1. Approve Daimler Truck Financial as the Financial Services Entity for the Port of Los Angeles Clean Truck Program;

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1 DATE: SEPTEMBER 16, 2008 FROM: CLEAN TRUCK PROGRAM SUBJECT: RESOLUTION NUMBER - APPROVAL OF PROPOSED PROGRAM AGREEMENT WITH DAIMLER TRUCK FINANCIAL AS THE FINANCING ENTITY FOR THE CLEAN TRUCK PROGRAM SUMMARY The Clean Truck Program (CTP) is a key component of the San Pedro Bay Ports Clean Air Action Plan (CAAP) that will require the entire fleet of approximately 16,000 drayage trucks serving the Port of Los Angeles and Port of Long Beach (Ports) to meet United States Environmental Protection Agency (USEPA) 2007 standards through replacement or retrofit within a period of approximately five years. This letter recommends approval of Daimler Truck Finance (DTF) to provide subsidized leases and loans to Licensed Motor Carriers (LMCs) identified by the Port of Los Angeles for participation in the CTP truck replacement assistance program. This letter also summarizes the Agreement for the provision of the subsidized leases and loans that was negotiated with DTF after extensive discussion among attorneys and staff from both Ports. RECOMMENDATION: It is recommended that the Board of Harbor Commissioners: 1. Approve Daimler Truck Financial as the Financial Services Entity for the Port of Los Angeles Clean Truck Program; 2. Adopt Resolution No. approving the proposed Program Agreement; 3. Authorize and direct the Board Secretary to transmit the proposed Program Agreement to the City Council for its approval pursuant to Section 373 of the City Charter. 4. Authorize the Executive Director to execute and the Board Secretary to attest to the proposed Program Agreement upon approval by City Council. DISCUSSION: 1. On November 20, 2006, the Los Angeles and Long Beach Boards of Harbor Commissioners approved the CAAP. A key component of the CAAP is the implementation of a CTP that will require the entire fleet of approximately 16,000 drayage trucks serving the Ports to meet USEPA 2007 standards through replacement or retrofit within a period of approximately five years.

2 DATE: SEPTEMBER 16, 2008 PAGE 2 OF 7 SUBJECT: RESOLUTION NUMBER - APPROVAL OF PROPOSED PROGRAM AGREEMENT WITH DAIMLER TRUCK FINANCIAL AS THE FINANCING ENTITY FOR THE CLEAN TRUCK PROGRAM 2. As a part of the CTP, LMCs that participate in the CTP and agree to become concessionaires will become eligible to receive subsidized leases and subsidized loans to help in the acquisition of new trucks at a reduced cost. Funding for the subsidized leases and loans come principally from three sources: 1) the Clean Truck Fee under the Tariff; 2) grants from the California Air Resources Board (CARB); and 3) payments from LMCs. 3. The subsidized leases and loans program will be made available through the proposed Financial Services Entity, Daimler Truck Financial (DTF). The Financial Services Entity will perform four key functions. First, it will provide low cost leases and loans to LMCs. Second, it will track, if necessary, delinquent leases or loans and, if necessary, recover the trucks. Third, in the case that a truck has to be repossessed, the Financial Services Entity will find a new lessee or owner for the truck working with the Ports. And finally, the Financial Services Entity will provide periodic reports on the operational and financial performance of the funding program. 4. The Port of Los Angeles worked in conjunction with the Port of Long Beach to develop a rigorous, competitive selection process to identify financial entities interested in serving in this capacity for the Ports. On March 10, 2008, the Port of Long Beach issued a Request for Qualifications (RFQ), used by both Ports. On March 18, 2008, the Ports held a Proposer Conference. Proposals were due on April 3, Eight proposals for Financial Services Entity were received. 5. DTF was selected based on 1) its prior experience as lessor for similar equipment; 2) its ability to manage, and syndicate if required, the financing program as the primary Financial Services Entity; 3) its proposed fees for serving as Financial Services Entity including evaluation of indicative pricing; and 4) its ability to provide local support to grant administrator on credit review, lease/loan applications, and coordinating with selected truck manufacturers and dealers. 6. For these reasons, staff recommends that the Board of Harbor Commissioners approve DTF as the Financial Services Entity for the CTP. DTF, a US subsidiary of Daimler Financial Service AG, is the largest truck captive finance company in the United States. DTF is an industry-specific lender specializing in financing and leasing of heavy duty trucks with a current portfolio of 134,000 trucks valued at over $6.3 billion. The parent company, Daimler Financial Services AG, is one of the world s leading captive financial services providers and the world s largest financer of commercial vehicles. Under the worldwide organization of Daimler AG, its divisions include Mercedes-Benz, Daimler Trucks (including Freightliner, Sterling,

3 DATE: SEPTEMBER 16, 2008 PAGE 3 OF 7 SUBJECT: RESOLUTION NUMBER - APPROVAL OF PROPOSED PROGRAM AGREEMENT WITH DAIMLER TRUCK FINANCIAL AS THE FINANCING ENTITY FOR THE CLEAN TRUCK PROGRAM and Western Star), Daimler Financial Services, Vans, and Buses. DTF currently employs 247 people in the US dedicated to truck finance and leasing. DTF brings a unique blend of funding capabilities, support infrastructure, and operational knowledge to the CTP. 7. The remaining paragraphs of this Board letter summarize the financial program as proposed by staff of both Ports and DTF. OVERVIEW OF THE PROGRAM AGREEMENT WITH DTF 8. Exhibit 2 outlines the key terms underlying the subsidized leases and loans, as they are captured in the principal legal document of the Port Daimler transaction, the Program Agreement ( Agreement ) and its exhibits. Certain key terms are highlighted below: Key Terms Term of Agreement December 31, 2011 Funding Tools Level of Subsidies Up to 80% Sources of Repayment Port Guaranty Subsidized Leases Description Subsidized Leases and Loans for LMC Tariff, CARB Grants, LMC Payments Lease Only 9. Lease Type: The structure of the seven-year lease developed with DTF is Terminal Rental Adjustment Clause (TRAC). A TRAC lease-to-own must meet certain criteria as defined by the Internal Revenue Code. At the same time, the lessor (DTF) is the equipment owner and therefore captures the depreciation tax benefit and any tax credit that will be passed on to the Port and LMCs in the form of lower financing cost. 10. CARB Grant: The Ports have agreed to maximize the use of the Proposition 1B grant that was awarded jointly to both Ports and is being administered by the CARB. The CARB Program stipulates that the funds to subsidize the truck purchase needs to be spent within an 18-month period. Therefore, the lease payments in the first 18 months will be accelerated and reduced in the following 66 months. DTF has agreed to have a step down in payments at the 19 th month. The CARB grant will be $50,000 per truck.

4 DATE: SEPTEMBER 16, 2008 PAGE 4 OF 7 SUBJECT: RESOLUTION NUMBER - APPROVAL OF PROPOSED PROGRAM AGREEMENT WITH DAIMLER TRUCK FINANCIAL AS THE FINANCING ENTITY FOR THE CLEAN TRUCK PROGRAM 11. Lease Payments: The lease does not have any upfront payment and will be amortized through monthly payments over a seven year period. The residual value at the end of the seven years is 16% and the lessee will have an option to purchase the truck by paying half the residual value. During the first two years of the sevenyear lease, the lessee pays $300 - $400 a month for a diesel truck, $300 for a smaller engine Liquefied Natural Gas (LNG) truck (Sterling), and $772 for a larger engine LNG truck (Kenworth). In the last five years of the lease, the lessee pays $500 - $600 for a diesel truck, $500 for a Sterling LNG truck, and $972 for a Kenworth LNG truck. The payments were structured in this manner to mitigate income tax impact since the accelerated CARB funds will be considered taxable income. 12. Lease Subsidy: This payment schedule will result in the Port subsidy on a net present value basis to be approximately 70% for diesel trucks, 80% for Sterling LNG, and 60% for Kenworth LNG, the more expensive LNG model. The Port will supplement the $50,000/truck CARB grant in order to reach the levels of subsidy listed above. 13. Pricing and Early Termination: There are several mechanisms by which interest rates are set under the Agreement, these are summarized below and described in greater detail in the Exhibits 1 and 2: ONGOING INTEREST RATES: Because interest rates fluctuate over time, there is a formula to set the rates on the leases on the future. CREDIT: Should the credit of the Port meaningfully decline, that will cause a repricing and ultimately could cause a termination of the Agreement. VOLUME: The Agreement and current pricing is based on certain assumptions about volume of trucks financed through DTF. Should these fall short, there will be a renegotiation of interest rates, through which either party may choose to terminate the transaction if an Agreement cannot be met. The first of the volume triggers is June 30, PERFORMANCE: Both the Port and DTF have the right to terminate the agreement should the other party be in breach of their duties 14. Port Guaranty: In order to achieve low financing rates, the Port agreed to guarantee all leases in case of a default. However, part of the reason DTF was selected was its experience in financing trucks. DTF provides upfront and frequent ongoing contacts with LMCs to rigorously minimize potential default risks. In addition, DTF

5 DATE: SEPTEMBER 16, 2008 PAGE 5 OF 7 SUBJECT: RESOLUTION NUMBER - APPROVAL OF PROPOSED PROGRAM AGREEMENT WITH DAIMLER TRUCK FINANCIAL AS THE FINANCING ENTITY FOR THE CLEAN TRUCK PROGRAM has extensive experience in managing repossession and redeployment of trucks. The Port will rely heavily on DTF s demonstrated superior experience in supporting protecting its investment. Loan Program 15. As an alternative to the lease-to-own program, any LMC with very strong credit may choose to take a loan, instead. The difference is that the LMC will be the owner of the vehicle and hence any tax benefit from depreciation and tax credit will accrue to the owner. The LMC must still apply and be approved by the Grant Administrator using the same work history and operational criteria used for the lease. However, the LMC is not obligated to go through DTF for the loan, only to give them the right of first review. These loans will not be guaranteed by the Port. The borrower, based on its credit profile, will be paying market rate on the loan. DTF, or another financial institution, therefore, will use its own credit criteria to qualify the borrower. In its role as a loan provider, the DTF or another financial institution would still need to perform extensive program duties including: receive the subsidy, provide dual Port/LMC billing, monitor the financial status of payments, enforce procedures related to financial and non-financial default. The Port will provide monthly loan subsidies, paid to the financial institution up to 84 months, as long as the loan payments are current and the concession obligations are met. The amounts will be approximately $793/month ($67,000 total) for a diesel truck and $1,250/month ($105,000 total) for an LNG truck. If the borrower defaults on the loan or does not comply with operational requirements, the loan subsidies will stop. CARB funds will not be used for loan subsidies. Set-Up Costs 16. DTF has incurred set-up costs in the amount of up to $1,298,850 for the two Ports. Fifty percent or up to $649,425 corresponds to the Port of Los Angeles. These costs were incurred to provide financial system design and programming, administration and related travel to implement the Clean Trucks Funding Program. ENVIRONMENTAL ASSESSMENT: The proposed action is an Agreement between Daimler Truck Financial and the Los Angeles Harbor Department to establish DTF as the Financial Services Entity for the CTP. The CTP was approved by the Board of Harbor Commissioners in March The role of the Financial Services Entity will be to fund and administer the acquisition of clean trucks through subsidized leases and loans. As an administrative action to support a previously approved Program, the Director of Environmental Management

6 DATE: SEPTEMBER 16, 2008 PAGE 6 OF 7 SUBJECT: RESOLUTION NUMBER - APPROVAL OF PROPOSED PROGRAM AGREEMENT WITH DAIMLER TRUCK FINANCIAL AS THE FINANCING ENTITY FOR THE CLEAN TRUCK PROGRAM has determined that the proposed action is exempt from the requirements of the California Environmental Quality Act (CEQA) under Article II, Section 2 (f) and 2(i) of the Los Angeles City CEQA guidelines. FINANCIAL IMPACT: It is the intention of the Port for the truck replacement program of the CTP to be self funding. Clean Truck Fees and CARB grants will provide revenues. However, timing of revenues and costs and absolute levels of inflows and outflow have uncertainties. It is possible, that the Clean Truck Fund may experience cashflow surpluses as well as shortfalls. Those shortfalls, should they occur, may need to be addressed by loans from the Port and extension of the Clean Truck Fee, or other measures. ECONOMIC IMPACT: The selection of a financing entity, while a necessary component of the implementation of the CTP, does not by itself have a significant regional employment effect. CITY ATTORNEY: The Office of the City Attorney has reviewed and approved the transmitted draft Program Agreement in substantial form. TRANSMITTALS: Exhibit 1 Overview of Key Terms and Conditions Exhibit 2 Program Agreement, includes: Exhibit B Lease Terms, Exhibit G -- Required Lease Provisions, Exhibit I -- Government and Insurance Terms Exhibit A of Program Agreement Lease Pricing Exhibit B of Program Agreement Lease Terms (included in Program Agreement) Exhibit C of Program Agreement Lease Agreement Exhibit D of Program Agreement DCFS Servicing Responsibilities Exhibit E of Program Agreement Intentionally left blank Exhibit F of Program Agreement Guaranty

7 DATE: SEPTEMBER 16, 2008 PAGE 7 OF 7 SUBJECT: RESOLUTION NUMBER - APPROVAL OF PROPOSED PROGRAM AGREEMENT WITH DAIMLER TRUCK FINANCIAL AS THE FINANCING ENTITY FOR THE CLEAN TRUCK PROGRAM Exhibit G of Program Agreement Required Lease Provisions (included in Program Agreement) Exhibit H of Program Agreement Approval Notice - Lease Subsidy Exhibit I of Program Agreement Government and Insurance Terms (included in Program Agreement) Exhibit 3 Set-Up Costs JOHN HOLMES Deputy Executive Director MOLLY CAMPBELL Deputy Executive Director APPROVED: GERALDINE KNATZ, Ph.D. Executive Director

8 Exhibit 1 Key Terms for Subsidized Leases and Loans A) KEY TERMS FOR SUBSIDIZED LEASES 1. Type: TRAC Lease (Terminal Rental Adjustment Clause) incorporates certain tax deductions and benefits 2. Term: 7 years, level payments 3. Residual Payment: 16% at end of year 7. The Licensed Motor Carrier (LMC) has the option to purchase the truck. 4. Interest Rate: Competitive rate consistent with credit strength of Port. Base on DTF cost of funds as represented by an A- five-year swap plus basis point spread. 5. Subsidy: The Port will subsidize up to 80% of the price of an approved clean truck. In the near term, the funds for the subsidy will come from lease proceeds or CARB grants. 6. Lease Repayments: Except for CARB monies, which do not require repayment, leases will be repaid on a monthly basis. Depending on the subsidy from the Port, up to 80% will be paid from the Clean Truck Fund and the remainder will be paid by the LMC. DTF will conduct dual billing to the LMC and the Port. 7. Financial Protection for the Port: DTF will not permit prepayment of the lease and will retain title to the truck throughout the period of the seven-year grant program. In addition, trucks will be installed with automatic vehicle location devices (AVL) that are capable of tracking the truck and shutting down the engine if it becomes a flight risk. Additional protective measures will be taken for large orders of trucks. 8. Guaranty: In order to achieve low rates and market access for the LMCs in the CTP, the Port will guaranty all leases. Should an LMC default, after the full collection and repossession cycle has been completed, the Port Guaranty would be activated at 180 days. However, should the truck be recovered after the guaranty has been tapped, the Port would still receive the value of the asset, net of the recovery costs. 9. DTF Administration of Leases: DTF will process applications including credit check (based on Port criteria), process payments, conduct collections, slipseating and repossession activities. DTF will share responsibilities with Tetra Tech where appropriate. 10. Repricing and Termination: The Agreement provides for adjusting to potential future factors that cannot be known at this time:

9 Exhibit 1 o Ongoing Interest Rate: The interest rate agreed with DTF on the outstanding balance of the lease will be fixed at the time of signing the lease and will consist of the five year, A swap rate, which is an index published daily, plus a margin. The margin will range between 1.19% and 1.46% on the LNG and between 2.24% and 2.51% on the diesel. The variation within each type of trucks, diesel and LNG, is driven by the tax benefit from depreciation depending on when the transaction is consummated in the calendar year. The variation between the LNG and the diesel margin is a result of a current tax credit when purchasing LNG trucks. DTF has re-pricing triggers pegged to criteria such as: volume of transactions, Port s credit rating, DTF s credit rating, default ratio, and unforeseen events such as bankruptcy in the automotive industry and change of control of or acquisition by DTF. o Credit: Should the credit rating of the Port be downgraded by a full notch by two or more credit rating agencies, DTF would have the right to increase the pricing of the leases. Should the Port s rating fall below investment grade, DTF would have the right to terminate the Agreement with the Port. o Volume: For a variety of factors, there is uncertainty about the volume of trucks that will be financed through the program. To account for this, the Agreement contains a pricing retrigger based on specified volume levels. DTF will have the opportunity to propose new pricing (within a pre-agreed pricing level) and the Port will have the opportunity to either accept the pricing or terminate the contract. o Performance: Both the Port and DTF have the right to terminate the Agreement should the other party be in breach of their duties. B) KEY TERMS FOR SUBSIDIZED LOANS 1. Type: Loan 2. Term: 5 or 7 years, level payments 3. Interest Rate: Market rate based on credit rating of LMC 4. Subsidy: The Port will subsidize up to 80% of the price of an approved clean truck. In the near term, the funds for the subsidy will come from loan proceeds or CARB grants. 5. Lease Repayments: Except for CARB monies, which do not require repayment, loan will be repaid on a monthly basis. Depending on the subsidy from the Port, up to 80% will be paid from the Clean Truck Fund and the remainder would be paid by the LMC. DTF will conduct dual billing to the LMC and the Port. 6. Financial Protection for the Port: Pre-Payments are permitted by law. However, DTF will alert the Port, so that no further subsidy payments are made on a pre-paid truck. In addition, trucks will be installed with automatic vehicle location devices (AVL) that are capable of tracking the truck and shutting down

10 Exhibit 1 the engine if it becomes a flight risk. Additional protective measures will be taken for large orders of trucks. 7. Guaranty: None 8. DTF Administration of Loan: DTF will process applications including credit check (based on DTF criteria), process payments, conduct collections, and repossession activities. DTF will share responsibilities with Tetra Tech where appropriate. 9. Repricing and Termination: The Agreement provided for adjusting to potential future factors that cannot be known at this time: o Credit: Not applicable because there is no Port guarantee o Volume: For a variety of factors, there is uncertainty about the volume of trucks that will be financed through the program. To account for this, the Agreement contains a pricing retrigger based on specified volume levels. DTF will have the opportunity to propose new pricing (within a pre-agreed pricing level) and the Port will have the opportunity to either accept the pricing or terminate the contract. o Performance: Both the Port and DTF have the right to terminate the agreement should the other party be in breach of their duties. 10. Alternate Loan Provider: Although DTF has been granted a first right of review of loan candidates that come through the Grant Administrator, an LMC may seek a Loan from any bank the Port approves, so long as that bank adheres to the financial security procedures required of DTF to safeguard the Port s asset. C) INDEMNIFICATION OF DTF BY THE PORT The Port has indemnified DTF against claims brought by a third-party as a result of (a) any action taken by DTF under any Lease at the request of the Port, (b) any challenge to the Programs or arising from or relating to compliance with the Programs including, the enforcement of criteria imposed by CARB or the Port under the Programs, (c) determining any Participant s eligibility for any Lease Subsidy, (d) ensuring each Participant complies with its obligations under any Lease Subsidy; (e) collection, administration, disbursement or reporting of funds to be received by the Port from CARB or the Clean Truck Fee, (f) reporting requirements under the Programs or the compliance with any law or regulation that relates to the Programs that may be imposed on DTF as a lessor under a Lease (but excluding any law or regulation applicable to DCFS as a lessor generally), or (g) any allegations that the credit criteria determined by the Port for the approval of any Lease is unlawful. D) LMC APPROVAL PROCESS The Port will support subsidized leases to qualified LMC s that meet both operational and credit requirements. The approval process is as follows:

11 Exhibit 1 1. Applicants must complete an Application for Truck Replacement Funding. They must demonstrate that they meet the required operational criteria, including compliance with Proposition 1B guidelines. This includes, among other requirements, proof of two years of drayage experience, commitment to 300 trips/year to the San Pedro Bay Ports, and a copy of a valid Transportation Worker Identification Credential (TWIC) or receipt of a TWIC enrollment submission (An applicant will not, however, be able to take possession of truck without proof of a valid TWIC card). The Port s Grant Administrator, TetraTech, will review and forward applications that meet the required operational criteria to DTF, along with a completed credit application. 2. DTF will review the credit of each applicant and either approve or not approve the applicant based on credit criteria established by the Port with DTF s guidance. The credit criteria will be set at a level that will allow the greatest number of applicants to qualify, but minimize the Port s exposure to default risk, to the greatest extent possible. Recent history of bankruptcies, repossessions, and open Federal/State liens or judgments will disqualify applicants. 3. DTF will notify applicants, as well as the Grant Administrator, if they have been approved or not approved for financing. Truck dealers will be notified of approved applicants. 4. Approved applicants will then proceed to the Clean Truck Sales and Leasing Office, located at Santa Fe and Anaheim. All approved truck dealers as well as DTF have been located at this site. An applicant will then select their desired truck and complete the sales or lease transaction. E) PARTICIPANT AGREEMENT The lessee, in addition to the financial obligation outlined above, will be signing an Agreement with the Port that stipulates a number of operational requirements, such as: only operate within California, have at least 50% of the travel within the trade corridor, make at least 150 trips per year to San Pedro Bay Ports in the first four years, travel 350,000 miles or commit to an eight year-term of service, maintain insurance, maintain the truck to manufacturer s specifications, allow installation of Automatic Vehicle Locator (AVL), and periodically report certain information. Most of the foregoing are requirements of the CARB grant. Any non-compliance with the operational requirements can cause the lessee to be declared in default, even if current on the lease payments. The Program Agreement with DTF and the Lease agreement between DTF and the lessee require DTF to initiate repossession of the equipment if the Port declares the lessee in operational default, which is noncompliance with the Participant Agreement.

12 PROGRAM AGREEMENT (PORT OF LOS ANGELES) This Program Agreement ( Agreement ) is made and entered into effective this day of, 2008 ( Effective Date ), by and between Daimler Truck Financial, a business unit of DCFS USA LLC, a Delaware limited liability company, with offices at 1011 Warrenville Road, Lisle, IL ( DCFS ), and the City of Los Angeles, a municipal corporation, acting by and through its Board of Harbor Commissioners (the Board ), with offices at 425 South Palos Verdes Street, San Pedro, CA (the Port ). WITNESSETH WHEREAS, on March 20, 2008 the Board approved key elements of a landmark Clean Trucks Program (as hereinafter defined) that will modernize the trucking fleet that travels in and out of the Port area. As part of the Clean Air Action Plan, it is Port s goal to work with the Port of Long Beach ( POLB, together with Port, collectively, the Ports ) to reduce drayage truck-related air pollution in the San Pedro Bay Ports by 80% by WHEREAS, one of the key elements approved by the Board was the Clean Trucks Program Financing Plan ( Financing Plan ) to assist Participants (as hereinafter defined) with the cost of replacement of the aging drayage trucks with new diesel and alternative fuel trucks meeting 2007 Federal Environmental Protection Agency standards and approved engine retrofit equipment certified by the California Air Resources Board. In view of the differing needs of Participants, the Financing Plan offers 2 distinct options toward the acquisition cost of a Qualifying Truck (as hereinafter defined): a) lease to own program for a Qualifying Truck, and b) subsidy for the purchase of a Qualifying Truck. POLB also approved a similar financing plan which also provides a lease-to-own program, and subsidies towards purchases of trucks or retrofit equipment. WHEREAS, on March 10, 2008, the Ports issued a Request for Qualifications for a Financing Entity, and Port participated in the selection panel. Eight responses were received by April 3, 2008 and after a rigorous selection process, DCFS was selected by the Ports as the financing entity for the CTP. WHEREAS, DCFS affiliate is Daimler Financial Services AG, one of the world s leading captive financial services providers, and DCFS is the largest truck captive finance company in the United States. DCFS is an industry-specific lender specializing in the financing and leasing of heavy duty trucks and has programs specifically designed for Participants who may be small Participants. DCFS has agreed to enter into leases and to provide loan financing to qualified Participants on the terms described herein. WHEREAS, Administrator (as hereinafter defined) was selected by the Ports to perform professional, technical and program management services for the Ports respective Truck Concession Programs ( Concession Program ) and the Ports subsidies to be made under the Financing Plan, including program outreach, application processing, compliance monitoring and reporting. NOW, THEREFORE, for and in consideration of the mutual covenants and promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, DCFS and Port agree as follows: ARTICLE 1 - DEFINITIONS 1. Defined Terms. The following terms shall have the following meanings as used in this Agreement and in all exhibits, schedules, and other attachments hereto. Program Agreement (Port of Los Angeles) Page 1

13 Administrator means Tetra Tech Inc., a California corporation, and any successor Administrator appointed by the Ports from time to time, which successor may be one or both of the Ports. Approval Notice has the meaning set forth in Section 1 of Article 3. Business Day means any day other than a Saturday, Sunday or other day on which commercial banking institutions in the city of Los Angeles, California, or Chicago, Illinois are authorized by applicable law to be closed. CARB means the California Air Resources Board. Clean Truck Fee means a fee charged by the Port assessed on containerized merchandise entering or leaving the Port by Drayage Truck, paid by the cargo owner, as provided in the Port s Tariff No. 4, Section 20, Item 2030, as amended from time to time. Clean Trucks Program or CTP means the Port s Clean Trucks Program adopted by the Board on March 20, 2008, as modified by the Board from time to time. Committed Truck has the meaning set forth in Section 2(b) of Article 5. Drayage Truck means a heavy duty truck that is used to perform drayage at the Port. Eligibility Requirements means the requirements for obtaining a Subsidy as determined by Port from time to time. EPA means the United States Environmental Protection Agency. Lease means a Lease Agreement, in the form attached in Exhibit C hereto and incorporated herein by this reference (as such form may be modified from time to time in accordance herewith), between DCFS (as assignee of the selling dealer), as lessor, and a Participant approved for a Lease Subsidy with respect to such Lease, as lessee, for one or more Qualifying Trucks. Lease Subsidy means a subsidy towards a portion of the monthly rent to be provided by the Port to a Participant under the Financing Plan for a Lease of a Qualifying Truck and a subsidy towards payment of a portion of the residual value upon the purchase of such Qualifying Truck by such Participant. Leased Truck means each Qualifying Truck that is being leased to a Participant pursuant to a Lease. Licensed Motor Carrier means the permit holder under whose permit authority a Drayage Truck will be driven, under either (1) a California Motor Carrier Permit issued by the California Department of Motor Vehicles under the California Vehicle Code, or (2) a state Motor Carrier Permit issued by another U.S. state, or (3) a Federal Motor Carrier License (USDOT Number) and Operating Authority (MC Number). Loan means a Direct Purchase Money Loan and Security Agreement between DCFS, as lender, and a Participant approved for a Purchase Subsidy with respect to the Qualifying Truck financed thereunder, as borrower. Participant means a Licensed Motor Carrier approved for a Subsidy by Port. Program Agreement (Port of Los Angeles) Page 2

14 Participation Agreement means, with respect to any Subsidy, collectively, all agreements entered into between Port and the applicable Participant. Party means each of DCFS and Port. POLB Committed Truck means a Committed Truck as defined in the POLB Program Agreement. POLB Lease means a Lease as defined in the POLB Program Agreement. POLB Leased Truck means Leased Truck as defined in the POLB Program Agreement. POLB Loan means a Loan as defined in the POLB Program Agreement. POLB Program Agreement means the Program Agreement, dated the date hereof, between POLB and DCFS. Program Year means each one year period ending on each anniversary of the date hereof. Proposition 1B means the Highway Safety, Traffic Reduction, Air Quality, and Port Security Bond Act of 2006, and implementing legislation (California Health and Safety Code, beginning with Section 39625). Purchase Subsidy means a monthly subsidy towards a portion of the purchase price of a Qualifying Truck to be provided by the Port to a Participant that has purchased such Qualifying Truck (for the avoidance of doubt, a Lease Subsidy is not a Purchase Subsidy). Qualifying Truck means a Drayage Truck that is equipped with an engine that meets or exceeds 2007 model year California and Federal EPA heavy-duty diesel-fueled on-road emission standards and is otherwise determined by the Port to be eligible for the receipt of a Subsidy. Rate means the implicit rate on a Lease to a Participant. Required Lease Provisions means, with respect to any Lease, the provisions set forth in Exhibit G. Subsidy means a Purchase Subsidy or a Lease Subsidy. 2. Singular and Plural Terms. In this Agreement, all singular terms include the plural and all plural terms include the singular. ARTICLE 2 PROGRAM OUTLINE 1. Program Purpose. The purpose of the CTP is to modernize the drayage trucking fleet that comes in and out of the Port by replacing trucks with Qualifying Trucks or retrofitting trucks with a qualifying retrofit, with priority as determined by Port. Port is providing subsidies to Participants who meet the Eligibility Requirements, purchase or lease a Qualifying Truck or perform a qualifying retrofit and are otherwise approved by the Port. The subsidies will be funded through the Clean Truck Fee and/or funds provided under Proposition 1B. DCFS has been selected by Port to be the exclusive lessor and a lender (with a right of first review) on loans under the CTP on the terms described in this Agreement during the Term. The purpose of this Agreement is to describe the lease and financing components of the CTP and the rights and responsibilities of the Parties as described herein. Program Agreement (Port of Los Angeles) Page 3

15 2. Program Duration. The program described in this Agreement shall commence upon execution and delivery hereof by both Parties and terminate on December 31, 2011 ( Term ) unless terminated earlier in accordance with the terms of this Agreement. Any lease commitments made by DCFS under this Agreement shall be honored if funded before sixty days after the termination date. 3. Leases. During the Term, the Port and DCFS agree that DCFS shall be the exclusive lessor for leases to be offered to Participants that receive a Lease Subsidy for the lease of a Qualifying Truck under the Program on the terms and conditions set forth herein. The maximum aggregate dollar amount of Leases and POLB Leases (based upon the adjusted capital costs of Leased Trucks and POLB Leased Trucks) that DCFS is obligated to fund hereunder and under the POLB Program Agreement shall be $1,000,000, Loans. During the Term, the Port has selected DCFS as a lender (with a right of first review) for loans to be offered to Participants to fund a portion of the purchase price for a Qualifying Truck but only if the Participant satisfies DCFS credit criteria. For the avoidance of doubt, DCFS right of first review with respect to loans shall not restrict in any way the right of any Participant to obtaining financing (whether as loans or otherwise) from any other source, provided that such financing does not involve Lease Subsidies. ARTICLE 3 PARTICIPANT SUBSIDY APPROVAL 1. Compliance With CTP Requirements. It will be the responsibility of the Port, directly or through its Administrator, to determine whether a Participant and the selected truck are eligible for a Subsidy, the type and amount of any Subsidy approved, and whether such Participant is approved for a Lease Subsidy or a Purchase Subsidy. Once the Port approves a Participant for a Subsidy, the Port (or its Administrator) shall provide written notice to DCFS, in the form attached hereto and incorporated herein by reference as Exhibit H, of such approval (as such form may be revised by the Port and DCFS from time to time, an Approval Notice ). The Administrator shall also inform the Participant to contact DCFS or its agent to complete a credit application and to determine credit qualification. The Port s approval for any Subsidy shall remain in effect until the earlier of the day (with termination effective as of 12:00 midnight at the end of such day) that is sixty (60) days after the date of the Approval Notice or the termination thereof for any reason by the Port; provided, however, that if the Port terminates any Lease Subsidy approval prior to the end of such sixty-day period, then such termination shall not be effective as to DCFS until the Port shall have given written notice thereof to DCFS. As between the Port and DCFS, the Port shall be obligated with respect to any Lease Subsidy for any Lease for which DCFS has issued its credit approval letter prior to the expiration or the termination of the Port s approval of such Lease Subsidy. The Port shall have no obligation to DCFS with respect to any Lease Subsidy for which the credit approval letter for the applicable Lease by DCFS is issued after the expiration or termination of the Port s approval of such Lease Subsidy. The Port shall have no obligation to DCFS with respect to any Purchase Subsidy approval or any Purchase Subsidy and may terminate any Purchase Subsidy approval and any Purchase Subsidy at any time, without notice to DCFS. DCFS shall perform its own due diligence to determine whether each Participant fulfills the applicable credit criteria (as set forth in Article 4 hereof) or other criteria for obtaining a Loan or Lease. DCFS acknowledges and agrees that the Port s approval of a Participant for a Subsidy is not intended to be, and shall not be deemed to be, a representation or warranty by the Port that such Participant satisfies any of the credit underwriting requirements or other requirements for obtaining a Loan or Lease, notwithstanding that there may be some overlap between the Eligibility Requirements and DCFS requirements to approve or fund a Lease or Loan. Program Agreement (Port of Los Angeles) Page 4

16 ARTICLE 4 - CREDIT QUALIFICATION Once the Port (or its Administrator) notifies DCFS that the Port has approved a Participant for a Subsidy, DCFS shall accept a completed credit application from the Participant and perform a credit review utilizing (a) with respect to any proposed Loan, such criteria and process as DCFS may elect, and (b) with respect to any proposed Lease, the criteria specified by the Port from time to time in accordance herewith. Using such criteria, DCFS shall determine in its sole discretion if the Participant meets the credit criteria for a Lease or for a Loan, as applicable. If the credit is approved, DCFS shall issue a credit approval letter to the selling dealer, which credit approval letter shall be expressly conditioned on such Participant s Lease Subsidy approval not expiring or being terminated. If the credit is denied, DCFS shall issue its standard credit denial letter to Participant. From time to time, the Port may re-evaluate the credit criteria applicable to Leases and make any changes it deems appropriate (and DCFS shall provide reasonable consultation to Port in connection therewith). If the Port shall make any changes to the credit criteria after the initial credit criteria shall have been established then the effectiveness of such change shall be subject to written notice thereof not less than two (2) Business Days prior to the effectiveness of such change, from the Executive Director or Deputy Executive Director, Finance and Administration of the Port (or any other person as such Executive Director or Deputy Executive Director, Finance and Administration may notify DCFS in writing) to Senior Manager, Credit of DCFS (or to such other person as such Senior Manager, Credit may specify to the Port in writing). Upon receipt of any such notice, Senior Manager, Credit (or such other person) of DCFS shall promptly acknowledge receipt thereof in writing to the Port. ARTICLE 5 - TERMS AND PRICING OF LEASES; APPLICATION OF SUBSIDY FUNDS 1. Terms and Pricing of Leases. The Port and DCFS have agreed that during the Term, subject to Section 2 of this Article 5, the pricing on Leases will be that pricing calculation set forth in Exhibit A, attached hereto and incorporated herein by reference (the Pricing ). The Pricing is based on the terms of the Lease approved by the Port and DCFS as set forth in Exhibit B, attached thereto and incorporated herein by reference. 2. Changes to Pricing. (a) If (i) there are any changes in the Internal Revenue Code, the State of California statutes or any regulatory, administrative or judicial promulgations or determinations related thereto, in each case, with respect to allowable depreciation rates or tax rates (each, a Change ), (ii) any of the following events shall occur: (A) the credit rating of Daimler AG is upgraded or downgraded, (B) any person or entity acquires, after the date hereof, more than 50% of the outstanding equity interests of Daimler AG entitled to vote for the board of managers (or comparable governing body) of Daimler AG, (C) any bankruptcy proceeding shall be commenced by any of Ford Motor Company, General Motors Corporation, Chrysler Motors LLC, Renault S.A., Fiat S.p.A, Volkswagen AG, PSA Peugeot Citroen S.A., Mack Trucks, Inc., AB Volvo, Scania AB, Navistar International Corporation, PACCAR Inc., Iveco S.p.A. or MAN AG, any labor strike at a manufacturing facility of Daimler AG (or any of its subsidiaries) effecting the manufacturing capabilities of Daimler AG (or such subsidiary) that lasts for more than three consecutive months, (D) any change to the composition of companies included in the A Minus 5 Year Swap index of more than 10% of the companies in such index in any period of three consecutive months, or (E) Daimler AG (or any of its subsidiaries)shall acquire any entity having a market value of greater than $10 billion, or (iii) the credit rating of the Port s senior bonds are downgraded or upgraded by more than one full category (e.g., from AA to A or from AA+ to A+ ) by any 2 or more of Moody s Investors Service, Inc., Standard & Poor s Rating Services, a division of the McGraw-Hill Companies, and Fitch Ratings and, in any such case under clauses (i), (ii) or Program Agreement (Port of Los Angeles) Page 5

17 (iii), in the reasonable opinion of DCFS or the Port, such event necessitates a change in the Pricing (a Pricing Change ), DCFS or the Port, as applicable, shall provide written notification ( Notice ) to the other with details on the proposed Pricing Change, the reasons for the proposed Pricing Change, implementation date of any Change (if applicable), and, with respect to any Pricing Change requested by DCFS pursuant to the preceding clause (ii) evidence, reasonably satisfactory to the Port, from JPMorgan Chase & Co. (or other comparable independent financial institution) of DCFS cost of funds prior to and after the occurrence of such event). If any Pricing Change shall be effected as a result of any event set forth in clause (ii) of the preceding sentence, then, not earlier than three months after the effectiveness of such Pricing Change the Port, DCFS shall provide evidence, reasonably satisfactory to the Port, from JPMorgan Chase & Co. (or other comparable independent financial institution) of DCFS' then cost of funds) of DCFS then costs of funds to determine if any reduction in Pricing is appropriate and the Port and DCFS shall negotiate any such reduction in pricing in accordance with clause (d) of this Section 2. (b) Additionally, if, as of any date set forth below, the Aggregate DCFS Financed And Committed Trucks (as hereinafter defined) as of such date is less than the Minimum Aggregate DCFS Financed And Committed Trucks corresponding to such date and, in the reasonable opinion of DCFS, such event necessitates a Pricing Change, then DCFS may provide a Notice to the Port in accordance with the preceding clause (a): Date Minimum Aggregate DCFS Financed And Committed Trucks June 30, ,000 December 31, ,000 June 30, ,500 December 31, ,000 June 30, ,500 December 31, ,000 Anything herein to the contrary notwithstanding, If the DCFS Financed And Committed Trucks Success Percentage (as hereinafter defined) as of each date set forth above is 75% or more and 99% or less, then any proposed Pricing Change pursuant to this clause (b) shall be in an amount equal to one (1) basis point for each full percentage point by which the DCFS Financed And Committed Trucks Success Percentage is less than 100% (for the avoidance of doubt, if the DCFS Financed and Committed Trucks Success Percentage as of any such date is less than 75% then the amount of any proposed Pricing change shall not be limited by this sentence). By way of example, and without limiting the generality of the foregoing: If: (a) the Aggregate DCFS Financed And Committed Trucks as of December 31, 2009, is 3850 (b) the Minimum Aggregate DCFS Financed And Committed Trucks as of December 31, 2009 is 4,000 Then: (a) the DCFS Financed And Committed Trucks Success Percentage is 3,850/4,000 = 96.25% (b) The Pricing will be increased pursuant to this clause (b) by 3 basis points. If subsequent to any increase in Pricing pursuant to this clause (b), the Aggregate DCFS Financed and Committed Trucks made as of any subsequent date set forth above equals or exceeds the Minimum Program Agreement (Port of Los Angeles) Page 6

18 Aggregate DCFS Financed And Committed Trucks corresponding to such subsequent date then, with effect promptly following such subsequent date (and, in any event, within 15 Business Days thereafter), the Pricing shall automatically be reduced by the amount of such increase in Pricing. As used herein: Aggregate DCFS Financed And Committed Trucks means, as of any date of determination thereof, the sum of (a) the aggregate number of Leased Trucks, POLB Leased Trucks and trucks subject to Loans and POLB Loans made by DCFS delivered (excluding any Leased Truck and POLB Leased Truck delivered in connection with slip seating) during the period from the date hereof through such date, plus (b) the aggregate number of Committed Trucks and POLB Committed Trucks as of such date. Committed Truck means a Qualifying Truck for which (1) the Port has approved the applicable Participant for a Lease Subsidy or Loan Subsidy (and such approval has not expired or been terminated), (2) DCFS has issued its credit approval letter to the applicable dealer (and such credit approval letter has not expired or been terminated), (3) such Qualifying Truck is then on order by the applicable dealer, and (4) such truck has not yet been delivered to the applicable Participant. DCFS Financed And Committed Trucks Success Percentage as of any date of determination, is the result, expressed as a percentage, of (a) the Aggregate DCFS Financed And Committed Trucks as of such date, divided by (b) the Minimum Aggregate DCFS Financed And Committed Trucks corresponding to such date. (c) If the Default Rate (as hereinafter defined) as of the last day of each five-calendar month period during the Term (commencing with the period ending on the last day of the fifth calendar month after the effective date of this Agreement (e.g., if the effective date of this Agreement is September 20, 2008, then the last day of the first such five-calendar month period shall be February 28, 2009, and the last day of the second such five-calendar month period shall be July 31, 2009)), is greater than 25% and, in the reasonable opinion of DCFS, such event necessitates a Pricing Change, then DCFS may provide a Notice to the Port in accordance with the preceding clause (a). If, subsequent to any increase in Pricing pursuant to this clause (c), the Default Rate as of the last day of any subsequent five-month period is equal to or less than 25% then, with effect promptly following the end of such subsequent five-month period (and, in any event, within 15 Business Days thereafter), the Pricing shall automatically be reduced by the amount of such increase in Pricing. Notwithstanding the foregoing, (I) if there is any increase in Pricing pursuant to this clause (c) then, unless there is a subsequent decrease in Pricing pursuant to this clause (c), there shall be no subsequent increase in Pricing pursuant to this clause (c), and (II) if there is any decrease in Pricing pursuant to this clause (c) then, unless there is a subsequent increase in Pricing pursuant to this clause (c), there shall be no subsequent decrease in Pricing pursuant to this clause (c). As used herein: Aggregate Lease Balance means, as of any date of determination thereof for any period, the sum of (a) the aggregate of the Lease Balance of all Leases and all POLB Leases as of such date, plus (b) for all Leased Trucks and POLB Leased Trucks repossessed by DCFS during such period that were not slip-seated, the aggregate Lease Balances under the applicable Leases and POLB Leases as of such date (or, if any such Leased Truck or POLB Leased Truck was sold or otherwise disposed of (other than by slip-seating) during such period, then the Lease Balance for such Leased Truck or POLB Leased Truck as at the time of such sale or other disposition (and prior to application of the proceeds from such sale or other disposition)). Program Agreement (Port of Los Angeles) Page 7

19 Default Rate means, as of any date of determination thereof for any period, the result, expressed as a percentage of, (A) the sum of: (i) the then aggregate dollar amount of payments then more than 30 days past due (without duplication of any amount included in the following clause (ii)) under all Leases and POLB Leases, plus (ii) for all Leased Trucks and POLB Leased Trucks repossessed by DCFS during such period that were not slip-seated, the aggregate Lease Balances under the applicable Leases and POLB Leases as of such date (or, if any such Leased Truck or POLB Leased Truck was sold or otherwise disposed of (other than by slip-seating) during such period, then the Lease Balance for such Leased Truck or POLB Leased Truck at the time of such sale or other disposition (and prior to application of the proceeds from such sale or other disposition)); divided by (B) the Aggregate Lease Balance as of the last day of such period for such period. Lease Balance means, as of any date of determination, for any Lease or POLB Lease, the sum of (i) the implied principal balance of such Lease or POLB Lease as of such date, plus (ii) all other amounts then due and payable under such Lease or POLB Lease. (d) For a period of 15 Business Days from the date any Notice is given pursuant to this Section 2, the Port and DCFS will negotiate a Pricing Change, and an effective date for such Pricing Change. If the Port and DCFS are not able to reach agreement on a Pricing Change within such 15- Business Day period, then no change shall be made to the Pricing and, at the expiration of such 15- Business Day period, either Party may terminate this Agreement upon 30 days written notice given within 10 days after the end of such 15-Business Day period. Notwithstanding any such termination, DCFS shall remain obligated to fund those Leases for which an approval letter was issued by DCFS prior to the date of termination but only until the date on which the approval letter expires and subject to the terms and conditions of such approval letter. If the Port and DCFS reach an agreement with respect to any such Pricing Change, then such Pricing Change shall be applicable to any Lease approvals issued by DCFS after the effective date of such Pricing Change. 3. Payment/Application of Subsidy Funds. (a) The Lease Subsidy shall be payable by the Port, on behalf of and at the direction of the applicable Participant, to DCFS in monthly installments as set forth in the applicable Approval Notice, except that the portion of the Lease Subsidy payable with respect to the residual value under the applicable Lease shall be payable upon purchase of the applicable Leased Truck at the end of the Lease term. Each monthly installment of a Lease Subsidy shall be due and payable by the Port on the date on which the corresponding rent payment is due under the applicable Lease. The amount of each such installment shall be the amount set forth in the Approval Notice for such Lease Subsidy, as acknowledged by the Port and DCFS. The Port acknowledges that, as between it and DCFS, the Port shall be obligated to pay each installment of a Lease Subsidy, on behalf of the applicable Participant, notwithstanding any default by such Participant under its Participation Agreement (which obligation shall, for the avoidance of doubt, continue notwithstanding any forbearance by DCFS under the Guaranty), but without duplication of any amount that the Port (either pursuant to the Guaranty or otherwise) shall have otherwise paid to DCFS with respect to such Participant s rent or residual value obligation under the applicable Lease. Program Agreement (Port of Los Angeles) Page 8