                           (a)      Facility Commitments.........................................................20

                           (b)      Each Loan....................................................................21

                           (c)      Fees.........................................................................22

                  2.1.2    Funding...............................................................................22

                  2.1.3    Utilization Of The Loans..............................................................23

         2.2      Repayment And Prepayment; Reduction or Termination of Commitments..............................23

                  2.2.1    Repayment.............................................................................23

                  2.2.2    Voluntary Prepayment..................................................................23

                  2.2.3    Mandatory Prepayments.................................................................23

                  2.2.4    Termination of Commitments............................................................24

         2.3      Calculation Of Fees and Interest; Post-Maturity Interest.......................................24

         2.4      Manner Of Payments.............................................................................24

         2.5      Payment On Non-Business Days...................................................................24

         2.6      Application Of Payments........................................................................25

         2.7      Procedure For The Borrowing Of Loans...........................................................25

                  2.7.1    Notice Of Borrowing...................................................................25

                  2.7.2    Unavailability Of LIBOR Loans.........................................................25

         2.8      Conversion And Continuation Elections..........................................................25

                  2.8.1    Election..............................................................................25

                  2.8.2    Notice Of Conversion..................................................................26

                  2.8.3    Interest Period.......................................................................26

                  2.8.4    Unavailability Of LIBOR Loans.........................................................26

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         2.9      Discretion Of Lenders As To Manner Of Funding..................................................26

         2.10     Distribution Of Payments.......................................................................27

         2.12     Agent's Right To Assume Payments Will Be Made By Borrower......................................27

         2.13     Capital Requirements...........................................................................27

         2.14     Taxes..........................................................................................28

                  2.14.1   No Deductions.........................................................................28

                  2.14.2   Miscellaneous Taxes...................................................................28

                  2.14.3   Indemnity.............................................................................28

                  2.14.4   Required Deductions...................................................................28

                  2.14.5   Evidence of Payment...................................................................29

                  2.14.6   Foreign Persons.......................................................................29

                  2.14.7   Income Taxes..........................................................................30

                  2.14.8   Reimbursement Of Costs................................................................30

                  2.14.9   Jurisdiction..........................................................................30

         2.15     Illegality.....................................................................................30

                  2.15.1   LIBOR Loans...........................................................................30

                  2.15.2   Prepayment............................................................................31

                  2.15.3   Base Rate Borrowing...................................................................31

         2.16     Increased Costs................................................................................31

         2.17     Inability To Determine Rates...................................................................31

         2.18     Prepayment Of LIBOR Loans......................................................................31

SECTION 3.        CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT
                   AND THE MAKING OF LOANS.......................................................................32

         3.1      Conditions to Effectiveness of This Agreement..................................................32

                  3.1.1    Partnership, Company And Corporate Documents..........................................32

                  3.1.2    Notes.................................................................................32

                  3.1.3    Opinion Of Counsel....................................................................32

                  3.1.4    Guaranty..............................................................................33

                  3.1.5    Subordination Agreements..............................................................33

                  3.1.7    PLMI Letter...........................................................................33

                  3.1.8    Bringdown Certificate.................................................................33

                  3.1.9    Material Adverse Effect...............................................................33

                  3.1.10   Other Documents.......................................................................33

                  3.2.1    UCC Termination Statements............................................................33

                  3.2.2    Security Documents (Acquisub).........................................................33

                  3.2.3    Security Documents (PLMI).............................................................34

                  3.2.4    Lockbox Agreement.....................................................................34

                  3.3.1    Notice Of Borrowing, Borrowing Base Certificate, etc..................................34

                  3.3.2    Invoices..............................................................................35

                  3.3.3    Title to Equipment....................................................................35

                  3.3.4    Approval of Loan......................................................................35

                  3.3.5    Leases................................................................................35

                  3.3.6    No Event Of Default...................................................................35

                  3.3.7    Officer's Certificate.................................................................35

                  3.3.8    Officer's Certificate - Leases........................................................36

                  3.3.9    Insurance.............................................................................36

                  3.3.10   Other Instruments.....................................................................36

                  3.4.1    Financing Statements, etc.............................................................37

                  3.5.1    Security Agreement (EGF VI)...........................................................37

                  3.5.2    Security Agreement Supplement (EGF VI)................................................37

                  3.5.3    Financing Statements, etc.............................................................37

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                  3.6.1    Security Agreement (Income Fund I)....................................................38

                  3.6.2    Security Agreement Supplement (Income Fund I).........................................38

                  3.6.3    Financing Statements, etc.............................................................38

                  3.6.4    Keyport Consent.......................................................................38

         3.7      Further Conditions To All Loans................................................................39

                  3.7.1    General Partner Or Manager............................................................39

                  3.7.2    Removal Of General Partner Or Manager.................................................39

                  3.7.3    Purchaser.............................................................................39

SECTION 4.        BORROWERS' AND FSI'S REPRESENTATIONS AND WARRANTIES............................................39

         4.1      General Representations And Warranties.........................................................39

                  4.1.1    Existence And Power...................................................................39

                  4.1.2    Loan Documents And Notes Authorized; Binding Obligations..............................39

                  4.1.3    No Conflict; Legal Compliance.........................................................40

                  4.1.4    Financial Condition...................................................................40

                  4.1.5    Executive Offices.....................................................................40

                  4.1.6    Litigation............................................................................41

                  4.1.7    Material Contracts....................................................................41

                  4.1.8    Consents And Approvals................................................................41

                  4.1.9    Other Agreements......................................................................41

                  4.1.10   Employment And Labor Agreements.......................................................41

                  4.1.11   ERISA.................................................................................42

                  4.1.12   Labor Matters.........................................................................42

                  4.1.13   Margin Regulations....................................................................42

                  4.1.14   Taxes.................................................................................42

                  4.1.15   Environmental Quality.................................................................43

                  4.1.16   Trademarks, Patents, Copyrights, Franchises And Licenses..............................43

                  4.1.17   Full Disclosure.......................................................................43

                  4.1.18   Other Regulations.....................................................................43

                  4.1.19   Solvency..............................................................................44

                  4.2.1    Power And Authority...................................................................44

                  4.2.2    No Conflict...........................................................................44

                  4.2.3    Consents And Approvals................................................................44

         4.3      Survival Of Representations And Warranties.....................................................44

SECTION 5.        BORROWERS' AND FSI'S AFFIRMATIVE COVENANTS.....................................................44

         5.1      Records And Reports............................................................................45

                  5.1.1    Quarterly Statements..................................................................45

                  5.1.2    Annual Statements.....................................................................45

                  5.1.3    Borrowing Base Certificate............................................................45

                  5.1.4    Compliance Certificate................................................................46

                  5.1.5    Reports...............................................................................46

                  5.1.6    Insurance Reports.....................................................................46

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                  5.1.7    Certificate Of Responsible Officer....................................................46

                  5.1.8    Employee Benefit Plans................................................................46

                  5.1.9    ERISA Notices.........................................................................47

                  5.1.10   Pension Plans.........................................................................47

                  5.1.11   SEC Reports...........................................................................47

                  5.1.12   Tax Returns...........................................................................47

                  5.1.13   Additional Information................................................................47

         5.2      Existence; Compliance With Law.................................................................47

         5.3      Insurance......................................................................................48

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         5.4      Taxes And Other Liabilities....................................................................48

         5.5      Inspection Rights; Assistance..................................................................48

         5.6      Maintenance Of Facilities; Modifications; Performance of Leases................................49

                  5.6.1    Maintenance Of Facilities.............................................................49

                  5.6.2    Certain Modifications To The Equipment................................................49

                  5.6.3    Performance of Leases.................................................................49

         5.7      Supplemental Disclosure........................................................................49

         5.8      Further Assurances.............................................................................49

         5.9      Lockbox........................................................................................50

         5.10     Environmental Laws.............................................................................50

         5.11     Equipment Purchase Agreement...................................................................50

         5.12     Operating Relationship.........................................................................50

SECTION 6.        BORROWER'S AND FSI'S NEGATIVE COVENANTS........................................................51

         6.1      Liens; Negative Pledges; And Encumbrances......................................................51

         6.2      Acquisitions...................................................................................51

         6.3      Limitations On Indebtedness....................................................................52

         6.4      Use Of Proceeds................................................................................52

         6.5      Disposition Of Assets..........................................................................52

         6.6      Restriction On Fundamental Changes.............................................................53

         6.7      Transactions With Affiliates...................................................................53

         6.8      No Loans to Affiliates.........................................................................53

         6.9      No Investment..................................................................................53

         6.10     Maintenance Of Business........................................................................53

         6.11     No Modification to Leases......................................................................53

         6.12     No Subsidiaries................................................................................54

         6.13     No Distributions...............................................................................54

         6.14     Events Of Default..............................................................................54

         6.15     ERISA..........................................................................................54

         6.16     No Use Of Any Lender's Name....................................................................55

         6.17     Certain Accounting Changes.....................................................................55

         6.18     Amendments Of Limited Partnership Agreement Or Operating Agreement.............................55

SECTION 7.        FINANCIAL COVENANTS OF EQUIPMENT GROWTH FUNDS..................................................55

         7.1      Minimum Operating Cash Flow Coverage Ratio.....................................................55

         7.2      Minimum Total Cash Flow Coverage Ratio.........................................................55

         7.3      Maximum Leverage Ratio.........................................................................55

         7.4      Cash Balances..................................................................................56

SECTION 8.        EVENTS OF DEFAULT AND REMEDIES.................................................................56

         8.1      Events Of Default..............................................................................56

                  8.1.1    Failure To Make Payments..............................................................56

                  8.1.2    Other Agreements......................................................................56
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                  8.1.3    Breach Of Covenants...................................................................56

                  8.1.4    Breach Of Representations Or Warranties...............................................56

                  8.1.5    Failure To Cure.......................................................................57

                  8.1.6    Insolvency............................................................................57

                  8.1.7    Bankruptcy Proceedings................................................................57

                  8.1.8    Material Adverse Effect...............................................................58

                  8.1.9    Judgments, Writs And Attachments......................................................58

                  8.1.10   Legal Obligations.....................................................................58

                  8.1.11   Change Of General Partner Or Manager..................................................58

                  8.1.12   PLMI Change of Control................................................................58

                  8.1.13   Change Of Purchaser...................................................................58
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                  8.1.14   Criminal Proceedings..................................................................59

                  8.1.15   Action By Governmental Authority......................................................59

                  8.1.16   Governmental Decrees..................................................................59

                  8.1.17   Collateral............................................................................59

                  8.1.18   Other Loan Documents..................................................................60

         8.2      Waiver Of Default..............................................................................60

         8.3      Remedies.......................................................................................60

         8.4      Set-Off........................................................................................60

         8.5      Rights And Remedies Cumulative.................................................................61

SECTION 9.        AGENT..........................................................................................61

         9.1      Appointment....................................................................................61

         9.2      Delegation Of Duties...........................................................................62

         9.3      Exculpatory Provisions.........................................................................62

         9.4      Reliance By Agent..............................................................................62

         9.5      Notice Of Default..............................................................................63

         9.6      Non-Reliance On Agent And Other Lenders........................................................63

         9.7      Indemnification................................................................................63

         9.8      Agent In Its Individual Capacity...............................................................64

         9.9      Resignation And Appointment Of Successor Agent.................................................64

SECTION 10.       EXPENSES AND INDEMNITIES.......................................................................64

         10.1     Expenses.......................................................................................64

         10.2     Indemnification................................................................................65

                  10.2.1   General Indemnity.....................................................................65

                  10.2.2   Environmental Indemnity...............................................................66

                  10.2.3   Survival; Defense.....................................................................66

SECTION 11.       MISCELLANEOUS..................................................................................66

         11.1     Survival.......................................................................................66

         11.2     No Waiver By Agent Or Lenders..................................................................67

         11.3     Notices........................................................................................67

         11.4     Headings.......................................................................................67

         11.5     Severability...................................................................................67

         11.6     Entire Agreement; Construction; Amendments And Waivers.........................................67

         11.7     Reliance By Lenders............................................................................68

         11.8     Marshaling; Payments Set Aside.................................................................68

         11.9     No Set-Offs By Borrowers.......................................................................68

         11.10    Binding Effect, Assignment.....................................................................69

         11.11    Counterparts...................................................................................70

         11.12    Equitable Relief...............................................................................70

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         11.13    Written Notice Of Claims; Claims Bar...........................................................70

         11.14    Waiver Of Punitive Damages.....................................................................70

         11.15    Relationship Of Parties........................................................................71

         11.16    Obligations Of Each Borrower...................................................................71

         11.17    Co-Borrower Waivers............................................................................72

         11.18    Governing Law..................................................................................73

         11.19    Judicial Reference.............................................................................73

         11.20    Waiver Of Jury Trial.......................................................................... 74
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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

Exhibit H.........Form of Guaranty

Exhibit I-1.......Form of Subordination Agreement (EGF VI)

Exhibit I-2.......Form of Subordination Agreement (EGF VII)

Exhibit I-3.......Form of Subordination Agreement (Income Fund I)

Exhibit I-4.......Form of Subordination Agreement (Acquisub)

Exhibit J.........Form of Lockbox Agreement

Exhibit K.........Form of PLMI Letter

Exhibit L.........Form of Security Agreement (Acquisub)

Exhibit M.........Form of Security Agreement (PLMI)

Exhibit N.........Form of Security Agreement (EGF VI)

Exhibit O.........Form of Security Agreement (Income Fund I)

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INDEX OF SCHEDULES

Schedule A                 Commitments

Schedule 1.1               Amendments to Schedule A

Schedule 3.2.1             UCC Termination Statements

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

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                          WAREHOUSING CREDIT AGREEMENT

         THIS WAREHOUSING CREDIT AGREEMENT is entered into as of April 13, 2001,
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"),  PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C., a
Delaware  limited  liability  company  ("Income Fund I"), and  ACQUISUB,  LLC, a
Delaware limited liability company ("Acquisub") (EGF VI, EGF VII, Income Fund I,
and  Acquisub  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 VI and EGF VII, and the sole manager,
in the  case  of  Income  Fund I and  Acquisub  ("FSI"),  the  banks,  financial
institutions  and  institutional  lenders  from time to time  party  hereto  and
defined  as Lenders  herein,  and  IMPERIAL  BANK  ("Imperial  Bank") not in its
individual capacity, but solely as agent.

                                    RECITALS

         Lenders have agreed to make advances of 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, directly or indirectly (a) acquires any ongoing business or all or
substantially all of the assets of any Person or any division  thereof,  whether
through a purchase  of assets,  merger or  otherwise,  or (b)  acquires  (in one
transaction  or as the most  recent  transaction  in a series  of  transactions)
control of at least a majority  of the stock of a  corporation  having  ordinary
voting power for the election of directors,  or (c) acquires control of at least
a majority of the ownership interests in any partnership or joint venture.

         "Acquisub" has the meaning set forth in the Preamble to this Agreement.

         "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.
<PAGE>

         "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,
limited  liability company 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,
members,  managers, 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  Imperial Bank solely when acting in its capacity as the
Agent under this Agreement or any of the other Loan Documents, and any successor
Agent.

          "Agreement" means this Warehousing  Credit Agreement dated as of April
13, 2001,  including  all  amendments,  modifications  and  supplements  hereto,
renewals,  extensions or restatements  hereof, and all appendices,  exhibits and
schedules to any of the foregoing,  and shall refer to the Agreement as the same
may be in effect from time to time.

         "Aircraft"  means any corporate,  commuter,  or commercial  aircraft or
helicopters,  with  modifications (as applicable) and replacement or spare parts
used in connection therewith,  including, without limitation,  engines, rotables
and  propellers,  and any engines,  rotables or propellers used on a stand-alone
basis.

         "Applicable Margin" means:

(a)      with respect to Base Rate Loans, zero percent (0.00%); and

(b)      with respect to LIBOR Loans, two percent (2.0%).

         "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.

         "Base  Rate"  means  the  greater  of (i) the  Prime  Rate and (ii) the
Federal Funds Rate plus 0.50% per annum.

         "Base Rate Loan" means any  borrowing  which  bears  interest at a rate
determined with reference to the Base Rate.

         "Borrower" has the meaning set forth in the Preamble.

<PAGE>

         "Borrowing  Base" means,  as  calculated  separately  for each Borrower
individually as at and for any date of determination, an amount not to exceed:

                  (a) one hundred  percent  (100.0%) of the  aggregate  net book
value of all Eligible Inventory; provided, however, that there shall be excluded
from the  Borrowing  Base the  aggregate net book value 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,

                  less

                  (b) the  aggregate  Consolidated  Funded Debt of such Borrower
then  outstanding,  excluding  the  aggregate  principal  amount  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 financed or refinanced 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  Borrowers  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  State of  California  or is not a day on which
banking  institutions  located  in the State of  California  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 constructive 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.

         "Change  of  Control"  means  the  occurrence  after  the  date of this
Agreement of: (i) any Person or two or more Persons acting in concert  acquiring
beneficial  ownership  (within the meaning of Rule 13d-3 of the  Securities  and
Exchange  Commission  under the  Securities  Exchange Act of 1934,  as amended),
directly or indirectly,  of securities of PLMI (or other securities  convertible
into such securities)  representing greater than or equal to 50% of the combined
voting  power of all  securities  of PLMI  entitled  to vote in the  election of
directors; (ii) any Person or two or more Persons acting in concert acquiring by
contract or otherwise,  or entering into a contract or arrangement  which,  upon
consummation,  will  result in its or their  acquisition  of, or  control  over,
securities  of PLMI (or  other  securities  convertible  into  such  securities)
representing  greater than or equal to 50% of the  combined  voting power of all
securities of PLMI  entitled to vote in the election of  directors;  or (iii) at
any time Continuing  Directors shall cease to constitute a majority of the board
of directors of PLMI.
<PAGE>

         "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 3.1 to the effectiveness of this Agreement 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.

         "Collateral"  means  the  Collateral  described  in one or  more of the
Security Agreements.

         "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 April 12, 2002.

         "Compliance  Certificate"  means,  with respect to any Borrower  (other
than Acquisub),  a certificate signed by a Responsible Officer of such Borrower,
substantially in the form of Exhibit D, 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,  and with
respect  to  PLMI,  a  certificate  signed  by a  Responsible  Officer  of PLMI,
substantially  in the form of Exhibit A-1 and  Exhibit  A-2 to the PLMI  Letter,
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  EBIDA" means, for any Equipment Growth Fund, 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 Equipment Growth Fund, plus (b) all
amounts treated as expenses for  depreciation,  including such Equipment  Growth
Fund's  proportional  share of  depreciation  expense related to equipment owned
jointly with USPE's,  and the  amortization of intangibles of any kind, plus (c)
Consolidated Interest Expense, plus (d) cash distributions received from USPE's,
and in the cases of clauses  (b) and (c) above,  each to the extent  included in
the determination of Consolidated Net Income.

<PAGE>

         "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,  all 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 Equipment Growth Fund,
as measured at any date of determination for any period on a consolidated basis,
the  gross  interest  expense  of such  Equipment  Growth  Fund  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  Equipment  Growth Fund, as
measured at any date of  determination  for any period on a consolidated  basis,
the net income (or loss) of such Equipment  Growth Fund 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.
<PAGE>

         "Continuing  Director"  means,  at any date, an individual (a) who is a
member of the Board of  Directors of PLMI on the date hereof or (b) who has been
nominated  to be a member of such Board of  Directors by a majority of the other
Continuing Directors then in office.

          "Default Rate" has the meaning set forth in Section 2.3.

         "Designated  Deposit Account" means a demand deposit account maintained
by Borrowers  with Imperial Bank  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 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 or the Cayman Islands;  (c) the central bank of any
country which is 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
(less than ten years old),  Aircraft and Aircraft  engines  complying with Stage
III noise reduction  requirements,  Railcars (less than twenty-five  years old),
marine  containers  (less than ten years old), and, if approved by the Requisite
Lenders,  other related  Equipment,  in each case that (a) is owned of record by
such  Borrower  or a Marine  Subsidiary  of such  Borrower  (or  jointly by such
Borrower and one or more of the other  Borrowers) or, subject to the approval of
Agent, any Owner Trustee of which such Borrower is the sole beneficiary or owner
(or  is  the  beneficiary  or  owner  jointly  with  one or  more  of the  other
Borrowers), as applicable,  (b) is subject to a Lease acceptable to Agent in its
sole discretion (as reviewed in full in connection with each requested borrowing
hereunder), which Lease shall, at a minimum, (A) be non-cancelable,  (B) be with
a lessee of acceptable  credit  quality as determined by Agent,  and (C) be of a
firm term in excess of one (1) year, except that  cargo-containers  and Trailers
may be on  Utilization  Leases;  (c) has a value  and  marketability  reasonably
satisfactory  to the Agent;  and (d) is free and clear of all Liens,  except (i)
any  interest of a lessee  thereof  pursuant to a Lease  entered  into with such
Borrower or a Marine  Subsidiary  of such  Borrower or such  Borrower's  or such
Marine  Subsidiary's  predecessor  in interest or such Owner  Trustee or nominee
entity, as lessor, or (ii) as otherwise  permitted by Section 6.1, provided that
any  Liens of the type  permitted  under  clause  (ii)  encumbering  any item of
Equipment shall not secure  obligations in amounts which  materially  impair the
equity  value  in such  item of  Equipment.  Requisite  Lenders  in  their  sole
discretion,  on a case by case  basis,  may  approve  other  items  or  types of
Equipment for credit under  "Eligible  Inventory"  from time to time.  Equipment
which is Eligible  Inventory will cease to be Eligible  Inventory at any time it
no longer continues to meet all of the above requirements.

<PAGE>

         "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 (or jointly by such Borrower and
one or more of the  other  Borrowers)  and held for lease or  rental,  and shall
include  items of equipment  legal or record title to which is held by any Owner
Trustee or nominee  entity in which such  Borrower or any Marine  Subsidiary  of
such Borrower  holds the sole  beneficial  interest (or jointly with one or more
other Borrowers).

         "Equipment Cost" means, with respect to any item of Equipment  acquired
by a Borrower with the proceeds of a Loan, the Invoice Price therefor,  and with
respect to any item of Equipment not acquired by a Borrower with the proceeds of
a Loan, the net book value therefor determined in accordance with GAAP.

         "Equipment  Growth  Funds"  means  any and  all of EGF VI,  EGF VII and
Income Fund I.

         "Equipment  Purchase  Agreement" means an equipment purchase agreement,
in form and  substance  satisfactory  to Agent,  between  Acquisub and any other
Borrower, entered into for the benefit of Lenders, providing for the purchase by
such other Borrower of the Equipment upon which a Loan has been made.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended,  as the same may be in  effect  from  time to time,  and any  successor
statute.

<PAGE>

         "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.

         "Existing  Note and  Loan  Agreements"  means  (i)  that  certain  Note
Agreement  dated as of August 1, 1993  among EGF VI, as  company,  and  Allstate
Insurance Company and Allstate Life Insurance Company, as purchasers, (ii) those
certain  Note  Agreements  dated as of December 1, 1995  between EGF VII and The
Equitable  Life  Assurance  Society of the United  States,  Fort  Dearborn  Life
Insurance Company,  Pierce National Life Insurance Company, The Minnesota Mutual
Life Insurance Company,  and Mutual Trust Life Insurance Company, and (iii) that
certain Note  Agreement  dated as of December 15, 1996 between Income Fund I and
Keyport Life Insurance Company (the "Keyport Note Agreement").

          "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 W-8BEN" has the meaning set forth in Section 2.14.6.

         "Form W-8ECI" has the meaning set forth in Section 2.14.6.

         "FSI" has the meaning set forth in the Preamble.
<PAGE>

         "Funded Debt Ratio" means, as at any date of  determination,  the ratio
of (a) the  aggregate  principal  amount of the Loans  outstanding  for Acquisub
under the Facility plus the undefeased  portion of any  Indebtedness  of PLMI to
(b) the Consolidated Tangible Net Worth of PLMI.

         "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.

         "Guarantors" means PLMI, FSI and TEC.

         "Guaranty" means that certain  Guaranty of even date herewith  executed
jointly  and  severally  by PLMI,  FSI,  and TEC in favor of Lenders  and Agent,
including  all  amendments,   modifications  and  supplements  thereto  and  all
appendices,  exhibits and schedules to any of the foregoing,  and shall refer to
the  Guaranty as the same may be in effect from time to time,  substantially  in
the form of Exhibit H.

         "Guaranty  Obligation"  means, as applied to any Person,  any direct or
indirect  liability of that Person with respect to any  Indebtedness,  lease for
capital equipment other than Eligible Inventory,  dividend,  letter of credit or
other  obligation  (the "primary  obligations")  of another Person (the "primary
obligor"),  including any obligation of that Person,  whether or not contingent,
(a) to purchase, repurchase or otherwise acquire such primary obligations or any
property constituting direct or indirect security therefor, or (b) to advance or
provide  funds (i) for the payment or discharge of any such primary  obligation,
or (ii) to maintain  working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet item, level
of income or  financial  condition  of the primary  obligor,  or (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such  primary  obligation  of the ability of the primary  obligor to make
payment of such primary obligation,  or (d) otherwise to assure or hold harmless
the holder of any such primary obligation  against loss in respect thereof.  The
amount  of any  Guaranty  Obligation  shall be  deemed  equal to the  stated  or
determinable  amount of the primary obligation in respect of which such Guaranty
Obligation  is  made  or,  if  not  stated  or if  indeterminable,  the  maximum
reasonably anticipated liability in respect thereof.
<PAGE>

         "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.

         "Imperial Bank" has the meaning set forth in the Preamble.

         "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 Base
Rate Loans,  the first Business Day of each calendar month following the Funding
Date of such Base 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,  three-month or six-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.

<PAGE>

         "Investment"  means,  when  used in  connection  with any  Person,  any
investment  by or of  that  Person,  whether  by  means  of  purchase  or  other
acquisition of stock or other securities of any other Person or by means of loan
or advance  (other than  advances to  employees  for moving or travel  expenses,
drawing  accounts and similar  expenditures in the ordinary course of business),
capital  contribution,  guaranty  or  other  debt  or  equity  participation  or
interest, or otherwise, in any other Person, including any partnership and joint
venture  interests  of  that  Person  in any  other  Person  or in any  item  of
transportation-related equipment owned by a Person unaffiliated with that Person
and on lease to another  third party,  in which that Person  acquires a right to
share, directly or indirectly.

          "Investment  Company Act" means the Investment Company Act of 1940, as
amended (15 U.S.C.ss.  80a-1 et seq.), as the same may be in effect from time to
time, or any successor statute thereto.

         "Invoice  Price"  means  the  sum  of  the  purchase  price  (including
modifications, as applicable),  delivery charges, third party brokerage fees and
other reasonable  closing costs, if any (provided that delivery  charges,  third
party  brokerage fees and closing costs shall be included in the  computation of
the  "Invoice  Price"  only to the extent  that they do not,  in the  aggregate,
exceed five percent  (5.0%) of the total  purchase  price),  and all  applicable
taxes, paid by a Borrower for or with respect to any item of Eligible Inventory.

         "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 sole  record or  beneficial  lessor (or a record or  beneficial
lessor jointly with one or more of the other  Borrowers) 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  sole
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.

         "Leverage  Ratio"  means,  as measured  separately  for each  Equipment
Growth Fund as at any date of determination, the ratio of (a) Consolidated Total
Liabilities of such Equipment  Growth Fund to (b) the  Consolidated Net Worth of
such Equipment Growth Fund.

         "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.
<PAGE>

         "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 Security
Documents,  the Subordination  Agreements,  the Lockbox Agreement, the Guaranty,
the PLMI Letter,  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.

         "Loan  Parties"  means EGF VI, EGF VII,  Income Fund I,  Acquisub,  any
Marine  Subsidiary,  any Owner  Trustee,  FSI, TEC,  IMI, and PLMI,  and a "Loan
Party" means any one of the Loan Parties.

         "Lockbox" has the meaning set forth in Section 5.9.

         "Lockbox  Agreement" means the Lockbox Agreement of even date herewith,
among  Borrowers,  Imperial  Bank,  and Agent on behalf  and for the  benefit of
Lenders, relating to the Lockbox, substantially in the form of Exhibit J.

         "Marine  Subsidiary"  means,  for any  Borrower,  a Subsidiary  of such
Borrower (in which the remaining record or beneficial ownership interests may be
held by any other  Borrower)  organized  for the purpose of holding legal record
title to one or more marine vessels or to aircraft rotables and spare parts.
<PAGE>

         "Material  Adverse Effect" means,  with respect to any Loan Party,  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
Loan Party, (c) materially impairs or could reasonably be expected to materially
impair  the  ability  of such Loan  Party 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 with respect to Eligible Inventory,  the date which is two hundred and
seventy  (270) 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.

         "Net Cash Proceeds From the Disposition of Equipment"  means,  proceeds
from the disposition of Equipment plus  liquidating  distributions  from USPE's,
less,  payments for the purchase of Equipment and associated  expenses including
but not limited to, acquisition and negotiation fees.

         "Note" has the  meaning set forth in Section  2.1.1(a)(i),  and any and
all replacements, extensions, substitutions and renewals thereof.

         "Notice of Borrowing"  means a notice given by any Borrower to Agent in
accordance  with  Section  2.7,  substantially  in the form of  Exhibit  E, with
appropriate insertions.

         "Notice  of  Conversion/Continuation"  means  a  notice  given  by  any
Borrower to Agent in accordance with Section 2.8,  substantially  in the form of
Exhibit F, 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.

<PAGE>

         "Operating  Agreement"  means (a) for Income Fund I, the Fifth  Amended
and  Restated  Operating  Agreement of Income Fund I, entered into as of January
24, 1995 and (b) for Acquisub, the Operating Agreement of Acquisub, entered into
as of April 9, 2001.

         "Operating Cash Flow Coverage Ratio" means, as measured  separately for
each  Equipment  Growth Fund as at any date of  determination,  the ratio of (a)
Consolidated EBIDA of such Equipment Growth Fund adjusted for gains or losses on
the sale of  Equipment  in the  ordinary  course of  business  to the extent not
already taken into account in the determination of Consolidated EBIDA to (b) the
sum of (i) the aggregate  amount of principal  payments on  Consolidated  Funded
Debt of such  Equipment  Growth Fund  (excluding the Loans) made during the four
consecutive fiscal quarters ending on such date plus (ii) Consolidated  Interest
Expense of such Equipment  Growth Fund plus (iii)  twenty-five  percent (25%) of
the  aggregate  principal  amount of the Loans  outstanding  for such  Equipment
Growth Fund on such date (Consolidated  EBIDA and Consolidated  Interest Expense
to be  measured  for the four  consecutive  fiscal  quarters  then ended on such
date).

         "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 EGF VI, EGF VII, Acquisub
and Income Fund I, and general  counsel of TEC, IMI and PLMI,  substantially  in
the form of Exhibit C.

         "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.
<PAGE>

         "PFF" means PFF Bank & Trust.

         "PLMI" means PLM International, Inc., a Delaware corporation.

         "PLMI Letter" means the PLMI Letter of even date herewith  between PLMI
and Agent, including all amendments,  modifications and supplements thereto, and
shall  refer to the PLMI  Letter as the same may be in effect from time to time,
substantially in the form of Exhibit K.

         "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 Imperial Bank 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 Imperial  Bank as its Prime Rate is an index or
base rate and shall not  necessarily  be its lowest  rate  charged  to  Imperial
Bank's customers or other banks.
         "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.

         "Regulations  T, U and X" means,  collectively,  Regulations 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.

<PAGE>

         "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,  Chief
Executive Officer,  Executive Vice President, Chief Financial Officer, Secretary
or Corporate  Controller of FSI having  authority to request Advances or perform
other duties required  hereunder,  (ii) Borrowers,  any of the President,  Chief
Executive Officer,  Executive Vice President, Chief Financial Officer, Secretary
or Corporate Controller of FSI as the sole general partner of EGF VI or EGF VII,
as the case may be, or the sole  manager of Income  Fund I or  Acquisub,  as the
case may be, in each case having  authority to request Advances or perform other
duties required hereunder, and (iii) any other Loan Party, any of the President,
Chief  Executive  Officer,  Executive Vice President,  Chief Financial  Officer,
Secretary or Corporate Controller thereof.

         "SEC" means the  Securities  and Exchange  Commission and any successor
thereto.

         "Security  Agreements"  means (i) the  Security  Agreement of even date
herewith between EGF VI and Agent, on behalf and for the benefit of the Lenders,
providing for the grant of a first priority  perfected  security interest in the
Equipment  being  financed by EGF VI under this  Facility  and  certain  related
Collateral,  subject to no other Liens other than Permitted Liens, substantially
in the form of Exhibit N (the "Security  Agreement (EGF VI)"), (ii) the Security
Agreement of even date herewith  between Income Fund I and Agent,  on behalf and
for the  benefit of the  Lenders,  providing  for the grant of a first  priority
perfected  security  interest in the Equipment  being  financed by Income Fund I
under this Facility and certain  related  Collateral,  subject to no other Liens
other  than  Permitted  Liens,  substantially  in the  form  of  Exhibit  O (the
"Security Agreement (Income Fund I)"), (iii) the Security Agreement of even date
herewith  between  Acquisub  and  Agent,  on behalf  and for the  benefit of the
Lenders, providing for the grant of a first priority perfected security interest
in substantially all of the assets of Acquisub,  subject to no other Liens other
than  Permitted  Liens,  substantially  in the form of Exhibit L (the  "Security
Agreement  (Acquisub)"),  and (iv) the Security  Agreement of even date herewith
between PLMI and Agent, on behalf and for the benefit of the Lenders,  providing
for the grant of a first priority  perfected  security interest in substantially
all of the assets of PLMI, subject to no other Liens other than Permitted Liens,
substantially  in the form of Exhibit M (the "Security  Agreement  (PLMI)"),  in
each case including all amendments,  modifications  and supplements  thereto and
all appendices,  exhibits and schedules to any of the foregoing, and shall refer
to each Security Agreement as the same may be in effect from time to time.

         "Security  Documents"  means  the  Security  Agreements,  each  chattel
mortgage,  ship  mortgage  or  similar  security  agreement,  mortgage  or other
agreement or document  entered into with respect to this  Agreement,  each UCC-1
financing  statement  delivered  pursuant  thereto and any and all other related
documents.

         "Solvent"  means, as to any Person at any time, that (a) the fair value
of the  Property  of such  Person is greater  than the  amount of such  Person's
liabilities  (including  disputed,  contingent and unliquidated  liabilities) as
such value is  established  and  liabilities  evaluated  for purposes of Section
101(31) of the  Bankruptcy  Code;  (b) the present  fair  saleable  value of the
Property  in an orderly  liquidation  of such Person is not less than the amount
that will be required to pay the probable  liability of such Person on its debts
as they become absolute and matured; (c) such Person is able to realize upon its
Property and pay its debts and other liabilities (including disputed, contingent
and  unliquidated  liabilities) as they mature in the normal course of business;
(d) such  Person does not intend to, and does not  believe  that it will,  incur
debts or  liabilities  beyond  such  Person's  ability  to pay as such debts and
liabilities  mature;  and (e)  such  Person  is not  engaged  in  business  or a
transaction,  and is not about to engage in business or a transaction, for which
such Person's property would constitute unreasonably small capital.
<PAGE>

         "Subordination  Agreements"  means  collectively (i) the  Subordination
Agreement of even date herewith  among PLMI,  FSI,  TEC, and IMI  ("Subordinated
Lenders"),  EGF VI, and  Agent,  substantially  in the form of Exhibit  I-1 (the
"Subordination  Agreement (EGF VI)"), (ii) the  Subordination  Agreement of even
date herewith among the Subordinated Lenders, EGF VII, and Agent,  substantially
in the form of Exhibit I-2 (the "Subordination  Agreement (EGF VII)"), (iii) the
Subordination  Agreement of even date herewith among the  Subordinated  Lenders,
Income  Fund I,  and  Agent,  substantially  in the  form of  Exhibit  I-3  (the
"Subordination Agreement (Income Fund I)"), and (iv) the Subordination Agreement
of even date  herewith  among the  Subordinated  Lenders,  Acquisub,  and Agent,
substantially  in  the  form  of  Exhibit  I-4  (the  "Subordination   Agreement
(Acquisub)"),  including all amendments,  modifications and supplements  thereto
and all  appendices,  exhibits and schedules to any of the foregoing,  and shall
refer to the Subordination  Agreements as the same may be in effect from time to
time.

         "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.

         "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.

         "Total Cash Flow Coverage Ratio" means, as measured separately for each
Equipment  Growth  Fund  as at any  date  of  determination,  the  ratio  of (a)
Consolidated EBIDA of such Equipment Growth Fund adjusted for gains or losses on
the sale of  Equipment  in the  ordinary  course of  business  to the extent not
already taken into account in the  determination of Consolidated  EBIDA plus (i)
the Net Cash Proceeds From the  Disposition of Equipment in the ordinary  course
of business received during the four consecutive  fiscal quarters ending on such
date less (ii) cash distributions to its shareholders,  partners or members,  as
the case may be, made during the four consecutive fiscal quarters ending on such
date,  to (b) the sum of (i) the  aggregate  amount  of  principal  payments  on
Consolidated  Funded Debt of such  Equipment  Growth Fund  (excluding the Loans)
made during the four  consecutive  fiscal quarters ending on such date plus (ii)
Consolidated   Interest  Expense  of  such  Equipment  Growth  Fund  plus  (iii)
twenty-five  percent  (25%)  of the  aggregate  principal  amount  of the  Loans
outstanding for such Equipment Growth Fund on such date (Consolidated  EBIDA and
Consolidated  Interest  Expense to be measured for the four  consecutive  fiscal
quarters then ended on such date).
<PAGE>

         "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 the
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.

         "USPE" means unconsolidated special purpose entity.

         "Utilization  Leases"  means  Leases  for  Equipment  held for lease in
pooling or similar  arrangements  where the actual  rental  payments  under such
Lease are 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 or any
other Loan Document shall have, unless otherwise specifically provided herein or
therein,  the meaning  customarily  given such term in accordance with GAAP, and
all financial  data required to be submitted by this Agreement or any other Loan
Document shall be prepared and computed,  unless otherwise specifically provided
herein or therein,  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.
<PAGE>

     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  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 Imperial Bank 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 3.3.1 with respect to such  requested  Loan and reviewed and approved by
Agent.  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 and the making of
such Advance, exceeds such Lender's Commitment for the Facility.
<PAGE>

               (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.

               (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 or the Commitment Termination 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 Base 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 Base  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.

          (c) FEES.

               (i) In connection with the extension of the Loans,  the Borrowers
shall,  on a joint and several  basis,  pay to the Agent for the account of each
Lender, on the date of execution and delivery of this Agreement,  a fully earned
and non-refundable closing fee equal to 0.375% of such Lender's Commitment.

               (ii) The Borrowers  shall,  on a joint and several basis,  pay to
the Agent for the account of each Lender a commitment  fee on the average  daily
unused portion of such Lender's Commitment,  computed on a quarterly basis based
upon the daily utilization for that quarter as calculated by the Agent, equal to
one-half of one percent (0.50%) per annum. Such commitment fee shall accrue from
the date hereof to the Commitment  Termination Date and shall be due and payable
quarterly in arrears on the last  Business Day of each March,  June,  September,
and  December,  commencing on June 30, 2001 with the final payment to be made on
the Commitment Termination Date. The commitment fees provided in this subsection
shall  accrue at all times after the date  hereof,  including at any time during
which one or more conditions in Article III are not met.

               (iii) On the date of execution  and  delivery of this  Agreement,
the  Borrowers  agree to pay to PFF for its own account,  on a joint and several
basis, a $5,000 administrative fee.

          2.1.2  FUNDING.  Promptly  following  the  receipt  of such  documents
required pursuant to Section 3.3.1 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.,  California  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 financing  or  refinancing  specific  items of
Eligible  Inventory;  provided,  however,  in no event shall the proceeds of any
Loan be used to finance or refinance more than one hundred  percent  (100.0%) of
the Equipment Cost of any item of Eligible Inventory.
<PAGE>

     2.2 REPAYMENT AND PREPAYMENT; REDUCTION OR TERMINATION OF COMMITMENTS.

          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 Base 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.,  California  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 but in no
event more than ten days after such  Casualty  Loss 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.

          2.2.4 TERMINATION OF COMMITMENTS.  Prior to the Commitment Termination
Date, the Borrowers may at any time, on not less than two Business Days' written
notice,  terminate the Commitments.  In such event,  the Commitment  Termination
Date shall be  accelerated  to the date of such  termination  and the  Borrowers
shall,  simultaneously  with such  termination,  repay  the  Loans in full,  any
accrued interest on the aggregate principal amount of the Loans to and including
the date of such  termination,  and any amounts required under Section 2.18, and
shall pay to the Agent for the account of each Lender a termination fee equal to
one  percent  (1%) of such  Lender's  Commitment.  Any notice  delivered  by the
Borrowers pursuant to this Section shall be irrevocable,  and any termination of
the Commitments shall be permanent.

     2.3  CALCULATION  OF  FEES  AND  INTEREST;   POST-MATURITY   INTEREST.  All
computations  of fees  shall be made on the basis of a 360-day  year and  actual
days  elapsed.  Fees shall accrue  during each period during which such fees are
computed  from the first day  thereof to the last day  thereof.  Interest on the
Loans  shall be computed  on the basis of a  365/366-day  year for all Base 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 Base Rate
Loans based on changes in the Prime Rate or the Federal  Funds Rate (as the case
may be) 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 or the Federal Funds 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 or the Federal Funds 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 Base Rate (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.,  California  time, on the date due at Imperial Bank, 275 Battery
Street,  Suite 1100,  San  Francisco,  CA 94111,  Attention:  Misako Noda,  Vice
President,  or such  other  place as shall  have been  designated  in writing by
Agent.
<PAGE>

     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(c)  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 Agent prior to 12:00 noon, San Francisco,  California  time, five
(5) 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 in an aggregate minimum amount of $500,000;

               (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 Base 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 the  Requisite  Lenders
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 Base Rate Loan (or
any portion  thereof in an amount equal to at least $500,000) 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 Base 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 $500,000);

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 $500,000,  such LIBOR Loans shall automatically
convert  into Base  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,  San
Francisco,  California  time, at least three (3) Business Days in advance of the
proposed conversion date or continuation date) specifying:

<PAGE>

               (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 Base  Rate Loan
effective as of the last day of such current Interest Period.

          2.8.4  UNAVAILABILITY  OF LIBOR LOANS.  Unless the  Requisite  Lenders
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.,  California  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

<PAGE>

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
affected  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 W-8ECI or any successor  thereto ("Form  W-8ECI"),  or two
accurate  and  complete  signed  originals  of IRS Form W-8BEN or any  successor
thereto ("Form  W-8BEN"),  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 W-8ECI or Form W-8BEN, 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
W-8ECI;  or two  accurate  and complete  signed  originals  of Form  W-8BEN,  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;
<PAGE>

               (c)  Before  or  promptly  after  the  occurrence  of  any  event
(including  the passing of time but excluding any event  mentioned in (b) above)
requiring  a change in or renewal of the most  recent Form W-8ECI or Form W-8BEN
previously  delivered by such Lender,  deliver to  Borrowers  through  Agent two
accurate and complete  original  signed  copies of Form W-8ECI or Form W-8BEN 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
W-8ECI 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 W-8ECI; or

               (c) If such  Lender  shall have  delivered  to  Borrowers  a Form
W-8BEN 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 W-8BEN.

          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(d),  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 BASE 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 may borrow, in the amount of such prepayment,  a
Base 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.

<PAGE>

     2.17 INABILITY TO DETERMINE RATES. If any Lender 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 Base 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 CONDITIONS TO  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, the following:

               (a) A certified  copy of the records of all actions taken by each
Loan Party,  including all  resolutions of each Borrower and  resolutions of FSI
and each other  corporate Loan Party,  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;

               (b) A certificate  of a  Responsible  Officer of each Loan Party,
stating that (A) the articles or certificate of  incorporation,  as the case may
be, bylaws and any other formation documents of each Loan Party attached to such
certificate are true and accurate,  remain in full force and effect and have not
been amended  since the date thereof and (B) each Loan Party is in good standing
under the laws of the state of its formation and each other  jurisdiction  where
its  ownership  of  Property  and  assets or conduct of  business  require  such
qualification;

               (c)  Certificates of incumbency and signature with respect to the
authorized  representatives  of each Loan Party executing this Agreement and the
other Loan Documents and requesting Loans; and

               (d) Such other  documents  relating to each Loan Party as Lenders
may reasonably request.

          3.1.2 NOTES.  Agent shall have received  Notes,  in form and substance
satisfactory to Lenders, and duly executed and delivered by each Borrower.

          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
Guaranty.  Agent  shall  have  received  the  Guaranty,  in form  and  substance
satisfactory to Lenders, duly executed and delivered by each Guarantor.

          3.1.5  SUBORDINATION   AGREEMENTS.   Agent  shall  have  received  the
Subordination  Agreements in form and substance  satisfactory  to Lenders,  duly
executed and delivered by each Subordinated Lender and the Borrowers.

          3.1.6 INTENTIONALLY OMITTED.
<PAGE>

          3.1.7 PLMI LETTER.  Agent shall have  received the PLMI Letter in form
and substance satisfactory to Lenders, duly executed and delivered by PLMI.

          3.1.8 BRINGDOWN CERTIFICATE.  Separate  certificates,  dated as of the
Closing Date,  of (i) a Responsible  Officer 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
and Acquisub,  and (ii) a Responsible Officer of each of the other Loan Parties,
to the effect that (i) the  representations  and warranties of each Borrower and
FSI  contained  in  Section  4, and of each Loan Party in each of the other Loan
Documents,  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.

          3.1.9  MATERIAL  ADVERSE  EFFECT.  No event that has resulted or could
result in a Material  Adverse Effect shall have occurred since December 31, 2000
(or the date of the  most  recently  delivered  audited  consolidated  financial
statements  of PLMI,  whichever is later),  as  determined  by Agent in its sole
discretion.

          3.1.10  OTHER   DOCUMENTS.   Agent  shall  have  received  such  other
documents,  information and items from Borrowers and FSI as reasonably requested
by Agent.

     3.2  CONDITIONS TO INITIAL  ADVANCE.  Unless waived in writing by Requisite
Lenders,  the obligation of any Lender to make the initial Advance is subject to
the satisfaction of the following further conditions precedent:

          3.2.1 UCC Termination Statements.  Agent shall have received a copy of
duly filed Uniform  Commercial Code  termination  statements with respect to the
Liens described on Schedule 3.2.1 attached hereto.

          3.2.2  Security  Documents  (Acquisub).  Agent shall have received the
Security  Agreement  (Acquisub) in form and substance  satisfactory  to Lenders,
duly  executed and  delivered  by  Acquisub;  there shall have been filed in all
applicable  jurisdictions  Uniform  Commercial Code financing  statements naming
Acquisub  as  "debtor"  and  the  Agent  as  "secured  party"  (which  financing
statements  shall be in form and  substance  acceptable to Agent) to perfect the
security interest of Agent in the Collateral described in the Security Agreement
(Acquisub)  entered  into by  Acquisub,  and there shall have been  delivered to
Agent or executed,  filed and/or recorded in all applicable  jurisdictions  such
other  instruments or documents as Agent deems necessary or advisable to perfect
its security  interest in such  Collateral;  and Agent shall have  received such
Lien and judgment searches,  opinions,  releases,  termination  statements,  and
other  documents and  instruments as Agent shall  reasonably  request to confirm
that Agent  shall have a first  priority  perfected  security  interest  in such
Collateral subject to no other Liens other than Permitted Liens.

          3.2.3  Security  Documents  (PLMI).  Agent  shall  have  received  the
Security  Agreement (PLMI) in form and substance  satisfactory to Lenders,  duly
executed and  delivered by PLMI;  there shall have been filed in all  applicable
jurisdictions  Uniform  Commercial  Code  financing  statements  naming  PLMI as
"debtor" and the Agent as "secured party" (which  financing  statements shall be
in form and substance  acceptable to Agent) to perfect the security  interest of
Agent in the Collateral  described in the Security Agreement (PLMI) entered into
by PLMI, and there shall have been delivered to Agent or executed,  filed and/or
recorded in all applicable  jurisdictions such other instruments or documents as
Agent deems  necessary or  advisable  to perfect its  security  interest in such
Collateral;  and Agent  shall have  received  such Lien and  judgment  searches,
opinions, releases,  termination statements, and other documents and instruments
as Agent  shall  reasonably  request  to confirm  that Agent  shall have a first
priority  perfected  security  interest in such  Collateral  subject to no other
Liens other than Permitted Liens.

          3.2.4  LOCKBOX  AGREEMENT.  Agent  shall  have  received  the  Lockbox
Agreement  in form and  substance  satisfactory  to Lenders,  duly  executed and
delivered by Borrowers.

          3.2.5 OTHER DOCUMENTS. Agent shall have received such other documents,
information and items from Borrowers and FSI as reasonably requested by Agent.

     3.3  CONDITIONS  TO EACH  ADVANCE.  Unless  waived in writing by  Requisite
Lenders, the obligation of any Lender to make any Advance (including the initial
Advance) is subject to the  satisfaction  of the  following  further  conditions
precedent:

          3.3.1 NOTICE OF BORROWING,  BORROWING BASE CERTIFICATE, ETC.. At least
five (5) Business Days before each Loan  hereunder with respect to any financing
or  refinancing  of Equipment by any  Borrower,  Agent shall have received (a) a
Notice of Borrowing,  executed by a Responsible Officer of such Borrower,  (b) a
Borrowing  Base  Certificate,   with  appropriate  insertions,   executed  by  a
Responsible  Officer  of  such  Borrower,  (c) a  Compliance  Certificate,  with
appropriate insertions,  executed by a Responsible Officer of such Borrower, (d)
a Compliance Certificate, with appropriate insertions, executed by a Responsible
Officer of PLMI, (e) a description of the  transaction,  including (i) a listing
of all Equipment  against which such Borrower is requesting that a Loan be made,
identifying  each item of Equipment  by serial  number,  registration  number or
other identifying mark, as applicable,  and indicating whether each such item is
owned by such  Borrower or a Marine  Subsidiary  of such Borrower (or jointly by
such Borrower and one or more of the other Borrowers) or by an Owner Trustee for
the benefit of such Borrower (or the benefit of such Borrower and one or more of
the other Borrowers) (and if the latter, identifying such Owner Trustee and date
of any applicable trust or similar agreement), or a nominee entity of which such
Borrower or a Marine  Subsidiary  of such  Borrower is the sole  beneficiary  or
direct or indirect  owner (or is the  beneficiary  or direct or  indirect  owner
jointly with one or more of the other Borrowers),  (ii) the lessee,  the date of
the lease and the lease  termination  date, (iii) lessee financial  information,
and (iv) the terms of the underlying  lease; and (f) other information as may be
requested by the Agent to confirm that such Equipment satisfies the criteria for
Eligible Inventory.
<PAGE>

          3.3.2  INVOICES.  At least five (5)  Business  Days  before  each Loan
hereunder  with  respect to any  financing  or  refinancing  of  Equipment  by a
Borrower,  Agent shall have received invoice and such other information  related
to the purchase of each item of Equipment as Agent shall  reasonably  request to
confirm that the proceeds of the  requested  Loan will not be used to finance or
refinance more than one hundred  percent  (100.0%) of the Equipment Cost of such
Equipment.

          3.3.3 TITLE TO EQUIPMENT.  At least five (5) Business Days before each
Loan  hereunder  with respect to any financing or  refinancing of Equipment by a
Borrower,  Agent shall have received such documents and copies of instruments of
title as Agent shall reasonably request to confirm that such Equipment meets the
requirements of clause (a) of the definition of "Eligible  Inventory,"  free and
clear of any Liens or other encumbrances on title (other than Permitted Liens).

          3.3.4  APPROVAL OF LOAN.  Approval of such  requested Loan by Agent in
its sole discretion,  after review of the lessee, Equipment, Lease and any other
material circumstances relating to the Loan.

          3.3.5  LEASES.  Prior  to the  Funding  Date  of  any  such  Loan,  if
available,  and in no event later than five (5)  Business  Days  following  such
Funding  Date,  Borrower  shall have  delivered to Agent,  on behalf of Lenders,
copies of each  Lease or  schedules  thereto  or other  chattel  paper,  if any,
relating to such  Equipment and Eligible  Inventory  (other than with respect to
Railcars and marine  containers if such Railcars or marine containers are leased
pursuant to a master lease,  in which event  Borrower shall deliver to Agent the
applicable  schedule(s) to such master  lease),  against which the Loan is to be
made.

          3.3.6  NO EVENT  OF  DEFAULT.  No event  shall  have  occurred  and be
continuing  or would  result  from the making of any Loan on such  Funding  Date
which  constitutes an Event of Default or Potential  Event of Default under this
Agreement.

          3.3.7 OFFICER'S CERTIFICATE.  Agent shall have received a certificate,
dated as of the Funding Date,  of a Responsible  Officer 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, and  Acquisub,  and of each other Loan Party,  to the effect that
(i) all  representations and warranties of each Loan Party contained in the Loan
Documents are true, accurate and complete in all material respects with the same
effect as though such  representations and warranties had been made on and as of
such  Funding  Date (except to the extent such  representations  and  warranties
specifically  relate to an  earlier  date,  in which  case  they  shall be true,
accurate  and complete in all material  respects as of such earlier  date),  and
(ii) from the perspective of prudent portfolio  diversity and management,  given
the Borrowers' then existing portfolio,  such Equipment is of a type, model, age
and condition consistent with the investment objectives of the Borrowers.

          3.3.8  OFFICER'S  CERTIFICATE  - LEASES.  Agent shall have  received a
certificate,  dated as of the  Funding  Date of a  Responsible  Officer  of such
Borrower  with  respect to each Lease  relating  to an item of  Equipment  being
financed with such Loan to the effect that:

               (a) The Lease  constitutes  the entire  agreement  of the parties
thereto and no party thereto shall be bound except in accordance therewith;

               (b) No  amendments,  modifications,  supplements  or addenda have
been made to, or  schedules  attached  to, the Lease except as disclosed in such
certificate and the sole original thereof has been delivered to Agent;

               (c) No material  default exists under the Lease as of the date of
the Loan;

               (d) The Lease constitutes the valid contract of such Borrower and
each lessee that is a party to the Lease,  and shall at all times be enforceable
against  each  such  lessee  in  accordance  with  its  terms,  subject  to  the
limitations on  enforceability  imposed by bankruptcy and creditors' rights laws
and the general  principles  of equity,  and each party thereto has executed the
Lease with full power, authority and capacity to contract;

               (e) Such Borrower is the sole record or  beneficial  lessor (or a
record or beneficial  lessor jointly with one or more of the other Borrowers) of
the Equipment covered by the Lease;

               (f) The  lessee is  responsible  for the  payment  of all  taxes,
insurance  and similar  charges so that all Lease  payments  will be net to such
Borrower  (except  with  respect to Leases  covering  time  charters  for marine
vessels,  railcars and trailers consistent with industry standards for such type
of leases);

               (g) Such Borrower has not and will not give or loan to any lessee
that is a party to the Lease,  directly or indirectly,  any unpaid rent or other
amount due or to become due under the Lease; and

               (h) No rentals,  fees, costs, expenses or charges paid or payable
by any lessee under the Lease violate any known statute, rule, regulation, court
ruling or other  regulation or limitation  relating to the maximum fees,  costs,
expenses or charges  permitted in any state in which the Equipment is located or
in which  the  lessee  is  located,  resides  or is  domiciled,  or in which the
transaction was consummated, or in any other state which has jurisdiction of the
Equipment, Lease or lessee.
<PAGE>

          3.3.9  INSURANCE.  The  insurance  required to be  maintained  by such
Borrower pursuant to the Loan Documents shall be in full force and effect.

          3.3.10  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.

     3.4  CONDITIONS  TO EACH ADVANCE TO ACQUISUB.  Unless  waived in writing by
Requisite Lenders,  the obligation of any Lender to make any Advance to Acquisub
(or any Marine  Subsidiary or Owner Trustee of Acquisub)  (including the initial
Advance) is subject to the  satisfaction  of the  following  further  conditions
precedent:

          3.4.1  FINANCING  STATEMENTS,  ETC.  At least five (5)  Business  Days
before each Loan  hereunder  with  respect to the  financing or  refinancing  of
Equipment by Acquisub (or any Marine  Subsidiary  or Owner Trustee of Acquisub),
(i)  there  shall  have  been  filed  in all  applicable  jurisdictions  Uniform
Commercial Code financing statements naming Acquisub (or if applicable, a Marine
Subsidiary  or Owner  Trustee of Acquisub) as "debtor" and the Agent as "secured
party"  (or  Uniform  Commercial  Code  financing   statement   amendments,   as
applicable) (which financing  statements or financing statement amendments shall
be in form and  substance  acceptable  to the  Agent) to  perfect  the  security
interest of the Agent in such Equipment and all related  Collateral,  (ii) there
shall have been executed,  filed and/or recorded in all applicable jurisdictions
such other instruments or documents as the Agent deems necessary or advisable to
perfect its  security  interest in such  Equipment  and all related  Collateral,
including without limitation, additional security agreements, ship mortgages and
chattel  mortgages,  and (iii) Agent shall have  received such Lien and judgment
searches,  opinions,  releases,  termination statements, and other documents and
instruments  as  Agent  shall  reasonably  request  to  confirm  that  upon  the
consummation of such financing or refinancing  Agent shall have a first priority
perfected security interest in such Equipment and all related Collateral subject
to no other Liens other than Permitted Liens.

     3.5  CONDITIONS  TO EACH  ADVANCE  TO EGF VI.  Unless  waived in writing by
Requisite  Lenders,  the  obligation of any Lender to make any Advance to EGF VI
(or any Marine  Subsidiary  or Owner Trustee of EGF VI)  (including  the initial
Advance except that the closing condition  described in Section 3.5.2 shall only
apply to subsequent  Advances) is subject to the  satisfaction  of the following
further conditions precedent:

          3.5.1  SECURITY  AGREEMENT  (EGF VI).  Agent shall have  received  the
Security Agreement (EGF VI) in form and substance  satisfactory to Lenders, duly
executed and delivered by EGF VI and describing the Equipment  being financed or
refinanced on the date of the initial Advance to EGF VI.

          3.5.2  SECURITY  AGREEMENT  SUPPLEMENT  (EGF  VI).  Agent  shall  have
received a supplement to Schedule A to the Security  Agreement  (EGF VI) in form
and substance satisfactory to Lenders, duly executed and delivered by EGF VI and
describing  the  Equipment  being  financed  or  refinanced  on the date of each
subsequent Advance to EGF VI.

          3.5.3  FINANCING  STATEMENTS,  ETC.  At least five (5)  Business  Days
before each Loan  hereunder  with  respect to the  financing or  refinancing  of
Equipment by EGF VI (or any Marine  Subsidiary  or Owner Trustee of EGF VI), (i)
there shall have been filed in all applicable  jurisdictions  Uniform Commercial
Code financing  statements naming EGF VI (or if applicable,  a Marine Subsidiary
or Owner  Trustee of EGF VI) as "debtor"  and the Agent as  "secured  party" (or
Uniform Commercial Code financing  statement  amendments,  as applicable) (which
financing  statements  or financing  statement  amendments  shall be in form and
substance acceptable to the Agent) to perfect the security interest of the Agent
in such  Equipment  and all  related  Collateral,  (ii)  there  shall  have been
executed,  filed  and/or  recorded in all  applicable  jurisdictions  such other
instruments  or documents  as the Agent deems  necessary or advisable to perfect
its security  interest in such Equipment and all related  Collateral,  including
without limitation,  additional security agreements,  ship mortgages and chattel
mortgages,  and (iii) Agent shall have received such Lien and judgment searches,
opinions, releases,  termination statements, and other documents and instruments
as Agent shall reasonably  request to confirm that upon the consummation of such
financing or refinancing  Agent shall have a first priority  perfected  security
interest in such Equipment and all related  Collateral subject to no other Liens
other than Permitted Liens.

     3.6  CONDITIONS  TO EACH ADVANCE TO INCOME FUND I. Unless waived in writing
by Requisite Lenders, the obligation of any Lender to make any Advance to Income
Fund I (or any Marine  Subsidiary  or Owner Trustee of Income Fund I) (including
the initial Advance except that the closing condition described in Section 3.6.2
shall only apply to subsequent  Advances) is subject to the  satisfaction of the
following further conditions precedent:

          3.6.1  SECURITY  AGREEMENT  (INCOME FUND I). Agent shall have received
the Security  Agreement  (Income Fund I) in form and substance  satisfactory  to
Lenders,  duly  executed  and  delivered  by Income  Fund I and  describing  the
Equipment  being  financed or refinanced  on the date of the initial  Advance to
Income Fund I.
<PAGE>

          3.6.2 SECURITY AGREEMENT  SUPPLEMENT (INCOME FUND I). Agent shall have
received a supplement to Schedule A to the Security Agreement (Income Fund I) in
form and  substance  satisfactory  to Lenders,  duly  executed and  delivered by
Income Fund I and describing  the Equipment  being financed or refinanced on the
date of each subsequent Advance to Income Fund I.

          3.6.3  FINANCING  STATEMENTS,  ETC.  At least five (5)  Business  Days
before each Loan  hereunder  with  respect to the  financing or  refinancing  of
Equipment by Income Fund I (or any Marine  Subsidiary or Owner Trustee of Income
Fund I), (i) there shall have been filed in all applicable jurisdictions Uniform
Commercial Code financing  statements naming Income Fund I (or if applicable,  a
Marine  Subsidiary  or Owner Trustee of Income Fund I) as "debtor" and the Agent
as "secured party" (or Uniform Commercial Code financing  statement  amendments,
as applicable)  (which financing  statements or financing  statement  amendments
shall be in form and substance  acceptable to the Agent) to perfect the security
interest of the Agent in such Equipment and all related  Collateral,  (ii) there
shall have been executed,  filed and/or recorded in all applicable jurisdictions
such other instruments or documents as the Agent deems necessary or advisable to
perfect its  security  interest in such  Equipment  and all related  Collateral,
including without limitation, additional security agreements, ship mortgages and
chattel  mortgages,  and (iii) Agent shall have  received such Lien and judgment
searches,  opinions,  releases,  termination statements, and other documents and
instruments  as  Agent  shall  reasonably  request  to  confirm  that  upon  the
consummation of such financing or refinancing  Agent shall have a first priority
perfected security interest in such Equipment and all related Collateral subject
to no other Liens other than Permitted Liens.

          3.6.4  KEYPORT  CONSENT.  Agent  shall  have  received,  in  form  and
substance  satisfactory to Lenders and their respective counsel, a duly executed
copy of a consent signed by Keyport Life  Insurance  Company with respect to the
Keyport Note  Agreement,  consenting  to the  incurrence by Income Fund I of the
indebtedness  hereunder  and the granting by Income Fund I of the liens to Agent
pursuant to the Security Agreement (Income Fund I).

     3.7  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:

          3.7.1 GENERAL PARTNER OR MANAGER. FSI shall have ceased to be the sole
general partner of any of EGF VI or EGF VII or the sole manager of Income Fund I
or  Acquisub,   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.

          3.7.2  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 (other than Income Fund I) 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 Income
Fund I  Operating  Agreement,  of Income Fund I shall at any time vote to remove
FSI as  manager  of Income  Fund I or FSI shall  resign  or be  removed  as sole
manager  of  Acquisub,  in each case,  regardless  of  whether  FSI is  actually
removed.

          3.7.3  PURCHASER.   Requesting  Borrower,   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 each of Income Fund I and Acquisub,  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.
<PAGE>

          4.1.3 NO  CONFLICT;  LEGAL  COMPLIANCE.  The  execution,  delivery and
performance  of  this  Agreement  and  each of the  other  Loan  Documents,  the
execution,  delivery and payment of the Notes,  the  incurrence of  Indebtedness
hereunder,  and the  granting of the Liens in the  Collateral  will not: (a) (i)
contravene any provision of FSI's  certificate of  incorporation  or bylaws;  or
(ii) contravene any provision of any Borrowers' Limited  Partnership  Agreements
or, in the case of each of Income Fund I and Acquisub,  its respective Operating
Agreement, or other formation or organization document; (b) contravene, conflict
with or violate any applicable law or regulation,  or any order, writ, judgment,
injunction,  decree, determination or award of any Governmental Authority, which
contravention,  conflict or  violation,  in the  aggregate,  may have a Material
Adverse  Effect;  or (c)  violate or result in the breach  of, or  constitute  a
default  under  (i) the  Existing  Note and Loan  Agreements  or (ii) any  other
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  PLMI's  audited
consolidated  financial  statements  as of  December  31,  2000  copies of which
heretofore have been delivered to Agent by such Borrower and PLMI, respectively,
and all other  financial  statements  and other data submitted in writing by any
Borrower  and PLMI 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 PLMI, 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 PLMI since December 31, 2000 (or
the  date  of  the  most  recently  delivered  audited  consolidated   financial
statements of such Borrower or PLMI, whichever is later).

          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,  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' 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 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
loan agreements and other contracts and agreements  (whether written or oral) to
which each Borrower is a party (other than leases of equipment except for Leases
of Equipment  financed or refinanced  hereunder) 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. No approval, authorization or consent of
any trustee or holder of any  indebtedness  or  obligation of any Borrower or of
any other Person under any such material agreement,  contract,  lease or license
or similar  document or instrument to which such Borrower is a party or by which
such Borrower is bound,  is required to be obtained by such Borrower in order to
make or  consummate  the  transactions  contemplated  under the Loan  Documents.
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.

<PAGE>

          4.1.9 OTHER  AGREEMENTS.  Neither any  Borrower,  FSI nor any of FSI's
Subsidiaries  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 owns 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.

<PAGE>

               (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.

     4.2  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 cause to be delivered to Agent:
<PAGE>

          5.1.1  QUARTERLY  STATEMENTS.  As soon as practicable and in any event
within forty-five (45) days after the end of each quarterly accounting period of
each Borrower  (other than Acquisub),  FSI and PLMI,  except with respect to the
final fiscal quarter of each fiscal year, consolidated and consolidating balance
sheets of FSI and PLMI and a consolidated  balance sheet of each Borrower (other
than Acquisub) 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 (other than Acquisub) 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 a  Responsible
Officer of each  Borrower,  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 such 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  ninety  (90) days  after the end of each  fiscal  year of each  Borrower
(other than Acquisub) and PLMI, consolidated and consolidating balance sheets of
PLMI and a consolidated  balance sheet of each Borrower (other than Acquisub) 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  (other  than  Acquisub),  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  such  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 a Responsible Officer of PLMI;

          5.1.3 BORROWING BASE CERTIFICATE.  As soon as practicable,  and in any
event not later than  thirty (30) 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  Responsible  Officer of each
Borrower  or of  the  general  partner  or  manager  thereof,  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 (other than Acquisub),  except with respect to the final fiscal quarter
of each  fiscal  year,  in which  case as soon as  practicable  and in any event
within  ninety  (90) days after the end of such  fiscal  quarter,  a  Compliance
Certificate  dated as of the last day of such fiscal quarter,  and executed by a
Responsible Officer 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,  in which  event such  limitation  shall not
apply), 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 canceled;

          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,
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  Acquisub  of any amount and of any  Borrower
other than Acquisub,  FSI, TEC, or PLMI equal to or greater than $500,000 or any
adverse judgment in any litigation  involving a potential  liability of Acquisub
of any amount and of any Borrower other than  Acquisub,  FSI, TEC, 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, 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,  or PLMI has  taken,  is taking  and  proposes  to take with  respect
thereto;
<PAGE>

          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, FSI, TEC and PLMI; 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.

     5.2  EXISTENCE;  COMPLIANCE  WITH LAW. Each Borrower and FSI shall preserve
and  maintain,  and FSI shall cause each of FSI's  Subsidiaries  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 and any Owner
Trustee to conduct,  its business in an orderly and regular manner;  and comply,
and cause each of FSI's Subsidiaries, and any Owner Trustee, to comply, with (a)
as to any Borrower,  its Limited  Partnership  Agreement,  Operating  Agreement,
articles of incorporation and bylaws,  and other  organizational  documents,  as
applicable,  and as to FSI and each of its  Subsidiaries,  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 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
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 all policies of liability  insurance shall carry endorsements naming
Agent and each Lender as an additional insured, 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.
<PAGE>

     5.4 TAXES AND OTHER LIABILITIES.  Promptly pay and discharge and cause each
of FSI's  Subsidiaries,  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 or FSI or
against PLMI or any of its other Subsidiaries before any taxing authority.

     5.5 INSPECTION RIGHTS;  ASSISTANCE. At any reasonable time and from time to
time during  normal  business  hours,  permit  Agent or any Lender or any agent,
representative or employee thereof,  to examine and make copies of and abstracts
from the financial records and books of account of each Borrower,  FSI or any of
FSI's  Subsidiaries,  and other documents in the possession or under the control
of any Borrower,  FSI or any of FSI's  Subsidiaries,  including  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  the  Equipment.  Such  audits and  appraisals  shall be
subject to the lessee's right to quiet  enjoyment as set forth in the respective
Lease.

     5.6 MAINTENANCE OF FACILITIES; MODIFICATIONS; PERFORMANCE OF LEASES.

          5.6.1 MAINTENANCE OF FACILITIES.  Each Borrower and FSI shall keep and
cause each of FSI's  Subsidiaries  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.

          5.6.3  PERFORMANCE  OF LEASES.  Borrower  shall timely  perform in all
material  respects  each of its covenants  and  obligations  under the Leases to
which it is a party.

     5.7 SUPPLEMENTAL DISCLOSURE.  From time to time as may be necessary (in the
event that such  information  is not otherwise  delivered by 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.

          5.8.1  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.

          5.8.2 Without  limiting  Section  5.8.1,  promptly upon request by the
Agent or the  Requisite  Lenders,  each  Borrower  and FSI  shall  do,  execute,
acknowledge,   deliver,   record,   re-record,   file,  re-file,   register  and
re-register,  any  and all  such  further  acts,  deeds,  conveyances,  security
agreements, mortgages, assignments, estoppel certificates,  financing statements
and  continuations  thereof,  termination  statements,  notices  of  assignment,
transfers,  certificates,  assurances  and other  instruments  the Agent or such
Requisite Lenders,  as the case may be, may reasonably require from time to time
in order (i) to carry out more  effectively,  the purposes of this  Agreement or
any other Loan  Document,  (ii) to  subject  to the Liens  created by any of the
Security Documents any of the properties,  rights or interests covered by any of
the  Security   Documents,   (iii)  to  perfect  and   maintain  the   validity,
effectiveness  and  priority  of any of the  Security  Documents  and the  Liens
intended  to be  created  thereby,  and (iv) to better  assure,  convey,  grant,
assign, transfer, preserve, protect and confirm to the Agent and the Lenders the
rights  granted or now or hereafter  intended to be granted to the Lenders under
any Loan Document or under any other document executed in connection  therewith.
Upon a Potential Event of Default or an Event of Default,  each of the Borrowers
and FSI hereby authorizes the Agent, in such jurisdictions  where such action is
authorized by law, to effect any such recordations,  filings or registrations of
financing  statements and other  instruments and documents without the signature
of such Borrower or FSI thereto.
<PAGE>

     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 Imperial Bank 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.

     5.11 EQUIPMENT  PURCHASE  AGREEMENT.  Acquisub  shall,  upon the request of
Agent, which request may be made with respect to any Loan made to Acquisub on or
after the date which is one hundred  twenty (120) days after the Funding Date of
such Loan,  deliver to Agent an Equipment Purchase Agreement with respect to the
Equipment against which such Loan was made.

     5.12 OPERATING RELATIONSHIP. On or prior to the Closing Date, the Borrowers
will transfer all of their primary  depositary and operating  accounts which are
currently  maintained  with First  Union  National  Bank to Imperial  Bank,  and
thereafter shall maintain all of their primary depositary and operating accounts
with Imperial Bank. In addition,  (i) as soon as  practicable  after the Closing
Date, and provided that Imperial Bank offers comparable services,  the Borrowers
will transfer all of their depositary and operating accounts which are currently
maintained  with Sanwa Bank to Imperial Bank, and thereafter  shall maintain all
such accounts with Imperial Bank,  and (ii)  commencing on the Closing Date, the
Borrowers will maintain on deposit with PFF non-interest  bearing demand deposit
balances of not less than  $300,000.  All deposit  balances  shall be calculated
after  reduction for the reserve  requirement  of the Federal  Reserve Board and
uncollected  funds.  Any  deficiencies  therein shall be charged directly to the
Borrowers on a monthly basis.

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.  No Borrower shall create,
incur,  assume or suffer to exist, or shall 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  jointly  with  one or  more  other
Borrowers) to create, incur, assume or suffer to exist, and FSI shall not permit
any of its Subsidiaries (including,  without limitation,  TEC) 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 pursuant to
the Security Documents.

     6.2 ACQUISITIONS.  No Borrower shall, or shall permit any Marine Subsidiary
of such  Borrower to, and FSI shall not permit TEC 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 and the  formation or
acquisition of a Marine Subsidiary.

<PAGE>

     6.3 LIMITATIONS ON INDEBTEDNESS. No Borrower shall create, incur, assume or
suffer to exist,  nor permit any Marine  Subsidiary  of such  Borrower  or Owner
Trustee  holding  record  title to any  Eligible  Inventory  for the  beneficial
interest of such  Borrower  (or  jointly  with one or more other  Borrowers)  to
create,  incur,  assume or suffer to exist,  and FSI shall not permit any of its
Subsidiaries  (including,  without limitation,  TEC) 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 (other than  Acquisub),
provided that such Indebtedness is non-recourse as to FSI and TEC;

          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 With the prior written consent of Agent,  Indebtedness  incurred
in respect of the deferred  purchase price for an item of Eligible  Inventory to
be financed with the proceeds of a Loan  hereunder,  but only to the extent that
the incurrence of such Indebtedness is customary in the industry with respect to
the purchase of this type of equipment  (provided that such  Indebtedness  shall
only be  permitted  under  this  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.  No Borrower  shall,  and FSI shall not, nor shall any
Borrower or FSI 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 jointly with one or more other Borrowers) to, use the proceeds
of any Loan except for the purpose set forth in Section  2.1.3,  and,  except as
set forth in Section 2.1.3, no Borrower shall,  and FSI shall not, nor shall any
Borrower or FSI 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.  No Borrower shall, and FSI shall not, nor shall
any Borrower or FSI 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 jointly  with one or more other  Borrowers)  to,
sell,  assign or otherwise  dispose of, any of its or their  respective  assets,
except  for full,  fair and  reasonable  consideration,  or enter or permit  any
Marine  Subsidiary  or  Owner  Trustee  to enter  into  any  sale and  leaseback
agreement covering any of its or their respective fixed or capital assets.

     6.6 RESTRICTION ON FUNDAMENTAL  CHANGES.  No Borrower shall,  and FSI shall
not, nor shall any Borrower or FSI permit any Marine Subsidiary of such Borrower
to, enter into any  transaction of merger,  consolidation  or  recapitalization,
directly or indirectly,  whether by operation of law or otherwise, or liquidate,
wind up or  dissolve  itself (or  suffer any  liquidation  or  dissolution),  or
convey,  sell,  lease,  assign,   transfer  or  otherwise  dispose  of,  in  one
transaction  or a  series  of  transactions,  all or any  part of its  business,
Property  or assets,  whether  now owned or  hereafter  acquired,  or acquire by
purchase or otherwise all or substantially all the business,  Property or assets
of, or stock or other  evidence of beneficial  ownership of, any Person,  except
(a) for the formation of Marine Subsidiaries and the sale and transfer of all of
its ownership  interest (whether stock or otherwise) in any Marine Subsidiary to
an Equipment  Growth  Fund,  (b) the  acquisition  or resale 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 (c) any Subsidiary of FSI (other than
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.  No Borrower shall, or shall 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 NO LOANS TO AFFILIATES.  No Borrower shall make any loans to any of its
Affiliates other than to its Marine Subsidiaries.
<PAGE>

     6.9 NO INVESTMENT.  No Borrower shall make or suffer to exist, or permit or
suffer any of its Marine Subsidiaries to make or suffer to exist, any Investment
except as permitted by Section  6.8,  the sharing  arrangements  with respect to
Equipment  which are shared with  Equipment  Growth Funds,  and equipment  owned
jointly with USPE's.

     6.10  MAINTENANCE OF BUSINESS.  No Borrower shall, 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.  Without  limiting the
foregoing,  Acquisub shall not engage in any business other than the purchase of
transportation equipment and the operation,  leasing,  remarketing and resale of
such equipment.

     6.11 NO MODIFICATION TO LEASES. No Borrower shall modify or agree to modify
any material term of any Lease of Equipment financed or refinanced  hereunder to
which it is a party without the written consent of Agent, which consent will not
be  unreasonably  withheld.  For purposes of this Section 6.11,  material  Lease
terms shall  include,  without  limitation,  terms  relating to lease  payments,
maturity and the amount and scope of the lessee's insurance coverage.

     6.12 NO  SUBSIDIARIES.  No Borrower  shall create any  Subsidiaries  except
Marine Subsidiaries.

     6.13 NO  DISTRIBUTIONS.  No Borrower shall make, pay or set apart any funds
for the payment of distribution to its shareholders, partners or members if such
distribution  would cause or result in an Event of Default or Potential Event of
Default.  In addition,  Acquisub shall not declare or make any  distribution  of
assets, properties, cash, rights, obligations or securities on account of any of
its membership interests, or purchase, redeem or otherwise acquire for value any
of its membership  interests or any warrants,  rights or options to acquire such
membership interests,  now or hereafter  outstanding;  except that Acquisub may,
(a)  following  the  resale  of any item of  Eligible  Inventory  to  PLMI,  any
Equipment  Growth  Fund or any third party and after  having  repaid in full the
Loan  advanced  by Lender to  finance  or  refinance  such  Eligible  Inventory,
distribute  the  remaining  proceeds  of  such  resale  to FSI  and  (b) no more
frequently  than  monthly and in no event  prior to such time as Acquisub  shall
have made payment in full of all interest on the Loans funded hereunder  accrued
through the last day of the previous calendar month, Acquisub may distribute its
net profits (revenues less interest and operating expenses) to FSI.

     6.14 EVENTS OF DEFAULT.  No Borrower shall, 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.

     6.15 ERISA.

          6.15.1  Acquisub  shall not incur any  obligation  to  contribute to a
Pension Plan required by a collective  bargaining  agreement or as a consequence
of the acquisition of an ERISA Affiliate, unless (i) Acquisub shall notify Agent
in  writing  that it intends to incur  such  obligation  and (ii) after  Agent's
receipt  of such  notice,  Requisite  Lenders  consent to the  establishment  or
maintenance  of, or Acquisub's  incurring an  obligation  to contribute  to, the
Pension Plan,  which consent may not unreasonably be withheld but may be subject
to such reasonable conditions as Requisite Lenders may require.

          6.15.2 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.

     6.16 NO USE OF ANY LENDER'S NAME. No Borrower shall, 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.

     6.17 CERTAIN ACCOUNTING  CHANGES.  No Borrower shall 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.

     6.18 AMENDMENTS OF LIMITED PARTNERSHIP AGREEMENT OR OPERATING AGREEMENT. No
Borrower  shall  permit,  or cause to  occur,  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 each of Income Fund I and Acquisub, its
respective  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.
<PAGE>

SECTION 7. FINANCIAL COVENANTS OF EQUIPMENT GROWTH FUNDS.

     Each Equipment Growth Fund, severally,  as to itself, but not jointly as to
the other  Equipment  Growth  Funds,  covenants  and agrees that, so long as the
Commitments  hereunder  shall  be  available,   and  until  full,  complete  and
indefeasible  payment and  performance of the  Obligations,  including,  without
limitation,  all Loans evidenced by the Notes,  unless  Requisite  Lenders shall
otherwise  consent in writing,  the  Equipment  Growth  Funds shall  perform the
following financial covenants. Each Equipment Growth Fund agrees and understands
that (except as expressly  provided  herein) all covenants  under this Section 7
shall be subject to quarterly  compliance  and  compliance as of the date of any
request  for a Loan  pursuant to Section  3.3.1 (as  measured on the last day of
each fiscal  quarter of such  Equipment  Growth  Fund,  or as of the date of any
request  for a Loan  pursuant  to  Section  3.3.1),  and in each case  review by
Lenders of the respective  fiscal quarter's  consolidated  financial  statements
delivered  to Agent by each  Equipment  Growth  Fund  pursuant  to Section  5.1;
provided, however, that the following financial covenants shall apply only as to
those  Equipment  Growth  Funds  requesting a Loan or as to which a Loan remains
outstanding.

     7.1 MINIMUM  OPERATING CASH FLOW COVERAGE RATIO. Each Equipment Growth Fund
shall maintain an Operating Cash Flow Coverage Ratio of not less than 1.50:1.0.

     7.2 MINIMUM  TOTAL CASH FLOW COVERAGE  RATIO.  Each  Equipment  Growth Fund
shall maintain a Total Cash Flow Coverage Ratio of not less than 1.00:1.0.

     7.3 MAXIMUM  LEVERAGE  RATIO.  Each Equipment  Growth Fund shall maintain a
Leverage Ratio of not more than 1.50:1.0.

     7.4 CASH  BALANCES.  The Equipment  Growth Funds shall  maintain  aggregate
unrestricted cash balances of not less than $3,750,000.

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 jointly with one or
more other Borrowers) 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,  Acquisub or any Owner Trustee holding record title to
any Eligible Inventory for the beneficial  interest of such Borrower (or jointly
with one or more other Borrowers)  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, 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, 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, 5.11, 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10,  6.11,  6.12,
6.13, 6.17 or 6.18, 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

<PAGE>

          8.1.5 FAILURE TO CURE. Except as provided in Sections 8.1.1 and 8.1.3,
such Borrower, FSI, 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 jointly with one or more other Borrowers) 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, 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  jointly  with one or more other  Borrowers)  in  connection
therewith,  and the same has not been cured to Requisite  Lenders'  satisfaction
within  thirty  (30)  calendar  days  after  such  Borrower,  FSI,  such  Marine
Subsidiary of such Borrower,  or such Owner Trustee  holding record title to any
Eligible Inventory for the beneficial interest of such Borrower (or jointly with
one or more other  Borrowers)  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,  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
jointly with one or more other  Borrowers) 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,  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 jointly with one or more other
Borrowers) 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,  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 jointly with one or more other
Borrowers) 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,  Acquisub, FSI, TEC, PLMI
or any Owner  Trustee  holding  record title to any Eligible  Inventory  for the
beneficial  interest  of such  Borrower  (or  jointly  with  one or  more  other
Borrowers) 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,  Acquisub,  FSI,
TEC or any Owner Trustee holding record title to any Eligible  Inventory for the
beneficial  interest  of such  Borrower  (or  jointly  with  one or  more  other
Borrowers)  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 Acquisub or any Marine Subsidiary of Acquisub in any amount;
against  FSI  exceeds in the  aggregate  $500,000;  against  TEC  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 jointly with
one or more other Borrowers) 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,  Acquisub,
FSI, any Marine  Subsidiary  of such Borrower or Owner  Trustee  holding  record
title to any Eligible Inventory for the beneficial interest of such Borrower (or
jointly with one or more other Borrowers), or any other Loan Party (other than a
Borrower) not to be, a legal,  valid and binding  obligation  of such  Borrower,
Acquisub,  FSI, such Marine Subsidiary of such Borrower or Owner Trustee holding
record  title to any  Eligible  Inventory  for the  beneficial  interest of such
Borrower  (or  jointly  with one or more  other  Borrowers),  or such other Loan
Party,  respectively,  enforceable  against such Person in  accordance  with its
terms; or

<PAGE>

          8.1.11 CHANGE OF GENERAL PARTNER OR MANAGER. FSI shall cease to be the
sole  general  partner or the sole  manager  of such  Borrower,  as  applicable,
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 Acquisub shall cease to be
a  wholly-owned  Subsidiary  of FSI,  or TEC  shall  cease to be a  wholly-owned
Subsidiary of FSI, or FSI shall cease to be a  wholly-owned  Subsidiary of PLMI;
or

          8.1.12 PLMI CHANGE OF CONTROL. There occurs any Change of Control; or

          8.1.13  CHANGE OF PURCHASER.  Requesting  Borrower,  Acquisub,  FSI or
their  Subsidiaries  shall cease to be the  purchaser of Eligible  Inventory for
such Requesting Borrower; or

          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  jointly  with  one or  more  other
Borrowers)  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, 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 jointly with
one or more other  Borrowers).  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 (A) any  monetary  liability  in the case of  Acquisub  or any  Marine
Subsidiary of Acquisub,  (B) monetary  liability of more than  $1,000,000 in the
case of any other Borrower or any Marine Subsidiary of such other Borrower,  (C)
monetary  liability  of more  than  $500,000  in the case of FSI,  (D)  monetary
liability of more than  $500,000 in the case of TEC,  (E) monetary  liability of
more than $1,000,000 in the case of PLMI, or (F) monetary liability of more than
$1,000,000,  in the aggregate,  in the case of any  combination of the foregoing
Persons, or (ii) any disqualification of or other limitation on the operation of
any Borrower,  any Marine  Subsidiary of such Borrower,  FSI, 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; or

          8.1.17 COLLATERAL.

               (i) (A) Any material provision of any Security Document shall for
any reason  cease to be valid and  binding  on or  enforceable  in any  material
respect  against  any Loan  Party or (B) any Loan  Party  shall  state  that any
material  provision  of any Security  Document  shall for any reason cease to be
valid and binding on or enforceable  against such Loan Party in writing or bring
an action to limit its obligations or liabilities thereunder; or

               (ii) any  Security  Document  shall for any  reason  (other  than
pursuant to the terms thereof) cease to create a valid security  interest in any
portion  of the  Collateral  purported  to be covered  thereby or such  security
interest  shall  for any  reason  cease to be a  perfected  and  first  priority
security  interest  with  respect  to any  item of  Collateral  subject  only to
Permitted Liens; or

          8.1.18  OTHER LOAN  DOCUMENTS.  Any Loan Party (other than a Borrower,
any  Marine  Subsidiary,  any Owner  Trustee,  or FSI)  shall fail to perform or
observe any term,  covenant or agreement contained in any Loan Document to which
it is a party.

     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 during the  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.

<PAGE>

     In addition,  upon the occurrence and during the continuance of an Event of
Default,  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,  FSI or any
Guarantor (exclusive of deposits in accounts expressly held in the name of third
parties or held in trust for benefit of third  parties)  may be set-off  against
the  Obligations of such Borrower and any and all other  liabilities,  direct or
indirect,  absolute  or  contingent,  due or to  become  due,  now  existing  or
hereafter arising of such Borrower, FSI or any Guarantor to Lenders. Each Lender
agrees to notify  promptly  Borrowers,  FSI,  Guarantors,  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  Imperial Bank as the Agent of such Lender under this Agreement and the
other Loan Documents,  and each such Lender irrevocably authorizes Imperial Bank
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.
<PAGE>

     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 written 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.  Notwithstanding  anything
contained in the preceding  sentence to the  contrary,  Agent agrees to promptly
provide  Lenders  with (i)  copies  of all  financial  statements,  reports  and
certificates  delivered  by  Borrowers  to Agent  hereunder,  (ii) copies of all
notices and other communications deemed by Agent to be material, relating to the
transactions contemplated by this Agreement, that are sent or received by Agent,
and (iii) any other information,  financial or otherwise,  deemed by Agent to be
material,  relating to any Borrower's  financial condition or ability to perform
its obligations hereunder, furnished to, or obtained by, Agent hereunder.
<PAGE>

     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,  including  without  limitation  the cost of UCC  searches and filing
fees;  (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.
<PAGE>

     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 interests, 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 sole 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.

<PAGE>

     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.

<PAGE>

     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 have
the right in  accordance  with this Section  11.10 (a) 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,  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  Acceptance  in the form of  Exhibit G  ("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  Acceptance  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  Acceptance  or  increase  the
obligations  of Borrowers or FSI under this  Agreement.  Upon  execution of such
Assignment  and  Acceptance,  (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,  after giving effect to the
assignment  and (b) the Assignee  Lender shall,  from the effective  date of the
Assignment And Acceptance, 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  Acceptance.  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 Documents,
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.
<PAGE>

     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 Lenders' 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;

<PAGE>

          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; (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;  and (h) without  limiting the  foregoing,  the benefit of
California  Civil Code Sections 2809,  2810, 2819, 2839, 2845, 2848, 2849, 2850,
2899 and 1432. 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 JUDICIAL REFERENCE.

          (b)  Other  than  (a)  nonjudicial  foreclosure  and  all  matters  in
connection  therewith regarding security interests in real or personal property;
or (b) the  appointment  of a receiver,  or the  exercise  of other  provisional
remedies  (any and all of which may be initiated  pursuant to  applicable  law),
each  controversy,  dispute  or claim  between  the  parties  arising  out of or
relating  to this  Agreement  or the other Loan  Documents,  which  controversy,
dispute or claim is not  settled in writing  within  thirty  (30) days after the
"Claim  Date"  (defined as the date on which a party  subject to this  Agreement
gives written notice to all other parties that a  controversy,  dispute or claim
exists),  will be settled by a reference  proceeding in California in accordance
with the  provisions  of Section  638 et seq.  of the  California  Code of Civil
Procedure,  or their  successor  sections  ("CCP"),  which shall  constitute the
exclusive  remedy  for the  settlement  of any  controversy,  dispute  or  claim
concerning this Agreement and the other Loan Documents,  including  whether such
controversy,  dispute or claim is subject to the reference proceeding and except
as set forth  above,  the  parties  waive  their  rights to  initiate  any legal
proceedings  against  each  other in any court or  jurisdiction  other  than the
Superior Court in the County where the real property,  if any, is located or San
Francisco County, if none (the "Court"). The referee shall be a retired Judge of
the Court  selected by mutual  agreement of the  parties,  and if they cannot so
agree within  forty-five  (45) days after the Claim Date,  the referee  shall be
promptly   selected   by  the   Presiding   Judge  of  the  Court  (or   his/her
representative).  The referee  shall be appointed  to sit as a temporary  judge,
with all of the powers for a temporary  judge,  as  authorized  by law, and upon
selection shall take and subscribe to the oath of office as provided for in Rule
244 of the California  Rules of Court (or any subsequently  enacted Rule).  Each
party shall have one peremptory challenge pursuant to CCP ss. 170.6. The referee
shall (x) be  requested  to set the matter for  hearing  within  sixty (60) days
after the date of selection of the referee and (y) try any and all issues of law
or fact and report a statement of decision upon them, if possible, within ninety
(90) days of the Claim Date. Any decision rendered by the referee will be final,
binding and conclusive and judgment shall be entered  pursuant to CCP ss. 644 in
any court in the State of California  having  jurisdiction.  Any party may apply
for a reference  proceeding at any time after thirty (30) days following  notice
to any other party of the nature of the controversy, dispute or claim, by filing
a petition for a hearing and/or trial. All discovery permitted by this Agreement
or any other Loan  Document  shall be  completed no later than fifteen (15) days
before the first hearing date established by the referee. The referee may extend
such period in the event of a party's refusal to provide requested discovery for
any reason whatsoever, including, without limitation, legal objections raised to
such  discovery  or  unavailability  of a witness due to absence or illness.  No
party shall be entitled to "priority" in conducting  discovery.  Depositions may
be taken by either  party upon seven (7) days  written  notice,  and request for
production or inspection of documents shall be responded to within ten (10) days
after service.  All disputes  relating to discovery  which cannot be resolved by
the parties shall be submitted to the referee whose  decision shall be final and
binding upon the parties. Pending appointment of the referee as provided herein,
the Court is  empowered  to issue  temporary  and/or  provisional  remedies,  as
appropriate.

<PAGE>

          (c) Except as expressly set forth in this Agreement, the referee shall
determine  the manner in which the reference  proceeding is conducted  including
the time and place of all hearings,  the order of presentation of evidence,  and
all other  questions  that  arise with  respect  to the course of the  reference
proceeding.  All proceedings and hearings  conducted before the referee,  except
for trial,  shall be  conducted  without a court  reporter  except that when any
party so requests, a court reporter will be used at any hearing conducted before
the  referee.  The party  making  such a request  shall have the  obligation  to
arrange for and pay for the court  reporter.  The costs of the court reporter at
the trial shall be borne equally by the parties.

          (d)  The  referee  shall  be  required  to  determine  all  issues  in
accordance  with  existing  case  law and the  statutory  laws of the  State  of
California.  The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding.  The referee shall
be  empowered  to  enter  equitable  as well as legal  relief,  to  provide  all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the  reference  proceeding  that  shall  dispose  of all of the claims of the
parties  that are the subject of the  reference.  The parties  hereto  expressly
reserve the right to contest or appeal from the final judgment or any appealable
order  or  appealable  judgment  entered  by the  referee.  The  parties  hereto
expressly reserve the right to findings of fact,  conclusions of laws, a written
statement  of  decision,  and the right to move for a new  trial or a  different
judgment,  which new trial,  if granted,  is also to be a  reference  proceeding
under this provision.

          (e) In the event that the  enabling  legislation  which  provides  for
appointment of a referee is repealed (and no successor statute is enacted),  any
dispute  between the parties that would otherwise be determined by the reference
procedure herein  described will be resolved and determined by arbitration.  The
arbitration  will be conducted by a retired  judge of the Court,  in  accordance
with the California  Arbitration Act, ss. 1280 through ss. 1294.2 of the CCP, as
amended  from time to time.  The  limitations  with  respect to discovery as set
forth hereinabove shall apply to any such arbitration proceeding.

     11.20 WAIVER OF JURY TRIAL.  WITHOUT  LIMITING THE INTENTION OF THE PARTIES
THAT THE  PROCEDURES  SET FORTH IN SECTION  11.19  APPLY TO THE  MAXIMUM  EXTENT
CONTEMPLATED  THEREIN,  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>
                   WAREHOUSING CREDIT AGREEMENT SIGNATURE PAGE

         WITNESS the due  execution  hereof by the  respective  duly  authorized
officers of the undersigned as of the date first written above.

BORROWERS               PLM EQUIPMENT GROWTH FUND VI

                        BY PLM FINANCIAL SERVICES, INC.,
                        ITS GENERAL PARTNER

                       By     /s/Stephen M. Bess
                         -------------------------------------------------------
                       Stephen M. Bess
                       President and Chief Executive Officer

                       By     /s/Richard K Brock
                         -------------------------------------------------------
                       Richard K Brock
                       Vice President of Finance and Chief Financial Officer

                       PLM EQUIPMENT GROWTH & INCOME FUND VII

                       BY PLM FINANCIAL SERVICES, INC.,
                       ITS GENERAL PARTNER

                       By   /s/Stephen M. Bess
                         -------------------------------------------------------
                       Stephen M. Bess
                       President and Chief Executive Officer

                       By  /s/Richard K Brock
                         -------------------------------------------------------
                       Richard K Brock
                       Vice President of Finance and Chief Financial Officer

                       PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.

                       BY PLM FINANCIAL SERVICES, INC.,
                       ITS MANAGER

                       By     /s/Stephen M. Bess
                         -------------------------------------------------------
                       Stephen M. Bess
                       President and Chief Executive Officer

                       By     /s/Richard K Brock
                         -------------------------------------------------------
                       Richard K Brock
                       Vice President of Finance and Chief Financial Officer

                       ACQUISUB, LLC

                       BY PLM FINANCIAL SERVICES, INC.
                       ITS MANAGER

                        By     /s/Stephen M. Bess
                          ------------------------------------------------------
                        Stephen M. Bess
                        President and Chief Executive Officer

                        By     /s/Richard K Brock
                          ------------------------------------------------------
                        Richard K Brock
                        Vice President of Finance and Chief Financial Officer

                        Notice to any Borrower to be sent to:
<PAGE>

                        [Insert name of Borrower]
                        c/o PLM Financial Services, Inc.
                        One Market Plaza
                        Steuart Street Tower, Suite 900
                        San Francisco, CA 94105
                        Attention: Richard K Brock
                                   Vice President of Finance
                                   and Chief Financial Officer
                                   Telephone:     415/974-1399
                                   Telecopy:      415/882-0860

                         With a copy to:

                         Acquisub, LLC
                         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/Stephen M. Bess
                            ----------------------------------------------------
                         Stephen M. Bess
                         President and Chief Executive Officer

                         By       /s/Richard K Brock
                           -----------------------------------------------------
                         Richard K Brock
                         Vice President of Finance and Chief Financial Officer

                         Notice to be sent to:

                         PLM Financial Services, Inc.
                         One Market Plaza
                         Steuart Street Tower, Suite 900
                         San Francisco, CA 94105
                         Attention: Richard K Brock
                                    Vice President of Finance
                                    and Chief Financial Officer
                                    Telephone:     415/974-1399
                                    Telecopy:      415/882-0860

AGENT                    IMPERIAL BANK

                         By    /s/Misako Noda
                           -----------------------------------------------------
                         Misako Noda
                         Vice President

                         Notice to be sent to:

                         Imperial Bank
                         275 Battery Street, Suite 1100
                         San Francisco, CA  94111
                         Attention:     Misako Noda, Vice President
                         Telephone:     415/954-5003
                         Facsimile:     415/954-5020

LENDERS                  IMPERIAL BANK

                         By    /a/Misako Noda
                           -----------------------------------------------------
                         Misako Noda
                         Vice President

                         Notice to be sent to:

                         Imperial Bank
                         275 Battery Street, Suite 1100
                         San Francisco, CA  94111
                         Attention:     Misako Noda, Vice President
                         Telephone:     415/954-5003
                         Facsimile:     415/954-5020

                         PFF BANK & TRUST

<PAGE>

                         By  /s/Steve Capps
                           -----------------------------------------------------
                         Printed Name: Steve Capps
                         Title: Vice President

                         Notice to be sent to:

                         PFF Bank & Trust
                         9467 Milliken Ave.
                         P.O. Box 2729
                         Rancho Cucamonga, CA  91729-2729
                         Attention: Steve Capps, Vice President
                         Telephone: (714) 960-7837
                         Facsimile: (714) 960-6427

<PAGE>

                                   SCHEDULE A

                                  (COMMITMENTS)

                                                                        Pro Rata
Lender                                    Commitment                    Share

Imperial Bank                             $10,000,000                    66-2/3%

PFF Bank & Trust                          $ 5,000,000                    33-1/3%

<PAGE>

<TABLE>
<CAPTION>

                               SCHEDULE 3.2.1

                           UCC TERMINATION STATEMENTS

PLM INTERNATIONAL, INC.
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
         Debtor               Jurisdiction                                     Secured Party            File Number         Filing
                                                    Debtor's Address                                                         Date
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
<S>                      <C>                    <C>                       <C>                          <C>                  <C>
PLM International, Inc.  California Secretary   One Market Sq Ste #800    Sunamerica Life              9619160557           07/03/96
                         of State               San Francisco, CA         Insurance Company, as
                                                                          Collateral Agent
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   One Market Sq Ste #800    MAC Trailer Leasing,         0028460199           10/04/00
                         of State               San Francisco, CA         L.L.C.
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   One Market Sq Ste #800    IBM Credit Corporation       9610860583           04/16/96
                         of State               San Francisco, CA
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   One Market Sq Ste #800    Taylor Made Office           9629060626           10/10/96
                         of State               San Francisco, CA         Systems, Inc.
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   One Market Sq Ste #800    First Security Bank,         9803560211           01/29/98
                         of State               San Francisco, CA         National Association,
                                                                          as owner trustee under
                                                                          Trust Agreement 12510
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc   California Secretary   One Market Sq Ste #800    IBM Credit Corporation       9906160508           02/19/99
                         of State               San Francisco, CA
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   One Market Sq Ste #800    Norwest Equipment, Inc.      9903360182           02/01/99
                         of State               San Francisco, CA
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   One Market, Steuart St.   U.S. Bankcorp Leasing &      9901360648           01/06/99
                         of State               Twr., #800                Financial
                                                San Francisco, CA
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   One Market Street, #800   Wells Fargo Equipment        9911260297           04/20/99
                         of State               San Francisco, CA         Finance, Inc.
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   1 Market, Steuart St      Associates Leasing, Inc.     9925860287           09/02/99
                         of State               Twr #800
                                                San Francisco, CA
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   1 Market, Steuart St      Associates Leasing, Inc.     9926560991           09/20/99
                         of State               Twr
                                                San Francisco, CA
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   One Market Plz, #800      Wells Fargo Equipment        9931960882           11/09/99
                         of State               Steuart Twr               Finance, Inc.
                                                San Francisco, CA
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   One Market St., # 800     Wells Fargo Equipment        9931960919           11/09/99
                         of State               Steuart Twr               Finance, Inc.
                                                San Francisco, CA
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM International, Inc.  California Secretary   One Market Steuart Twr    The CIT Group/Equipment      0013360512           05/08/00
                         of State               Ste 800                   Financing, Inc.
                                                San Francisco, CA
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
     ACQUISUB, LLC
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
       Debtor               Jurisdiction                                     Secured Party            File Number         Filing
                                                      Debtor's Address                                                      Date
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
Tec AcquiSub             California Secretary   One Market Sq Ste #800    Norwest Equipment, Inc.      9903360182           02/01/99
                         of State               San Francisco, CA
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
TEC AcquiSub             California Secretary   One Market Steuart St     First National Bank of       9621860304           08/02/96
                         of State               Twr Ste 900               North Carolina
                                                San Francisco, CA
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
TEC AcquiSub             California Secretary   One Market Ste 900        First Union National          93143342            07/16/93
                         of State               San Francisco, CA         Bank, as Agent
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------

PLM FINANCIAL SERVICES, INC.
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
         Debtor               Jurisdiction                                     Secured Party            File Number         Filing
                                                    Debtor's Address                                                         Date
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM Financial Services,  California Secretary   One Market Ste 900        Sunamerica Life              9619160619           07/03/96
Inc.                     of State               San Francisco, CA         Insurance Company, as
                                                                          Collateral Agent
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------

PLM INVESTMENT MANAGEMENT, INC.

------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
         Debtor               Jurisdiction                                     Secured Party            File Number         Filing
                                                    Debtor's Address                                                         Date
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
PLM Investment           California Secretary   One Market Ste 900        Sunamerica Life              9619160592           07/03/96
Management, Inc.         of State               San Francisco, CA         Insurance Company, as
                                                                          Collateral Agent
------------------------ ---------------------- ------------------------- ------------------------- ------------------- ------------
</TABLE>

<PAGE>

                                 SCHEDULE 4.1.5

               EXECUTIVE OFFICES AND PRINCIPAL PLACES OF BUSINESS

         For each Borrower and FSI: As of the date hereof,  One Market,  Steuart
Street Tower,  Suite 800, San Francisco,  California  94105. As of May 21, 2001,
120 Montgomery, Suite 1350, San Francisco, California 94104.

<PAGE>

                                 SCHEDULE 4.1.6

                                   LITIGATION

         PLMI and various of its wholly owned  subsidiaries  are defendants in a
class  action  lawsuit  filed in January 1997 and which is pending in the United
States District Court for the Southern  District of Alabama,  Southern  Division
(Civil  Action No.  97-0177-BH-C)  (the  court).  The named  plaintiffs  are six
individuals who invested in PLM Equipment  Growth Fund IV, PLM Equipment  Growth
Fund V (Fund V), PLM Equipment Growth Fund VI, and PLM Equipment Growth & Income
Fund VII (the  Partnerships),  each a California  limited  partnership for which
PLMI's wholly owned subsidiary,  PLM Financial Services, Inc. (FSI), acts as the
General Partner.  The complaint  asserts causes of action against all defendants
for fraud and deceit, suppression,  negligent  misrepresentation,  negligent and
intentional  breaches of fiduciary  duty,  unjust  enrichment,  conversion,  and
conspiracy.  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
Partnerships,   and  concealing  such   mismanagement   from  investors  in  the
Partnerships.  Plaintiffs  seek  unspecified  compensatory  damages,  as well as
punitive damages.

         In June 1997,  PLMI 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 Fund V, and filed the complaint
on her own  behalf and on behalf of all class  members  similarly  situated  who
invested in the Partnerships.  The complaint alleges the same facts and the same
causes of action as in the Koch action, plus additional causes of action against
all of the  defendants,  including  alleged  unfair and deceptive  practices and
violations of state  securities law. In July 1997,  defendants  filed a petition
(the  petition)  in federal  district  court under the Federal  Arbitration  Act
seeking to compel  arbitration  of  plaintiff's  claims.  In October  1997,  the
district  court denied PLMI's  petition,  but in November  1997,  agreed to hear
PLMI's  motion  for  reconsideration.  Prior to  reconsidering  its  order,  the
district court dismissed the petition pending settlement of the Romei action, as
discussed  below.  The state court action  continues  to be stayed  pending such
resolution.

         In February  1999 the parties to the Koch and Romei  actions  agreed to
settle the lawsuits, with no admission of liability by any defendant,  and filed
a Stipulation of Settlement  with the court.  The settlement is divided into two
parts,  a  monetary  settlement  and  an  equitable  settlement.   The  monetary
settlement  provides  for  a  settlement  and  release  of  all  claims  against
defendants  in  exchange  for payment for the benefit of the class of up to $6.6
million.  The final settlement  amount will depend on the number of claims filed
by class members,  the amount of the administrative costs incurred in connection
with the  settlement,  and the amount of attorneys' fees awarded by the court to
plaintiffs'  attorneys.  PLMI  will  pay up to  $0.3  million  of  the  monetary
settlement,  with  the  remainder  being  funded  by an  insurance  policy.  For
settlement  purposes,  the monetary  settlement class consists of all investors,
limited partners, assignees, or unit holders who purchased or received by way of
transfer or assignment  any units in the  Partnerships  between May 23, 1989 and
August  30,  2000.  The  monetary  settlement,  if  approved,  will  go  forward
regardless of whether the equitable settlement is approved or not.

         The equitable  settlement  provides,  among other things,  for: (a) the
extension  (until  January  1,  2007)  of the date by  which  FSI must  complete
liquidation of the  Partnerships'  equipment,  (b) the extension (until December
31, 2004) of the period during which FSI can reinvest the Partnerships' funds in
additional  equipment,  (c) an increase of up to 20% in the amount of  front-end
fees (including  acquisition and lease negotiation fees) that FSI is entitled to
earn in excess of the  compensatory  limitations set forth in the North American
Securities  Administrator's  Association's  Statement of Policy;  (d) a one-time
repurchase  by each of  Funds  V, VI and VII of up to 10% of that  partnership's
outstanding units for 80% of net asset value per unit; and (e) the deferral of a
portion of the  management  fees paid to an  affiliate  of FSI  until,  if ever,
certain  performance  thresholds have been met by the  Partnerships.  Subject to
final court approval, these proposed changes would be made as amendments to each
Partnership's  limited  partnership  agreement  if less than 50% of the  limited
partners  of each  Partnership  vote  against  such  amendments.  The  equitable
settlement  also  provides  for  payment of  additional  attorneys'  fees to the
plaintiffs' attorneys from Partnership funds in the event, if ever, that certain
performance  thresholds  have  been  met  by  the  Partnerships.  The  equitable
settlement class consists of all investors,  limited partners, assignees or unit
holders who on August 30, 2000 held any units in Funds V, VI, and VII, and their
assigns and successors in interest.

         The court preliminarily approved the monetary and equitable settlements
in August 2000, and  information  regarding each of the  settlements was sent to
class members in September  2000.  The monetary  settlement  remains  subject to
certain  conditions,  including  final  approval by the court  following a final
fairness  hearing.   The  equitable   settlement   remains  subject  to  certain
conditions,  including disapproval of the proposed amendments to the partnership
agreements  by less than 50% of the limited  partners in one or more of Funds V,
VI, and VII, judicial approval of the proposed  amendments and final approval of
the equitable  settlement by the court  following a final  fairness  hearing.  A
final fairness  hearing was held on November 29, 2000, and the parties await the
court's decision. PLMI 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.

<PAGE>

                                 SCHEDULE 4.1.7

                               MATERIAL CONTRACTS

The Limited Partnership Agreements and Operating Agreements.

The contracts specified in Exhibit A to the Subordination Agreements.

Note agreement between Allstate  Insurance Company and PLM Equipment Growth Fund
VI.

Note  agreement  between  The  Equitable  Life  Assurance  Society of the United
States,  Fort  Dearborn  Life  Insurance  Company,  Mutual Trust Life  Insurance
Company,  Pierce National Life Insurance Company,  and The Minnesota Mutual Life
Insurance Company and PLM Equipment Growth & Income Fund VII.

Note agreement  between Keyport Life Insurance  Company and  Professional  Lease
Management Income Fund I L.L.C.

Leases of Equipment financed or refinanced under the Credit Agreement.

<PAGE>

                                 SCHEDULE 4.1.8

                              CONSENT AND APPROVALS

None.

<PAGE>

                                 SCHEDULE 4.1.15

                            ENVIRONMENTAL DISCLOSURES

None.

<PAGE>

                                  SCHEDULE 6.1

                                 EXISTING LIENS

None.

<PAGE>

                                 SCHEDULE 6.3(A)

                              EXISTING INDEBTEDNESS

Note agreement between Allstate  Insurance Company and PLM Equipment Growth Fund
VI.

Note  agreement  between  The  Equitable  Life  Assurance  Society of the United
States,  Fort  Dearborn  Life  Insurance  Company,  Mutual Trust Life  Insurance
Company,  Pierce National Life Insurance Company,  and The Minnesota Mutual Life
Insurance Company and PLM Equipment Growth & Income Fund VII.

Note agreement  between Keyport Life Insurance  Company and  Professional  Lease
Management Income Fund I L.L.C.

Promissory note executed by EGF VII in favor of PLMI in the principal  amount of
$5,500,000.

<PAGE>

                                 SCHEDULE 6.3(B)

                            ANTICIPATED INDEBTEDNESS

Potential  refinancing of Note agreement between Allstate  Insurance Company and
PLM Equipment Growth Fund VI.<PAGE>   1

                                                                   EXHIBIT 10.40

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

                           R.H. DONNELLEY CORPORATION

                       2001 STOCK AWARD AND INCENTIVE PLAN

            Approved and adopted by the Board of Directors on February 27, 2001,
                         Approved and adopted by shareholders on May 1, 2001 and
            Amended and Restated by the Board of Directors effective May 1, 2001

<PAGE>   2

                           R.H. DONNELLEY CORPORATION

--------------------------------------------------------------------------------

                       2001 STOCK AWARD AND INCENTIVE PLAN

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                   Page
                                                                                                   ----
<S>                                                                                                <C>
1.      Purpose.................................................................................      1

2.      Definitions.............................................................................      1

3.      Administration..........................................................................      4

4.      Stock Subject to Plan...................................................................      5

5.      Eligibility; Per-Person Award Limitations ..............................................      5

6.      Specific Terms of Awards................................................................      6

7.      Performance Awards, Including Annual Incentive Awards..................................       9

8.      Non-Employee Director Awards............................................................     12

9.      Certain Provisions Applicable to Awards.................................................     19

10.     Change in Control.......................................................................     20

11.     Additional Award Forfeiture Provisions..................................................     22

12.     General Provisions......................................................................     24
</TABLE>

<PAGE>   3

                           R.H. DONNELLEY CORPORATION

                       2001 STOCK AWARD AND INCENTIVE PLAN

        1.      PURPOSE. The purpose of this 2001 Stock Award and Incentive Plan
(the "Plan") is to aid R.H. Donnelley Corporation, a Delaware corporation
(together with its successors and assigns, the "Company"), in attracting,
retaining, motivating and rewarding employees and non-employee directors of the
Company or its subsidiaries or affiliates, to provide for equitable and
competitive compensation opportunities, to recognize individual contributions
and reward achievement of Company goals, and promote the creation of long-term
value for stockholders by closely aligning the interests of Participants with
those of stockholders. The Plan authorizes stock-based and cash-based incentives
for Participants.

        2.      DEFINITIONS. In addition to the terms defined in Section 1 above
and elsewhere in the Plan, the following capitalized terms used in the Plan have
the respective meanings set forth in this Section:

                (a)     "Annual Incentive Award" means a type of Performance
        Award granted to a Participant under Section 7(c) representing a
        conditional right to receive cash, Stock or other Awards or payments, as
        determined by the Committee, based on performance in a performance
        period of one fiscal year or a portion thereof.

                (b)     "Annual Limit" shall have the meaning specified in
        Section 5(b).

                (c)     "Award" means any Option, SAR, Restricted Stock,
        Deferred Stock, Stock granted as a bonus or in lieu of another award,
        Dividend Equivalent, Other Stock-Based Award, Performance Award or
        Annual Incentive Award, together with any related right or interest,
        granted to a Participant under the Plan.

                (d)     "Beneficiary" means the legal representatives of the
        Participant's estate entitled by will or the laws of descent and
        distribution to receive the benefits under a Participant's Award upon a
        Participant's death, provided that, if and to the extent authorized by
        the Committee, a Participant may be permitted to designate a
        Beneficiary, in which case the "Beneficiary" instead will be the person,
        persons, trust or trusts (if any are then surviving) which have been
        designated by the Participant in his or her most recent written and duly
        filed beneficiary designation to receive the benefits specified under
        the Participant's Award upon such Participant's death. Unless otherwise
        determined by the Committee, any designation of a Beneficiary other than
        a Participant's spouse shall be subject to the written consent of such
        spouse.

                (e)     "Board" means the Company's Board of Directors.

                (f)     "Cause" shall have the meaning defined in any employment
        agreement or severance agreement between the Participant and the Company
        or a subsidiary or affiliate then in effect or, if no such agreement is
        then in effect, "Cause" shall mean (i) the Participant's willful and
        continued failure substantially to perform the duties of his or her
        position after notice and opportunity to cure; (ii) any willful act or
        omission by the Participant constituting dishonesty, fraud or other
        malfeasance, which in any such case is demonstrably injurious to the
        financial condition or business reputation of the Company or any of its
        subsidiaries or affiliates; or (iii) a felony conviction in a court of
        law under the laws of the United States or any state thereof or any
        other jurisdiction in which the Company or a subsidiary or affiliate
        conducts business which materially impairs the value of the
        Participant's service to the Company or any of its subsidiaries or
        affiliates; provided, however, that for purposes of this definition, no
        act or failure to act shall be deemed "willful" unless effected by the
        Participant not in good faith and without a reasonable belief that such
        action or failure to act was in or not opposed to the Company's best
        interests, and no act or failure to act shall be deemed "willful" if it
        results from any incapacity of the Participant due to physical or mental
        illness.

<PAGE>   4

                (g)     "Change in Control" and related terms have the meanings
        specified in Section 10.

                (h)     "Code" means the Internal Revenue Code of 1986, as
        amended. References to any provision of the Code or regulation
        (including a proposed regulation) thereunder shall include any successor
        provisions and regulations.

                (i)     "Committee" means a committee of two or more directors
        designated by the Board to administer the Plan; provided, however, that,
        directors appointed or serving as members of a Board committee
        designated as the Committee shall not be employees of the Company or any
        subsidiary or affiliate. In appointing members of the Committee, the
        Board will consider whether a member is or will be a Qualified Member,
        but such members are not required to be Qualified Members at the time of
        appointment or during their term of service on the Committee. The full
        Board may perform any function of the Committee hereunder, in which case
        the term "Committee" shall refer to the Board.

                (j)     "Covered Employee" means an Eligible Person who is a
        Covered Employee as specified in Section 12(j).

                (k)     "Deferral Account" means the account established and
        maintained by the Company for Deferred Stock and/or deferred cash
        credited under Section 8. A Deferral Account shall include one or more
        subaccounts, including a Deferred Stock Account for forfeitable Deferred
        Stock under Section 8(c), a Deferred Stock Account for shares of
        Deferred Stock that have become nonforfeitable under Section 8(c) or
        that are at all times nonforfeitable under Section 8(e)(iii), a Deferred
        Stock Account for Deferred Stock resulting from Option exercises under
        Section 8(f)(i), and a Deferred Cash Account described in Section
        8(e)(iv). The Deferral Account and subaccounts, and Deferred Stock and
        deferred cash credited thereto, will be maintained solely as bookkeeping
        entries by the Company to evidence unfunded obligations of the Company.

                (l)     "Deferred Stock" means a right, granted under this Plan,
        to receive Stock or other Awards or a combination thereof at the end of
        a specified deferral period.

                (m)     "Disability" means, with respect to a non-employee
        director, termination of service as a director of the Company due to a
        physical or mental incapacity of long duration which renders the
        Participant unable to perform the duties of a director of the Company.

                (n)     "Dividend Equivalent" means a right, granted under this
        Plan, to receive cash, Stock, other Awards or other property equal in
        value to all or a specified portion of the dividends paid with respect
        to a specified number of shares of Stock.

                (o)     "Effective Date" means the effective date specified in
        Section 12(p).

                (p)     "Eligible Person" has the meaning specified in
        Section 5.

                (q)     "Exchange Act" means the Securities Exchange Act of
        1934, as amended. References to any provision of the Exchange Act or
        rule (including a proposed rule) thereunder shall include any successor
        provisions and rules.

                (r)     "Fair Market Value" means the fair market value of
        Stock, Awards or other property as determined by the Committee or under
        procedures established by the Committee. Unless otherwise determined by
        the Committee, the Fair Market Value of Stock shall be the average of
        the high and low sales prices per share of Stock reported on a
        consolidated basis for securities listed on the

                                      -2-
<PAGE>   5

        principal stock exchange or market on which Stock is traded on the day
        immediately preceding the day as of which such value is being determined
        or, if there is no sale on that day, then on the last previous day on
        which a sale was reported.

                (s)     "Incentive Stock Option" or "ISO" means any Option
        designated as an incentive stock option within the meaning of Code
        Section 422 and qualifying thereunder.

                (t)     "Option" means a right, granted under this Plan, to
        purchase Stock.

                (u)     "Option Valuation Methodology" means the method for
        determining the number of shares to be subject to Options, and the
        exercise price thereof, granted in payment of Retainer Fees under
        Section 8(e)(ii).

                (v)     "Other Director Compensation" means fees payable to a
        director in his or her capacity as such, other than Retainer Fees, for
        attending meetings and other service on the Board and Board committees
        or otherwise.

                (w)     "Other Stock-Based Awards" means Awards granted to a
        Participant under Section 6(h).

                (x)     "Participant" means a person who has been granted an
        Award under the Plan which remains outstanding, including a person who
        is no longer an Eligible Person.

                (y)     "Performance Award" means a conditional right, granted
        to a Participant under Sections 6(i) and 7, to receive cash, Stock or
        other Awards or payments.

                (z)     "Plan Year" means, with respect to a non-employee
        director, the period commencing at the time of election of the director
        at an annual meeting of shareholders (or the election of a class of
        directors if the Company then has a classified Board of Directors), or
        the director's initial appointment to the Board if not at an annual
        meeting of shareholders, and continuing until the close of business of
        the day preceding the next annual meeting of shareholders; provided,
        however, that the initial Plan Year shall begin on the day of the
        Company's 2001 Annual Meeting of Stockholders.

                (aa)    "Preexisting Plans" means each of the following Company
        plans: the 1991 Key Employees' Stock Option Plan, as amended and
        restated; the Key Employees' Performance Unit Plan, as amended and
        restated; the 1998 Directors' Stock Plan, as amended and restated; and
        the Annual Incentive Plan, as amended and restated.

                (bb)    "Qualified Member" means a member of the Committee who
        is a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and
        an "outside director" within the meaning of Regulation 1.162-27 under
        Code Section 162(m).

                (cc)    "Restricted Stock" means Stock granted under this Plan
        which is subject to certain restrictions and to a risk of forfeiture.

                (dd)    "Retainer Fees" means annual Board and chair retainer
        fees payable to a director in his or her capacity as such for service on
        the Board and Board committees.

                (ee)    "Retirement" means, with respect to a non-employee
        director, termination of service as a director of the Company at or
        after age 65.

                (ff)    "Rule 16b-3" means Rule 16b-3, as from time to time in
        effect and applicable to Participants, promulgated by the Securities and
        Exchange Commission under Section 16 of the Exchange Act.

                                      -3-
<PAGE>   6

                (gg)    "Stock" means the Company's Common Stock, par value
        $1.00 per share, and any other equity securities of the Company that may
        be substituted or resubstituted for Stock pursuant to Section 12(c).

                (hh)    "Stock Appreciation Rights" or "SAR" means a right
        granted to a Participant under Section 6(c).

                (ii)    "Valuation Date" shall mean the close of business on the
        last business day of each calendar quarter and, in the case of any final
        distribution from a Participant's Deferred Cash Account (described in
        Section 8(f)(iv)), the day preceding such distribution.

        3.      ADMINISTRATION.

                (a)     Authority of the Committee. The Plan shall be
        administered by the Committee, which shall have full and final
        authority, in each case subject to and consistent with the provisions of
        the Plan, to select Eligible Persons to become Participants; to grant
        Awards; to determine the type and number of Awards, the dates on which
        Awards may be exercised and on which the risk of forfeiture or deferral
        period relating to Awards shall lapse or terminate, the acceleration of
        any such dates, the expiration date of any Award, whether, to what
        extent, and under what circumstances an Award may be settled, or the
        exercise price of an Award may be paid, in cash, Stock, other Awards, or
        other property, and other terms and conditions of, and all other matters
        relating to, Awards; to prescribe documents evidencing or setting terms
        of Awards (such Award documents need not be identical for each
        Participant), amendments thereto, and rules and regulations for the
        administration of the Plan and amendments thereto; to construe and
        interpret the Plan and Award documents and correct defects, supply
        omissions or reconcile inconsistencies therein; and to make all other
        decisions and determinations as the Committee may deem necessary or
        advisable for the administration of the Plan. Decisions of the Committee
        with respect to the administration and interpretation of the Plan shall
        be final, conclusive, and binding upon all persons interested in the
        Plan, including Participants, Beneficiaries, transferees under Section
        12(b) and other persons claiming rights from or through a Participant,
        and stockholders. The foregoing notwithstanding, the Board shall perform
        the functions of the Committee for purposes of granting Awards under the
        Plan to non-employee directors (the functions of the Committee with
        respect to other aspects of non-employee director awards is not
        exclusive to the Board, however).

                (b)     Manner of Exercise of Committee Authority. The express
        grant of any specific power to the Committee, and the taking of any
        action by the Committee, shall not be construed as limiting any power or
        authority of the Committee. The Committee may delegate to officers or
        managers of the Company or any subsidiary or affiliate, or committees
        thereof, the authority, subject to such terms as the Committee shall
        determine, to perform such functions, including administrative
        functions, as the Committee may determine, to the extent (x) that such
        delegation will not result in the loss of an exemption under Rule
        16b-3(d) for Awards granted to Participants subject to Section 16 of the
        Exchange Act in respect of the Company and will not cause Awards
        intended to qualify as "performance-based compensation" under Code
        Section 162(m) to fail to so qualify, and (y) permitted by the Delaware
        General Corporation Law.

                (c)     Limitation of Liability. The Committee and each member
        thereof, and any person acting pursuant to authority delegated by the
        Committee, shall be entitled, in good faith, to rely or act upon any
        report or other information furnished by any executive officer, other
        officer or employee of the Company or a subsidiary or affiliate, the
        Company's independent auditors, consultants or any other agents
        assisting in the administration of the Plan. Members of the Committee,
        any person acting pursuant to authority delegated by the Committee, and
        any officer or employee of the Company or a subsidiary or affiliate
        acting at the direction or on behalf of the Committee or a delegee shall
        not be

                                      -4-
<PAGE>   7

        personally liable for any action or determination taken or made in good
        faith with respect to the Plan, and shall, to the extent permitted by
        law, be fully indemnified and protected by the Company with respect to
        any such action or determination.

        4.      STOCK SUBJECT TO PLAN.

                (a)     Overall Number of Shares Available for Delivery. Subject
        to adjustment as provided in Section 12(c), the total number of shares
        of Stock reserved and available for delivery in connection with Awards
        under the Plan shall be (i) four million shares, plus (ii) the number of
        shares subject to awards under the Preexisting Plans which become
        available in accordance with Section 4(b) after the Effective Date, plus
        (iii) 10% of the number of shares issued or delivered by the Company
        during the term of the Plan other than issuances or deliveries under the
        Plan or other incentive compensation plans of the Company; provided,
        however, that the total number of shares with respect to which ISOs may
        be granted shall not exceed the number specified under clause (i) above;
        and provided further, that the total number of shares which may be
        issued and delivered in connection with Awards other than Options and
        SARs shall not exceed one million shares. Any shares of Stock delivered
        under the Plan shall consist of authorized and unissued shares or
        treasury shares.

                (b)     Share Counting Rules. The Committee may adopt reasonable
        counting procedures to ensure appropriate counting, avoid double
        counting (as, for example, in the case of tandem or substitute awards)
        and make adjustments if the number of shares of Stock actually delivered
        differs from the number of shares previously counted in connection with
        an Award. Shares subject to an Award or an award under the Preexisting
        Plans that is canceled, expired, forfeited, settled in cash or otherwise
        terminated without a delivery of shares to the Participant will again be
        available for Awards, and shares withheld in payment of the exercise
        price or taxes relating to an Award or Preexisting Plan award and shares
        equal to the number surrendered in payment of any exercise price or
        taxes relating to an Award or Preexisting Plan award shall be deemed to
        constitute shares not delivered to the Participant and shall be deemed
        to again be available for Awards under the Plan. In addition, in the
        case of any Award granted in assumption of or in substitution for an
        award of a company or business acquired by the Company or a subsidiary
        or affiliate or with which the Company or a subsidiary or affiliate
        combines, shares issued or issuable in connection with such substitute
        Award shall not be counted against the number of shares reserved under
        the Plan. This Section 4(b) shall apply to the number of shares reserved
        and available for ISOs only to the extent consistent with applicable
        regulations relating to ISOs under the Code.

        5.      ELIGIBILITY; PER-PERSON AWARD LIMITATIONS.

                (a)     Eligibility. Awards may be granted under the Plan only
        to Eligible Persons. For purposes of the Plan, an "Eligible Person"
        means an employee of the Company or any subsidiary or affiliate,
        including any executive officer or non-employee director of the Company
        or a subsidiary or affiliate, and any person who has been offered
        employment by the Company or a subsidiary or affiliate, provided that
        such prospective employee may not receive any payment or exercise any
        right relating to an Award until such person has commenced employment
        with the Company or a subsidiary or affiliate. An employee on leave of
        absence may be considered as still in the employ of the Company or a
        subsidiary or affiliate for purposes of eligibility for participation in
        the Plan. For purposes of the Plan, a joint venture in which the Company
        or a subsidiary has a substantial direct or indirect equity investment
        shall be deemed an affiliate, if so determined by the Committee. Holders
        of awards granted by a company or business acquired by the Company or a
        subsidiary or affiliate, or with which the Company or a subsidiary or
        affiliate combines, are eligible for grants of substitute awards granted
        in assumption of or in substitution for such outstanding awards
        previously granted under the Plan in connection with such acquisition or
        combination transaction.

                                      -5-
<PAGE>   8

                (b)     Per-Person Award Limitations. In each calendar year
        during any part of which the Plan is in effect, an Eligible Person may
        be granted Awards intended to qualify as "performance-based
        compensation" under Code Section 162(m) under each of Section 6(b),
        6(c), 6(d), 6(e), 6(f), 6(g) or 6(h) relating to up to his or her Annual
        Limit (such Annual Limit to apply separately to the type of Award
        authorized under each specified subsection, except that the limitation
        applies to Dividend Equivalents under Section 6(g) only if such Dividend
        Equivalents are granted separately from and not as a feature of another
        Award). A Participant's Annual Limit, in any year during any part of
        which the Participant is then eligible under the Plan, shall equal two
        million shares plus the amount of the Participant's unused Annual Limit
        relating to the same type of Award as of the close of the previous year,
        subject to adjustment as provided in Section 12(c). In the case of an
        Award which is not valued in a way in which the limitation set forth in
        the preceding sentence would operate as an effective limitation
        satisfying applicable law (including Treasury Regulation
        1.162-27(e)(4)), an Eligible Person may not be granted Awards
        authorizing the earning during any calendar year of an amount that
        exceeds the Eligible Person's Annual Limit, which for this purpose shall
        equal $4 million plus the amount of the Eligible Person's unused cash
        Annual Limit as of the close of the previous year (this limitation is
        separate and not affected by the number of Awards granted during such
        calendar year subject to the limitation in the preceding sentence). For
        this purpose, (i) "earning" means satisfying performance conditions so
        that an amount becomes payable, without regard to whether it is to be
        paid currently or on a deferred basis or continues to be subject to any
        service requirement or other non-performance condition, and (ii) a
        Participant's Annual Limit is used to the extent an amount or number of
        shares may be potentially earned or paid under an Award, regardless of
        whether such amount or shares are in fact earned or paid.

        6.      SPECIFIC TERMS OF AWARDS.

                (a)     General. Awards may be granted on the terms and
        conditions set forth in this Section 6. In addition, the Committee may
        impose on any Award or the exercise thereof, at the date of grant or
        thereafter (subject to Section 12(e)), such additional terms and
        conditions, not inconsistent with the provisions of the Plan, as the
        Committee shall determine, including terms requiring forfeiture of
        Awards in the event of termination of employment or service by the
        Participant and terms permitting a Participant to make elections
        relating to his or her Award. The Committee shall retain full power and
        discretion with respect to any term or condition of an Award that is not
        mandatory under the Plan. The Committee shall require the payment of
        lawful consideration for an Award to the extent necessary to satisfy the
        requirements of the Delaware General Corporation Law, and may otherwise
        require payment of consideration for an Award except as limited by the
        Plan.

                (b)     Options. The Committee is authorized to grant Options to
        Participants on the following terms and conditions:

                        (i)     Exercise Price. The exercise price per share of
                Stock purchasable under an Option (including both ISOs and
                non-qualified Options) shall be determined by the Committee,
                provided that such exercise price shall be not less than the
                Fair Market Value of a share of Stock on the date of grant of
                such Option, subject to Section 9(a). Notwithstanding the
                foregoing, any substitute award granted in assumption of or in
                substitution for an outstanding award granted by a company or
                business acquired by the Company or a subsidiary or affiliate,
                or with which the Company or a subsidiary or affiliate combines
                may be granted with an exercise price per share of Stock other
                than as required above.

                        (ii)    Option Term; Time and Method of Exercise. The
                Committee shall determine the term of each Option, provided that
                in no event shall the term of any ISO or SAR in tandem therewith
                exceed a period of ten years from the date of grant. The
                Committee shall determine the time or times at which or the
                circumstances under which an Option may be exercised in whole or
                in part (including based on achievement of performance goals
                and/or future service

                                      -6-
<PAGE>   9

                requirements), the methods by which such exercise price may be
                paid or deemed to be paid and the form of such payment (subject
                to Section 12(k)), including, without limitation, cash, Stock,
                other Awards or awards granted under other plans of the Company
                or any subsidiary or affiliate, or other property (including
                notes and other contractual obligations of Participants to make
                payment on a deferred basis, such as through "cashless exercise"
                arrangements, to the extent permitted by applicable law), and
                the methods by or forms in which Stock will be delivered or
                deemed to be delivered in satisfaction of Options to
                Participants (including deferred delivery of shares representing
                the Option "profit," at the election of the Participant or as
                mandated by the Committee, with such deferred shares subject to
                any vesting, forfeiture or other terms as the Committee may
                specify).

                        (iii)   ISOs. The terms of any ISO granted under the
                Plan shall comply in all respects with the provisions of Code
                Section 422, including but not limited to the requirement that
                no ISO shall be granted more than ten years after the Effective
                Date.

                (c)     Stock Appreciation Rights. The Committee is authorized
        to grant SAR's to Participants on the following terms and conditions:

                        (i)     Right to Payment. An SAR shall confer on the
                Participant to whom it is granted a right to receive, upon
                exercise thereof, the excess of (A) the Fair Market Value of one
                share of Stock on the date of exercise (or, in the case of a
                "Limited SAR," the Fair Market Value determined by reference to
                the Change in Control Price, as defined under Section 10(d)
                hereof) over (B) the grant price of the SAR as determined by the
                Committee.

                        (ii)    Other Terms. The Committee shall determine at
                the date of grant or thereafter, the time or times at which and
                the circumstances under which a SAR may be exercised in whole or
                in part (including based on achievement of performance goals
                and/or future service requirements), the method of exercise,
                method of settlement, form of consideration payable in
                settlement, method by or forms in which Stock will be delivered
                or deemed to be delivered to Participants, and whether or not a
                SAR shall be free-standing or in tandem or combination with any
                other Award. Limited SARs that may only be exercised in
                connection with a Change in Control or other event as specified
                by the Committee may be granted on such terms, not inconsistent
                with this Section 6(c), as the Committee may determine.

                (d)     Restricted Stock. Subject to Section 9(d), the Committee
        is authorized to grant Restricted Stock to Participants on the following
        terms and conditions:

                        (i)     Grant and Restrictions. Restricted Stock shall
                be subject to such restrictions on transferability, risk of
                forfeiture and other restrictions, if any, as the Committee may
                impose, which restrictions may lapse separately or in
                combination at such times, under such circumstances (including
                based on achievement of performance goals and/or future service
                requirements), in such installments or otherwise and under such
                other circumstances as the Committee may determine at the date
                of grant or thereafter. Except to the extent restricted under
                the terms of the Plan and any Award document relating to the
                Restricted Stock, a Participant granted Restricted Stock shall
                have all of the rights of a stockholder, including the right to
                vote the Restricted Stock and the right to receive dividends
                thereon (subject to any mandatory reinvestment or other
                requirement imposed by the Committee).

                        (ii)    Forfeiture. Except as otherwise determined by
                the Committee, upon termination of employment or service during
                the applicable restriction period, Restricted Stock that is at
                that time subject to restrictions shall be forfeited and
                reacquired by the Company; provided that the Committee may
                provide, by rule or regulation or in any Award document, or may
                determine in

                                      -7-
<PAGE>   10

                any individual case, that restrictions or forfeiture conditions
                relating to Restricted Stock will lapse in whole or in part,
                including in the event of terminations resulting from specified
                causes.

                        (iii)   Certificates for Stock. Restricted Stock granted
                under the Plan may be evidenced in such manner as the Committee
                shall determine. If certificates representing Restricted Stock
                are registered in the name of the Participant, the Committee may
                require that such certificates bear an appropriate legend
                referring to the terms, conditions and restrictions applicable
                to such Restricted Stock, that the Company retain physical
                possession of the certificates, and that the Participant deliver
                a stock power to the Company, endorsed in blank, relating to the
                Restricted Stock.

                        (iv)    Dividends and Splits. As a condition to the
                grant of an Award of Restricted Stock, the Committee may require
                that any dividends paid on a share of Restricted Stock shall be
                either (A) paid with respect to such Restricted Stock at the
                dividend payment date in cash, in kind, or in a number of shares
                of unrestricted Stock having a Fair Market Value equal to the
                amount of such dividends, or (B) automatically reinvested in
                additional Restricted Stock or held in kind, which shall be
                subject to the same terms as applied to the original Restricted
                Stock to which it relates, or (C) deferred as to payment, either
                as a cash deferral or with the amount or value thereof
                automatically deemed reinvested in shares of Deferred Stock,
                other Awards or other investment vehicles, subject to such terms
                as the Committee shall determine or permit a Participant to
                elect. Unless otherwise determined by the Committee, Stock
                distributed in connection with a Stock split or Stock dividend,
                and other property distributed as a dividend, shall be subject
                to restrictions and a risk of forfeiture to the same extent as
                the Restricted Stock with respect to which such Stock or other
                property has been distributed.

                (e)     Deferred Stock. The Committee is authorized to grant
        Deferred Stock to Participants, subject to the following terms and
        conditions:

                        (i)     Award and Restrictions. Issuance of Stock will
                occur upon expiration of the deferral period specified for an
                Award of Deferred Stock by the Committee (or, if permitted by
                the Committee, as elected by the Participant). In addition,
                Deferred Stock shall be subject to such restrictions on
                transferability, risk of forfeiture and other restrictions, if
                any, as the Committee may impose, which restrictions may lapse
                at the expiration of the deferral period or at earlier specified
                times (including based on achievement of performance goals
                and/or future service requirements), separately or in
                combination, in installments or otherwise, and under such other
                circumstances as the Committee may determine at the date of
                grant or thereafter. Deferred Stock may be satisfied by delivery
                of Stock, other Awards, or a combination thereof (subject to
                Section 12(k)), as determined by the Committee at the date of
                grant or thereafter.

                        (ii)    Forfeiture. Except as otherwise determined by
                the Committee, upon termination of employment or service during
                the applicable deferral period or portion thereof to which
                forfeiture conditions apply (as provided in the Award document
                evidencing the Deferred Stock), all Deferred Stock that is at
                that time subject to such forfeiture conditions shall be
                forfeited; provided that the Committee may provide, by rule or
                regulation or in any Award document, or may determine in any
                individual case, that restrictions or forfeiture conditions
                relating to Deferred Stock will lapse in whole or in part,
                including in the event of terminations resulting from specified
                causes.

                        (iii)   Dividend Equivalents. Unless otherwise
                determined by the Committee, Dividend Equivalents on the
                specified number of shares of Stock covered by an Award of
                Deferred Stock shall be either (A) paid with respect to such
                Deferred Stock at the dividend payment date in cash or in shares
                of unrestricted Stock having a Fair Market Value equal to the
                amount of such dividends, or (B) deferred with respect to such
                Deferred Stock, either as a cash deferral

                                      -8-
<PAGE>   11

                or with the amount or value thereof automatically deemed
                reinvested in additional Deferred Stock, other Awards or other
                investment vehicles having a Fair Market Value equal to the
                amount of such dividends, as the Committee shall determine or
                permit a Participant to elect.

                (f)     Bonus Stock and Awards in Lieu of Obligations. The
        Committee is authorized to grant Stock as a bonus, or to grant Stock or
        other Awards in lieu of obligations of the Company or a subsidiary or
        affiliate to pay cash or deliver other property under the Plan or under
        other plans or compensatory arrangements, subject to such terms as shall
        be determined by the Committee.

                (g)     Dividend Equivalents. The Committee is authorized to
        grant Dividend Equivalents to a Participant, which may be awarded on a
        free-standing basis or in connection with another Award. The Committee
        may provide that Dividend Equivalents shall be paid or distributed when
        accrued or shall be deemed to have been reinvested in additional Stock,
        Awards, or other investment vehicles, and subject to restrictions on
        transferability, risks of forfeiture and such other terms as the
        Committee may specify.

                (h)     Other Stock-Based Awards. The Committee is authorized,
        subject to limitations under applicable law, to grant to Participants
        such other Awards that may be denominated or payable in, valued in whole
        or in part by reference to, or otherwise based on, or related to, Stock
        or factors that may influence the value of Stock, including, without
        limitation, convertible or exchangeable debt securities, other rights
        convertible or exchangeable into Stock, purchase rights for Stock,
        Awards with value and payment contingent upon performance of the Company
        or business units thereof or any other factors designated by the
        Committee, and Awards valued by reference to the book value of Stock or
        the value of securities of or the performance of specified subsidiaries
        or affiliates or other business units. The Committee shall determine the
        terms and conditions of such Awards. Stock delivered pursuant to an
        Award in the nature of a purchase right granted under this Section 6(h)
        shall be purchased for such consideration, paid for at such times, by
        such methods, and in such forms, including, without limitation, cash,
        Stock, other Awards, notes, or other property, as the Committee shall
        determine. Cash awards, as an element of or supplement to any other
        Award under the Plan, may also be granted pursuant to this Section 6(h).

                (i)     Performance Awards. Performance Awards, denominated in
        cash or in Stock or other Awards, may be granted by the Committee in
        accordance with Section 7.

        7.      PERFORMANCE AWARDS, INCLUDING ANNUAL INCENTIVE AWARDS.

                (a)     Performance Awards Generally. Performance Awards may be
        denominated as a cash amount, number of shares of Stock, or specified
        number of other Awards (or a combination) which may be earned upon
        achievement or satisfaction of performance conditions specified by the
        Committee. In addition, the Committee may specify that any other Award
        shall constitute a Performance Award by conditioning the right of a
        Participant to exercise the Award or have it settled, and the timing
        thereof, upon achievement or satisfaction of such performance conditions
        as may be specified by the Committee. The Committee may use such
        business criteria and other measures of performance as it may deem
        appropriate in establishing any performance conditions, and may exercise
        its discretion to reduce or increase the amounts payable under any Award
        subject to performance conditions, except as limited under Sections 7(b)
        and 7(c) in the case of a Performance Award intended to qualify as
        "performance-based compensation" under Code Section 162(m).

                (b)     Performance Awards Granted to Covered Employees. If the
        Committee determines that a Performance Award to be granted to an
        Eligible Person who is designated by the Committee as likely to be a
        Covered Employee should qualify as "performance-based compensation" for
        purposes of Code Section 162(m), the grant, exercise and/or settlement
        of such Performance Award shall be

                                      -9-
<PAGE>   12

        contingent upon achievement of a preestablished performance goal and
        other terms set forth in this Section 7(b).

                        (i)     Performance Goal Generally. The performance goal
                for such Performance Awards shall consist of one or more
                business criteria and a targeted level or levels of performance
                with respect to each of such criteria, as specified by the
                Committee consistent with this Section 7(b). The performance
                goal shall be objective and shall otherwise meet the
                requirements of Code Section 162(m) and regulations thereunder,
                including the requirement that the level or levels of
                performance targeted by the Committee result in the achievement
                of performance goals being "substantially uncertain." The
                Committee may determine that such Performance Awards shall be
                granted, exercised and/or settled upon achievement of any one
                performance goal or that two or more of the performance goals
                must be achieved as a condition to grant, exercise and/or
                settlement of such Performance Awards. Performance goals may
                differ for Performance Awards granted to any one Participant or
                to different Participants.

                        (ii)    Business Criteria. One or more of the following
                business criteria for the Company, on a consolidated basis,
                and/or for specified subsidiaries or affiliates or other
                business units of the Company shall be used by the Committee in
                establishing performance goals for such Performance Awards: (1)
                advertising sales (either calendar cycle or publication cycle
                basis) or other sales or revenue measures; (2) operating income,
                earnings from operations, earnings before or after taxes,
                earnings before or after interest, depreciation, amortization,
                or extraordinary or special items, (3) net income or net income
                per common share (basic or diluted); (4) return on assets,
                return on investment, return on capital, or return on equity;
                (5) cash flow, free cash flow, cash flow return on investment,
                or net cash provided by operations; (6) interest expense after
                taxes; (7) economic profit or value created; (8) operating
                margin; (9) stock price or total stockholder return; and (10)
                strategic business criteria, consisting of one or more
                objectives based on meeting specified market penetration,
                geographic business expansion goals, cost targets, customer
                satisfaction, employee satisfaction, management of employment
                practices and employee benefits, supervision of litigation and
                information technology, and goals relating to acquisitions or
                divestitures of subsidiaries, affiliates or joint ventures. The
                targeted level or levels of performance with respect to such
                business criteria may be established at such levels and in such
                terms as the Committee may determine, in its discretion,
                including in absolute terms, as a goal relative to performance
                in prior periods, or as a goal compared to the performance of
                one or more comparable companies or an index covering multiple
                companies.

                        (iii)   Performance Period; Timing for Establishing
                Performance Goals. Achievement of performance goals in respect
                of such Performance Awards shall be measured over a performance
                period of up to one year or more than one year, as specified by
                the Committee. A performance goal shall be established not later
                than the earlier of (A) 90 days after the beginning of any
                performance period applicable to such Performance Award or (B)
                the time 25% of such performance period has elapsed.

                        (iv)    Performance Award Pool. The Committee may
                establish a Performance Award pool, which shall be an unfunded
                pool, for purposes of measuring performance of the Company in
                connection with Performance Awards. The amount of such
                Performance Award pool shall be based upon the achievement of a
                performance goal or goals based on one or more of the business
                criteria set forth in Section 7(b)(ii) during the given
                performance period, as specified by the Committee in accordance
                with Section 7(b)(iv). The Committee may specify the amount of
                the Performance Award pool as a percentage of any of such
                business criteria, a percentage thereof in excess of a threshold
                amount, or as another amount which need not bear a strictly
                mathematical relationship to such business criteria.

                                      -10-
<PAGE>   13

                        (v)     Settlement of Performance Awards; Other Terms.
                Settlement of Performance Awards shall be in cash, Stock, other
                Awards or other property, in the discretion of the Committee.
                The Committee may, in its discretion, increase or reduce the
                amount of a settlement otherwise to be made in connection with
                such Performance Awards, but may not exercise discretion to
                increase any such amount payable to a Covered Employee in
                respect of a Performance Award subject to this Section 7(b). Any
                settlement which changes the form of payment from that
                originally specified shall be implemented in a manner such that
                the Performance Award and other related Awards do not, solely
                for that reason, fail to qualify as "performance-based
                compensation" for purposes of Code Section 162(m). The Committee
                shall specify the circumstances in which such Performance Awards
                shall be paid or forfeited in the event of termination of
                employment by the Participant or other event (including a Change
                in Control) prior to the end of a performance period or
                settlement of such Performance Awards.

                (c)     Annual Incentive Awards Granted to Designated Covered
        Employees. The Committee may grant an Annual Incentive Award to an
        Eligible Person who is designated by the Committee as likely to be a
        Covered Employee. Such Annual Incentive Award will be intended to
        qualify as "performance-based compensation" for purposes of Code Section
        162(m), and its grant, exercise and/or settlement shall be contingent
        upon achievement of preestablished performance goals and other terms set
        forth in this Section 7(c).

                        (i)     Grant of Annual Incentive Awards. Not later than
                the earlier of 90 days after the beginning of any performance
                period applicable to such Annual Incentive Award or the time 25%
                of such performance period has elapsed, the Committee shall
                determine the Covered Employees who will potentially receive
                Annual Incentive Awards, and the amount(s) potentially payable
                thereunder, for that performance period. The amount(s)
                potentially payable shall be based upon the achievement of a
                performance goal or goals based on one or more of the business
                criteria set forth in Section 7(b)(ii) in the given performance
                period, as specified by the Committee. The Committee may
                designate an annual incentive award pool as the means by which
                Annual Incentive Awards will be measured, which pool shall
                conform to the provisions of Section 7(b)(iv). In such case, the
                portion of the Annual Incentive Award pool potentially payable
                to each Covered Employee shall be preestablished by the
                Committee. In all cases, the maximum Annual Incentive Award of
                any Participant shall be subject to the limitation set forth in
                Section 5.

                        (ii)    Payout of Annual Incentive Awards. After the end
                of each performance period, the Committee shall determine the
                amount, if any, of the Annual Incentive Award for that
                performance period payable to each Participant. The Committee
                may, in its discretion, determine that the amount payable to any
                Participant as a final Annual Incentive Award shall be reduced
                from the amount of his or her potential Annual Incentive Award,
                including a determination to make no final Award whatsoever, but
                may not exercise discretion to increase any such amount. The
                Committee shall specify the circumstances in which an Annual
                Incentive Award shall be paid or forfeited in the event of
                termination of employment by the Participant or other event
                prior to the end of a performance period or settlement of such
                Annual Incentive Award.

                (d)     Written Determinations. Determinations by the Committee
        as to the establishment of performance goals, the amount potentially
        payable in respect of Performance Awards and Annual Incentive Awards,
        the level of actual achievement of the specified performance goals
        relating to Performance Awards and Annual Incentive Awards, and the
        amount of any final Performance Award and Annual Incentive Award shall
        be recorded in writing in the case of Performance Awards intended to
        qualify under Section 162(m). Specifically, the Committee shall certify
        in writing, in a manner conforming to applicable regulations under
        Section 162(m), prior to settlement of each such Award

                                      -11-
<PAGE>   14

        granted to a Covered Employee, that the performance objective relating
        to the Performance Award and other material terms of the Award upon
        which settlement of the Award was conditioned have been satisfied.

                8.      NON-EMPLOYEE DIRECTOR AWARDS. Options, Deferred Stock,
        Restricted Stock and other Awards (which other Awards, if granted, will
        be governed by Sections 6 and 7 of this Plan) shall be granted to
        non-employee directors of the Company or a subsidiary or an affiliate in
        accordance with policies established from time to time by the Board
        specifying the classes of non-employee directors to be granted such
        Awards, the number of shares to be subject to each Award, and the time
        or times at which such Awards shall be granted. All Options granted to
        non-employee directors shall be non-qualified stock options.

                        (a)     Initial Policy -- Option Grants. The initial
                policy with respect to Options granted under this Section 8(a),
                effective as of the Effective Date and continuing until modified
                or revoked by the Board from time to time, shall be as follows:

                                (i)     Initial Grants. At the date of a
                        person's initial election or appointment as a member of
                        the Board after the Effective Date, such person, if he
                        or she is a non-employee director of the Company
                        eligible to participate upon such election or
                        appointment, shall be granted an Option to purchase
                        1,500 shares of Stock, subject to adjustment as provided
                        in Section 12(c). At the Effective Date, each person who
                        is a non-employee director of the Company eligible to
                        participate at that date shall be granted an Option to
                        purchase 1,500 shares of Stock, subject to adjustment as
                        provided in Section 12(c).

                                (ii)    Annual Grants. At the date of each
                        annual meeting of shareholders following the Effective
                        Date at which a director is elected or reelected as a
                        member of the Board (or at which members of another
                        class of directors are elected or reelected, if the
                        Company then has a classified Board), such director, if
                        he or she is a non-employee director of the Company
                        eligible to participate at that date and if he or she
                        has not been granted an Option under this Section 8(a)
                        previously during the same calendar year, shall be
                        granted an Option to purchase 1,500 shares of Stock,
                        subject to adjustment as provided in Section 12(c).

                        (b)     Terms of Options Granted Under Section 8(a).
                Each Option granted under Section 8(a) shall be subject to the
                following terms and conditions:

                                (i)     Exercise Price. The exercise price per
                        share of Stock purchasable under an Option shall be
                        equal to 100% of the Fair Market Value of Stock on the
                        date of grant of the Option, subject to Section 9(a).

                                (ii)    Option Term. Each Option shall expire
                        ten years after the date of grant, or such earlier date
                        as the Option may no longer be exercised and cannot, by
                        its terms, thereafter become exercisable.

                                (iii)   Vesting and Exercisability. The Board
                        may establish terms regarding the times at which Options
                        shall become vested and exercisable. Unless otherwise
                        determined by the Board, an Option granted under this
                        Section 8(a) and not previously forfeited shall vest and
                        become exercisable by a Participant as to one-third of
                        the number of shares subject to the Option at the close
                        of business on the day preceding each of the three
                        annual meetings of shareholders following the date of
                        grant of the Option, rounded to the nearest number of
                        whole shares. The foregoing notwithstanding, an Option
                        not previously forfeited shall vest and become
                        exercisable on an accelerated

                                      -12-
<PAGE>   15

                        basis upon a Change in Control or upon the termination
                        of the Participant's service as a director due to death,
                        Disability or Retirement. Unless otherwise determined by
                        the Board, an Option will cease to vest and become
                        exercisable upon the termination of the Participant's
                        service prior to a Change in Control for any reason
                        other than death, Disability or Retirement, and such
                        portion that has not vested and become exercisable at
                        the time of such termination shall be forfeited.

                                (iv)    Payment. The exercise price of an Option
                        shall be paid to the Company either in cash or by the
                        surrender of Stock, or any combination thereof, or in
                        such other form or manner as may be consistent with
                        Section 6(b)(ii).

                        (c)     Initial Policy -- Grant of Deferred Stock and
                Restricted Stock. The initial policy with respect to Awards
                granted under this Section 8(c), effective as of the Effective
                Date and continuing until modified or revoked by the Board from
                time to time, shall be as follows:

                                (i)     Initial Grant. At the date of a person's
                        initial election or appointment as a member of the Board
                        after the Effective Date, such person, if he or she is a
                        non-employee director of the Company eligible to
                        participate upon such election or appointment, shall be
                        granted 1,500 shares of Deferred Stock, subject to
                        adjustment as provided in Section 12(c). At the
                        Effective Date, each person who is a non-employee
                        director of the Company eligible to participate at that
                        date shall be granted 1,500 shares of Deferred Stock,
                        subject to adjustment as provided in Section 12(c).

                                (ii)    Annual Grants. At the date of each
                        annual meeting of shareholders following the Effective
                        Date at which a director is elected or reelected as a
                        member of the Board (or at which members of another
                        class of directors are elected or reelected, if the
                        Company then has a classified Board), such director, if
                        he or she is a non-employee director of the Company
                        eligible to participate at that date and if he or she
                        has not been granted Deferred Stock or Restricted Stock
                        under Section 8(c) previously during the same calendar
                        year, shall be granted 1,500 shares of Deferred Stock,
                        unless the director has elected, prior to such annual
                        meeting of shareholders, to receive such grant in the
                        form of an equal number of shares of Restricted Stock.
                        The number of shares subject to such annual grants shall
                        be subject to adjustment as provided in Section 12(c).

                        (d)     Terms of Deferred Stock and Restricted Stock
                Granted Under Section 8(c). Deferred Stock granted under Section
                8(c) shall be subject to the terms and conditions of Deferred
                Stock specified in Sections 8(f)(ii), (iii), and (iv), unless
                otherwise determined by the Board. Deferred Stock and Restricted
                Stock granted under this Section 8(c) shall also be subject to
                the following additional terms and conditions:

                                (i)     Vesting and Forfeiture. The Board may
                        establish terms regarding the times at which Deferred
                        Stock and Restricted Stock shall become vested and
                        non-forfeitable. Unless otherwise determined by the
                        Board, an Award granted under Section 8(c) and not
                        previously forfeited shall become vested and
                        non-forfeitable as to one-third of the number of shares
                        of Deferred Stock or Restricted Stock at the close of
                        business on the day preceding each of the three annual
                        meetings of shareholders following the date of grant of
                        such Award, rounded to the nearest number of whole
                        shares. The foregoing notwithstanding, an Award of
                        Deferred Stock or Restricted Stock not previously vested
                        or forfeited shall vest and become non-forfeitable on an
                        accelerated basis upon a Change in Control or upon the
                        termination of the Participant's service as a director
                        due to death, Disability or Retirement. Unless otherwise
                        determined by the Board, an Award of Deferred Stock or
                        Restricted Stock not previously vested or forfeited will
                        cease to vest

                                      -13-
<PAGE>   16

                        and will be forfeited upon the termination of the
                        Participant's service prior to a Change in Control for
                        any reason other than death, Disability or Retirement.

                                (ii)    Deferred Stock Credited as a Result of
                        Dividend Equivalents. Unless otherwise determined by the
                        Board, Deferred Stock credited as a result of Dividend
                        Equivalents under Section 8(f)(ii) shall be subject to
                        the same terms, including risk of forfeiture, as the
                        Deferred Stock with respect to which the dividend
                        equivalents were credited.

                                (iii)   Dividends on Restricted Stock. Unless
                        otherwise determined by the Board, dividends on
                        Restricted Stock declared and paid prior to the lapse of
                        the risk of forfeiture on such Restricted Stock shall be
                        automatically reinvested in additional shares of
                        Restricted Stock, which shall be subject to the same
                        terms, including risk of forfeiture, as the Restricted
                        Stock on which the dividend was paid.

                                (iv)    Awards Nontransferable. Deferred Stock
                        and Restricted Stock shall be nontransferable by the
                        Participant at any time that the Award remains subject
                        to a risk of forfeiture.

                        (e)     Options Granted in Payment of Fees and Deferral
                of Fees in Deferred Stock and Deferred Cash. Each non-employee
                director of the Company may elect, in accordance with Section
                8(e)(i), to be paid Retainer Fees in the form of Options under
                Section 8(e)(ii) or to defer receipt of Retainer Fees and Other
                Director Compensation in the form of Deferred Stock under
                Section 8(e)(iii) or deferred cash under Section 8(e)(iv).

                                (i)     Elections. A director shall elect to
                        participate and the terms of such participation by
                        filing an election with the Company prior to the
                        beginning of a Plan Year (the initial Plan Year will
                        begin August 14, 1998 and Plan Years thereafter
                        generally will begin at each annual meeting of
                        shareholders or, in the case of a new director, upon
                        initial appointment) or at such other date as may be
                        specified by the Board, provided that any date so
                        specified shall ensure effective deferral of taxation
                        and otherwise comply with applicable laws.

                                        (A)     Effect and Irrevocability of
                                Elections. Elections shall be deemed continuing,
                                and therefore applicable to Plan Years after the
                                initial Plan Year covered by the election, until
                                the election is modified or superseded by the
                                Participant. Elections other than those subject
                                to Section 8(f)(iv) shall become irrevocable at
                                the commencement of the Plan Year to which an
                                election relates, unless the Board specifies a
                                different time. Elections relating to the time
                                of settlement of a Deferral Account shall become
                                irrevocable at the time specified in Section
                                8(f)(iv). Elections may be modified or revoked
                                by filing a new election prior to the time the
                                election to be modified or revoked has become
                                irrevocable. The latest election filed with the
                                Board shall be deemed to revoke all prior
                                inconsistent elections that remain revocable at
                                the time of filing of the latest election.

                                        (B)     Matters To Be Elected. The
                                Company will provide a form of election which
                                will permit a director to make appropriate
                                elections with respect to all relevant matters
                                under this Section 8.

                                        (C)     Time of Filing Elections. An
                                election must be received by the Company prior
                                to the date specified by the Board. Under no
                                circumstances may a

                                      -14-
<PAGE>   17

                                Participant defer compensation to which the
                                Participant has attained, at the time of
                                deferral, a legally enforceable right to current
                                receipt of such compensation.

                                (ii)    Options Granted in Payment of Retainer
                        Fees. A Participant who has elected to be paid a
                        specified amount of Retainer Fees in the form of Options
                        shall be granted, at the close of business on the day
                        the Participant's Plan Year commences an Option to
                        purchase the number of whole shares of Stock determined
                        in accordance with the Option Valuation Methodology
                        specified by the Board. Each Option granted under this
                        Section 8(e)(ii) shall be subject to the following terms
                        and conditions:

                                        (A)     Option Valuation Methodology.
                                The Board shall determine the Option Valuation
                                Methodology which will be used to determine the
                                number of Options granted and the Option
                                exercise price. The Option Valuation Methodology
                                may be based upon a valuation of the Option, a
                                discounting of the aggregate exercise price of
                                the Options by the amount of Retainer Fees to be
                                paid in the form of Options, or such other
                                methodology as may be deemed reasonable for
                                purposes of this Section 8(e)(ii).

                                        (B)     Option Term. Each Option will
                                expire ten years after the date of grant;
                                provided, however, that, unless otherwise
                                determined by the Board, any portion of an
                                Option that is not yet exercisable as of the
                                date a Participant ceases to serve as a director
                                for any reason will expire at the date such
                                service ceases.

                                        (C)     Vesting and Exercisability.
                                Unless otherwise determined by the Board, each
                                Option will vest and become exercisable as to
                                25% of the underlying shares on the June 30,
                                September 30, December 31, and March 31
                                following the date of grant; provided, however,
                                that, in the case of a Plan Year which begins on
                                or after June 30 and before September 30, the
                                vesting percentage shall be 33%, and in the case
                                of a Plan Year which begins on or after
                                September 30 and before December 31, the vesting
                                percentage shall be 50%; and provided further,
                                that an Option will become fully vested and
                                exercisable at the close of business on the last
                                day of the Plan Year in which it was granted.
                                The number of shares as to which the Option
                                becomes vested and exercisable will be rounded
                                to the nearest whole number. The foregoing
                                notwithstanding, (i) upon a Change in Control a
                                Participant's Option not previously forfeited
                                shall vest and become exercisable in full, and
                                (ii) upon termination of the Participant's
                                service as a director due to death, Disability,
                                or Retirement, that portion of the Option which
                                would become vested and exercisable on the last
                                day of the calendar quarter in which such death,
                                Disability, or Retirement occurred will become
                                immediately vested and exercisable.

                                        (D)     Exercise Price. The exercise
                                price per share of Stock purchasable under an
                                Option will be determined in accordance with the
                                Option Valuation Methodology. The exercise price
                                of an Option shall be paid to the Company either
                                in cash or by the surrender of Stock, or any
                                combination thereof, or in such other form or
                                manner as may be established by the Board;
                                provided, however, that, unless otherwise
                                determined by the Board, shares shall not be
                                surrendered in payment of the exercise price if
                                such surrender would result in additional
                                accounting expense to the Company.

                                        (E)     Changes in Fees; Changes in
                                Service as a Committee Chair. If the amount of
                                Retainer Fees is increased during a Plan Year,
                                or if a Director is appointed chair of a Board
                                committee such that an additional Retainer Fee
                                is

                                      -15-
<PAGE>   18

                                payable during a Plan Year, such increased or
                                additional fees will not be paid in the form of
                                Options. If a Director has been granted an
                                Option in respect of a Plan Year in payment of
                                Retainer Fees which included committee-related
                                fees for service as chair or a member of any
                                Board committee, and during such Plan Year he or
                                she ceases such service but remains on the
                                Board, the Option will expire in part at the
                                time such service ceases, to the extent of that
                                portion of the Option which is not yet
                                exercisable multiplied by a fraction the
                                numerator of which is the amount of
                                committee-related fees included in such Retainer
                                Fees and the denominator of which is the total
                                amount of such Retainer Fees.

                                        (F)     Service During Part of a
                                Quarter. If a Participant ceases to serve as a
                                director or on committee at a date other than a
                                vesting date for the Option and if the Board
                                does not exercise its discretion to permit
                                vesting of the Participant's Option in
                                consideration for the Participant's service in
                                that final quarterly period, the Participant
                                shall be entitled to payment in cash for his or
                                her service in that final quarterly period if
                                and to the extent then provided in the Company's
                                regular non-employee director compensation
                                policies.

                                (iii)   Deferral of Retainer Fees and Other
                        Director Compensation in the Form of Deferred Stock. If
                        a Participant has elected to defer receipt of a
                        specified amount of Retainer Fees or Other Director
                        Compensation in the form of Deferred Stock, a number of
                        shares of Deferred Stock shall be credited to the
                        Participant's Deferred Stock Account, as of the date
                        such Retainer Fees or Other Director Compensation
                        otherwise would have been payable to the Participant but
                        for such election to defer, equal to (i) such amount
                        otherwise payable divided by (ii) the Fair Market Value
                        of a share of Stock at that date. Deferred Shares
                        credited under this Section 8(e)(iii) shall be subject
                        to the terms and conditions of Deferred Stock specified
                        in Sections 8(f)(ii), (iii) and (iv). The right and
                        interest of each Participant in Deferred Stock credited
                        to the Participant's Deferred Stock Account under this
                        Section 8(e)(iii) at all times will be nonforfeitable.

                                (iv)    Deferral of Retainer Fees and Other
                        Director Compensation in the Form of Deferred Cash. If a
                        Participant has elected to defer receipt of a specified
                        amount of Retainer Fees or Other Director Compensation
                        in the form of deferred cash, an amount equal to such
                        specified amount shall be credited to the Participant's
                        Deferred Cash Account as of the date such Retainer Fees
                        or Other Director Compensation otherwise would have been
                        payable to the Participant but for such election to
                        defer. Each Participant shall be entitled to direct the
                        manner in which his or her Deferred Cash Account will be
                        deemed to be invested, selecting among the same
                        investment alternatives (other than Company common
                        stock) as are offered from time to time to participants
                        in the Company's Deferred Compensation Plan. The right
                        and interest of each Participant relating to his or her
                        Deferred Cash Account at all times will be
                        nonforfeitable.

                                (v)     Cessation of Service as a Director. If
                        any Retainer Fee or Other Director Compensation
                        otherwise subject to an election would be paid to a
                        Participant after he or she has ceased to serve as a
                        director, such payment shall not be subject to deferral
                        under this Section 8(e), but shall instead be paid in
                        accordance with the Company's regular non-employee
                        director compensation policies.

                        (f)     Other Deferrals and Terms of Deferral Accounts.

                                (i)     Deferral of Certain Option Shares. Upon
                        any exercise of an Option or an option granted under any
                        other plan or program of the Company by a non-employee

                                      -16-
<PAGE>   19

                        director, if the exercise price of such option is paid
                        by surrender of shares of Stock to the Company, the
                        director may elect to defer receipt of all or a portion
                        of the shares deliverable upon exercise of the option in
                        excess of the number surrendered in payment of the
                        exercise price. In such case, the number of shares
                        deferred shall be credited to the Participant's Deferred
                        Stock Account.

                                (ii)    Dividend Equivalents on Deferred Stock.
                        Dividend Equivalents will be credited on Deferred Stock
                        credited to a Participant's Deferred Stock Account(s) as
                        follows:

                                        (A)     Cash and Non-Share Dividends. If
                                the Company declares and pays a dividend on
                                Stock in the form of cash or property other than
                                shares of Stock, then a number of additional
                                shares of Deferred Stock shall be credited to a
                                Participant's Deferred Stock Account(s) as of
                                the payment date for such dividend equal to (i)
                                the number of shares of Deferred Stock credited
                                to the respective Account as of the record date
                                for such dividend, multiplied by (ii) the amount
                                of cash plus the Fair Market Value of any
                                property other than shares actually paid as a
                                dividend on each share at such payment date,
                                divided by (iii) the Fair Market Value of a
                                share of Stock at such payment date.

                                        (B)     Share Dividends and Splits. If
                                the Company declares and pays a dividend on
                                Stock in the form of additional shares of Stock,
                                or there occurs a forward split of Stock, then a
                                number of additional shares of Deferred Stock
                                shall be credited to the Participant's Deferred
                                Stock Account(s) as of the payment date for such
                                dividend or forward Stock split equal to (i) the
                                number of shares of Deferred Stock credited to
                                the respective Account as of the record date for
                                such dividend or split multiplied by (ii) the
                                number of additional shares actually paid as a
                                dividend or issued in such split in respect of
                                each share of Stock.

                                (iii)   Reallocation of Accounts. A Participant
                        may allocate amounts credited to his or her Deferred
                        Cash Account to one or more of the investment vehicles
                        authorized under the Company's Deferred Compensation
                        Plan. Subject to the rules established by the Board and
                        subject to the provisions of this Section 8(f), a
                        Participant may reallocate amounts credited to his or
                        her Deferred Cash Account as of the Valuation Date
                        following the Participant's election, to one or more of
                        such investment vehicles, by filing with the Company a
                        notice, in such form, and in accordance with such
                        procedures, as the Board shall determine from time to
                        time. The Board may, in its discretion, restrict
                        allocation into or reallocation by specified
                        Participants into or out of special investment vehicles
                        or specify minimum or maximum amounts that may be
                        allocated or reallocated by Participants.
                        Notwithstanding the foregoing, a Participant shall have
                        no right to have amounts credited as cash to the
                        Participant's Deferred Cash Account reallocated or
                        switched to his or her Deferred Stock Account or amounts
                        credited to the Participant's Deferred Stock Account
                        reallocated or switched to his or her Deferred Cash
                        Account, except as may be permitted by the Board.

                                (iv)    Elections as to Settlement. Each
                        Participant, while still a director of the Company,
                        shall file an election with the Company specifying the
                        time or times at which the Participant's Deferral
                        Account will be settled, following the Participant's
                        termination of service as a director of the Company, and
                        whether distribution will be in a single lump sum or in
                        a number of annual installments not exceeding ten (or
                        such other number as may be determined by the Board);
                        provided, however, that, if no valid election has been
                        filed as to the time of settlement of a Participant's
                        Deferral Account or any portion thereof, such Deferral
                        Account or portion thereof shall be distributed in a
                        single lump sum

                                      -17-
<PAGE>   20

                        on the first business day of the year following the year
                        in which the Participant ceases to serve as a director.
                        If installments are elected, such installments must be
                        annual installments, unless otherwise determined by the
                        Board, commencing not later than the first year
                        following the year in which the Participant ceases to
                        serve as a director (on such annual installment date as
                        may be specified by the Board) and extending over a
                        period not to exceed ten years, unless otherwise
                        determined by the Board.

                                        (A)     Matters Covered by Election.
                                Subject to the terms of the Plan, the Board
                                shall determine whether all deferrals under the
                                Plan must be subject to a single election as to
                                the time or times of settlement, or whether
                                settlement elections may relate to a specified
                                sub-account (i.e., the Deferred Stock Account or
                                the Deferred Cash Account) and/or a specified
                                Plan Year. If the Board permits elections to
                                relate to a specified Plan Year, such election
                                shall apply to the amounts originally credited
                                to the specified subaccount in respect of such
                                Plan Year and to any additional amounts credited
                                as Dividend Equivalents or interest in respect
                                of such originally credited amounts and
                                previously credited additional amounts.

                                        (B)     Modifying Elections. A
                                Participant may modify a prior election as to
                                the time at which a Participant's Deferral
                                Account (including a specified subaccount) will
                                be settled at any time prior to the time the
                                Participant ceases to serve as a director,
                                subject to such requirements as may be specified
                                by the Company. Such modification shall be made
                                by filing a new election with the Company. The
                                foregoing notwithstanding, the Board may
                                disapprove or limit elections under this Section
                                8(f)(iv) in order to ensure that the Participant
                                will not be deemed to have constructively
                                received compensation in respect of the
                                Participant's Deferral Account prior to
                                settlement.

                                (v)     Election Forms. Elections under the Plan
                        shall be made in writing on such form or forms as may be
                        specified from time to time by the Board.

                                (vi)    Statements. The Company will furnish
                        statements to each Participant reflecting the amount
                        credited to a Participant's Deferral Account,
                        transactions therein, and other related information no
                        less frequently than once each calendar year.

                                (vii)   Fractional Shares. The amount of
                        Deferred Stock credited to a Deferred Stock Account
                        shall include fractional shares calculated to at least
                        three decimal places.

                        (g)     Settlement of Deferral Accounts. The Company
                will settle a Participant's Deferral Account by making one or
                more distributions to the Participant (or his or her
                Beneficiary, following Participant's death) at the time or
                times, in a lump sum or installments, as specified in the
                Participant's election filed in accordance with Section
                8(f)(iv); provided, however, that a Deferral Account will be
                settled at times earlier than those specified in such election
                in accordance with Sections 8(g)(ii), (iii), and (iv).

                                (i)     Form of Distribution. Distributions in
                        respect of a Participant's Deferred Stock Account shall
                        be made only in shares of Stock, together with cash in
                        lieu of any fractional share remaining at a time that
                        less than one whole share of Deferred Stock is credited
                        to such Deferred Stock Account. Shares may be delivered
                        in certificate form to a Participant (or his or her
                        Beneficiary) or to a nominee for the account of the
                        Participant (or his or her Beneficiary), or in such
                        other manner as the Board may determine. Distributions
                        in respect of a Participant's Deferred Cash Account
                        shall be made only in cash.

                                      -18-
<PAGE>   21

                                (ii)    Death. If a Participant ceases to serve
                        as a director due to death or dies prior to distribution
                        of all amounts from his or her Deferral Account, the
                        Company shall make a single lump-sum distribution to the
                        Participant's Beneficiary. Any such distribution shall
                        be made as soon as practicable following notification to
                        the Company of the Participant's death.

                                (iii)   Financial Emergency and Other Payments.
                        Other provisions of the Plan notwithstanding, if, upon
                        the written application of a Participant, the Board
                        determines that the Participant has a financial
                        emergency of such a substantial nature and beyond the
                        Participant's control that payment of amounts previously
                        deferred under the Plan is warranted, the Board may
                        direct the payment to the Participant of all or a
                        portion of the balance of a Deferral Account and the
                        time and manner of such payment.

                                (iv)    Change in Control. In the event of a
                        Change in Control, payments in settlement of any
                        Deferral Account (including a Deferral Account with
                        respect to which one or more installment payments have
                        previously been made) shall be made within fifteen (15)
                        business days following such Change in Control.

        9.      CERTAIN PROVISIONS APPLICABLE TO AWARDS.

                (a)     Stand-Alone, Additional, Tandem, and Substitute Awards.
        Awards granted under the Plan may, in the discretion of the Committee,
        be granted either alone or in addition to, in tandem with, or in
        substitution or exchange for, any other Award or any award granted under
        another plan of the Company, any subsidiary or affiliate, or any
        business entity to be acquired by the Company or a subsidiary or
        affiliate, or any other right of a Participant to receive payment from
        the Company or any subsidiary or affiliate. Awards granted in addition
        to or in tandem with other Awards or awards may be granted either as of
        the same time as or a different time from the grant of such other Awards
        or awards. Subject to Section 12(k), the Committee may determine that,
        in granting a new Award, the in-the-money value of any surrendered Award
        or award or the value of any other right to payment surrendered by the
        Participant may be applied to reduce the exercise price of any Option,
        grant price of any SAR, or purchase price of any other Award.

                (b)     Term of Awards. The term of each Award shall be for such
        period as may be determined by the Committee, subject to the express
        limitations set forth in Sections 6(b)(ii) and 8 or elsewhere in the
        Plan.

                (c)     Form and Timing of Payment under Awards; Deferrals.
        Subject to the terms of the Plan (including Section 12(k)) and any
        applicable Award document, payments to be made by the Company or a
        subsidiary or affiliate upon the exercise of an Option or other Award or
        settlement of an Award may be made in such forms as the Committee shall
        determine, including, without limitation, cash, Stock, other Awards or
        other property, and may be made in a single payment or transfer, in
        installments, or on a deferred basis. The settlement of any Award may be
        accelerated, and cash paid in lieu of Stock in connection with such
        settlement, in the discretion of the Committee or upon occurrence of one
        or more specified events (subject to Section 12(k)). Installment or
        deferred payments may be required by the Committee (subject to Section
        12(e)) or permitted at the election of the Participant on terms and
        conditions established by the Committee. Payments may include, without
        limitation, provisions for the payment or crediting of reasonable
        interest on installment or deferred payments or the grant or crediting
        of Dividend Equivalents or other amounts in respect of installment or
        deferred payments denominated in Stock.

                (d)     Limitation on Vesting of Certain Awards. Subject to
        Section 8, Restricted Stock will vest over a minimum period of three
        years except in the event of a Participant's death, disability, or

                                      -19-
<PAGE>   22

        retirement, or in the event of a Change in Control or other special
        circumstances. The foregoing notwithstanding, (i) Restricted Stock as to
        which either the grant or vesting is based on, among other things, the
        achievement of one or more performance conditions generally will vest
        over a minimum period of one year except in the event of a Participant's
        death, disability, or retirement, or in the event of a Change in Control
        or other special circumstances, and (ii) up to 5% of the shares of Stock
        authorized under the Plan may be granted as Restricted Stock without any
        minimum vesting requirements. For purposes of this Section 9(d), vesting
        over a three-year period or one-year period will include periodic
        vesting over such period if the rate of such vesting is proportional
        throughout such period.

        10.     CHANGE IN CONTROL.

                (a)     Effect of "Change in Control" on Non-Performance Based
        Awards. In the event of a "Change in Control," the following provisions
        shall apply to non-performance based Awards, including Awards as to
        which performance conditions previously have been satisfied or are
        deemed satisfied under Section 10(b), unless otherwise provided by the
        Committee in the Award document:

                        (i)     All deferral of settlement, forfeiture
                conditions and other restrictions applicable to Awards granted
                under the Plan shall lapse and such Awards shall be fully
                payable as of the time of the Change in Control without regard
                to deferral and vesting conditions, except to the extent of any
                waiver by the Participant or other express election to defer
                beyond a Change in Control and subject to applicable
                restrictions set forth in Section 12(a);

                        (ii)    Any Award carrying a right to exercise that was
                not previously exercisable and vested shall become fully
                exercisable and vested as of the time of the Change in Control
                and shall remain exercisable and vested for the balance of the
                stated term of such Award without regard to any termination of
                employment or service by the Participant other than a
                termination for Cause, subject only to applicable restrictions
                set forth in Section 12(a); and

                        (iii)   The Committee may, in its discretion, determine
                to extend to any Participant who holds an Option the right to
                elect, during the 60-day period immediately following the Change
                in Control, in lieu of acquiring the shares of Stock covered by
                such Option, to receive in cash the excess of the Change in
                Control Price over the exercise price of such Option, multiplied
                by the number of shares of Stock covered by such Option, and to
                extend to any Participant who holds other types of Awards
                denominated in shares the right to elect, during the 60-day
                period immediately following the Change in Control, in lieu of
                receiving the shares of Stock covered by such Award, to receive
                in cash the Change in Control Price multiplied by the number of
                shares of Stock covered by such Award.

                (b)     Effect of "Change in Control" on Performance-Based
        Awards. In the event of a "Change in Control," with respect to an
        outstanding Award subject to achievement of performance goals and
        conditions, such performance goals and conditions shall be deemed to be
        met or exceeded if and to the extent so provided by the Committee in the
        Award document governing such Award or other agreement with the
        Participant.

                (c)     Definition of "Change in Control." A "Change in Control"
        shall be deemed to have occurred if, after the Effective Date, there
        shall have occurred any of the following:

                        (i)     Any "person," as such term is used in Section
                13(d) and 14(d) of the Exchange Act (other than the Company, any
                trustee or other fiduciary holding securities under an employee
                benefit plan of the Company, or any company owned, directly or
                indirectly, by the shareholders of the Company in substantially
                the same proportions as their ownership of stock of the
                Company), acquires voting securities of the Company and
                immediately thereafter is a "20%

                                      -20-
<PAGE>   23

                Beneficial Owner." For purposes of this provision, a "20%
                Beneficial Owner" shall mean a person who is the "beneficial
                owner" (as defined in Rule 13d-3 under the Exchange Act),
                directly or indirectly, of securities of the Company
                representing 20% or more of the combined voting power of the
                Company's then-outstanding voting securities; provided that the
                term "20% Beneficial Owner" shall not include any person who, at
                all times following such an acquisition of securities, remains
                eligible to file a Schedule 13G pursuant to Rule 13d-1(b) under
                the Exchange Act, or remains exempt from filing a Schedule 13D
                under Section 13(d)(6)(b) of the Exchange Act, with respect to
                all classes of Company voting securities;

                        (ii)    During any period of two consecutive years
                commencing on or after the Effective Date, individuals who at
                the beginning of such period constitute the Board, and any new
                director (other than a director designated by a person (as
                defined above) who has entered into an agreement with the
                Company to effect a transaction described in subsections (i),
                (iii) or (iv) of this definition) whose election by the Board or
                nomination for election by the Company's shareholders was
                approved by a vote of at least two-thirds (2/3) of the directors
                then still in office who either were directors at the beginning
                of the period or whose election or nomination for election was
                previously so approved (the "Continuing Directors") cease for
                any reason to constitute at least a majority thereof;

                        (iii)   The shareholders of the Company have approved a
                merger, consolidation, recapitalization, or reorganization of
                the Company, or a reverse stock split of any class of voting
                securities of the Company, or the consummation of any such
                transaction if shareholder approval is not obtained, other than
                any such transaction which would result in at least 60% of the
                combined voting power of the voting securities of the Company or
                the surviving entity outstanding immediately after such
                transaction being beneficially owned by persons who together
                beneficially owned at least 80% of the combined voting power of
                the voting securities of the Company outstanding immediately
                prior to such transaction, with the relative voting power of
                each such continuing holder compared to the voting power of each
                other continuing holder not substantially altered as a result of
                the transaction; provided that, for purposes of this paragraph
                (iii), such continuity of ownership (and preservation of
                relative voting power) shall be deemed to be satisfied if the
                failure to meet such 60% threshold (or to substantially preserve
                such relative voting power) is due solely to the acquisition of
                voting securities by an employee benefit plan of the Company,
                such surviving entity or a subsidiary thereof; and provided
                further, that, if consummation of the corporate transaction
                referred to in this Section 10(c)(iii) is subject, at the time
                of such approval by shareholders, to the consent of any
                government or governmental agency or approval of the
                shareholders of another entity or other material contingency, no
                Change in Control shall occur until such time as such consent
                and approval has been obtained and any other material
                contingency has been satisfied;

                        (iv)    The shareholders of the Company have approved a
                plan of complete liquidation of the Company or an agreement for
                the sale or disposition by the Company of all or substantially
                all of the Company's assets (or any transaction having a similar
                effect); provided that, if consummation of the transaction
                referred to in this Section 10(c)(iv) is subject, at the time of
                such approval by shareholders, to the consent of any government
                or governmental agency or approval of the shareholders of
                another entity or other material contingency, no Change in
                Control shall occur until such time as such consent and approval
                has been obtained and any other material contingency has been
                satisfied; and

                        (v)     any other event which the Board of Directors of
                the Company determines shall constitute a Change in Control for
                purposes of this Plan.

                (d)     Definition of "Change in Control Price." The "Change in
        Control Price" means an amount in cash equal to the higher of (i) the
        amount of cash and fair market value of property that is the

                                      -21-
<PAGE>   24

        highest price per share paid (including extraordinary dividends) in any
        transaction triggering the Change in Control or any liquidation of
        shares following a sale of substantially all assets of the Company, or
        (ii) the highest Fair Market Value per share at any time during the
        60-day period preceding and 60-day period following the Change in
        Control.

                (e)     Termination of Employment After Change in Control
        Negotiations Have Commenced. For purposes of this Section 10, a
        termination of a Participant's employment by the Company without Cause
        after the commencement of negotiations with a potential acquirer or
        business combination partner will be deemed to be a termination of
        employment immediately after a Change in Control if such negotiations
        result in a transaction constituting a Change in Control within 24
        months of the commencement date of such negotiations.

        11.     ADDITIONAL AWARD FORFEITURE PROVISIONS.

                (a)     Forfeiture of Options and Other Awards and Gains
        Realized Upon Prior Option Exercises or Award Settlements. Unless
        otherwise determined by the Committee, each Award granted hereunder,
        other than Awards granted to non-employee directors, shall be subject to
        the following additional forfeiture conditions, to which the
        Participant, by accepting an Award hereunder, agrees. If any of the
        events specified in Section 11(b)(i), (ii), or (iii) occurs (a
        "Forfeiture Event"), all of the following forfeitures will result:

                        (i)     The unexercised portion of the Option, whether
                or not vested, and any other Award not then settled (except for
                an Award that has not been settled solely due to an elective
                deferral by the Participant and otherwise is not forfeitable in
                the event of any termination of service of the Participant) will
                be immediately forfeited and canceled upon the occurrence of the
                Forfeiture Event; and

                        (ii)    The Participant will be obligated to repay to
                the Company, in cash, within five business days after demand is
                made therefor by the Company, the total amount of Award Gain (as
                defined herein) realized by the Participant upon each exercise
                of an Option or settlement of an Award (regardless of any
                elective deferral) that occurred on or after (A) the date that
                is six months prior to the occurrence of the Forfeiture Event,
                if the Forfeiture Event occurred while the Participant was
                employed by the Company or a subsidiary or affiliate, or (B) the
                date that is six months prior to the date the Participant's
                employment by the Company or a subsidiary or affiliate
                terminated, if the Forfeiture Event occurred after the
                Participant ceased to be so employed. For purposes of this
                Section, the term "Award Gain" shall mean (i), in respect of a
                given Option exercise, the product of (X) the Fair Market Value
                per share of Stock at the date of such exercise (without regard
                to any subsequent change in the market price of shares) minus
                the exercise price times (Y) the number of shares as to which
                the Option was exercised at that date, and (ii), in respect of
                any other settlement of an Award granted to the Participant, the
                Fair Market Value of the cash or Stock paid or payable to
                Participant (regardless of any elective deferral) less any cash
                or the Fair Market Value of any Stock or property (other than an
                Award or award which would have itself then been forfeitable
                hereunder and excluding any payment of tax withholding) paid by
                the Participant to the Company as a condition of or in
                connection such settlement.

                (b)     Events Triggering Forfeiture. The forfeitures specified
        in Section 11(a) will be triggered upon the occurrence of any one of the
        following Forfeiture Events at any time during the Participant's
        employment by the Company or a subsidiary or affiliate and resulting in
        his or her termination of employment, or during the one-year period
        following termination of such employment:

                        (i)     The Participant, acting alone or with others,
                directly or indirectly, prior to a Change in Control, (A)
                engages, either as employee, employer, consultant, advisor, or
                director, or as an

                                      -22-
<PAGE>   25

                owner, investor, partner, or stockholder unless the
                Participant's interest is insubstantial, in any business in an
                area or region in which the Company conducts business at the
                date the event occurs, which is directly in competition with a
                business then conducted by the Company or a subsidiary or
                affiliate; (B) induces any customer or supplier of the Company
                or a subsidiary or affiliate, or telephone company with which
                the Company or a subsidiary or affiliate has a business
                relationship, to curtail, cancel, not renew, or not continue his
                or her or its business with the Company or any subsidiary or
                affiliate; or (C) induces, or attempts to influence, any
                employee of or service provider to the Company or a subsidiary
                or affiliate to terminate such employment or service. The
                Committee shall, in its discretion, determine which lines of
                business the Company conducts on any particular date and which
                third parties may reasonably be deemed to be in competition with
                the Company. For purposes of this Section 11(b)(i), a
                Participant's interest as a stockholder is insubstantial if it
                represents beneficial ownership of less than five percent of the
                outstanding class of stock, and a Participant's interest as an
                owner, investor, or partner is insubstantial if it represents
                ownership, as determined by the Committee in its discretion, of
                less than five percent of the outstanding equity of the entity;

                        (ii)    The Participant discloses, uses, sells, or
                otherwise transfers, except in the course of employment with or
                other service to the Company or any subsidiary or affiliate, any
                confidential or proprietary information of the Company or any
                subsidiary or affiliate, including but not limited to
                information regarding the Company's current and potential
                customers, organization, employees, finances, and methods of
                operations and investments, so long as such information has not
                otherwise been disclosed to the public or is not otherwise in
                the public domain, except as required by law or pursuant to
                legal process, or the Participant makes statements or
                representations, or otherwise communicates, directly or
                indirectly, in writing, orally, or otherwise, or takes any other
                action which may, directly or indirectly, disparage or be
                damaging to the Company or any of its subsidiaries or affiliates
                or their respective officers, directors, employees, advisors,
                businesses or reputations, except as required by law or pursuant
                to legal process; or

                        (iii)   The Participant fails to cooperate with the
                Company or any subsidiary or affiliate in any way, including,
                without limitation, by making himself or herself available to
                testify on behalf of the Company or such subsidiary or affiliate
                in any action, suit, or proceeding, whether civil, criminal,
                administrative, or investigative, or otherwise fails to assist
                the Company or any subsidiary or affiliate in any way,
                including, without limitation, in connection with any such
                action, suit, or proceeding by providing information and meeting
                and consulting with members of management of, other
                representatives of, or counsel to, the Company or such
                subsidiary or affiliate, as reasonably requested.

                (c)     Agreement Does Not Prohibit Competition or Other
        Participant Activities. Although the conditions set forth in this
        Section 11 shall be deemed to be incorporated into an Award, a
        Participant is not thereby prohibited from engaging in any activity,
        including but not limited to competition with the Company and its
        subsidiaries and affiliates. Rather, the non-occurrence of the
        Forfeiture Events set forth in Section 11(b) is a condition to the
        Participant's right to realize and retain value from his or her
        compensatory Options and Awards, and the consequence under the Plan if
        the Participant engages in an activity giving rise to any such
        Forfeiture Event are the forfeitures specified herein. The Company and
        the Participant shall not be precluded by this provision or otherwise
        from entering into other agreements concerning the subject matter of
        Sections 11(a) and 11(b).

                (d)     Committee Discretion. The Committee may, in its
        discretion, waive in whole or in part the Company's right to forfeiture
        under this Section, but no such waiver shall be effective unless
        evidenced by a writing signed by a duly authorized officer of the
        Company. In addition, the Committee may impose additional conditions on
        Awards, by inclusion of appropriate provisions in the document
        evidencing or governing any such Award.

                                      -23-
<PAGE>   26

        12.     GENERAL PROVISIONS.

                (a)     Compliance with Legal and Other Requirements. The
        Company may, to the extent deemed necessary or advisable by the
        Committee, postpone the issuance or delivery of Stock or payment of
        other benefits under any Award until completion of such registration or
        qualification of such Stock or other required action under any federal
        or state law, rule or regulation, listing or other required action with
        respect to any stock exchange or automated quotation system upon which
        the Stock or other securities of the Company are listed or quoted, or
        compliance with any other obligation of the Company, as the Committee
        may consider appropriate, and may require any Participant to make such
        representations, furnish such information and comply with or be subject
        to such other conditions as it may consider appropriate in connection
        with the issuance or delivery of Stock or payment of other benefits in
        compliance with applicable laws, rules, and regulations, listing
        requirements, or other obligations. The foregoing notwithstanding, in
        connection with a Change in Control, the Company shall take or cause to
        be taken no action, and shall undertake or permit to arise no legal or
        contractual obligation, that results or would result in any postponement
        of the issuance or delivery of Stock or payment of benefits under any
        Award or the imposition of any other conditions on such issuance,
        delivery or payment, to the extent that such postponement or other
        condition would represent a greater burden on a Participant than existed
        on the 90th day preceding the Change in Control.

                (b)     Limits on Transferability; Beneficiaries. No Award or
        other right or interest of a Participant under the Plan shall be
        pledged, hypothecated or otherwise encumbered or subject to any lien,
        obligation or liability of such Participant to any party (other than the
        Company or a subsidiary or affiliate thereof), or assigned or
        transferred by such Participant otherwise than by will or the laws of
        descent and distribution or to a Beneficiary upon the death of a
        Participant, and such Awards or rights that may be exercisable shall be
        exercised during the lifetime of the Participant only by the Participant
        or his or her guardian or legal representative, except that Awards and
        other rights (other than ISOs and SARs in tandem therewith) may be
        transferred to one or more transferees during the lifetime of the
        Participant, and may be exercised by such transferees in accordance with
        the terms of such Award, but only if and to the extent such transfers
        are permitted by the Committee, subject to any terms and conditions
        which the Committee may impose thereon (including limitations the
        Committee may deem appropriate in order that offers and sales under the
        Plan will meet applicable requirements of registration forms under the
        Securities Act of 1933 specified by the Securities and Exchange
        Commission). A Beneficiary, transferee, or other person claiming any
        rights under the Plan from or through any Participant shall be subject
        to all terms and conditions of the Plan and any Award document
        applicable to such Participant, except as otherwise determined by the
        Committee, and to any additional terms and conditions deemed necessary
        or appropriate by the Committee.

                (c)     Adjustments. In the event that any large, special and
        non-recurring dividend or other distribution (whether in the form of
        cash or property other than Stock), recapitalization, forward or reverse
        split, Stock dividend, reorganization, merger, consolidation, spin-off,
        combination, repurchase, share exchange, liquidation, dissolution or
        other similar corporate transaction or event affects the Stock such that
        an adjustment is determined by the Committee to be appropriate under the
        Plan, then the Committee shall, in such manner as it may deem equitable,
        adjust any or all of (i) the number and kind of shares of Stock which
        may be delivered in connection with Awards granted thereafter, (ii) the
        number and kind of shares of Stock by which annual per-person Award
        limitations are measured under Section 5, (iii) the number and kind of
        shares of Stock subject to or deliverable in respect of outstanding
        Awards and (iv) the exercise price, grant price or purchase price
        relating to any Award or, if deemed appropriate, the Committee may make
        provision for a payment of cash or property to the holder of an
        outstanding Option (subject to Section 12(k)). In addition, the
        Committee is authorized to make adjustments in the terms and conditions
        of, and the criteria included in, Awards (including Performance Awards
        and performance goals and any hypothetical funding pool relating

                                      -24-
<PAGE>   27

        thereto) in recognition of unusual or nonrecurring events (including,
        without limitation, events described in the preceding sentence, as well
        as acquisitions and dispositions of businesses and assets) affecting the
        Company, any subsidiary or affiliate or other business unit, or the
        financial statements of the Company or any subsidiary or affiliate, or
        in response to changes in applicable laws, regulations, accounting
        principles, tax rates and regulations or business conditions or in view
        of the Committee's assessment of the business strategy of the Company,
        any subsidiary or affiliate or business unit thereof, performance of
        comparable organizations, economic and business conditions, personal
        performance of a Participant, and any other circumstances deemed
        relevant; provided that no such adjustment shall be authorized or made
        if and to the extent that the existence of such authority (i) would
        cause Options, SARs, or Performance Awards granted under the Plan to
        Participants designated by the Committee as Covered Employees and
        intended to qualify as "performance-based compensation" under Code
        Section 162(m) and regulations thereunder to otherwise fail to qualify
        as "performance-based compensation" under Code Section 162(m) and
        regulations thereunder, or (ii) would cause the Committee to be deemed
        to have authority to change the targets, within the meaning of Treasury
        Regulation 1.162-27(e)(4)(vi), under the performance goals relating to
        Options or SARs granted to Covered Employees and intended to qualify as
        "performance-based compensation" under Code Section 162(m) and
        regulations thereunder.

                (d)     Tax Provisions.

                        (i)     Withholding. The Company and any subsidiary or
                affiliate is authorized to withhold from any Award granted, any
                payment relating to an Award under the Plan, including from a
                distribution of Stock, or any payroll or other payment to a
                Participant, amounts of withholding and other taxes due or
                potentially payable in connection with any transaction involving
                an Award, and to take such other action as the Committee may
                deem advisable to enable the Company and Participants to satisfy
                obligations for the payment of withholding taxes and other tax
                obligations relating to any Award. This authority shall include
                authority to withhold or receive Stock or other property and to
                make cash payments in respect thereof in satisfaction of a
                Participant's withholding obligations, either on a mandatory or
                elective basis in the discretion of the Committee. Other
                provisions of the Plan notwithstanding, only the minimum amount
                of Stock deliverable in connection with an Award necessary to
                satisfy statutory withholding requirements will be withheld.

                        (ii)    Required Consent to and Notification of Code
                Section 83(b) Election. No election under Section 83(b) of the
                Code (to include in gross income in the year of transfer the
                amounts specified in Code Section 83(b)) or under a similar
                provision of the laws of a jurisdiction outside the United
                States may be made unless expressly permitted by the terms of
                the Award document or by action of the Committee in writing
                prior to the making of such election. In any case in which a
                Participant is permitted to make such an election in connection
                with an Award, the Participant shall notify the Company of such
                election within ten days of filing notice of the election with
                the Internal Revenue Service or other governmental authority, in
                addition to any filing and notification required pursuant to
                regulations issued under Code Section 83(b) or other applicable
                provision.

                        (iii)   Requirement of Notification Upon Disqualifying
                Disposition Under Code Section 421(b). If any Participant shall
                make any disposition of shares of Stock delivered pursuant to
                the exercise of an Incentive Stock Option under the
                circumstances described in Code Section 421(b), such Participant
                shall notify the Company of such disposition within ten days
                thereof.

                (e)     Changes to the Plan. The Board may amend, suspend or
        terminate the Plan or the Committee's authority to grant Awards under
        the Plan without the consent of stockholders or Participants; provided,
        however, that any amendment to the Plan shall be submitted to the
        Company's stockholders for approval not later than the earliest annual
        meeting for which the record

                                      -25-
<PAGE>   28

        date is after the date of such Board action if such stockholder approval
        is required by any federal or state law or regulation or the rules of
        any stock exchange or automated quotation system on which the Stock may
        then be listed or quoted, or if such amendment would:

                        (i)     materially increase the number of shares
                reserved for issuance and delivery under Section 4 of the Plan;

                        (ii)    expand the class of Eligible Persons under
                Section 5(a) of the Plan;

                        (iii)   increase the per-person Annual Limits under
                Section 5(b) of the Plan;

                        (iv)    increase the number of shares that may be issued
                and delivered under the Plan in connection with awards other
                than Options and SARs under Section 4(a) of the Plan;

                        (v)     permit unrestricted Stock to be granted other
                than in lieu of such payments under the Plan or other incentive
                plans and programs of the Company and its subsidiaries and
                affiliates;

                        (vi)    allow for the creation of additional types of
                awards;

                        (vii)   with respect to Restricted Stock, permit
                shortening or lapsing of restrictions or waiving of performance
                goals, except to the extent specified in Section 9(d) of the
                Plan;

                        (viii)  amend or replace previously granted Options in a
                transaction that constitutes a "repricing," as such term is used
                in Instruction 3 to Item 402(b)(2)(iv) of Regulation S-K, as
                promulgated by the Securities and Exchange Commission; or

                        (ix)    amend any of the terms and conditions of this
                Section 12(e);

        and the Board may otherwise, in its discretion, determine to submit
        other amendments to the Plan to stockholders for approval. In addition,
        without the consent of an affected Participant, no such Board action may
        materially and adversely affect the rights of such Participant under any
        outstanding Award, except any such amendment made to cause the Plan to
        comply with applicable law, stock exchange rules and regulations or
        accounting or tax rules and regulations. With regard to other terms of
        Awards, the Committee shall have no authority to waive or modify any
        such Award term after the Award has been granted to the extent the
        waived or modified term would be mandatory under the Plan for any Award
        newly granted at the date of the waiver or modification

                (f)     Right of Setoff. The Company or any subsidiary or
        affiliate may, to the extent permitted by applicable law, deduct from
        and set off against any amounts the Company or a subsidiary or affiliate
        may owe to the Participant from time to time, including amounts payable
        in connection with any Award, owed as wages, fringe benefits, or other
        compensation owed to the Participant, such amounts as may be owed by the
        Participant to the Company, including but not limited to amounts owed
        under Section 11(a), although the Participant shall remain liable for
        any part of the Participant's payment obligation not satisfied through
        such deduction and setoff. By accepting any Award granted hereunder, the
        Participant agrees to any deduction or setoff under this Section 12(f).

                (g)     Unfunded Status of Awards; Creation of Trusts. The Plan
        is intended to constitute an "unfunded" plan for incentive and deferred
        compensation. With respect to any payments not yet made to a Participant
        or obligation to deliver Stock pursuant to an Award, nothing contained
        in the Plan or any Award shall give any such Participant any rights that
        are greater than those of a general creditor of the Company; provided
        that the Committee may authorize the creation of trusts and deposit
        therein cash, Stock, other Awards or other property, or make other
        arrangements to meet the

                                      -26-
<PAGE>   29

        Company's obligations under the Plan. Such trusts or other arrangements
        shall be consistent with the "unfunded" status of the Plan unless the
        Committee otherwise determines with the consent of each affected
        Participant.

                (h)     Nonexclusivity of the Plan. Neither the adoption of the
        Plan by the Board nor its submission to the stockholders of the Company
        for approval shall be construed as creating any limitations on the power
        of the Board or a committee thereof to adopt such other incentive
        arrangements, apart from the Plan, as it may deem desirable, including
        incentive arrangements and awards which do not qualify under Code
        Section 162(m), and such other arrangements may be either applicable
        generally or only in specific cases.

                (i)     Payments in the Event of Forfeitures; Fractional Shares.
        Unless otherwise determined by the Committee, in the event of a
        forfeiture of an Award with respect to which a Participant paid cash
        consideration, the Participant shall be repaid the amount of such cash
        consideration. No fractional shares of Stock shall be issued or
        delivered pursuant to the Plan or any Award. The Committee shall
        determine whether cash, other Awards or other property shall be issued
        or paid in lieu of such fractional shares or whether such fractional
        shares or any rights thereto shall be forfeited or otherwise eliminated.

                (j)     Compliance with Code Section 162(m). It is the intent of
        the Company that Options and SARs granted to Covered Employees and other
        Awards designated as Awards to Covered Employees subject to Section 7
        shall constitute qualified "performance-based compensation" within the
        meaning of Code Section 162(m) and regulations thereunder, unless
        otherwise determined by the Committee at the time of allocation of an
        Award. Accordingly, the terms of Sections 7(b), (c), and (d), including
        the definitions of Covered Employee and other terms used therein, shall
        be interpreted in a manner consistent with Code Section 162(m) and
        regulations thereunder. The foregoing notwithstanding, because the
        Committee cannot determine with certainty whether a given Participant
        will be a Covered Employee with respect to a fiscal year that has not
        yet been completed, the term Covered Employee as used herein shall mean
        only a person designated by the Committee as likely to be a Covered
        Employee with respect to a specified fiscal year. If any provision of
        the Plan or any Award document relating to a Performance Award that is
        designated as intended to comply with Code Section 162(m) does not
        comply or is inconsistent with the requirements of Code Section 162(m)
        or regulations thereunder, such provision shall be construed or deemed
        amended to the extent necessary to conform to such requirements, and no
        provision shall be deemed to confer upon the Committee or any other
        person discretion to increase the amount of compensation otherwise
        payable in connection with any such Award upon attainment of the
        applicable performance objectives.

                (k)     Certain Limitations Relating to Accounting Treatment of
        Awards. Other provisions of the Plan notwithstanding, the Committee's
        authority under the Plan (including under Sections 9(c), 12(c) and
        12(d)) is limited to the extent necessary to ensure that any Option or
        other Award of a type that the Committee has intended to be subject to
        fixed accounting with a measurement date at the date of grant or the
        date performance conditions are satisfied under APB 25 shall not become
        subject to "variable" accounting solely due to the existence of such
        authority, unless the Committee specifically determines that the Award
        shall remain outstanding despite such "variable" accounting. In
        addition, other provisions of the Plan notwithstanding, (i) if any right
        under this Plan would cause a transaction to be ineligible for
        pooling-of-interests accounting that would, but for the right hereunder,
        be eligible for such accounting treatment, such right shall be
        automatically adjusted so that pooling-of-interests accounting shall be
        available, including by substituting Stock or cash having a Fair Market
        Value equal to any cash or Stock otherwise payable in respect of any
        right to cash which would cause the transaction to be ineligible for
        pooling-of-interests accounting, and (ii) if any authority under Section
        10 would cause a transaction to be ineligible for pooling-of-interests
        accounting that would, but for

                                      -27-
<PAGE>   30

        such authority, be eligible for such accounting treatment, such
        authority shall be limited to the extent necessary so that such
        transaction would be eligible for pooling-of-interests accounting.

                (l)     Governing Law. The validity, construction, and effect of
        the Plan, any rules and regulations relating to the Plan and any Award
        document shall be determined in accordance with the laws of the State of
        Delaware, without giving effect to principles of conflicts of laws, and
        applicable provisions of federal law.

                (m)     Awards to Participants Outside the United States. The
        Committee may modify the terms of any Award under the Plan made to or
        held by a Participant who is then resident or primarily employed outside
        of the United States in any manner deemed by the Committee to be
        necessary or appropriate in order that such Award shall conform to laws,
        regulations, and customs of the country in which the Participant is then
        resident or primarily employed, or so that the value and other benefits
        of the Award to the Participant, as affected by foreign tax laws and
        other restrictions applicable as a result of the Participant's residence
        or employment abroad shall be comparable to the value of such an Award
        to a Participant who is resident or primarily employed in the United
        States. An Award may be modified under this Section 12(m) in a manner
        that is inconsistent with the express terms of the Plan, so long as such
        modifications will not contravene any applicable law or regulation or
        result in actual liability under Section 16(b) for the Participant whose
        Award is modified.

                (n)     Limitation on Rights Conferred under Plan. Neither the
        Plan nor any action taken hereunder shall be construed as (i) giving any
        Eligible Person or Participant the right to continue as an Eligible
        Person or Participant or in the employ or service of the Company or a
        subsidiary or affiliate, (ii) interfering in any way with the right of
        the Company or a subsidiary or affiliate to terminate any Eligible
        Person's or Participant's employment or service at any time (subject to
        the terms and provisions of any separate written agreements), (iii)
        giving an Eligible Person or Participant any claim to be granted any
        Award under the Plan or to be treated uniformly with other Participants
        and employees, or (iv) conferring on a Participant any of the rights of
        a stockholder of the Company unless and until the Participant is duly
        issued or transferred shares of Stock in accordance with the terms of an
        Award or an Option is duly exercised. Except as expressly provided in
        the Plan and an Award document, neither the Plan nor any Award document
        shall confer on any person other than the Company and the Participant
        any rights or remedies thereunder.

                (o)     Severability; Entire Agreement. If any of the provisions
        of this Plan or any Award document is finally held to be invalid,
        illegal or unenforceable (whether in whole or in part), such provision
        shall be deemed modified to the extent, but only to the extent, of such
        invalidity, illegality or unenforceability, and the remaining provisions
        shall not be affected thereby; provided, that, if any of such provisions
        is finally held to be invalid, illegal, or unenforceable because it
        exceeds the maximum scope determined to be acceptable to permit such
        provision to be enforceable, such provision shall be deemed to be
        modified to the minimum extent necessary to modify such scope in order
        to make such provision enforceable hereunder. The Plan and any Award
        documents contain the entire agreement of the parties with respect to
        the subject matter thereof and supersede all prior agreements, promises,
        covenants, arrangements, communications, representations and warranties
        between them, whether written or oral with respect to the subject matter
        thereof.

                                      -28-
<PAGE>   31

                (p)     Plan Effective Date and Termination. The Plan shall
        become effective if, and at such time as, the stockholders of the
        Company have approved it by the affirmative votes of the holders of a
        majority of the voting securities of the Company present, or
        represented, and entitled to vote on the subject matter at a duly held
        meeting of stockholders. Upon such approval of the Plan by the
        stockholders of the Company, no further awards shall be granted under
        the Preexisting Plans, but any outstanding awards under the Preexisting
        Plans shall continue in accordance with their terms. Any elections made
        by non-employee directors and their respective Deferral Accounts
        established pursuant to the 1998 Directors' Stock Plan shall continue as
        if made or established pursuant to the Plan until any such election is
        changed by such Participant in accordance with the provisions of this
        Plan. Unless earlier terminated by action of the Board of Directors, the
        Plan will remain in effect until such time as no Stock remains available
        for delivery under the Plan and the Company has no further rights or
        obligations under the Plan with respect to outstanding Awards under the
        Plan.

                                      -29-

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