<PAGE> 1
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION MARCH 10, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 11, 1998)
$96,325,000
UNION TANK CAR COMPANY
1998-A PASS THROUGH TRUST
PASS THROUGH CERTIFICATES, SERIES 1998-A
Each Pass Through Certificate offered hereby will represent a fractional
undivided interest in the Union Tank Car Company 1998-A Pass Through Trust (the
"Pass Through Trust") to be formed pursuant to a pass through trust agreement
between Union Tank Car Company (the "Company") and Harris Trust and Savings
Bank, as Pass Through Trustee (the "Pass Through Trustee"). The property of the
Pass Through Trust will consist of $96,325,000 aggregate principal amount of
equipment notes (the "Equipment Notes") to be issued on a nonrecourse basis by
the trustee of an owner trust (the "Owner Trustee") in connection with a
leveraged lease transaction to finance not more than 80% of the cost of certain
tank cars and covered hopper cars (each rail car a "Unit" and, collectively, the
"Equipment") that will be purchased by the Owner Trustee from the Company and
leased to the Company. Amounts unconditionally payable under the lease will be
sufficient to pay in full when due all payments of principal of, Make-Whole
Amount (as hereinafter defined), if any, and interest on the Equipment Notes
held in the Pass Through Trust. The Equipment Notes are not obligations of, or
guaranteed by the Company.
The Equipment Notes will be issued under an indenture and will be secured by a
security interest in the Equipment leased by the Company under the lease and by
an assignment of certain of the Owner Trustee's rights under such lease,
including the right to receive rent payable by the Company in respect of such
Equipment pursuant to such lease.
Interest paid on the Equipment Notes held in the Pass Through Trust will be
passed through to the Certificateholders on January 2 and July 2 of each year,
commencing on July 2, 1998, at the rate per annum set forth below until the
final distribution date as set forth below for the Pass Through Trust. The
principal of the Equipment Notes held in the Pass Through Trust will be paid and
passed through to the Certificateholders in scheduled amounts on January 2 of
each year, commencing on January 2, 2000, but excluding January 2, 2009, and
continuing until the final distribution date set forth below for the Pass
Through Trust.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PASS THROUGH PRINCIPAL INTEREST INITIAL PRINCIPAL FINAL PRICE TO
CERTIFICATES AMOUNT RATE DISTRIBUTION DATE DISTRIBUTION DATE PUBLIC(1)(2)
<S> <C> <C> <C> <C> <C>
1998-A............... $96,325,000 % January 2, 2000 January 2, 2014 100%
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from March , 1998.
(2) The underwriting commission is $ , which constitutes % of the
principal amount of the Pass Through Certificates. The underwriting
commission, and certain other expenses estimated at $ , will be
payable by the Owner Trustee in the leveraged lease transaction. All of the
proceeds from the sale of the Pass Through Certificates will be used to
purchase the Equipment Notes.
The Pass Through Certificates are offered by the Underwriter subject to prior
sale, when, as and if accepted by the Underwriter and subject to approval of
certain legal matters by Mayer, Brown & Platt, counsel for the Underwriter. It
is expected that delivery of the Pass Through Certificates in book-entry form
will be made on or before March , 1998 through the facilities of The
Depository Trust Company, against payment therefor in immediately available
funds.
SALOMON SMITH BARNEY
The date of this Prospectus Supplement is March , 1998
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE PASS THROUGH
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary of provisions relating to the Pass Through
Certificates does not purport to be complete and is qualified in its entirety by
the detailed information appearing elsewhere in this Prospectus Supplement and
the Prospectus accompanying the Prospectus Supplement (the "Prospectus").
THE COMPANY
Union Tank Car Company (with its wholly-owned subsidiaries herein
collectively referred to, except as the context otherwise requires, as the
"Company") is principally engaged in the leasing of railway tank cars and other
rail cars to United States, Canadian and Mexican manufacturers and other
shippers of chemical products, including liquid fertilizers, petroleum products,
including liquid petroleum gas, food products and bulk plastics. The Company
owns and operates one of the largest fleets of privately-owned railway tank cars
in the world.
GLOSSARY...................... Included at the end of the accompanying
Prospectus as Appendix I is a Glossary of
certain of the significant defined terms used
herein.
PASS THROUGH TRUST............ The Union Tank Car Company 1998-A Pass Through
Trust (the "Pass Through Trust") will be formed
pursuant to a Pass Through Trust Agreement (the
"Agreement") between the Company and Harris
Trust and Savings Bank, as Pass Through Trustee
(the "Pass Through Trustee").
PASS THROUGH TRUST PROPERTY... The property of the Pass Through Trust will
consist of $96,325,000 aggregate principal
amount of equipment notes (the "Equipment
Notes") to be issued on a non-recourse basis by
Wilmington Trust Company, as owner trustee (the
"Owner Trustee") of an owner trust for the
benefit of an institutional investor (the
"Owner Participant") in connection with a
leveraged lease transaction to finance not more
than 80% of the cost to the Owner Trustee of
certain tank cars and covered hopper cars (each
rail car a "Unit" and, collectively, the
"Equipment") that will be purchased by the
Owner Trustee, on behalf of the Owner
Participant, from the Company and leased to the
Company. The Equipment Notes acquired by the
Pass Through Trust will bear interest at the
same rate as the Pass Through Certificates,
will amortize as to principal in the same
manner as the Pass Through Certificates and
will mature on the final distribution date for
the Pass Through Trust. Until all of the
Equipment Notes are issued, the Pass Through
Trustee will hold in cash an amount equal to
the aggregate principal amount of unissued
Equipment Notes. Such cash shall be invested by
the Pass Through Trustee in Specified
Investments. See "Description of the Pass
Through Certificates--General" in this
Prospectus Supplement and in the accompanying
Prospectus. The Equipment Notes will be issued
in connection with such leveraged lease
transaction under an indenture (the
"Indenture").
S-3
<PAGE> 4
PASS THROUGH CERTIFICATES;
BOOK-ENTRY REGISTRATION....... Each Pass Through Certificate will represent a
fractional undivided interest in the Pass
Through Trust. The Pass Through Certificates
will be issued in fully registered form only.
See "Description of the Pass Through
Certificates--General" in this Prospectus
Supplement and in the accompanying Prospectus.
The Pass Through Certificates will be
registered in the name of Cede & Co. ("Cede"),
as the nominee of The Depository Trust Company
("DTC"). No person acquiring an interest in the
Pass Through Certificates will be entitled to
receive a definitive certificate (a "Registered
Certificate") representing such person's
interest in the Pass Through Trust, except in
the event that Registered Certificates are
issued under the limited circumstances
described herein. See "Description of the Pass
Through Certificates--Book-Entry Registration"
and "--Registered Certificates" each in the
accompanying Prospectus.
DENOMINATIONS................. The Pass Through Certificates will be issued in
minimum denominations of $1,000 and any
integral multiple of $1,000 in excess thereof.
See "Description of the Pass Through
Certificates--General" in the accompanying
Prospectus.
REGULAR DISTRIBUTION DATES.... January 2 and July 2.
SPECIAL DISTRIBUTION DATES.... Regular Distribution Dates or, in certain
cases, any Business Day.
RECORD DATES.................. The fifteenth day preceding a Regular
Distribution Date or a Special Distribution
Date.
INITIAL AVERAGE LIFE DATE..... The initial average life date of the Pass
Through Certificates is February 7, 2008 (9.88
years).
DISTRIBUTIONS................. Payments of interest on the Equipment Notes
held in the Pass Through Trust are scheduled to
be received in specified amounts by the Pass
Through Trustee on January 2 and July 2 of each
year, commencing July 2, 1998, and are to be
distributed to the Certificateholders on the
corresponding Regular Distribution Dates.
Payments of principal of the Equipment Notes
are scheduled to be received in specified
amounts by the Pass Through Trustee on January
2 of each year, commencing on January 2, 2000,
but excluding January 2, 2009, and continuing
until the final distribution date and are to be
distributed to the Certificateholders on the
corresponding Regular Distribution Dates.
Payments of principal of, Make-Whole Amount, if
any, and interest on the Equipment Notes
resulting from prepayments thereof, if any,
will be distributed on a Special Distribution
Date after not less than 15 days' notice from
the Pass Through Trustee to the
Certificateholders of the Pass Through Trust.
For a discussion of distributions upon an Event
of Default, see "Description of the Pass
Through Certificates--Events of Default and
Certain Rights Upon an Event of Default," in
this Prospectus Supplement and in the
accompanying Prospectus.
S-4
<PAGE> 5
EXTRAORDINARY DISTRIBUTIONS... It is anticipated that (i) approximately
$72,800,000 principal amount of Equipment Notes
(the "Initial Equipment Notes") will be
acquired by the Pass Through Trust at the
initial Equipment closing (the "Initial
Closing") which is scheduled to occur on or
about March 30, 1998 and (ii) approximately
$23,525,000 principal amount of Equipment Notes
(the "Subsequent Equipment Notes") will be
acquired by the Pass Through Trust at the
subsequent Equipment closing (the "Subsequent
Closing") which is scheduled to occur on or
about June 8, 1998. All proceeds of the
issuance of the Pass Through Certificates will
be held by the Pass Through Trustee and
invested in Specified Investments at the
direction of and for the account of the Company
pending the purchase of the Equipment Notes. To
the extent that the return on the Specified
Investments is less than the return that would
have been received on the Equipment Notes had
they been purchased immediately after the
issuance of the Pass Through Certificates, the
Company will make up any shortfall in an amount
equal to the amount that would have been
distributable to Certificateholders on the
first Regular Distribution Date had all of such
proceeds been used to purchase Equipment Notes
on the date of issuance of the Pass Through
Certificates. If the Initial Closing does not
occur on or before April 30, 1998 involving the
issuance of Equipment Notes in an aggregate
principal amount of at least $50,000,000, all
of the proceeds of the sale of the Pass Through
Certificates, together with interest thereon at
the rate applicable to the Pass Through
Certificates, will be distributed to
Certificateholders on May 4, 1998. If the
Subsequent Closing does not occur on or prior
to June 15, 1998, the unexpended proceeds of
the sale of the Pass Through Certificates,
together with interest thereon at the rate
applicable to the Pass Through Certificates,
will be distributed to Certificateholders on
June 19, 1998. To the extent the aggregate
principal amount of the Initial Equipment Notes
and the Subsequent Equipment Notes purchased by
the Pass Through Trustee is less than the
aggregate principal amount of the Pass Through
Certificates, the unexpended proceeds, together
with interest thereon at the rate applicable to
the Pass Through Certificates, will be
distributed to Certificateholders on June 19,
1998. See "Description of the Pass Through
Certificates--Delayed Purchase" in this
Prospectus Supplement and in the accompanying
Prospectus.
METHOD OF DISTRIBUTIONS....... So long as the Pass Through Certificates are
registered in the name of Cede, as the nominee
of DTC, distributions by the Pass Through
Trustee will be made in same-day funds to DTC,
which in turn will make distributions to
participants in DTC ("DTC Participants") in
same-day funds. The final distribution of
principal with respect to the Pass Through
Certificates will be made by DTC to DTC
Participants in same-day funds. Responsibility
for distributions by DTC Par-
S-5
<PAGE> 6
ticipants to beneficial owners of the Pass
Through Certificates will be the responsibility
of such DTC Participants and will be made in
accordance with customary industry practices.
See "Description of the Pass Through
Certificates--Payments and Distributions" in
this Prospectus Supplement and in the
accompanying Prospectus. At such time, if any,
as Registered Certificates are issued
representing the Pass Through Certificates and
are not registered in the name of Cede, as the
nominee of DTC, distributions by the Pass
Through Trustee to Certificateholders, other
than the final distribution, will be made by
check mailed to each Certificateholder of
record on the applicable record date at its
address appearing on the register. The final
distribution with respect to the Pass Through
Certificates will be made only upon surrender
and presentation thereof at the office or
agency of the Pass Through Trustee. See
"Description of the Pass Through
Certificates--Payments and Distributions" in
the accompanying Prospectus.
INTEREST...................... Interest on the Pass Through Certificates will
be passed through to the Certificateholders at
the rate per annum indicated on the cover page
of this Prospectus Supplement, which is the
interest rate to be borne by the Equipment
Notes. Interest is calculated on the basis of a
360-day year consisting of twelve 30-day
months. See "Description of the Pass Through
Certificates--General" in the accompanying
Prospectus.
PRINCIPAL..................... The principal of the Equipment Notes is payable
in scheduled amounts on January 2 of each year,
commencing on January 2, 2000, but excluding
January 2, 2009, and continuing until the final
distribution date for the Pass Through Trust.
See "Description of the Pass Through
Certificates--Payments and Distributions" and
"Description of the Equipment Notes--Principal
and Interest Payments" in this Prospectus
Supplement and in the accompanying Prospectus.
EQUIPMENT NOTES: GENERAL...... Interest will be payable in arrears on the
Equipment Notes on the unpaid principal amount
thereof on January 2 and July 2 of each year,
commencing on July 2, 1998. The principal of
each Equipment Note is payable in accordance
with the principal repayment schedule set forth
in this Prospectus Supplement under
"Description of the Equipment Notes--Principal
and Interest Payments."
EQUIPMENT NOTES: PREPAYMENT... One or more of the Equipment Notes may be
prepaid, in whole or in part, under the
following circumstances:
(a) If an Event of Loss to a Unit shall occur
and the Company does not substitute like
kind equipment of equal or greater value
for such Unit, it is obligated to pay the
Stipulated Loss Value of such Unit. Such
payment will be used to prepay a portion of
the Equipment Notes on (i) the next Regular
Distribution Date following the election by
the Company to make such payment
S-6
<PAGE> 7
rather than substitute like kind equipment
or (ii) in the case of the occurrence of an
Event of Loss in respect of more than ten
Units since the end of the last six month
reporting period under the Lease (a
"Multiple Loss"), on the first Business Day
succeeding the 60th day following the date
on which the Company is required to report
such Multiple Loss. The amount prepaid will
be equal to the sum of (i) as to principal,
an amount equal to the product obtained by
multiplying the aggregate unpaid principal
amount of the Equipment Notes as of the
prepayment date (after deducting therefrom
the scheduled principal installment, if
any, made on the prepayment date) by a
fraction, the numerator of which shall be
the Equipment Cost of such Unit and the
denominator of which shall be the aggregate
Equipment Cost of all Equipment securing
the Indenture immediately prior to the
prepayment date, and (ii) as to interest,
the aggregate amount of interest accrued
and unpaid to but not including the
prepayment date in respect of the principal
amount to be prepaid pursuant to clause (i)
above on such prepayment date. No
Make-Whole Amount will be payable in the
event of a prepayment under such
circumstances.
(b) If (i) on or after September 30, 2005 the
Company elects to exercise its right to
terminate the Lease pursuant to the terms
thereof with respect to some or all of the
Units leased thereunder as a result of such
Units becoming obsolete or surplus to the
Company's needs, or (ii) on January 2, 2009
the Company exercises its option to
purchase some or all of the Units in
accordance with the terms of the Lease or
(iii) the Company elects to exercise its
right under the Participation Agreement to
purchase Equipment as a result of the Owner
Participant (or an affiliate thereof)
engaging in a business that is in
competition with the Company's full service
railcar leasing business, a portion of the
proceeds from the Company's payment of the
Termination Value of such Units or the
exercise price of such purchase option, as
the case may be, will be used to prepay
Equipment Notes relating to such Equipment,
unless the Company elects in connection
with the exercise of a purchase option to
assume on a full recourse basis all of the
Owner Trustee's obligations in respect of
the related Equipment Notes and acquires
such purchased Units subject to the lien of
the Indenture. Any such prepayment will be
in an amount at least equal to the
principal and accrued interest thereon,
computed as provided in paragraph (a)
above, plus, under the circumstances
described in clauses (i) and (iii) of this
paragraph, a Make-Whole Amount. No
Make-Whole Amount will be payable in the
event of a prepayment under the
circumstances described in clause (ii) of
this
S-7
<PAGE> 8
paragraph. See "Description of the
Equipment Notes--Prepayment" in this
Prospectus Supplement and in the
accompanying Prospectus for a description
of the manner of computing the Make-Whole
Amount.
(c) Subject to certain restrictions, the
Company may require the Owner Trustee to
effect a prepayment of the Equipment Notes
at a price equal to the aggregate unpaid
principal amount thereof, together with
accrued interest thereon, plus a Make-Whole
Amount, as part of a refunding or
refinancing which will result in the
prepayment of the Pass Through
Certificates.
(d) If under the Indenture an Indenture Default
shall have occurred and be continuing and
(i) the Indenture Trustee shall give notice
of its intent to accelerate the Equipment
Notes or to exercise other remedies
available to it or (ii) the Indenture
Trustee shall not have taken action with
respect to such Indenture Default for a
period of not less than 180 days, the Owner
Trustee may elect to prepay or purchase all
of the then outstanding Equipment Notes at
a price equal to the unpaid principal
amount thereof, together with accrued
interest thereon to the date of prepayment
or purchase, but without any Make-Whole
Amount.
See "Description of the Equipment
Notes--Prepayment" in this Prospectus
Supplement and in the accompanying Prospectus.
EQUIPMENT NOTES: SECURITY..... The Equipment Notes will be secured by a
security interest in the Equipment leased by
the Company under the Lease and an assignment
to the Indenture Trustee of certain of the
Owner Trustee's rights under the Lease,
including the right to receive rent payable by
the Company thereunder.
Although the Equipment Notes are not direct
obligations of, or guaranteed by, the Company,
the amounts unconditionally payable by the
Company under the Lease will be sufficient to
pay in full when due all payments of principal
of, Make-Whole Amount, if any, and interest on
the Equipment Notes. See "Description of the
Equipment Notes--General" in this Prospectus
Supplement and in the accompanying Prospectus.
USE OF PROCEEDS............... The proceeds from the sale of the Pass Through
Certificates will be used by the Pass Through
Trustee to purchase the Equipment Notes. The
Owner Trustee will use the proceeds from the
sale of the Equipment Notes to finance not more
than 80% of the Equipment Cost of the
Equipment, representing in the aggregate the
entire debt portion of the leveraged lease
transaction. The net proceeds to the Company
from the sale of the Equipment will be used by
the Company for general corporate purposes. See
"Use of Proceeds" in this Prospectus Supplement
and in the accompanying Prospectus.
S-8
<PAGE> 9
PASS THROUGH TRUSTEE.......... Harris Trust and Savings Bank will act as
trustee under the Pass Through Agreement and as
paying agent and registrar for the Pass Through
Certificates. Harris Trust and Savings Bank
also will act as the Indenture Trustee under
the Indenture.
FEDERAL INCOME TAX
CONSEQUENCES.................. The Pass Through Trust will be classified as a
grantor trust for federal income tax purposes,
and each Certificate Owner of the Pass Through
Trust will be treated as the owner of a pro
rata undivided interest in each of the
Equipment Notes and any other property held in
the Pass Through Trust and should report on its
federal income tax return its pro rata share of
income from such Equipment Notes and any other
property held by Pass Through Trust in
accordance with such Certificate Owner's method
of accounting. See "Material Federal Income Tax
Consequences" in this Prospectus Supplement and
in the accompanying Prospectus.
ERISA CONSIDERATIONS.......... The Pass Through Certificates, with certain
limited exceptions, are eligible for purchase
by employee benefit plans. See "ERISA
Considerations" in this Prospectus Supplement
and in the accompanying Prospectus.
S-9
<PAGE> 10
THE COMPANY
Union Tank Car Company (with its wholly-owned subsidiaries herein
collectively referred to, except as the context otherwise requires, as the
"Company") is principally engaged in the leasing of railway tank cars and other
rail cars to United States, Canadian and Mexican manufacturers and other
shippers of chemical products, including liquid fertilizers, petroleum products,
including liquid petroleum gas, food products and bulk plastics. The Company
owns and operates one of the largest fleets of privately-owned railway tank cars
in the world. For additional information regarding the Company, see "The
Company" in the accompanying Prospectus.
S-10
<PAGE> 11
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at September 30, 1997. The table does not give effect to the sale of the
Pass Through Certificates because the Pass Through Certificates are not direct
obligations of the Company. In addition, because the Lease is expected to be
classified as an operating, rather than a capital, lease, there will be no
related obligation recorded on the Company's consolidated balance sheet.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Borrowed debt:
Equipment obligations, payable periodically through 2009
at 6.50%-15.55% (average rate 8.78% at September 30,
1997).................................................. $ 517,739
Unsecured borrowings, payable from 2004 to 2009 at
7.125%-7.45% (average rate 7.29% at September 30,
1997).................................................. 300,000
Other long-term borrowings, payable periodically through
2005 (average rate 12.20%)............................. 24,567
----------
Total borrowed debt............................... 842,306
Stockholder's equity:
Common stock, no par value: 1,000 shares authorized and
issued................................................. 106,689
Additional capital........................................ 6,346
Retained earnings......................................... 472,877
----------
Total stockholder's equity........................ 585,912
----------
Total capitalization......................... $1,428,218
==========
</TABLE>
S-11
<PAGE> 12
SELECTED FINANCIAL AND OPERATING DATA
The selected financial information set forth below as of December 31, 1992
through 1996 and for the years then ended, with the exception of the operating
fleet data, has been derived from the Company's audited financial statements
contained in the Company's Annual Reports on Form 10-K. The audited financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, together with the report of the Company's independent
auditors are incorporated herein by reference. See "Documents Incorporated by
Reference." The selected financial data set forth below as of September 30, 1997
and 1996 and for the nine months then ended, with the exception of the ratios of
earnings to fixed charges and the operating fleet data, were extracted from the
Company's Quarterly Reports on Form 10-Q for the quarters ended September 30,
1997 and September 30, 1996, the former of which is incorporated herein by
reference. Interim results are not necessarily indicative of the results of the
full year. The selected financial information should be read in conjunction with
such financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 and in
the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement
Services and net sales(1)............ $610,900 $494,319 $680,642 $725,712 $595,327 $504,823 $493,121
Other income......................... 12,975 25,030 28,916 19,607 15,959 17,033 22,374
Total revenues....................... 623,875 519,349 709,558 745,319 611,286 521,856 515,495
Cost of services and sales(1)........ 410,218 300,195 418,133 478,017 362,205 280,161 275,291
General and administrative........... 42,241 40,591 57,098 55,630 54,120 54,629 53,609
Interest expense..................... 56,585 54,589 72,138 81,179 91,442 96,584 105,417
Income before income taxes and
cumulative effect of change in
accounting principle............... 114,831 123,974 162,189 130,493 103,519 90,482 81,178
Income before cumulative effect of a
change in accounting principle..... 72,162 76,727 102,583 84,465 63,378 49,730 48,382
Cumulative effect of a change in
accounting principle(2)............ -- -- -- -- -- 80,000 --
Net income........................... 72,162 76,727 102,583 84,465 63,378 129,730 48,382
BALANCE SHEET(3)
Total assets......................... 2,126,335 1,999,400 2,006,820 2,003,346 2,017,772 2,054,867 2,063,267
Borrowed debt due in one year........ 67,414 211,795 210,288 69,378 75,378 81,591 73,251
Total borrowed debt.................. 842,306 755,220 738,632 801,585 882,407 951,031 942,907
Stockholder's equity................. 585,912 554,200 563,750 530,473 505,008 485,630 445,900
OTHER
Ratio of earnings to fixed
charges(4)......................... 2.68x 2.86x 2.84x 2.41x 2.05x 1.89x 1.76x
OPERATING FLEET(3)
Tank cars............................ 57,256 55,223 55,423 53,669 52,090 51,021 49,580
Other railway cars................... 15,413 14,904 15,043 13,943 13,300 13,515 13,633
</TABLE>
- ---------------
(1) In 1996, the Company changed its presentation for sale-leaseback
transactions. The Company previously presented the gross revenues and costs
related to sale-leasebacks of railcars which were $130,517 in 1995, $125,500
in 1994 and $124,886 in 1992. These amounts are netted together for all
years presented and there is no impact on reported gross profit.
(2) The $80 million cumulative effect of a change in accounting principle for
the year ended December 31, 1993 resulted from the Company's adoption of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." As more fully discussed in the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, effective January 1, 1993,
the Company prospectively adopted the provisions of this new accounting
standard and, accordingly, changed to the asset and liability approach of
accounting for income taxes. The cumulative effect of this change in
accounting principle was an $80 million non-cash credit to earnings, which
represents the new, lower net deferred income tax liability calculated under
the new accounting method as compared to the net liability recorded under
the former income tax accounting method. Adoption of the new accounting
method had no impact on pre-tax income and has not and will not impact cash
flows related to income taxes.
(3) As of the end of the period indicated.
(4) The ratio of earnings to fixed charges represents the number of times that
interest expense, amortization of debt discount and the interest component
of rent expense were covered by income before income taxes and such
interest, amortization and the interest component of rentals. In addition to
fluctuations in the ratio of earnings to fixed charges resulting from
changes in the Company's operations, the ratio of earnings to fixed charges
for the periods beginning in 1992 was reduced because of the incurrence of
additional interest expense relating to the Company's commercial paper
program, which program was suspended effective May 1994.
S-12
<PAGE> 13
USE OF PROCEEDS
The proceeds from the sale of Pass Through Certificates will be used by the
Pass Through Trustee to purchase for the Pass Through Trust $96,325,000
aggregate principal amount of Equipment Notes issued by the Owner Trustee which,
in turn, will use the proceeds, together with funds provided by the Owner
Participant, to purchase the Equipment from the Company, on behalf of the Owner
Participant.
The Equipment Notes will be issued under a Trust Indenture and Security
Agreement (the "Indenture") between Harris Trust and Savings Bank, as trustee
thereunder (in such capacity, the "Indenture Trustee"), and Wilmington Trust
Company, not in its individual capacity (except as expressly set forth therein)
but solely as owner trustee (the "Owner Trustee") of a trust for the benefit of
an institutional investor (the "Owner Participant"). The Owner Participant will
provide from sources other than the Equipment Notes at least 20% of the cost of
the Equipment as an equity investment. The Owner Participant, however, will not
be liable for any amount payable under the Indenture or the Equipment Notes
issued thereunder.
The approximately $130,010,746 of net proceeds to the Company from the sale
of the Equipment will be used by the Company for general corporate purposes.
The following table sets forth information with respect to the Equipment
(consisting of an aggregate of 1,949 rail cars, all of which were manufactured
in 1997 or 1998) expected to be purchased by the Owner Trustee and leased to the
Company in the leveraged lease transaction:
<TABLE>
<CAPTION>
TYPE OF CAR NO. OF CARS
----------- -----------
<S> <C>
Tank (general purpose)................................... 1,864
Covered Hopper........................................... 85
-----
Total............................................... 1,949
=====
</TABLE>
The aggregate cost of the Equipment to the Owner Trustee will be
approximately $130,010,746.
At the Initial Closing, the Pass Through Trust will purchase an aggregate
of approximately $72,800,000 principal amount of Equipment Notes. At the
Subsequent Closing, the Pass Through Trust will purchase an aggregate of
approximately $23,525,000 principal amount of Equipment Notes. Pending the
purchase of the Equipment Notes, the unexpended proceeds from the sale of the
Pass Through Certificates will be held by the Pass Through Trustee and invested
in Specified Investments. To the extent the aggregate principal amount of the
Initial Equipment Notes and the Subsequent Equipment Notes purchased by the Pass
Through Trustee is less than the aggregate principal amount of the Pass Through
Certificates, the unexpended proceeds, together with interest thereon at the
rate applicable to Pass Through Certificates, will be distributed to
Certificateholders on June 19, 1998. See "Description of the Pass Through
Certificates,--Delayed Purchase" in this Prospectus Supplement and in the
accompanying Prospectus.
S-13
<PAGE> 14
DESCRIPTION OF PAYMENT FLOWS
The following diagram illustrates certain aspects of the payment flows in
the leveraged lease transaction among the Company, the Owner Trustee, the Owner
Participant, the Indenture Trustee, the Pass Through Trustee and the
Certificateholders.
In the leveraged lease transaction, the Company will lease the Equipment
from the Owner Trustee, as lessor of such Equipment under the Lease. Equipment
Notes with respect to the Equipment will be issued under the Indenture by the
Owner Trustee and will be purchased by the Pass Through Trustee for the benefit
of the Certificateholders. Rent is payable under the Lease to the Owner Trustee,
as lessor. However, as a result of the assignment of the Lease to the Indenture
Trustee, the Company will make rental payments directly to the Indenture
Trustee. From these rental payments the Indenture Trustee will, on behalf of the
Owner Trustee, first make payments to the Pass Through Trustee as required to
meet the Owner Trustee's obligations under the Equipment Notes and will pay the
remaining balance to the Owner Trustee, for the benefit of the Owner
Participant. The Pass Through Trustee will distribute payments received in
respect of the Equipment Notes held in the Pass Through Trust to the
Certificateholders as required under the terms of the Pass Through Certificates.
Harris Trust and Savings Bank will act both as Pass Through Trustee under the
Agreement and as Indenture Trustee under the Indenture.
__________________________
| |
| UNION TANK CAR COMPANY |
|__________________________|
|
| Lease Rental Payments
| Assigned by Owner Trustee
\|/ to Indenture Trustee
____________________
| INDENTURE |
| TRUSTEE |
|____________________|
| |
Excess | | Equipment
Payments | | Note Payments
_________________| |_________________
| |
| |
| |
| |
\|/ \|/
_________ ______________________
| OWNER | | |
| TRUSTEE | | PASS THROUGH TRUSTEE |
|_________| |______________________|
| |
| | Pass Through
| Excess | Certificate
| Payments | Distributions
\|/ \|/
_____________ ____________________________
| OWNER | | HOLDERS OF PASS THROUGH |
| PARTICIPANT | | CERTIFICATES |
|_____________| |____________________________|
S-14
<PAGE> 15
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The Pass Through Certificates offered hereby will be issued pursuant to the
Agreement which has been qualified under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The statements under this caption are a
summary only and do not purport to be complete. The summary makes use of terms
defined in the Agreement and is qualified in its entirety by reference to all of
the provisions of the Agreement. Except as otherwise indicated, the following
summary relates to the Agreement, the Pass Through Trust formed thereby and the
Pass Through Certificates issued by the Pass Through Trust. Citations to the
relevant sections of the Agreement appear below in parentheses unless otherwise
indicated.
GENERAL
The Pass Through Certificates will be issued in fully registered form and
will be registered in the name of Cede & Co. ("Cede"), as the nominee of The
Depository Trust Company ("DTC"). No person acquiring an interest in the Pass
Through Certificates (a "Certificate Owner") will be entitled to receive a
certificate representing such person's interest in the Pass Through
Certificates, except as set forth in the accompanying Prospectus under
"Registered Certificates." Unless and until Registered Certificates are issued
under the limited circumstances described in the accompanying Prospectus, all
references to actions by Certificateholders shall refer to actions taken by DTC
upon instructions from DTC Participants (as defined in the accompanying
Prospectus), and all references herein to distributions, notices, reports and
statements to Certificateholders shall refer, as the case may be, to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Pass Through Certificates, or to DTC Participants for distribution
to Certificate Owners in accordance with DTC procedures. See "Book-Entry
Registration" in the accompanying Prospectus (Section 3.9)
PAYMENTS AND DISTRIBUTIONS
Payments of principal of, Make-Whole Amount, if any, and interest on the
Equipment Notes received by the Pass Through Trustee will be distributed by the
Pass Through Trustee to Certificateholders of the Pass Through Trust on the date
such receipt is confirmed, except in certain cases when some or all of the
Equipment Notes are in default. See "Description of the Pass Through
Certificates--Events of Default and Certain Rights Upon an Event of Default" in
the accompanying Prospectus. Payments of interest on the unpaid principal amount
of the Equipment Notes are scheduled to be received by the Pass Through Trustee
on January 2 and July 2 of each year, commencing July 2, 1998, until the final
distribution date for the Pass Through Trust. Payments of principal of the
Equipment Notes held in the Pass Through Trust are scheduled to be received by
the Pass Through Trustee on January 2 of each year, commencing January 2, 2000,
but excluding January 2, 2009 and continuing until the final distribution date
(such scheduled payments of interest and principal are herein referred to as
"Scheduled Payments", and July 2 and January 2 of each year, commencing July 2,
1998, are herein referred to as "Regular Distribution Dates"). The Pass Through
Trustee will distribute on each Regular Distribution Date to the
Certificateholders all Scheduled Payments the receipt of which is confirmed by
the Pass Through Trustee on such Regular Distribution Date. Each such
distribution of Scheduled Payments will be made by the Pass Through Trustee to
the holders of record of the Pass Through Certificates as of the Record Date
preceding such Regular Distribution Date. (Sections 4.1 and 4.2) If a Scheduled
Payment is not received by the Pass Through Trustee on a Regular Distribution
Date, it will be distributed on the date received to such holders of record.
(Section 4.2) Each Certificate Owner will be entitled to receive a pro rata
share of any distribution in respect of Scheduled Payments of principal and
interest made on the Equipment Notes held in the Pass Through Trust. Scheduled
Payments of principal of the Equipment Notes are set forth herein under
"Description of the Equipment Notes--Principal and Interest Payments." After a
prepayment of some or all of the Equipment Notes or a default in respect of some
or all of such Equipment Notes a Certificate Owner should refer to the
information with respect to the Pool Balance
S-15
<PAGE> 16
and the Pool Factor reported periodically by the Pass Through Trustee. See
"Description of the Pass Through Certificates--Pool Factors" and "Description of
the Pass Through Certificates--Reports to Certificateholders" in the
accompanying Prospectus.
Payments of principal, Make-Whole Amount, if any, and interest received by
the Pass Through Trustee on account of the prepayment, if any, of the Equipment
Notes relating to certain Equipment, and payments received by the Pass Through
Trustee following a default in respect of the Equipment Notes relating to
certain Equipment (including payments received by the Pass Through Trustee on
account of the purchase by the Owner Trustee of such Equipment Notes or payments
received on account of the sale of such Equipment Notes by the Pass Through
Trustee) ("Special Payments") will be distributed (i) in the case of prepayments
with respect to a voluntary termination of a Lease, the purchase of any Units by
the Company or an ordinary Event of Loss, on a Regular Distribution Date, (ii)
in the case of prepayments with respect to a Multiple Loss (as hereinafter
defined), a refunding or refinancing of the Equipment Notes or a purchase of the
Equipment by the Company from an Owner Trustee of a competitive Owner
Participant, on the first Business Day following 15 days notice from the Pass
Through Trustee to DTC and (iii) in the case of payments received following a
default in respect of any Equipment Note, on the second day of any month (each,
a "Special Distribution Date"). The Pass Through Trustee will mail notice to the
Certificateholders of record not less than 15 days prior to the Special
Distribution Date on which any Special Payment is scheduled to be distributed by
the Pass Through Trustee stating such anticipated Special Distribution Date.
(Section 4.2) Each distribution of a Special Payment, other than a final
distribution, on a Special Distribution Date will be made by the Pass Through
Trustee to the holders of record of the Pass Through Certificates as of the
Record Date preceding such Special Distribution Date. See "Description of the
Pass Through Certificates--Events of Default and Certain Rights Upon an Event of
Default" and "Description of the Equipment Notes--Prepayment" in the
accompanying Prospectus.
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
An event of default under the Agreement (an "Event of Default") is defined
as the occurrence and continuance of an event of default under the Indenture (an
"Indenture Default"). For a description of the Indenture Defaults under the
Indenture, see "Description of the Equipment Notes--Indenture Defaults, Notice
and Waiver" in this Prospectus Supplement and in the accompanying Prospectus.
DELAYED PURCHASE
Earnings on Specified Investments in the escrow account in excess of
amounts required to be paid to Certificateholders for the Pass Through Trust
will be paid to the Company periodically and the Company will be responsible for
any losses. If the Initial Closing does not occur on or prior to April 30, 1998
involving the issuance of Equipment Notes in an aggregate principal amount of at
least $50,000,000, whether due to the physical unavailability of Units, the
failure by the Owner Trustee to issue an Equipment Note on or prior to such date
or otherwise, all of the proceeds of the sale of the Pass Through Certificates,
together with interest thereon from the date of issuance of the Pass Through
Certificates to but not including May 4, 1998, at the rate applicable to the
Pass Through Certificates, but without premium, will be distributed on May 4,
1998 to the Certificateholders of record as of April 30, 1998. If the Subsequent
Closing does not occur on or prior to June 15, 1998, whether due to the physical
unavailability of Units, the failure by the Owner Trustee to issue Equipment
Notes on or prior to such date or otherwise, an amount equal to the unexpended
proceeds of the sale of the Pass Through Certificates, together with interest
thereon, from the date of issuance of the Pass Through Certificates to but not
including June 19, 1998, at the rate applicable to the Pass Through
Certificates, but without premium, will be distributed on June 19, 1998 to the
Certificateholders of record as of June 15, 1998. (Section 2.1 (b)) To the
extent the aggregate principal amount of the Initial Equipment Notes and the
Subsequent Equipment Notes
S-16
<PAGE> 17
purchased by the Pass Through Trustee is less than the aggregate principal
amount of the Pass Through Certificates, the unexpended proceeds, together with
interest thereon at the rate applicable to the Pass Through Certificates, will
be distributed to the Certificateholders on June 19, 1998 to the
Certificateholders of record on June 15, 1998.
The Company will pay to the Pass Through Trustee on May 4, 1998 or June 19,
1998, as the case may be, an amount equal to the amount, if any, distributable
by the Pass Through Trustee on such date and thereupon will be entitled to any
balance in the escrow account (less in the case of the payment to be made on May
4, 1998 (i) the difference, if any, between $72,800,000 and the principal amount
of the Equipment Note purchased at the Initial Closing and (ii) amounts
attributable to the Subsequent Equipment Notes). On the Regular Distribution
Date occurring on July 2, 1998, the Company will also pay to the Pass Through
Trustee an amount equal to the difference between the interest accrued on the
Equipment Notes from their respective dates of issuance and the interest that
would have accrued on the Equipment Notes if they had been purchased at the time
of issuance of the Pass Through Certificates.
POOL FACTORS
As of the date of issuance of the Pass Through Certificates and assuming
that all proceeds are used to purchase the Initial Equipment Notes on or before
April 30, 1998 and the Subsequent Equipment Notes on or before June 15, 1998,
and that no prepayment or purchase in respect of any Equipment Notes or default
in respect of any Equipment Notes shall occur, the scheduled payment of
principal of the Equipment Notes and the resulting Pool Factors for the Pass
Through Trust after taking into account each such payment are set forth below:
<TABLE>
<CAPTION>
SCHEDULED
PRINCIPAL
REGULAR DISTRIBUTION DATE PAYMENTS POOL FACTOR
------------------------- ---------- -----------
<S> <C> <C>
January 2, 2000.............................................
January 2, 2001.............................................
January 2, 2002.............................................
January 2, 2003.............................................
January 2, 2004.............................................
January 2, 2005.............................................
January 2, 2006.............................................
January 2, 2007.............................................
January 2, 2008.............................................
January 2, 2010.............................................
January 2, 2011.............................................
January 2, 2012.............................................
January 2, 2013.............................................
January 2, 2014.............................................
</TABLE>
See "Description of the Pass Through Certificates--Pool Factors" in the
accompanying Prospectus and the definitions of "Pool Balance" and "Pool Factor"
in the Glossary of the accompanying Prospectus.
S-17
<PAGE> 18
DESCRIPTION OF THE EQUIPMENT NOTES
The following summary of the particular terms and provisions of the
Equipment Notes supplements, and to the extent inconsistent therewith replaces,
the description of the general terms and provisions of the Equipment Notes set
forth in the accompanying Prospectus under the heading "Description of the
Equipment Notes." The statements under this caption are a summary only and do
not purport to be complete. The summary makes use of terms defined in, and is
qualified in its entirety by reference to all of the provisions of, the
Equipment Notes, the Indenture, the Lease and the Participation Agreement, the
forms of which are available without charge to each person to whom this
Prospectus is delivered, upon request of such person to the General Counsel and
Secretary, Union Tank Car Company, 225 West Washington Street, Chicago, Illinois
60606 (telephone 312/372-9500). Except as otherwise indicated, the following
summary relates to the Equipment Notes, the Indenture, the Lease and the
Participation Agreement.
GENERAL
Each series of Equipment Notes will be issued under the Indenture between
Wilmington Trust Company, as Owner Trustee of an owner trust for the benefit of
the Owner Participant, and Harris Trust and Savings Bank, as Indenture Trustee.
The Owner Trustee will lease Equipment to the Company pursuant to the Lease
under which the Company is obligated to pay rent to such Owner Trustee in
respect of the Equipment covered thereby. The amounts unconditionally payable
under the Lease will be sufficient to pay when due all payments of principal of,
Make-Whole Amount, if any, and interest on the Equipment Notes issued in respect
of the Equipment subject to the Lease. The Equipment Notes are not, however,
obligations of, or guaranteed by, the Company. The Company's rental obligations
under the Lease are general obligations of the Company.
PRINCIPAL AND INTEREST PAYMENTS
The aggregate principal amount of the Equipment Notes issued with respect
to the Equipment covered by the Lease will be $96,325,000.
Interest will be payable on each Equipment Note at the rate applicable to
such Equipment Note on the unpaid principal amount thereof on January 2 and July
2 of each year, commencing July 2, 1998 and continuing until the final
distribution date. Such interest will be computed on the basis of a 360-day year
of twelve 30-day months. The principal of the Equipment Note to be issued on or
about
S-18
<PAGE> 19
March 30, 1998 (Note A) and of the Equipment Note to be issued on or about June
8, 1998 (Note B) will be payable as set forth below:
<TABLE>
<CAPTION>
NOTE A NOTE B TOTAL
PRINCIPAL PRINCIPAL PRINCIPAL
PAYMENT DATES PAYMENT PAYMENT PAYMENT
------------- ----------- ----------- -----------
<S> <C> <C> <C>
January 2, 2000............................
January 2, 2001............................
January 2, 2002............................
January 2, 2003............................
January 2, 2004............................
January 2, 2005............................
January 2, 2006............................
January 2, 2007............................
January 2, 2008............................
January 2, 2010............................
January 2, 2011............................
January 2, 2012............................
January 2, 2013............................
January 2, 2014............................
----------- ----------- -----------
Total............................ $72,800,000 $23,525,000 $96,325,000
=========== =========== ===========
</TABLE>
If any date scheduled for any payment of principal of, Make-Whole Amount,
if any, or interest on the Equipment Notes is not a Business Day, such payment
may be made on the next Business Day without any additional interest.
PREPAYMENT
The Equipment Notes may be prepaid under the following circumstances:
Mandatory Prepayments. If an Event of Loss to a Unit shall occur and like
kind equipment of equal or greater fair market sales value, utility, remaining
useful life, estimated residual value and condition (assuming such Unit was in
the condition required to be maintained) is not substituted for the affected
Unit in accordance with the terms of the Lease, then the Company is obligated to
pay the Stipulated Loss Value of such Unit. Such payment will be used to prepay
a portion of the Equipment Notes issued with respect to the Equipment of which
such Unit is a part on (i) the next Regular Distribution Date following the
election by the Company to pay the Stipulated Loss Value of such Unit rather
than substitute like kind equipment or (ii) in the case of the occurrence of an
Event of Loss in respect of more than ten Units since the end of the last six
month reporting period under the Lease (a "Multiple Loss"), on the first
Business Day succeeding the 60th day following the date on which the Company is
required to report such Multiple Loss. The amount prepaid will be equal to the
sum of (i) as to principal, an amount equal to the product obtained by
multiplying the aggregate unpaid principal amount of the Equipment Notes issued
under the Indenture as of the prepayment date (after deducting therefrom the
scheduled principal installment, if any, made on the prepayment date) by a
fraction, the numerator of which shall be the Equipment Cost of such Unit and
the denominator of which shall be the aggregate Equipment Cost of all Equipment
securing the Indenture immediately prior to the prepayment date, and (ii) as to
interest, the aggregate amount of interest accrued and unpaid to but not
including the prepayment date in respect of the principal amount to be prepaid
pursuant to clause (i) above on such prepayment date. No Make-Whole Amount (as
defined below) will be payable in the event of a prepayment under such
circumstances. See "Description of the Equipment Notes--The Lease--Events of
Loss" in this Prospectus Supplement and in the accompanying Prospectus. (Lease,
Section 11.1; Indenture, Section 2.10)
S-19
<PAGE> 20
In addition, under the Lease the Company may, so long as no Lease Event of
Default has occurred and is continuing, terminate the Lease at its option (i) at
any time after September 30, 2005, with respect to any Unit, if the Company
determines in good faith that (A) such Unit has become obsolete or surplus to
its requirements, or (B) any modification to a Unit required by law would be
economically impractical, or (ii) on January 2, 2009 with respect to any or all
of the Units (the "Early Purchase Date") if the Company exercises its option to
purchase such Units or (iii) if the Company elects to exercise its right to
purchase Equipment as a result of an Owner Participant (or an affiliate thereof)
engaging in a business that is in competition with the Company's full service
railcar leasing business. Unless the Company elects in connection with the
exercise of a purchase option to assume on a full recourse basis all of the
Owner Trustee's obligations in respect of the related Equipment Notes and
acquires the purchased Units subject to the lien of the Indenture, the amount of
Equipment Notes to be prepaid in the event of any such Lease termination will be
equal to the sum of (i) as to principal, an amount equal to the product obtained
by multiplying the aggregate unpaid principal amount of the Equipment Notes as
of the prepayment date (after deducting therefrom the scheduled principal
installment, if any, made on the prepayment date) by a fraction, the numerator
of which shall be the Equipment Cost of such Units and the denominator of which
shall be the aggregate Equipment Cost of all Equipment securing the Indenture
immediately prior to the prepayment date, and (ii) as to interest, the aggregate
amount of interest accrued and unpaid to but not including the prepayment date
in respect of the principal amount to be prepaid pursuant to clause (i) of this
sentence on such prepayment date, plus, under the circumstances described in
clauses (i) and (iii) of this paragraph, a premium as set forth below (a
"Make-Whole Amount"). No Make-Whole Amount will be payable in the event of a
prepayment under the circumstances described in clause (ii) of this paragraph.
Such prepayment is to be made on the date which is the Lease termination date
for such Unit. See "Description of the Equipment Notes--The Lease--Termination"
in this Prospectus Supplement and in the accompanying Prospectus. (Lease,
Section 10 and 22.1; Indenture, Section 2.10; Participation Agreement, Section
6.9)
Voluntary Prepayments. Subject to certain restrictions, the Company may
require the Owner Participant, the Owner Trustee and the Pass Through Trustee to
effect an optional prepayment of the Equipment Notes at a price equal to the
unpaid principal amount thereof, together with accrued but unpaid interest
thereon to but not including the specified prepayment date (which shall be a
Special Distribution Date), plus a Make-Whole Amount, as part of a refunding or
refinancing which will result in the prepayment of the Pass Through
Certificates. (Participation Agreement, Section 10.2; Indenture, Section 2.10)
The Equipment Notes are also subject to purchase in whole by the Owner
Trustee upon at least 30 days' notice on a Special Distribution Date, in the
case of (i) any acceleration of such Equipment Notes, (ii) the Indenture
Trustee, as assignee of the Lease, having exercised (or given notice of its
intention to exercise) any remedy in respect of the Units under the Lease, (iii)
one or more Lease Events of Default having occurred under the Lease and
continuing for a period of 180 days or more during which period such Equipment
Notes could, but shall not, have been accelerated by the Indenture Trustee or
(iv) the Indenture Trustee having commenced foreclosure of the lien of the
Indenture or otherwise exercised remedies which would result in the exclusion of
the Owner Trustee from any property subject to the lien of the Indenture or any
part thereof (or given notice of its intention to foreclose or exercise
remedies). Such purchase would be at a price equal to the unpaid principal
amount thereof and accrued interest on such Equipment Notes to the date of
payment, but without the payment of any Make-Whole Amount except in the case of
a purchase of the Equipment Notes pursuant to clause (iv) above, if the right to
exercise any remedies arises solely from action attributable to the Owner
Trustee or the Owner Participant. (Indenture, Section 5.04(b))
The term "Make-Whole Amount" means, with respect to the principal amount of
any Equipment Note to be prepaid on any prepayment date, the amount to be
determined as of the third Business Day prior to the applicable prepayment date,
equal to the product obtained by multiplying (a) the excess, if any, of (i) the
sum of the present values of all the remaining scheduled payments of
S-20
<PAGE> 21
principal and interest from the prepayment date to maturity of such Equipment
Note, discounted semi-annually on each January 2 and July 2 at a rate equal to
the Treasury Rate, based on a 360-day year of twelve 30-day months, over (ii)
the aggregate unpaid principal amount of such Equipment Note plus any accrued
but unpaid interest thereon by (b) a fraction the numerator of which shall be
the principal amount of such Equipment Note to be prepaid on such prepayment
date and the denominator of which shall be the aggregate unpaid principal amount
of such Equipment Note; provided that the aggregate unpaid principal amount of
such Equipment Note for the purpose of clause (a)(ii) and (b) of this definition
shall be determined after deducting the principal installment, if any, due on
such prepayment date. The Make-Whole Amount will be calculated by an independent
investment banking institution of national standing appointed by the Company or,
if the Indenture Trustee does not receive notice of such appointment at least
ten days prior to a scheduled prepayment date or if a Lease Event of Default
shall have occurred and be continuing, appointed by the Indenture Trustee (an
"Independent Investment Banker"). In calculating the Make-Whole Amount, the
Independent Investment Banker will first determine the Treasury Rate applicable
to the relevant Equipment Note.
For purposes of determining the Make-Whole Amount, "Treasury Rate" means,
with respect to prepayment of each Equipment Note, a per annum rate (expressed
as a semi-annual equivalent and as a decimal and, in the case of U.S. Treasury
bills, converted to a bond equivalent yield) determined to be the per annum rate
equal to the semi-annual yield to maturity for U.S. Treasury securities maturing
on the Average Life Date (as defined below) of such Equipment Note, as
determined by interpolation between the most recent weekly average yields to
maturity for two series of U.S. Treasury securities (A) one maturing as close as
possible to, but earlier than, the Average Life Date of such Equipment Note and
(B) the other maturing as close as possible to, but later than, the Average Life
Date of such Equipment Note, in each case as published in the most recent
H.15(519) (or, if a weekly average yield to maturity for United States Treasury
securities maturing on the Average Life Date of such Equipment Note is reported
in the most recent H.15(519), as published in H.15(519)). H.15(519) means
"Statistical Release H.15(519), Selected Interest Rates," or any successor
publication, published by the Board of Governors of the Federal Reserve System.
The most recent H.15(519) means the latest H.15(519) which is published prior to
the close of business on the fourth Business Day preceding the scheduled
prepayment date.
The "Average Life Date" for any Equipment Note to be prepaid shall be the
date which follows the prepayment date by a period equal to the Remaining
Weighted Average Life at the prepayment date of such Equipment Note. The
"Remaining Weighted Average Life" of such Equipment Note at the prepayment date
of such Equipment Note is the number of days determined by dividing (A) the sum
of the products obtained by multiplying (1) the amount of each remaining
principal payment on such Equipment Note by (2) the number of days from and
including the prepayment date to but excluding the scheduled payment date of
such principal payment by (B) the then unpaid principal amount of such Equipment
Note.
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Events of Default under the Indenture include: (a) a Lease Event
of Default (other than with respect to Excepted Property), (b) default by the
Owner Trustee in making payments when due of principal of, premium, if any, or
interest on any Equipment Note and continuance of that default for 10 Business
Days, (c) failure by the Owner Trustee or the Owner Participant to perform any
covenant contained in the Indenture, the Equipment Notes or the Participation
Agreement continuing for a period of 30 days after written notice by the
Indenture Trustee or any holder of an Equipment Note issued under the Indenture,
or, if such failure is capable of being remedied, for a period of 60 days after
written receipt of such notice so long as the Owner Trustee or Owner Participant
is diligently proceeding to remedy such failure, (d) any representation or
warranty made by the Owner Trustee in the Indenture or made by the Owner Trustee
(except to the extent made
S-21
<PAGE> 22
with respect to Wilmington Trust Company in its individual capacity) or the
Owner Participant in the Participation Agreement or in any document or
certificate furnished to the Indenture Trustee being incorrect in any material
respect as of the date made and remaining material and continuing unremedied for
a period of 30 days after written notice to the Owner Trustee and Owner
Participant, or, if such failure is capable of being remedied, for a period of
60 days after written receipt of such notice so long as the Owner Trustee or the
Owner Participant is diligently proceeding to remedy such failure, and (e) the
occurrence of certain events of bankruptcy, reorganization or insolvency of the
Owner Participant or the Owner Trustee. (Indenture, Section 5.01)
In the event that (i) at any time one or more Lease Events of Default shall
occur and shall have continued for a period of 180 days or more during which
time the Equipment Notes could, but shall not, have been accelerated, (ii) the
Equipment Notes shall have been accelerated, (iii) the Indenture Trustee, as
assignee of the Lease, shall have exercised (or given notice of its intention to
exercise) any remedies in respect of the Units under the Lease or (iv) the
Indenture Trustee shall commence foreclosure of the lien of the Indenture or
otherwise exercise remedies which would result in the exclusion of the Owner
Trustee from any property subject to the lien of the Indenture or any part
thereof (or given notice of its intention to foreclose or exercise remedies),
upon 30 days' notice the Owner Trustee may elect to purchase all, but not less
than all, of the Equipment Notes then outstanding under the Indenture from the
holders thereof by paying to each such holder an amount equal to the aggregate
unpaid principal amount of all such Equipment Notes then held by such holder,
together with accrued and unpaid interest thereon to the date of payment, but
without the payment of any Make-Whole Amount except in the case of a purchase of
the Equipment Notes pursuant to clause (iv) above if the right to exercise any
remedies arises solely because of action attributable to the Owner Trustee or
the Owner Participant. (Indenture, Section 5.04(b))
In the event the Company fails to make any semiannual basic rental payment
within 10 Business Days after the date the same shall become due under the
Lease, then and as long as no other Indenture Event of Default under the
Indenture (which is not being concurrently cured) shall have occurred and be
continuing the Owner Participant or the Owner Trustee may, during the 10
Business Days after receiving written notice of such failure from the Indenture
Trustee, pay to the Indenture Trustee the amount of such rental payment together
with any interest thereon on account of the delayed payment thereof, in which
event such payment by the Owner Participant or the Owner Trustee shall be deemed
to cure any Indenture Event of Default which arose from such failure of the
Company (but such cure shall not relieve the Company of any of its obligations);
provided, that the Owner Participant and the Owner Trustee, collectively, shall
not be entitled to cure more than three consecutive or six total failures to
make semiannual basic rental payments. In the event there shall occur a Lease
Event of Default under the Lease in respect of any other payment of rent, or
which is curable by the payment of money, then and as long as no other Indenture
Event of Default under the Indenture (which is not being concurrently cured)
shall have occurred and be continuing the Owner Participant or the Owner Trustee
may, during the 30 days after receiving written notice of such Lease Event of
Default from the Indenture Trustee, pay to the Indenture Trustee the amount of
such rental payment together with any interest thereon on account of the delayed
payment thereof, or otherwise make such payment as shall effect such cure, in
which event such payment by the Owner Participant or the Owner Trustee shall be
deemed to cure any Indenture Event of Default which arose as a result of such
Lease Event of Default (but such cure shall not relieve the Company of any of
its obligations); provided, that the Owner Participant and the Owner Trustee,
collectively, shall not be entitled to cure such other Lease Events of Default
if the unreimbursed amount of such payments shall exceed in the aggregate
$1,000,000, as adjusted annually for inflation. (Indenture, Section 5.04(a))
The Indenture provides that the Indenture Trustee shall, upon the
occurrence of any event known to it that is an Indenture Default or Indenture
Event of Default thereunder, give notice thereof to the holders of the Equipment
Notes issued thereunder, the Company, the Owner Trustee and the Owner
Participant. (Indenture, Section 6.01)
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The holders of a majority in aggregate principal amount of the outstanding
Equipment Notes issued under the Indenture, by notice to the Indenture Trustee,
may on behalf of all holders waive any past default under the Indenture except a
default in the payment of the principal of, Make-Whole Amount, if any, or
interest on any such Equipment Note or a default in respect of any covenant or
provision of the Indenture that cannot be modified or amended without the
consent of each holder of an Equipment Note affected thereby. (Indenture,
Section 5.06)
REMEDIES
If an Indenture Default shall occur and be continuing under the Indenture,
the Indenture Trustee may, and when instructed by the holders of at least a
majority in aggregate principal amount of the Equipment Notes outstanding under
the Indenture shall, declare the unpaid principal of all such Equipment Notes
outstanding under the Indenture immediately due and payable, together with all
accrued but unpaid interest thereon. The holders of a majority in aggregate
principal amount of Equipment Notes outstanding under the Indenture may rescind
any such declaration by the Indenture Trustee or by the holders at any time
prior to the sale of the Equipment covered by the Indenture after such an
Indenture Default if (i) there has been paid to or deposited with the Indenture
Trustee an amount sufficient to pay all due or overdue installments of principal
of, premium, if any, and interest on any such Equipment Notes that have become
due otherwise than by such declaration of acceleration, (ii) the rescission
would not conflict with any judgment or decree and (iii) all other Indenture
Defaults under the Indenture have been cured or waived except nonpayment of
principal of, premium, if any, or interest on any such Equipment Notes that have
become due solely because of acceleration. (Indenture, Section 5.02)
The Indenture provides that if any Indenture Default under the Indenture
has occurred and is continuing the Indenture Trustee may exercise certain rights
or remedies available to it under applicable law, including (if the Lease has
been declared in default) one or more of the remedies under the Indenture or the
Lease. The Indenture Trustee's right to exercise remedies under the Indenture is
subject in certain circumstances to its having proceeded to exercise one or more
remedies under the Lease, unless at the time, the Indenture Trustee is stayed or
otherwise prevented from doing so by operation of law, in which case the
Indenture Trustee has agreed to refrain from exercising remedies under the
Indenture for a period of 90 days. Further, the Indenture Trustee may not
exercise remedies under the Indenture in those circumstances in which the
Company, as the debtor in a bankruptcy proceeding, shall have affirmed the Lease
and no Lease Event of Default (other than a Lease Event of Default arising from
the bankruptcy of the Company) has occurred and is continuing. See "Description
of the Equipment Notes -- The Lease -- Lease Events of Default" in this
Prospectus Supplement and in the accompanying Prospectus. Such remedies may be
exercised by the Indenture Trustee to the exclusion of the Owner Trustee and,
subject to the terms of the Lease, the Company. Any Equipment sold in the
exercise of such remedies will be free and clear of any rights of those parties
including the rights of the Company under the Lease; provided that no exercise
of any remedies by the Indenture Trustee may affect the rights of the Company
under the Lease unless a Lease Event of Default under the Lease has occurred and
is continuing. (Indenture, Sections 5.03(a) and (c), 5.04(c) and 5.05; Lease,
Section 15)
The holders of a majority in aggregate principal amount of the Equipment
Notes outstanding under the Indenture may instruct the Indenture Trustee to give
such notice, direction or consent, or exercise such right, remedy or power under
the Indenture or the Lease or in respect of the property subject to the lien of
the Indenture or take such other action as shall be specified in such
instructions, but in such event the Indenture Trustee shall not be required to
take or refrain from taking any action in connection therewith if it shall have
reasonable grounds to believe that adequate indemnity against such risk is not
reasonably assured to it. (Indenture, Sections 6.02 and 6.03)
If an Indenture Event of Default occurs and is continuing under the
Indenture and the Indenture Trustee (as security assignee) has declared the
Lease to be in default or the Equipment Notes
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outstanding under the Indenture have been accelerated or the Indenture Trustee
has exercised any remedies under the Indenture, any sums held or received by the
Indenture Trustee may be applied to reimburse the Indenture Trustee for any tax,
expense or other loss incurred by it and to pay any other amounts then due the
Indenture Trustee prior to any payments to holders of the Equipment Notes.
(Indenture, Section 3.03)
In the event of a bankruptcy or reorganization of the Company, the right of
the Indenture Trustee to repossess or dispose of the Equipment would be subject
to the provisions of the Bankruptcy Code applicable to industrial companies
generally, and not those provisions applicable to railroads, particularly
Section 1168 of the Bankruptcy Code.
In the event of the bankruptcy of the Owner Participant, it is possible
that, notwithstanding that the Equipment is owned by the Owner Trustee in trust
for the benefit of the Owner Participant, the Equipment and the Lease and
Equipment Notes might become part of the bankruptcy proceeding. In such event,
payments under the Lease or on the Equipment Notes might be interrupted and the
ability of the Indenture Trustee to exercise its remedies under the applicable
Indenture might be restricted, although the Indenture Trustee would retain its
status as a secured creditor in respect of the Lease and the Equipment subject
thereto.
If the Company were to become a debtor in a bankruptcy or reorganization
case under the Bankruptcy Code, the Company or its bankruptcy trustee could
reject the Lease. In such event, there could be no assurance that the amount of
any claim for damages under the Lease that would be allowed in such bankruptcy
case would be in an amount sufficient to provide for the repayment of the
Equipment Notes. In any case, rejection of the Lease by the Company or its
bankruptcy trustee would not deprive the Indenture Trustee of its security
interest in the Units.
MODIFICATION OF THE INDENTURE AND THE LEASE
Without the consent of holders of a majority in unpaid principal amount of
the Equipment Notes, the provisions of the Indenture, the Lease and the
Participation Agreement may not be amended or modified, except to the extent
indicated below.
Certain provisions of the Lease and the Participation Agreement may be
amended or modified by the parties thereto without the consent of any holders of
the Equipment Notes outstanding under the Indenture so long as no Indenture
Event of Default shall have occurred and be continuing. In the case of the
Lease, such provisions include, among others, provisions relating to (i) rental
payments and other payments, except to the extent indicated in clause (a) of the
following paragraph, (ii) the maintenance of the Equipment covered by the Lease,
modifications to the Units and the return to the Owner Trustee of the Equipment
at the end of the term of the Lease and (iii) the renewal of the Lease and the
option of the Company at the end of the term of the Lease to purchase any or all
of the Equipment subject to the Lease. (Indenture, Section 10.05)
Without the consent of the holder of each Equipment Note outstanding under
the Indenture, no amendment or modification of the Indenture may (a) change the
final maturity of, or reduce the principal amount of, or premium, if any, or
interest payable on any Equipment Notes issued under the Indenture or impair the
right to institute suit for the enforcement of any such payment or change the
date on which any principal or premium, if any, or interest is due and payable,
(b) create any lien with respect to the property subject to the Lien of the
Indenture ranking prior to or on a parity with the security interest created by
the Indenture, except as permitted in the Indenture, or deprive any holder of
any Equipment Note issued under the Indenture of the benefit of the Lien of the
Indenture or (c) reduce the percentage in principal amount of outstanding
Equipment Notes issued under the Indenture necessary to modify or amend any
provision of the Indenture or to waive compliance therewith. (Indenture, Section
10.01)
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THE LEASE
Terms and Rentals. The Equipment subject to the Lease will be leased by the
Owner Trustee to the Company for a term commencing on the delivery date thereof
and expiring on March 30, 2014, unless previously terminated as permitted by the
Lease. The rent payments under the Lease will be payable on January 2 and July 2
(or, if such day is not a Business Day, on the next succeeding Business Day),
commencing on July 2, 1998, and will be used to make payments of principal of
and interest due on the Equipment Notes, which will in turn furnish the funds to
be distributed by the Pass Through Trustee to the Certificateholders on January
2 and July 2 of each year. (Lease, Section 3.2; Indenture, Section 3.01) The
Company has also agreed to pay under the Lease on July 2, 1998 such amounts (to
the extent not paid by the Owner Participant) as necessary to enable the
Indenture Trustee to receive the scheduled payment of interest on the Equipment
Notes. (Lease, Section 3.5) Rental payments that the Company is obligated to
make or cause to be made under the Lease will not be less than the scheduled
payments of principal of and interest on the Equipment Notes. In certain cases,
the semiannual basic rent payments under the Lease may be adjusted, but, except
as described below, under no circumstances will such rent payments be adjusted
so as to be less than the corresponding scheduled payments of principal of and
interest on the Equipment Notes. (Participation Agreement, Section 2.6; Lease,
Section 3) The balance of any such semi-annual rent payment under the Lease,
after payment of the scheduled principal of, and interest on the Equipment
Notes, will be paid over to or for the account of the Owner Participant as the
beneficial owner of the Equipment covered by the Lease. (Lease, Section 3)
Net Lease; Modifications. The Company's obligations in respect of the
Equipment are those of a lessee under a "net lease." Accordingly, the Company is
and will be obligated, at its expense, to pay all costs and expenses of
operating the Equipment and to maintain, service and repair the Equipment so as
to keep the Units included therein in good operating order, ordinary wear and
tear excepted. (Lease, Sections 8 and 19)
Subject to certain exceptions, the Company will, at its expense, make all
alterations, replacements or modifications required to be made by the
Association of American Railroads, the United States Department of
Transportation, or any other United States, state or local governmental agency
or other applicable law. The Company will have the right, at its expense, to
make other modifications, alterations and improvements, provided that such
modifications do not diminish the value, utility or remaining useful life of
such Unit or cause it to become "limited use" property. Severable modifications
that are not required by law will remain the property of the Company but may be
purchased by the Owner Trustee at fair market value upon termination of the
Lease. The Owner Trustee will acquire title to all nonseverable modifications
and severable modifications required by law. (Lease, Section 9)
Sublease; Possession and Use. The Company is in the business of leasing
railway tank cars and other railcars to third parties under full service
operating leases. These leases vary in nature based on the needs of the
sublessee and the Company. The Company shall have the right to use the
Equipment, subject to the Lease, and to sublease the Equipment to any railroad
company incorporated in the United States, Canada or Mexico or to any other
responsible company which is not a railroad company for use in its business,
provided that the Units are used primarily on domestic routes in the United
States and that at no time shall more than 20% of the Units be used (as
determined by mileage records) outside the continental United States (exclusive
of Alaska) during any taxable year in which certain specified events occur; and
further provided that if the Company subleases any Units to a sublessee which
operates primarily in Mexico, subject to the provisions of the Lease, the
Company shall make all registration filings and deposits necessary or advisable
under then-current prudent industry practice (including any actions reasonably
requested by the Owner Trustee or the Indenture Trustee) to protect the interest
of the Owner Trustee under the Lease and the Indenture Trustee under the
Indenture. (Lease, Section 8.2) The Company may not sublease any Unit for a term
that extends beyond the term of the Lease nor may it sublease any Unit on terms
and conditions that are not consistent with the terms of the Lease unless the
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Company replaces such Unit on or prior to the expiration of the Lease term in
accordance with the provisions of the Lease. No sublease will discharge the
Company of its obligations under the Lease. (Lease, Sections 8.2 and 8.3) If any
Unit is leased or the possession is otherwise transferred, such Unit will remain
subject to the lien of the Indenture.
Maintenance. The Company, at its own cost and expense, shall maintain,
repair and keep each Unit (i) according to prudent industry practice, in good
working order, and in good physical condition for railcars of a similar age and
usage, normal wear and tear excepted, (ii) in a manner consistent in all
material respects with maintenance practices used by the Company in respect of
equipment owned or leased by the Company similar in type to such Unit, (iii) in
accordance in all material respects with all manufacturers' warranties and in
accordance with all applicable provisions, if any, of insurance policies
required to be maintained pursuant to the Lease and (iv) in compliance in all
material respects with all applicable laws and regulations other than those
being contested in good faith in any reasonable manner which does not create any
risk or danger of (a) material interference with the use, possession, operation
or return of any Unit, or materially adversely affecting the rights or interests
of the Company and the Indenture Trustee in the Equipment, (b) the imposition of
any criminal liability or material civil liability on the part of the Owner
Trustee, the Indenture Trustee or the Owner Participant, or (z) the release of
the Company from the obligation to return the Equipment in compliance with the
Lease. (Lease, Section 8)
Liens. The Equipment will be maintained free of any liens, other than the
respective rights of the Owner Participant, the Owner Trustee, the Indenture
Trustee, the holders of the Equipment Notes, the Company and any permitted
sublessee arising under the Lease, the Indenture, the Participation Agreement
and the trust agreement between the Owner Trustee and the Owner Participant
pursuant to which the Owner Trustee acts as trustee for the benefit of the Owner
Participant, and other than, in the case of the Equipment, certain limited liens
permitted under the Lease and the Indenture, including liens for taxes either
not yet due and payable or being contested in good faith (so long as there
exists no material risk of sale, forfeiture, loss or loss of use of the
Equipment or any interest therein), materialmen's, mechanics' and other similar
liens arising in the ordinary course of business and either not yet due and
payable or being contested (so long as there exists no material risk of sale,
forfeiture, loss or loss of use of the Equipment or any interest therein),
judgment liens that are being appealed in good faith and whose enforcement has
been stayed pending such appeal, and salvage rights of insurers under insurance
policies maintained pursuant to the Lease. (Lease, Section 7)
Insurance. The Company will at all times prior to the return of the
Equipment to the Owner Trustee, at its own expense, cause to be carried and
maintained insurance in respect of the Equipment in amounts and against such
risks and with deductibles and terms and conditions not less than the insurance,
if any, maintained by the Company in respect of similar equipment owned or
leased by the Company, but in no event shall such coverage be for amounts or
against risks less than the prudent industry standard for companies engaged in
full service leasing of tank and hopper cars. (Lease, Section 12) The Company
does not maintain casualty insurance with respect to the Equipment.
Termination. So long as no Lease Event of Default or event which, with
notice or the lapse of time or both, would become a Lease Event of Default
thereunder shall have occurred and be continuing, the Company may, upon at least
120 days prior written notice, terminate the Lease with respect to any or all of
the Units (provided that if such termination is for less than all of the Units
in any Equipment Group (as defined in the Lease), the determination as to which
Units are subject to termination shall be made by the Company on a random or
other reasonable basis without regard to maintenance status or operating
condition) (the "Terminated Units"), at its option any time after September 30,
2005, if the Company determines in good faith (as evidenced by a certified copy
of a resolution adopted by its Board of Directors and a certificate executed by
the Chief Financial Officer of the Company) that such Terminated Units have
become obsolete or surplus to its requirements for any reason or that any
modification required by law to such Terminated Units would be
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economically impractical. The Company will act as agent for the Owner Trustee in
obtaining bids for the Terminated Units and, if the Company succeeds in locating
the eventual purchaser of the Terminated Units, the Owner Trustee shall transfer
all of its right, title and interest in and to the Terminated Units to the
bidder which has submitted the highest cash bid (who may not be the Company or
any affiliate of the Company) on the termination date. The net proceeds of such
sale shall be paid to the Owner Trustee. If the net proceeds received from such
sale are less than the Termination Value for the Terminated Units, the Company
shall pay to the Owner Trustee an amount equal to the difference between such
proceeds and such Termination Value, together with certain other amounts
including, the Make-Whole Amount, if any. All funds to be paid to or deposited
with the Owner Trustee as described in this paragraph shall, so long as the
Indenture shall not have been discharged, be deposited directly with the
Indenture Trustee. Amounts in excess of the outstanding principal amount of the
Equipment Notes issued in respect of such Terminated Units, the Make-Whole
Amount, if applicable, and the then accrued and unpaid interest thereon will be
distributed by the Indenture Trustee in accordance with the terms of the
Indenture. The lien of the Indenture shall terminate with respect to the
Terminated Units after the full Termination Value and any rent due has been
received by the Indenture Trustee and, if all amounts due such Owner Participant
have also been paid, the Lease will terminate with respect to such Terminated
Units and the obligation of the Company thereafter to make rent payments with
respect thereto shall cease. (Lease, Sections 3.6, 10.1, 10.2 and 10.4,
Indenture, Section 3.02)
The Owner Trustee shall have the option to retain the Terminated Units, but
it may do so only if the Owner Trustee shall pay, or cause to be paid, to the
Indenture Trustee funds in an amount equal to the principal of and accrued
interest on the outstanding Equipment Notes with respect to such Terminated
Units and, if applicable, an amount equal to the Make-Whole Amount. (Lease,
Section 10.3)
Purchase Options. So long as no Lease Event of Default or event which, with
notice or the lapse of time or both, would become a Lease Event of Default
thereunder, shall have occurred and be continuing, the Company shall have the
right to purchase on January 2, 2009 any or all of such Units subject to the
Lease at the option prices set forth in the Lease. The Company may exercise its
early purchase option in whole or in part by giving written notice to the Owner
Trustee at least 90 days prior to the Early Purchase Date. If the Company
exercises its early purchase option, a portion of the purchase price shall be
used to prepay the Equipment Notes relating to the purchased Units unless the
Company elects to assume on a full recourse basis all of the Owner Trustee's
obligations in respect of the related Equipment Notes and acquires the purchased
Units subject to the lien of the Indenture. (Lease, Section 22.1) See
"Description of the Equipment Notes -- Prepayment" in this Prospectus Supplement
and in the accompanying Prospectus.
Events of Loss. If an Event of Loss occurs with respect to a Unit, the
Company shall give notice to the Owner Trustee in accordance with the terms of
the Lease and, if the Indenture has not been discharged, to the Indenture
Trustee, and shall either (i) pay to the Owner Trustee the Stipulated Loss Value
of such Unit or (ii) substitute for such Unit like kind equipment, of equal or
greater fair market sales value, utility, remaining economic useful life and
estimated residual value as the Unit being replaced (assuming such Unit was in
the condition required under the Lease). If the Company elects not to substitute
for the applicable Unit, Stipulated Loss Value will be paid on (i) the next
Regular Distribution Date following the election by the Company to pay the
Stipulated Loss Value of such Unit rather than substitute like kind Equipment or
(ii) in the case of the occurrence of a Multiple Loss, on the first Business Day
succeeding the 60th day following the date on which the Company is required to
report such Multiple Loss. If the Company elects to substitute for the
applicable Units, it shall so substitute for such Units on (i) the Rent Payment
Date immediately following the date the Company delivers notice of such election
or (ii) in the case of the occurrence of a Multiple Loss, on the first Business
Day succeeding the 60th day following the date on which the Company is required
to report such Multiple Loss. All funds to be paid or deposited with the Owner
Trustee as described in this paragraph shall, so long as the applicable
Indenture shall not
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have been discharged, be deposited directly with the Indenture Trustee and shall
be applied to prepay all or a portion of the Equipment Notes as provided in the
Indenture. See "Description of the Equipment Notes -- Prepayment" in the
Prospectus Supplement and in the accompanying Prospectus. If the Company pays
the Stipulated Loss Value of a Unit subject to an Event of Loss and any rent
due, the lien of the Indenture and the Lease relating to such Unit shall
terminate with respect to such Unit, title thereto shall be transferred to the
Company and the obligation of the Company thereafter to make rent payments with
respect thereto shall cease, except for indemnification obligations which
otherwise may have accrued. (Lease, Section 11) Amounts in excess of the amounts
applied to prepay Equipment Notes in accordance with the Indenture will be
distributed by the Indenture Trustee in accordance with the terms of the
Indenture.
An Event of Loss with respect to any Unit shall mean any of the following
events: (i) damage or contamination of such Unit which, in the Company's
reasonable judgment (as evidenced by an Officers' Certificate to such effect),
makes repair uneconomic or renders such Unit unfit for commercial use, (ii)
destruction of such Unit or theft or disappearance thereof for a period
exceeding twelve months, (iii) the permanent return of such Unit to the
manufacturer pursuant to any patent indemnity provisions, (iv) the taking or
appropriating of title to such Unit by any governmental authority under the
power of eminent domain or otherwise, (v) the actual or constructive total loss
of the Unit, (vi) in the normal course of interstate rail transportation, the
Unit shall be prohibited from being used for a continuous period in excess of
six months as a result of any rule, regulation, order or other action by the
United States government or any agency or instrumentality thereof, (vii) the
Unit shall be subject to a sublease with any person which operates primarily
outside of the United States and shall not be returned to the Company within 60
days of a demand by the Company for return of such Unit following the
termination or other expiration of the term of such sublease or (viii) the
taking or requisitioning of such Unit for use by any governmental authority or
any agency or instrumentality of the United States, Canada or Mexico under the
power of eminent domain or otherwise and such taking or requisition is for a
period that exceeds the remaining Basic Term or any Renewal Term then in effect
(unless such taking or requisition is by Mexico or any governmental authority,
agency or instrumentality thereof, in which case such period shall be the lesser
of the period described above or 365 days). (Lease, Section 11.1)
Lease Events of Default. Events of default (each, a "Lease Event of
Default") under the Lease include, among other things: (a) failure by the
Company to make any payment of Basic Rent, Supplemental Rent in respect of
Make-Whole Amounts, Early Purchase Price, Basic Term Purchase Price or any other
purchase price to be paid by the Company for any Units pursuant to the Lease or
the Participation Agreement, Stipulated Loss Value or Termination Value, within
10 Business Days after the same shall have become due, (b) failure by the
Company to make any payment of Supplemental Rent, including indemnity or tax
indemnity payments, but not including Stipulated Loss Value, Early Purchase
Price, Basic Term Purchase Price or any other purchase price to be paid by the
Company for any Units pursuant to the Lease or the Participation Agreement,
Termination Value, Supplemental Rent in respect of Make-Whole Amount, after the
same shall become due and such failure shall continue unremedied for 10 Business
Days after receipt by the Company of written notice of such failure from the
Owner Trustee or Indenture Trustee, (c) failure to maintain in effect insurance
as required by the Lease, such failure not having been waived, (d) the Company
shall make or permit any possession of the Equipment or any portion thereof not
permitted by the Lease, provided that such unauthorized possession shall not
constitute a Lease Event of Default for a period of 45 days after the occurrence
thereof, or the Company shall make or permit an unauthorized assignment or
transfer of the Lease, (e) failure by the Company to observe or perform any of
the agreements or covenants relating to the merger, consolidation or transfer of
assets of the Company and such failure continues unremedied for 30 days, (f) any
representation or warranty made by the Company in any Lessee Agreement being
untrue or incorrect in any material respect, continuing for a period of 30 days
after written notice of such failure from the Owner Trustee or the Indenture
Trustee, or, if such failure is capable of being remedied, for a period of 60
days after written receipt of such notice so long as the Company is diligently
proceeding to remedy such
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failure, (g) the Company (i) commences a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy or similar law, or (ii) consent to any such
relief, or (iii) admits in writing its inability to pay its debts generally as
they come due; or (iv) making a general assignment for the benefit of creditors,
or (v) takes any corporate action to authorize any of the foregoing; (h) the
occurrence of certain events of bankruptcy, reorganization or insolvency of the
Company (i) failure by the Company to observe or perform any of the covenants or
agreements to be observed or performed under any Lessee Agreement (other than
the Tax Indemnity Agreement and such failure shall continue, unremedied for 30
days after notice from the Owner Trustee or the Indenture Trustee; provided
that, if such failure is capable of being remedied, and the remedy requires an
action other than, or in addition to, the payment of money, no such failure
shall constitute a Lease Event of Default hereunder for a period 90 days after
the receipt of such notice so long as the Company is diligently proceeding to
remedy such failure, and (j) the Company gave notice of its intention to retain
any Units at the end of the Basic Term or any Renewal Term and prior to the last
day of the Basic Term or Renewal Term, the Company did not notify Lesser of its
election to purchase or continue leasing such unit (Lease, Section 14).
If a Lease Event of Default under the Lease has occurred and is continuing,
and the Lease has been declared to be in default, the Indenture Trustee, as
assignee of the Owner Trustee's rights under the Lease, may exercise one or more
of the remedies provided in the Lease with respect to the Equipment subject
thereto. These remedies include the right to repossess and use or operate the
Equipment, to sell or release the Equipment free and clear of the Company's
rights and retain the proceeds and to require the Company to pay liquidated
damages specified therein. (Lease, Section 15.1 and 15.2)
THE PARTICIPATION AGREEMENT
The Company is required to indemnify the Owner Participant, the Owner
Trustee, the Indenture Trustee and the Pass Through Trustee for certain losses
and claims and for certain other matters. (Participation Agreement, Section 7)
In addition, the Company is required under certain circumstances to indemnify
the Owner Participant for the loss of depreciation deductions and certain other
benefits allowable for certain income tax purposes with respect to the
Equipment. Subject to certain restrictions, the Owner Participant may transfer
its beneficial interest in the owner trust.
The Participation Agreement provides that if the Owner Participant, any
subsequent transferee or any affiliate thereof is or acquires, is acquired by,
merges or otherwise consolidates with any company or affiliate thereof engaged
in full service railcar leasing, whether or not a direct competitor of the
Company or any affiliate of the Company, or any person that has a material
interest in an enterprise that engages in a business that is in competition with
the Company's full service railcar operating leasing business, the Company may
purchase the Equipment for a purchase price equal to the greater of the
Termination Value or the then appraised fair market value, each calculated as of
the designated Special Distribution Date, plus certain other amounts including,
if applicable, the Make-Whole Amount. If the Company elects to exercise its
right to purchase the Equipment, unless the Company elects to assume the
Equipment Notes on a full recourse basis, the purchase price shall be used to
prepay the Equipment Notes and the Make-Whole Amount shall be paid.
Under the Participation Agreement, the Company is prohibited from
consolidating or merging with or into any other corporation or transferring
substantially all of its assets to another corporation unless (a) the successor
corporation, if other than the Company, shall be a corporation organized and
existing under the laws of the United States or any state or the District of
Columbia and shall expressly assume the due and punctual performance and
observance of all the covenants and conditions of the operative agreements to be
performed by the Company, (b) immediately prior to and immediately after giving
effect to such transaction, no Lease Event of Default, or event which with
notice or the passage of time or both would become a Lease Event of Default,
shall have occurred, whether as a result of such transaction or otherwise, and
(c) the Company shall have
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<PAGE> 30
made all filings necessary or appropriate in the reasonable opinion of the Owner
Trustee and the Indenture Trustee in order to preserve and protect the rights of
the Owner Trustee under the Lease and of the Indenture Trustee under the
Indenture. (Participation Agreement, Section 6.8)
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Prospective investors should consult the section entitled "Material Federal
Income Tax Consequences" in the accompanying Prospectus for a discussion of the
anticipated material federal income tax consequences of the purchase, ownership
and disposition of the Pass Through Certificates. Investors should consult their
own tax advisors in determining the federal, state, local and foreign tax
consequences to them of the purchase, ownership and disposition of Pass Through
Certificates, including the advisability of making any election discussed in the
accompanying Prospectus. Prospective investors should note that no rulings have
been or will be sought from the Internal Revenue Service (the "IRS") with
respect to any of the federal income tax consequences discussed below and no
assurance can be given that the IRS will not take contrary positions. The Pass
Through Trust is not indemnified for any federal income taxes that may be
imposed upon it, the imposition of which could significantly reduce the amounts
available for distribution to the Certificate Owners. For purposes of this
"Material Federal Income Tax Consequences" section, the terms "Pass Through
Certificate" and "Certificate" also refer to an indirect interest in a Pass
Through Certificate held by a Certificate Owner.
ERISA CONSIDERATIONS
Pass Through Certificates may be purchased by an employee benefit plan (a
"Plan") subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). A fiduciary of a Plan must determine that the purchase of a
Pass Through Certificate is consistent with its fiduciary duties under ERISA and
does not result in a non-exempt prohibited transaction as defined in Section 406
of ERISA or Section 4975 of the Code. Employee benefit plans which are
governmental plans (as defined in Section 3(33) of ERISA) and certain church
plans (as defined in Section 3(33) of ERISA) are not subject to the fiduciary
responsibility provisions of ERISA. Any Plan that purchases a Pass Through
Certificate must be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D promulgated under the Securities Act.
The United States Department of Labor has granted to Salomon Brothers Inc
an administrative exemption (Prohibited Transaction Exemption 89-89, Exemption
Application No. D-6446, et al. 54 Fed. Reg. 42,589 (1989) as amended, 55 Fed.
Reg. 48,939 (1990)) (the "Exemption") from certain of the prohibited transaction
rules of ERISA and the Code with respect to the initial purchase, the holding
and the subsequent resale by a Plan of certificates in certain pass through
trusts, the assets of which consist of secured credit instruments that bear
interest, including qualified equipment notes secured by leases. A number of
conditions must be satisfied in order for the Exemption to apply, including the
requirement that at the time of their purchase by a Plan the Pass Through
Certificates have a specified credit rating. Under the Exemption an equipment
note secured by a lease will be considered qualified only if it is a note (a)
which is secured by equipment which is leased, (b) which is secured by the
obligation of the lessee to pay rent under the equipment lease and (c) with
respect to which the trust's security interest is at least as protective of the
rights of the trust as the trust would have if the equipment note were secured
only by the equipment and not by the lease.
It is not clear whether the Exemption applies to participant directed plans
described in Section 404(c) of ERISA or plans that are subject to Section 4975
of the Code but not Title I of ERISA, such as individual retirement plans and
certain plans for self-employed individuals. In addition, there are various
other terms and conditions to the applicability of the Exemption. Accordingly,
each fiduciary of a Plan should independently determine if its purchase of a
Pass Through Certificate will require an exemption, and if so, whether the
Exemption applies to the purchase, or whether any other prohibited transaction
exemption is available.
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<PAGE> 31
UNDERWRITING
Under the terms of and subject to the conditions contained in the
underwriting agreement with the Company (the "Underwriting Agreement"), Salomon
Brothers Inc (the "Underwriter") has agreed to purchase from the Pass Through
Trustee all of the Pass Through Certificates offered hereby.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Pass Through Certificates is subject to,
among other things, the approval of certain legal matters by its counsel and
certain other conditions. The Underwriter is obligated to take and pay for all
of the Pass Through Certificates if any are taken.
The Underwriter proposes to offer all or part of the Pass Through
Certificates directly to the public at the public offering price set forth on
the cover page of this Prospectus and may offer a portion of the Pass Through
Certificates to certain dealers at a price that represents a concession not in
excess of % of the principal amount of the Pass Through Certificates. The
Underwriter may allow, and such dealers may reallow a concession not in excess
of % of the principal amount of the Pass Through Certificates to certain
other dealers. After the initial public offering, the public offering price and
such concessions may be changed.
The Company has agreed to indemnify the Underwriter and the Underwriter has
agreed to indemnify the Company against certain liabilities, including
liabilities under the Securities Act of 1933.
The Company does not intend to apply for listing of the Pass Through
Certificates on a national securities exchange, but has been advised by the
Underwriter that the Underwriter presently intends to make a market in the Pass
Through Certificates, as permitted by applicable laws and regulations. The
Underwriter is not obligated, however, to make a market in the Pass Through
Certificates and any such market making may be discontinued at any time at the
sole discretion of the Underwriter. Accordingly, no assurance can be given as to
the liquidity of, or trading markets for, the Pass Through Certificates.
It is expected that the delivery of the Pass Through Certificates will be
made against payment therefor on or about the date specified in the last
paragraph of the cover page of the Prospectus Supplement, which will be the
third business day following the date of pricing the Pass Through Certificates
(such settlement cycle being herein referred to as "T+3"). Under Rule 15c6-1
under the Securities Exchange Act of 1934, trades in the secondary market
generally are required to settle in three business days, unless the parties to
any such trade expressly agree otherwise. Accordingly, purchasers who wish to
trade Pass Through Certificates on the date of pricing or the next succeeding
business day will be required by virtue of the fact that the Pass Through
Certificates initially will settle in T+3, to specify an alternate settlement
cycle at the time of any such trade to prevent a failed settlement. Purchasers
of Pass Through Certificates who wish to trade Pass Through Certificates on the
date of pricing or the next succeeding business day should consult their own
advisor.
LEGAL OPINIONS
The validity of the Pass Through Certificates is being passed upon for the
Company by Neal, Gerber & Eisenberg, Chicago, Illinois, and for the Underwriter
by Mayer, Brown & Platt, New York, New York. Both Neal, Gerber & Eisenberg and
Mayer, Brown & Platt will rely on the opinion of the Law Department of Harris
Trust and Savings Bank as to matters relating to the authorization, execution,
authentication, issuance and delivery of the Pass Through Certificates under the
Agreement. Certain legal matters with respect to United States and Illinois
income taxation in this Prospectus Supplement and in the accompanying Prospectus
are being passed upon for the Company by Neal, Gerber & Eisenberg.
S-31
<PAGE> 32
PROSPECTUS
$300,000,000
UNION TANK CAR COMPANY
PASS THROUGH CERTIFICATES
------------------------
Up to $300,000,000 aggregate principal amount of Pass Through Certificates
may be offered for sale from time to time pursuant to this Prospectus and
related Prospectus Supplements. Pass Through Certificates may be issued in one
or more series in amounts, at prices and on terms to be determined at the time
of the offering. In respect of each offering of Pass Through Certificates, a
separate Union Tank Car Company Pass Through Trust for each series of Pass
Through Certificates being offered (each, a "Trust") will be formed pursuant to
the Pass Through Trust Agreement (the "Basic Agreement") and a supplement
thereto (a "Trust Supplement") relating to such Trust between Union Tank Car
Company (the "Company") and, unless otherwise specified in the Prospectus
Supplement, Harris Trust and Savings Bank (the "Pass Through Trustee"), as pass
through trustee under each Trust. Each Pass Through Certificate in a series will
represent a fractional undivided interest in the related Trust and will have no
rights, benefits or interest in respect of any other Trust. The property of each
Trust will consist of (i) equipment notes (the "Equipment Notes") issued on a
nonrecourse basis by one or more owner trustees pursuant to one or more
leveraged lease transactions to finance or refinance a portion of the equipment
cost of certain railcars ("Equipment Units") which have been or will be leased
to the Company or (ii) equipment trust certificates (the "ETCs") issued pursuant
to one or more equipment trust agreements between the Company and Harris Trust
and Savings Bank, as trustee. Each such equipment trust agreement is hereinafter
referred to as an "Equipment Trust Agreement", and Harris Trust and Savings
Bank, as trustee under each Equipment Trust Agreement, is hereinafter referred
to as the "Equipment Trust Trustee". Amounts payable pursuant to the ETCs will
be fully and unconditionally guaranteed by the Company. The Prospectus
Supplement relating to each offering of Pass Through Certificates will describe
certain terms of the Pass Through Certificates being offered, the Trust or
Trusts relating thereto, the Equipment Notes or ETCs to be purchased by such
Trust or Trusts, the Equipment Units relating to such Equipment Notes and the
leveraged lease transactions, if any, relating thereto.
The Equipment Notes will not be direct obligations of, or guaranteed by, the
Company, but the amounts unconditionally payable by the Company for the lease of
the Equipment Units will be sufficient to pay in full when due all payments
required to be made on such Equipment Notes.
Equipment Notes may be issued in respect of Equipment Units in one or more
series, each series having a different interest rate and final maturity date. A
separate Trust may purchase one or more series of the Equipment Notes issued
with respect to each group of Equipment Units (an "Equipment Group"). All of the
Equipment Notes held in such Trust will have an interest rate equal to the
interest rate applicable to the Pass Through Certificates issued by such Trust
and maturity dates occurring on or before the final distribution date applicable
to such Pass Through Certificates. The Equipment Notes issued with respect to
each Equipment Group will be secured by a security interest in such Equipment
Group and by the lease relating thereto (each, a "Lease"), including the right
to receive rent payable by the Company in respect of such Equipment Group.
Interest paid on the Equipment Notes or ETCs held in each Trust will be
passed through to the holders of the Pass Through Certificates relating to such
Trust on the dates and at the rate per annum set forth in the Prospectus
Supplement relating to such Pass Through Certificates until the final
distribution date for such Trust. Principal paid on the Equipment Notes or ETCs
held in each Trust will be passed through to the holders of the Pass Through
Certificates relating to such Trust in scheduled amounts on the dates set forth
in the Prospectus Supplement relating to such Pass Through Certificates until
the final distribution date for such Trust.
The Pass Through Certificates may be offered through underwriters, dealers
or agents. See "Plan of Distribution." The Prospectus Supplement will set forth
the names of any underwriters, dealers or agents involved in the sale of the
Pass Through Certificates in respect of which this Prospectus is being delivered
and any applicable fee, commission or discount arrangements with them.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus may not be used to consummate a sale of Pass Through
Certificates unless accompanied by a Prospectus Supplement.
The date of this Prospectus is February 11, 1998.
<PAGE> 33
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Pass Through Certificates. This Prospectus, which forms a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Pass Through Certificates and the Company,
reference is made to the Registration Statement. Any statement contained herein
concerning the provisions of any document is not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Information
concerning the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and New York Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such materials also may be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
REPORTS TO CERTIFICATEHOLDERS BY THE TRUSTEE
Harris Trust and Savings Bank, as trustee under the Pass Through Trust
Agreement, will provide to Certificateholders certain periodic statements
concerning distributions made with respect to the Pass Through Trusts. See
"Description of the Pass Through Certificates -- Reports to Certificateholders."
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<PAGE> 34
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, its Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997, and its Current Reports on Form 8-K
dated January 30, 1997, June 3, 1997 and October 31, 1997, as filed with the
Commission pursuant to the Exchange Act, are incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Pass Through Certificates shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein, or contained in
this Prospectus, shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written request of such person, a copy (without
exhibits) of any or all documents incorporated by reference in this Prospectus.
Requests for such copies should be directed to the General Counsel and
Secretary, Union Tank Car Company, 225 West Washington Street, Chicago, Illinois
60606, telephone (312) 372-9500.
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<PAGE> 35
THE COMPANY
Union Tank Car Company (with its wholly-owned subsidiaries herein
collectively referred to, except as the context otherwise requires, as the
"Company") is principally engaged in the leasing of railway tank cars and other
rail cars to United States, Canadian and Mexican manufacturers and other
shippers of chemical products, including liquid fertilizers, petroleum products,
including liquid petroleum gas, food products and bulk plastics. The Company
owns and operates one of the largest fleets of privately-owned railway tank cars
in the world.
The Company, which was incorporated in Delaware in 1980 and is the
successor to a business which was incorporated in New Jersey in 1891 and
reincorporated in Delaware in 1968, is a wholly-owned subsidiary of Marmon
Industrial Corporation, a wholly-owned subsidiary of Marmon Holdings, Inc.
Substantially all the stock of Marmon Holdings, Inc. is owned, directly or
indirectly, by trusts for the benefit of certain members of the Pritzker family.
As used herein, "Pritzker family" refers to the lineal descendants of Nicholas
J. Pritzker, deceased.
The Company's principal executive offices are located at 225 West
Washington Street, Chicago, Illinois 60606, and its telephone number is (312)
372-9500.
FORMATION OF THE TRUSTS
In respect of each offering of Pass Through Certificates, one or more
Trusts will be formed, and the related Pass Through Certificates will be issued,
pursuant to separate Trust Supplements to be entered into between the Pass
Through Trustee and the Company in accordance with the terms of the Basic
Agreement. All Pass Through Certificates with respect to each Trust will
represent fractional undivided interests in such Trust and the property held in
such Trust and will have no rights, benefits or interest in respect of any other
Trust or the property held therein. Concurrently with the execution and delivery
of each Trust Supplement relating to one or more leveraged lease transactions,
the Pass Through Trustee, on behalf of the Trust formed thereby, will enter into
one or more financing, refinancing, purchase or participation agreements (each
such agreement being herein referred to as a "Participation Agreement") relating
to one or more Equipment Groups described in the applicable Prospectus
Supplement. Concurrently with the execution and delivery of each Trust
Supplement relating to ETCs, the Pass Through Trustee, on behalf of such Trust,
will purchase such ETCs from the Equipment Trust Trustee. Pursuant to the
applicable Participation Agreement or Equipment Trust Agreement, the Pass
Through Trustee, on behalf of the Trust formed in connection with the offering
of Pass Through Certificates, will purchase the Equipment Notes issued with
respect to each such Equipment Group or ETCs so that all of the Equipment Notes
or ETCs held in such Trust will have an interest rate equal to the interest rate
applicable to the Pass Through Certificates issued by such Trust. Unless
otherwise indicated in the Prospectus Supplement, the maturity dates of the
Equipment Notes or ETCs acquired by each Trust will occur on or before the final
distribution date applicable to the Pass Through Certificates issued with
respect to such Trust. The Pass Through Trustee will distribute the amount of
payments of principal, premium, if any, and interest received by it as holder of
the Equipment Notes or ETCs to the Certificateholders of the Pass Through
Certificates with respect to the Trust in which such Equipment Notes or ETCs are
held. See "Description of the Pass Through Certificates," "Description of the
Equipment Notes" and "Description of the ETCs."
USE OF PROCEEDS
The Pass Through Certificates offered pursuant to any Prospectus Supplement
will be issued (i) to facilitate the financing or refinancing of the debt
component of one or more separate leveraged lease transactions entered into by
the Company, as lessee, with respect to the Equipment Units described therein or
(ii) to purchase ETCs. The proceeds from the sale of Pass Through Certificates
relating to one or more leveraged lease transactions will be used by the Pass
Through Trustee on behalf of the applicable Trust or Trusts to purchase, at par,
the Equipment Notes to be issued by the respective Owner Trustee or Owner
Trustees to finance or refinance all or a portion of the equipment cost of such
Equipment Units. Simultaneously with the acquisition of such Equipment Units,
the respective Owner Trustee will lease such Equipment Units to the Company. In
the case of ETCs, the proceeds from the sale of Pass Through Certificates will
be used by the Pass Through Trustee on behalf of the applicable Trust or Trusts
to purchase,
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<PAGE> 36
at par, ETCs. The Company will use the net proceeds from each separate leveraged
lease transaction and from the issuance of ETCs to finance the addition of
railcars to the Company's fleet, for general corporate purposes or as otherwise
specified in the applicable Prospectus Supplement.
The Equipment Notes with respect to each Equipment Group will be issued
under a separate Trust Indenture and Security Agreement (each, an "Indenture")
between a bank or trust company as trustee thereunder (each, an "Indenture
Trustee") and an owner trustee, not in its individual capacity (except as
expressly set forth therein) but solely as trustee (each, an "Owner Trustee"),
of a separate trust for the benefit of one or more institutional or corporate
investors (each, an "Owner Participant"). Each Owner Participant will provide,
from sources other than the Equipment Notes, the balance of the equipment cost
of the related Equipment Group. No Owner Participant, however, will be
personally liable for any amount payable under the related Indenture or the
Equipment Notes issued thereunder. Subject to certain restrictions, each Owner
Participant may transfer its interest in the related Equipment Group.
Because the Company's obligation to make payments (i) under the Leases
relating to the Equipment Notes and (ii) in respect of the ETCs will be
unconditional, and not affected by the financial performance of the railcars
within the related Equipment Groups or subject to the related Equipment Trust
Agreements, the Company believes that historical financial information with
respect to such railcars will not be relevant to purchasers of the Pass Through
Certificates.
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
In connection with each offering of Pass Through Certificates, one or more
separate Trusts will be formed, and the related Pass Through Certificates will
be issued, pursuant to the Basic Agreement and one or more Trust Supplements to
be entered into between the Company and the Pass Through Trustee. The following
summary relates to the Basic Agreement and each of the Trust Supplements, the
Trusts to be formed thereby and the Pass Through Certificates to be issued by
each Trust except to the extent, if any, described in the applicable Prospectus
Supplement. Citations to the relevant sections of the Basic Agreement appear
below in parentheses. The statements under this caption are a summary and do not
purport to be complete. This summary makes use of terms defined in and is
qualified in its entirety by reference to all of the provisions of the Basic
Agreement, the form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The form of the Trust Supplement
relating to each series of Pass Through Certificates and the forms of the
Leases, Participation Agreements, Indentures, Equipment Notes, Equipment Trust
Agreements and ETCs, if any, relating thereto will be filed as exhibits to a
report by the Company on Form 8-K, 10-Q, or 10-K, as applicable, to be filed
with the Commission following the offering of such series of Pass Through
Certificates.
GENERAL
The Pass Through Certificates of each Trust will be issued in fully
registered form only. Each Pass Through Certificate will represent a fractional
undivided interest in the separate Trust created by the Trust Supplement
pursuant to which such Pass Through Certificate is issued. The property of each
Trust will include the Equipment Notes or ETCs held in such Trust, all monies at
any time paid thereon and all monies due and to become due thereunder and funds
from time to time deposited with the Pass Through Trustee in accounts relating
to such Trust. Each Pass Through Certificate will correspond to a pro rata share
of the outstanding principal amount of the Equipment Notes or ETCs and other
property held in the related Trust and will be issued in denominations of $1,000
or any integral multiple of $1,000. (Sections 2.1 and 3.1)
Except as otherwise provided in the applicable Trust Supplement, Pass
Through Certificates will be registered in the name of Cede & Co. ("Cede") as
the nominee of The Depository Trust Company ("DTC") and no person acquiring an
interest in Pass Through Certificates (a "Certificate Owner") will be entitled
to receive a certificate representing such person's interest in the related
Trust unless "Definitive Certificates" are issued as described below. Unless
Definitive Certificates are issued, all references to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
DTC Participants (as defined below), and all references herein to distributions,
notices, reports and statements to Certificateholders shall refer, as the
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<PAGE> 37
case may be, to distributions, notices, reports and statements to DTC or Cede,
as the registered holder of the Pass Through Certificates, or to DTC
Participants for distribution to Certificate Owners in accordance with DTC
procedures. See "-- Book-Entry Registration." (Section 3.9)
Interest will be passed through to Certificateholders of each Trust at the
rate per annum set forth on the cover page of the applicable Prospectus
Supplement and will be calculated on the basis of a 360-day year of twelve
30-day months.
The Pass Through Certificates of each series represent interests only in
the related Trust and all payments and distributions shall be made only from the
related Trust Property. (Section 3.8) The Pass Through Certificates do not
represent an interest in or obligation of the Company, the Pass Through Trustee,
the Owner Trustee, if any, in its individual capacity, the Owner Participant, if
any, the Equipment Trust Trustee, if any, or any affiliate of any thereof.
The Basic Agreement does not and, except as otherwise described in the
applicable Prospectus Supplement, neither the Indentures nor the Equipment Trust
Agreements will include financial covenants or "event risk" provisions
specifically designed to afford Certificateholders protection in the event of a
highly leveraged transaction affecting the Company. However, the
Certificateholders of each series will have the benefit of (i) a lien on the
specific Equipment Group securing the related Equipment Notes held in the
related Trust or, (ii) in the case of the ETCs held in the related Trust, the
indirect benefit of the Equipment Trust Trustee under the relevant Equipment
Trust Agreement holding title to the equipment securing the ETCs, as well as the
Company's full and unconditional guarantee of the ETCs. See "Description of the
Equipment Notes -- Security" and "Description of the ETCs -- Guarantee" and "--
Security."
BOOK-ENTRY REGISTRATION
Except as otherwise described in the applicable Prospectus Supplement, Pass
Through Certificates will be subject to the provisions described under this
caption for book-entry registration with DTC.
DTC. DTC has advised the Company that it is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to Section
17A of the Exchange Act. DTC was created to hold securities for its participants
("DTC Participants") and to facilitate the clearance and settlement of
securities transactions between DTC Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a DTC Participant
either directly or indirectly ("Indirect Participants").
Certificate Owners that are not DTC Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Pass Through Certificates may do so only through DTC Participants
and Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal, premium, if any, and interest from the Pass Through
Trustee through DTC Participants or Indirect Participants, as the case may be.
Under a book-entry format, Certificate Owners may experience some delay in their
receipt of payments, because such payments will be forwarded by the Pass Through
Trustee to Cede, as nominee for DTC. DTC will forward such payments to DTC
Participants, which thereafter will forward them to Indirect Participants or
Certificate Owners, as the case may be, in accordance with customary industry
practices. The forwarding of such distributions to the Certificate Owners will
be the responsibility of such DTC Participants. The only "Certificateholder"
will be Cede, as nominee of DTC. Certificate Owners will not be recognized by
the Pass Through Trustee as Certificateholders, as such term is used in the
Basic Agreement, and Certificate Owners will be permitted to exercise the rights
of Certificateholders only indirectly through DTC and DTC Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Pass Through Certificates among DTC Participants on whose
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<PAGE> 38
behalf it acts with respect to the Pass Through Certificates and to receive and
transmit distributions of principal of, premium, if any, and interest on the
Pass Through Certificates. DTC Participants and Indirect Participants with which
Certificate Owners have accounts with respect to the Pass Through Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Certificate Owners. Accordingly,
although Certificate Owners will not possess Pass Through Certificates, the
Rules provide a mechanism by which Certificate Owners will receive payments and
will be able to transfer their interests.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants, the ability of a Certificate Owner to pledge
Pass Through Certificates to persons or entities that do not participate in the
DTC system, or to otherwise act with respect to such Pass Through Certificates,
may be limited due to the lack of a physical certificate for such Pass Through
Certificates.
The Company understands that DTC will take any action permitted to be taken
by Certificateholders only at the direction of one or more DTC Participants to
whose accounts with DTC the Pass Through Certificates are credited.
Additionally, the Company understands that DTC will take such actions with
respect to any specified percentage of the beneficial interest of
Certificateholders held in each Trust only at the direction of and on behalf of
DTC Participants whose holders include undivided interests that satisfy any such
percentage. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of DTC
Participants whose holders include such undivided interests.
Neither the Company nor the Pass Through Trustee will have any liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of the Pass Through Certificates held by Cede, as
nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The information contained in this section concerning DTC and DTC's
book-entry system has been obtained from sources that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
DEFINITIVE CERTIFICATES. With respect to each Trust, the related Pass
Through Certificates will be issued in fully registered, certificated form
("Definitive Certificates") to Certificate Owners or their nominees, rather than
to DTC or its nominee, only if (i) the Company advises the Pass Through Trustee
in writing that DTC is no longer willing or able to properly discharge its
responsibilities as depository with respect to such Pass Through Certificates
and the Pass Through Trustee or the Company is unable to locate a qualified
successor, (ii) the Company, at its option, elects to terminate the book-entry
system through DTC or (iii) after the occurrence of an Event of Default (as
defined below), Certificate Owners representing an aggregate percentage interest
in such Trust of not less than a majority advise the Pass Through Trustee
through DTC in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the Certificate Owners' best interest.
(Section 3.9)
Upon the occurrence of any event described in the immediately preceding
paragraph, the Pass Through Trustee will be required to notify all affected
Certificate Owners through DTC Participants of the availability of Definitive
Certificates. Upon surrender by DTC of the certificates representing the Pass
Through Certificates and receipt of instructions for re-registration, the Pass
Through Trustee will reissue the Pass Through Certificates as Definitive
Certificates to Certificate Owners. (Section 3.9)
Distributions of principal of, premium, if any, and interest on the Pass
Through Certificates will thereafter be made by the Pass Through Trustee in
accordance with the procedures set forth in the Basic Agreement and the
applicable Trust Supplements, directly to holders of Definitive Certificates in
whose names such Definitive Certificates were registered at the close of
business on the applicable record date. Such distributions will be made by check
mailed to the address of each such holder as it appears on the register
maintained with respect to the applicable Trust. The final payment on any Pass
Through Certificate, however, will be made only upon presentation and surrender
of such Pass Through Certificate at the office or agency specified in the notice
of final distribution to Certificateholders. (Section 4.2 and 11.1)
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Definitive Certificates will be freely transferable and exchangeable at the
office of the Pass Through Trustee upon compliance with the requirements set
forth in the Basic Agreement and the applicable Trust Supplements. No service
charge will be imposed for any registration of transfer or exchange, but payment
of a sum sufficient to cover any tax or other governmental charge shall be
required. (Section 3.4 and 11.1)
SAME-DAY SETTLEMENT AND PAYMENT. Settlement for the Pass Through
Certificates will be required to be made in immediately available funds. So long
as the Pass Through Certificates are registered in the name of Cede, all
payments made by the Company to the Indenture Trustees, as assignees of the
Owner Trustees' rights under the Leases, in the case of Equipment Notes, or by
the Company in respect of ETCs, will be in immediately available funds and will
be passed through by the Pass Through Trustee to DTC in immediately available
funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the Pass
Through Certificates will trade in DTC's Same Day Funds Settlement System until
maturity, and secondary market trading activity in the Pass Through Certificates
will therefore be required by DTC to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in immediately
available funds on trading activity in the Pass Through Certificates.
PAYMENTS AND DISTRIBUTIONS
Payments received by the Pass Through Trustee of principal of, premium, if
any, and interest on the Equipment Notes or ETCs held in each Trust will be
distributed by the Pass Through Trustee to the Certificateholders of such Trust
on the date such receipt is confirmed, except in certain cases when some or all
of such Equipment Notes or ETCs are in default. See "-- Events of Default and
Certain Rights Upon an Event of Default."
Payments of principal of, and interest on the unpaid principal amount of,
the Equipment Notes or ETCs held in each Trust will be scheduled to be received
by the Pass Through Trustee on the dates specified in the applicable Prospectus
Supplement (such scheduled payments of principal of, and interest on, the
Equipment Notes or ETCs are herein referred to as "Scheduled Payments," and the
dates specified therefor in the applicable Prospectus Supplement are herein
referred to as "Regular Distribution Dates"). The Pass Through Trustee of each
Trust will distribute on each Regular Distribution Date to the
Certificateholders of such Trust all Scheduled Payments, the receipt of which is
confirmed by the Pass Through Trustee on such Regular Distribution Date. Each
such distribution of Scheduled Payments will be made by the Pass Through Trustee
to the holders of record of the Pass Through Certificates of such Trust on the
fifteenth day immediately preceding such Regular Distribution Date, subject to
certain exceptions. (Sections 4.1 and 4.2) If a Scheduled Payment is not
received by the Pass Through Trustee on a Regular Distribution Date, it will be
distributed on the date received to such holders of record.
Each Certificateholder of each Trust will be entitled to receive a pro rata
share of any distribution in respect of Scheduled Payments of principal and
interest made on the Equipment Notes or ETCs held in such Trust. Scheduled
Payments of principal on the Equipment Notes or ETCs held in each Trust will be
set forth in the applicable Prospectus Supplement. After a partial or full
prepayment or default in respect of some or all of such Equipment Notes or ETCs,
a Certificateholder should refer to the information with respect to the Pool
Balance and the Pool Factor for such Trust reported periodically by the Pass
Through Trustee. See "-- Pool Factors" and "-- Statements to
Certificateholders."
Payments of principal, premium, if any, and interest received by the Pass
Through Trustee on account of a partial or full prepayment, if any, of the
Equipment Notes or ETCs held in a Trust, and payments received by the Pass
Through Trustee following a default in respect of the Equipment Notes or ETCs
held in a Trust (including, in the case of Equipment Notes, payments received by
the Pass Through Trustee on account of their purchase by the related Owner
Trustee or payments received on account of the sale of Equipment Notes or ETCs
by the Pass Through Trustee) ("Special Payments") will be distributed on the
dates specified therefor in the applicable Prospectus Supplement (a "Special
Distribution Date"). In general, the Pass Through Trustee will mail notice to
the Certificateholders of record of any Trust not less than 15 days prior to
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the Special Distribution Date on which any Special Payment is scheduled to be
distributed by the Pass Through Trustee stating such anticipated Special
Distribution Date. (Section 4.2) Each distribution of a Special Payment, other
than a final distribution, on a Special Distribution Date for any Trust will be
made by the Pass Through Trustee to the holders of record of the Pass Through
Certificates of such Trust as of the Record Date preceding such Special
Distribution Date. See "-- Events of Default and Certain Rights Upon an Event of
Default" and "Description of the Equipment Notes -- Prepayments."
The Basic Agreement requires that the Pass Through Trustee establish and
maintain, for each Trust and for the benefit of the Certificateholders of such
Trust, one or more non-interest bearing accounts (the "Certificate Account") for
the deposit of payments representing Scheduled Payments on the Equipment Notes
or ETCs held in such Trust. (Section 4.1) The Basic Agreement also requires that
the Pass Through Trustee establish and maintain, for each Trust and for the
benefit of the Certificateholders of such Trust, one or more accounts (the
"Special Payments Account") for the deposit of payments representing Special
Payments.
Pursuant to the terms of the Basic Agreement, the Pass Through Trustee is
required to deposit any Scheduled Payments relating to the applicable Trust
received by it in the Certificate Account of such Trust and to deposit any
Special Payments so received by it in the Special Payments Account of such
Trust. (Section 4.1) All amounts so deposited will be distributed by the Pass
Through Trustee on a Regular Distribution Date or a Special Distribution Date as
appropriate. (Section 4.2)
At such time, if any, as the Pass Through Certificates of any Trust are
issued in the form of Definitive Certificates and not to Cede, as nominee for
DTC, distributions by the Pass Through Trustee from the Certificate Account or
the Special Payments Account of such Trust on a Regular Distribution Date or a
Special Distribution Date, as appropriate, will be made by check mailed to each
Certificateholder of such Trust of record on the applicable record date at its
address appearing on the register maintained with respect to such Trust.
(Section 4.2) The final distribution for each Trust, however, will be made only
upon presentation and surrender of the Pass Through Certificates for such Trust
at the office or agency of the Pass Through Trustee specified in the notice
given by the Pass Through Trustee of such final distribution. The Pass Through
Trustee will mail such notice of the final distribution to the
Certificateholders of such Trust, specifying the date set for such final
distribution and the amount of such distribution. (Section 11.1) See "--
Termination of the Trusts."
If any Regular Distribution Date or Special Distribution Date is not a
Business Day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date may be made on the next succeeding Business
Day without additional interest. (Section 13.11)
POOL FACTORS
Unless there has been a prepayment, or a default in respect of one or more
issues of the Equipment Notes or ETCs held in a Trust, as described in the
applicable Prospectus Supplement or below in "-- Events of Default and Certain
Rights Upon an Event of Default," the Pool Factor for such Trust will decline in
proportion to the scheduled repayments of principal on the Equipment Notes or
ETCs held in such Trust as described in the applicable Prospectus Supplement. In
the event of a partial or full prepayment or default, the Pool Factor and the
Pool Balance of each Trust so affected will be recomputed after giving effect
thereto and notice thereof will be mailed to Certificateholders of such Trust.
Each Trust will have a separate Pool Factor and Pool Balance.
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Balance" for each Trust indicates, as of any Regular Distribution Date or
Special Distribution Date, the aggregate unpaid principal amount of the
Equipment Notes or ETCs held in such Trust on such date plus any amounts in
respect of principal on such Equipment Notes or ETCs held by the Pass Through
Trustee and not yet distributed plus the amount of any moneys held in the
related escrow account (other than earnings thereon). The Pool Balance for each
Trust as of any Regular Distribution Date or Special Distribution Date shall be
computed after giving effect to the payment of principal, if any, on the
Equipment Notes or ETCs held in such Trust and distribution thereof to be made
on that date.
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Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Factor" for each Trust, as of any Regular Distribution Date or Special
Distribution Date, is the quotient (rounded to the seventh decimal place)
computed by dividing (i) the Pool Balance of such Trust, by (ii) the aggregate
original principal amount of the Pass Through Certificates issued by such Trust.
The Pool Factor for each Trust as of any Regular Distribution Date or Special
Distribution Date shall be computed after giving effect to the payment of
principal, if any, on the Equipment Notes or ETCs held in such Trust and
distribution thereof to be made on that date. (Section 1.1) The Pool Factor for
each Trust will initially be 1.0000000; thereafter, the Pool Factor for each
Trust will decline as described above to reflect reductions in the Pool Balance
of such Trust. The amount of a Certificateholder's pro rata share of the Pool
Balance of a Trust can be determined by multiplying the original denomination of
the Certificateholder's Pass Through Certificate of such Trust by the Pool
Factor for such Trust as of the applicable Regular Distribution Date or Special
Distribution Date. The Pool Factor and the Pool Balance for each Trust will be
mailed to Certificateholders of record of such Trust on each Regular
Distribution Date and Special Distribution Date.
STATEMENTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, if any,
the Pass Through Trustee will include with each distribution of a Scheduled
Payment or Special Payment to Certificateholders of record of the related Trust
a statement, giving effect to such distribution to be made on such Regular
Distribution Date or Special Distribution Date, if any, setting forth the
following information (per $1,000 in aggregate principal amount of Pass Through
Certificates for such Trust, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and the amount
allocable to premium, if any;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor for such Trust. (Section 4.3)
So long as the Pass Through Certificates of any Trust are registered in the
name of Cede, as nominee for DTC, on the applicable record date prior to each
Regular Distribution Date and Special Distribution Date, the Pass Through
Trustee will request from DTC a securities position listing setting forth the
names of all DTC Participants reflected on DTC's books as holding interests in
the Pass Through Certificates of such Trust on such record date. On each Regular
Distribution Date and Special Distribution Date, the Pass Through Trustee will
mail to each such DTC Participant the statement described above, and will make
available additional copies as requested by such DTC Participant, to be
available for forwarding to Certificate Owners. (Section 3.9)
In addition, after the end of each calendar year, the Pass Through Trustee
will prepare for each Certificateholder of record of each Trust at any time
during the preceding calendar year a report containing the sum of the amounts
determined pursuant to clauses (i) and (ii) above with respect to the Trust for
such calendar year or, in the event such person was a Certificateholder of
record during a portion of such calendar year, for the applicable portion of
such calendar year, and such other items as are readily available to the Pass
Through Trustee and which a Certificateholder shall reasonably request as
necessary for the purpose of such Certificateholder's preparation of its federal
income tax returns (Section 4.3) Such report and such other items shall be
prepared on the basis of information supplied to the Pass Through Trustee by the
DTC Participants, and shall be delivered by the Pass Through Trustee to such DTC
Participants to be available for forwarding by such DTC Participants to
Certificate Owners in the manner described above.
At such time, if any, as the Pass Through Certificates of a Trust are
issued in the form of Definitive Certificates, the Pass Through Trustee will
prepare and deliver the information described above to each Certificateholder of
record of such Trust as the name and period of record ownership of such
Certificateholder appears on the records of the Registrar of the Pass Through
Certificates.
VOTING OF EQUIPMENT NOTES AND ETCS
The Pass Through Trustee, as holder of the Equipment Notes and ETCs held in
each Trust, has the right to vote and give consents and waivers in respect of
such Equipment Notes and ETCs under the applicable
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Indenture or Equipment Trust Agreement. The Basic Agreement sets forth the
circumstances in which the Pass Through Trustee shall direct any action or cast
any vote as the holder of the Equipment Notes and ETCs held in the applicable
Trust at its own discretion and the circumstances in which the Pass Through
Trustee shall seek instructions from the Certificateholders of such Trust. Prior
to an Event of Default with respect to any Trust, the principal amount of the
Equipment Notes and ETCs held in such Trust directing any action or being voted
for or against any proposal shall be in proportion to the principal amount of
Pass Through Certificates held by the Certificateholders of such Trust taking
the corresponding position. (Sections 6.1 and 10.1) Whenever the Agreements
require or permit actions to be taken based upon instructions or directions of
Certificateholders of such Pass Through Trust holding a specified percentage
interest of a Pass Through Trust, DTC shall be deemed to represent such
percentage interest only to the extent that it has received instructions to such
effect from Certificate Owners and/or DTC Participants owning or representing,
respectively, such required percentage interest and has delivered such
instructions to the Pass Through Trustee.
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
The Basic Agreement defines an event of default with respect to a Trust (an
"Event of Default") as the occurrence and continuance of an event of default
under one or more of (i) the related Indentures (an "Indenture Event of
Default") or (ii) the related Equipment Trust Agreements (an "Equipment Trust
Event of Default"). The Indenture Events of Default or Equipment Trust Events of
Default will be described in the applicable Prospectus Supplement and, in the
case of Equipment Notes, will include events of default under the related Lease.
Because the Equipment Notes issued under an Indenture may be held in more than
one Trust, a continuing Indenture Event of Default under such Indenture would
result in an Event of Default with respect to each such Trust. There will be,
however, no cross-default provisions in the Indentures and events resulting in
an Indenture Event of Default under any particular Indenture (or a default under
any other indebtedness of the Company) will not necessarily result in an
Indenture Event of Default occurring under any other Indenture. If an Indenture
Event of Default occurs in fewer than all of the Indentures related to a Trust,
the Equipment Notes issued pursuant to the related Indentures with respect to
which an Indenture Event of Default has not occurred will continue to be held in
such Trust and payments of principal and interest on such Equipment Notes will
continue to be distributed to the holders of the Pass Through Certificates of
such Trust as originally scheduled.
In the case of Equipment Notes, the Owner Trustee and the Owner Participant
under each Indenture will each have the right under certain circumstances to
cure an Indenture Event of Default that results from the occurrence of a Lease
Event of Default under the related Lease. If the Owner Trustee or the Owner
Participant chooses to exercise such cure right, the Indenture Event of Default
and consequently the Event of Default with respect to the related Trust or
Trusts will be deemed to be cured.
The ability of the holders of the Pass Through Certificates issued with
respect to any one Trust to cause the Indenture Trustee with respect to any
Equipment Notes or the Equipment Trust Trustee with respect to any ETCs held in
such Trust to accelerate the payment on such Equipment Notes under the related
Indenture or Equipment Trust Agreement or to direct the exercise of remedies by
such Indenture Trustee under the related Indenture or Equipment Trust Trustee
under the related Equipment Trust Agreement will depend, in part, upon the
percentage of the aggregate principal amount of all Equipment Notes outstanding
under such Indenture or ETCs outstanding under such Equipment Trust Agreement
that are represented by the Equipment Notes outstanding under such Indenture or
ETCs outstanding under such Equipment Trust Agreement and held in such Trust.
Each Trust will hold Equipment Notes with different terms from those of the
Equipment Notes held in the other Trusts and therefore the Certificateholders of
a Trust may have divergent or conflicting interests from those of the
Certificateholders of any other Trusts that hold Equipment Notes relating to the
same Equipment Group. In addition, so long as the same institution acts as Pass
Through Trustee of each Trust, in the absence of instructions from the
Certificateholders of any such Trust, the Pass Through Trustee for such Trust
could for the same reason be faced with a potential conflict of interest upon an
Indenture Event of Default or Equipment Trust Event of Default. In such event,
the Pass Through Trustee
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has indicated that it would resign as trustee of one or all such Trusts, and a
successor trustee for one or all of such Trusts would be appointed in accordance
with the terms of the Basic Agreement.
The Basic Agreement provides that, as long as (i) an Indenture Event of
Default under any Indenture relating to Equipment Notes held in a Trust or (ii)
an Equipment Trust Event of Default under any Equipment Trust Agreement relating
to ETCs held in such Trust shall have occurred and be continuing, the Pass
Through Trustee of such Trust may vote all of the Equipment Notes issued under
such Indenture or all of the ETCs issued under such Equipment Trust Agreement
that are held in such Trust, and upon the direction of the holders of Pass
Through Certificates evidencing fractional undivided interests aggregating not
less than a majority in interest of such Trust, shall vote not less than a
corresponding majority of such Equipment Notes or ETCs in favor of directing the
related Indenture Trustee or Equipment Trust Trustee to declare the unpaid
principal amount of all Equipment Notes issued under such Indenture or ETCs
issued under such Equipment Trust Agreement and any accrued and unpaid interest
thereon to be due and payable. The Basic Agreement also provides that, if (i) an
Indenture Event of Default under any Indenture relating to Equipment Notes held
in a Trust or (ii) an Equipment Trust Event of Default under any Equipment Trust
Agreement relating to ETCs held in such Trust shall have occurred and be
continuing, the Pass Through Trustee of such Trust may, and upon the direction
of the holders of Pass Through Certificates evidencing fractional undivided
interests aggregating not less than a majority in interest of such Trust shall,
subject to certain conditions, vote all of the Equipment Notes issued under such
Indenture or all the ETCs issued under such Equipment Trust Agreement that are
held in such Trust in favor of directing the related Indenture Trustee or
Equipment Trust Trustee as to the time, method and place of conducting any
proceeding for any remedy available to such Indenture Trustee or of exercising
any trust or power conferred on such Indenture Trustee or Equipment Trust
Trustee under such Indenture or Equipment Trust Agreement. (Sections 6.1 and
6.4)
As an additional remedy, if an Indenture Event of Default or Equipment
Trust Event of Default shall have occurred and be continuing, the Basic
Agreement provides that the Pass Through Trustee of a Trust holding Equipment
Notes issued under such Indenture or ETCs issued under such Equipment Trust
Agreement may, and upon the direction of the holders of Pass Through
Certificates evidencing fractional undivided interests aggregating not less than
a majority in interest of such Trust shall, sell all or part of such Equipment
Notes or ETCs for cash to any person. (Sections 6.1 and 6.2) Any proceeds
received by the Pass Through Trustee upon any such sale shall be deposited in
the Special Payments Account for such Trust and shall be distributed to the
Certificateholders of such Trust on a Special Distribution Date. (Sections 4.1
and 4.2) The market for Equipment Notes or ETCs in default may be very limited
and there can be no assurance that they could be sold for a reasonable price.
Furthermore, so long as the same institution acts as Trustee of each Trust, it
may be faced with a conflict in deciding from which Trust to sell Equipment
Notes or ETCs to available buyers. If the Pass Through Trustee sells any such
Equipment Notes with respect to which an Indenture Event of Default exists or
ETCs with respect to which an Equipment Trust Event of Default exists for less
than their outstanding principal amount thereof, the Certificateholders of such
Trust will receive a smaller amount of principal distributions than anticipated
and will not have any claim for the shortfall against the Pass Through Trustee,
the related Owner Trustee, the related Owner Participant, or, except as provided
in the next sentence, the Company. Inasmuch as the Company will fully and
unconditionally guarantee the payment of the principal of and interest on the
ETCs, the Certificateholders will have a claim against the Company for any
shortfall arising from the sale by the Pass Through Trustee of an ETC in
default. (Sections 4.1 and 4.2) See "Description of the ETCs-Guarantee." Neither
the Pass Through Trustee nor the Certificateholders of such Trust could take any
action with respect to any remaining Equipment Notes or ETCs held in such Trust
so long as no Indenture Event of Default or Equipment Trust Event of Default
existed with respect thereto.
Any amount distributed to the Pass Through Trustee of any Trust by (i) the
Indenture Trustee under any Indenture on account of the Equipment Notes held in
such Trust following an Indenture Event of Default under such Indenture or (ii)
the Equipment Trust Trustee under any Equipment Trust Agreement on account of
the ETCs held in such Trust following an Equipment Trust Event of Default shall
be deposited in the Special Payments Account for such Trust and shall be
distributed to the Certificateholders of such Trust on a Special Distribution
Date. In addition, if, following an Indenture Event of Default under any
Indenture, the
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related Owner Trustee exercises its option, if any, to prepay or purchase the
outstanding Equipment Notes issued under such Indenture as described in the
related Prospectus Supplement, the price paid by such Owner Trustee to the Pass
Through Trustee of any Trust for the Equipment Notes issued under such Indenture
and held in such Trust shall be deposited in the Special Payments Account for
such Trust and shall be distributed to the Certificateholders of such Trust on a
Special Distribution Date. (Sections 4.1 and 4.2)
Any funds held by the Pass Through Trustee in the Special Payments Account
for a Trust representing either payments received with respect to (i) any
Equipment Notes held in such Trust following an Indenture Event of Default or
(ii) any ETCs held in such Trust following an Equipment Trust Event of Default
or proceeds from the sale by the Pass Through Trustee of any such Equipment
Notes or ETCs, shall, to the extent practicable, be invested and reinvested by
the Pass Through Trustee in Permitted Government Investments pending the
distribution of such funds on a Special Distribution Date. (Sections 4.1 and
4.2)
The Basic Agreement provides that the Pass Through Trustee of each Trust
shall, within 30 days after the occurrence of a default (as defined below) in
respect of such Trust, give to the Certificateholders of such Trust notice,
transmitted by mail, of all uncured or unwaived defaults with respect to such
Trust known to it; provided that, except in the case of default in the payment
of principal of, premium, if any, or interest on any of the Equipment Notes or
ETCs held in such Trust, the Pass Through Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interest of such Certificateholders. The term "default,"
for the purpose of the provision described in this paragraph only, shall mean
the occurrence of any Event of Default with respect to a Trust as specified
above, except that in determining whether any such Event of Default has occurred
any grace period or notice in connection therewith shall be disregarded.
(Section 7.2)
The Basic Agreement contains a provision entitling the Pass Through Trustee
of each Trust, subject to the duty of the Pass Through Trustee during a default
to act with the required standard of care, to obtain security from or be
indemnified by the holders of the Pass Through Certificates of such Trust before
proceeding to exercise any right or power under the Basic Agreement at the
request of such Certificateholders. (Section 7.3)
In certain cases, the holders of Pass Through Certificates of a Trust
evidencing fractional undivided interests aggregating not less than a majority
in interest of such Trust may on behalf of the holders of all Pass Through
Certificates of such Trust waive any past default or Event of Default with
respect to such Trust and thereby annul any direction given by the Pass Through
Trustee on behalf of such holders to the related Indenture Trustee with respect
thereto, except (i) a default in payment of the principal of, premium, if any,
or interest on any of the Equipment Notes or ETCs held in such Trust, and (ii) a
default in respect of any covenant or provision of the Basic Agreement or the
related Trust Supplement that cannot be modified or amended without the consent
of each Certificateholder of such Trust affected thereby. (Section 6.5) Each
Indenture and Equipment Trust Agreement will provide that, with certain
exceptions, the holders of a majority in aggregate unpaid principal amount of
the Equipment Notes or ETCs issued thereunder may on behalf of all such holders
waive any past default or Indenture Event of Default or Equipment Trust Event of
Default under such Equipment Trust Agreement thereunder. In the event of a
waiver with respect to a Trust as described above, the principal amount of the
Equipment Notes issued under the related Indenture or ETCs issued under the
related Equipment Trust Agreement held in such Trust shall be counted as waived
in the determination of the majority in aggregate unpaid principal amount of
Equipment Notes or ETCs required to waive a default or an Indenture Event of
Default under such Indenture or Equipment Trust Event of Default under such
Equipment Trust Agreement. Therefore, if the Certificateholders of a Trust waive
a past default or Event of Default such that the principal amount of the
Equipment Notes or ETCs held in such Trust constitutes the required majority in
aggregate unpaid principal amount under the applicable Indenture or Equipment
Trust Agreement, such past default, Indenture Event of Default under such
Indenture or Equipment Trust Event of Default under such Equipment Trust
Agreement shall be waived. For a discussion of waivers of Indenture Events of
Default under the Indentures and Equipment Trust Events of Default under the
Equipment Trust Agreements, see "Description of the Equipment Notes -- Indenture
Events of Default and Remedies" and "Description of the ETCs -- Events of
Default and Provisions Relating Thereto."
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MODIFICATIONS OF THE BASIC AGREEMENT
The Basic Agreement contains provisions permitting the Company and the Pass
Through Trustee of each Trust to enter into supplemental trust agreements,
without the consent of the holders of any of the Pass Through Certificates of
such Trust, (i) to evidence the succession of another corporation to the Company
and the assumption by such corporation of the Company's obligations under the
Basic Agreement and the applicable Trust Supplement, (ii) to add to the
covenants of the Company for the benefit of the holders of such Pass Through
Certificates, (iii) to cure any ambiguity, to correct any manifest error or to
correct or supplement any defective or inconsistent provision of such Basic
Agreement, the applicable Trust Supplement or any supplemental trust agreement,
or to make any other provisions with respect to matters or questions arising
thereunder, provided such action shall not adversely affect the interest of the
holders of such Pass Through Certificates, (iv) to evidence and provide for a
successor Trustee for some or all of the Trusts, or (v) to make any other
amendments or modifications which shall only apply to Pass Through Certificates
of one or more series to be issued thereafter. (Section 9.1)
The Basic Agreement also contains provisions permitting the Company and the
Pass Through Trustee of each Trust, with the consent of the Certificateholders
of such Trust evidencing fractional undivided interests aggregating not less
than a majority in interest of such Trust, to execute supplemental trust
agreements adding any provisions to or changing or eliminating any of the
provisions of the Basic Agreement, to the extent relating to such Trust, and the
applicable Trust Supplement, or modifying the rights of such Certificateholders,
except that no such supplemental trust agreement may, without the consent of the
holder of each such Pass Through Certificate so affected, (a) reduce in any
manner the amount of, or delay the timing of, any receipt by the Pass Through
Trustee of payments on the Equipment Notes or ETCs held in such Trust, or
distributions in respect of any Pass Through Certificate of such Trust, or make
distributions payable in coin or currency other than that provided for in such
Pass Through Certificates, or impair the right of any Certificateholder of such
Trust to institute suit for the enforcement of any such payment when due, (b)
permit the disposition of any Equipment Note or ETC held in such Trust, except
as provided in the Basic Agreement or the applicable Trust Supplement, or (c)
reduce the percentage of the aggregate fractional undivided interests of the
Trust provided for in the Basic Agreement or the applicable Trust Supplement,
the consent of the holders of which is required for any such supplemental trust
agreement or for any waiver provided for in the Basic Agreement or such Trust
Supplement. (Section 9.2)
MODIFICATION AND CONSENTS AND WAIVERS UNDER THE INDENTURES, THE EQUIPMENT TRUST
AGREEMENTS AND RELATED AGREEMENTS
In the event that the Pass Through Trustee, as the holder of any Equipment
Notes or ETCs held in a Trust, receives a request for its consent to any
amendment, modification or waiver under the Indenture, Lease, if any, or other
document relating to such Equipment Notes, or Equipment Trust Agreement relating
to such ETCs, which requires the consent of the Certificateholders of such
Trust, the Pass Through Trustee shall mail a notice of such proposed amendment,
modification or waiver to each Certificateholder of such Trust as of the date of
such notice. The Pass Through Trustee shall request instructions from the
Certificateholders of such Trust as to whether or not to consent to such
amendment, modification or waiver. The Pass Through Trustee shall vote or
consent with respect to such Equipment Notes or ETCs in such Trust in the same
proportion as the Pass Through Certificates of such Trust were actually voted by
the holders thereof by a certain date. Notwithstanding the foregoing, if an
Event of Default in respect of such Trust shall have occurred and be continuing,
the Pass Through Trustee, subject to the voting instructions referred to under
"-- Events of Default and Certain Rights Upon an Event of Default," may in its
own discretion consent to such amendment, modification or waiver, and may so
notify the Indenture Trustee or equipment trust trustee to which such consent
relates. (Section 10.1)
TERMINATION OF THE TRUSTS
The obligations of the Company and the Pass Through Trustee with respect to
a Trust will terminate upon the distribution to Certificateholders of such Trust
of all amounts required to be distributed to them pursuant to the Basic
Agreement and the applicable Trust Supplement and the disposition of all
property held in such Trust. The Pass Through Trustee will mail to each
Certificateholder of record of such Trust notice of
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the termination of such Trust, the amount of the proposed final payment and the
proposed date for the distribution of such final payment for such Trust. The
final distribution to any Certificateholder of such Trust will be made only upon
surrender of such Certificateholder's Pass Through Certificates at the office or
agency of the Pass Through Trustee specified in such notice of termination.
(Section 11.1)
DELAYED PURCHASE
In the event that, on the date of issuance of any Pass Through
Certificates, all of the proceeds from the sale of such Pass Through
Certificates are not used to purchase the Equipment Notes or ETCs contemplated
to be held in the related Trust, such Equipment Notes or ETCs may be purchased
by the Pass Through Trustee at any time on or prior to the date specified in the
applicable Prospectus Supplement. In such event, the Pass Through Trustee will
hold the proceeds from the sale of such Pass Through Certificates not used to
purchase Equipment Notes or ETCs in an escrow account pending the purchase of
the Equipment Notes or ETCs not so purchased. Such proceeds will be invested in
Specified Investments at the direction and risk of, and for the account of, the
Company. Earnings on Specified Investments in the escrow account for each Trust
will be paid to the Company periodically, and the Company will be responsible
for any losses realized on such Specified Investments. (Section 2.2)
On the Regular Distribution Date occurring after the issuance of such Pass
Through Certificates, the Company will pay to the Pass Through Trustee an amount
equal to the interest that would have accrued on any Equipment Notes or ETCs
which are purchased after the date of the issuance of such Pass Through
Certificates from the date of the issuance of such Pass Through Certificates to,
but excluding, the date of the purchase of such Equipment Notes or ETCs by the
Pass Through Trustee. (Section 2.2)
To the extent that Equipment Notes or ETCs are not purchased by the Pass
Through Trustee on or prior to the date specified in the applicable Prospectus
Supplement, the unexpended proceeds from the sale of such Pass Through
Certificates, together with interest thereon at the rate applicable to such Pass
Through Certificates, will be distributed to the holders of such Pass Through
Certificates as a Special Payment.
THE PASS THROUGH TRUSTEE
Unless otherwise specified in the applicable Prospectus Supplement, Harris
Trust and Savings Bank ("Harris Bank") will be the Pass Through Trustee for each
of the Trusts. The Pass Through Trustee and any of its affiliates may hold Pass
Through Certificates in their own names. (Section 7.5) With certain exceptions,
the Pass Through Trustee makes no representations as to the validity or
sufficiency of the Basic Agreement, the Trust Supplements, the Pass Through
Certificates, the Equipment Notes, the Indentures, the Leases, the ETCs, the
Equipment Trust Agreements or other related documents. (Section 7.4) Unless
otherwise specified in a Prospectus Supplement, Harris Bank will also be the
Indenture Trustee under the Indentures pursuant to which the Equipment Notes are
issued and the equipment trust trustee under the Equipment Trust Agreements
pursuant to which the ETCs are issued.
Under certain circumstances, the Pass Through Trustee could be faced with a
potential conflict of interest as a result of its acting as trustee of one or
more Trusts, as Indenture Trustee with respect to the Equipment Notes and as
Equipment Trust Trustee with respect to the ETCs. In such event, the Pass
Through Trustee either would be required pursuant to the provisions of the Trust
Indenture Act of 1939 to resign as trustee of one or all of the Trusts or has
indicated that it would voluntarily so resign as trustee. See "-- Events of
Default and Certain Rights Upon an Event of Default."
Harris Bank serves as trustee under an Equipment Trust Agreement, dated as
of November 15, 1990, between the Company and Harris Bank and under an
Indenture, dated as of January 16, 1997, between the Company and Harris Bank. In
addition, Harris Bank provides customary banking services to the Company and
certain of its affiliates.
The Pass Through Trustee may resign with respect to any or all of the
Trusts at any time, in which event the Company will be obligated to appoint a
successor trustee. If the Pass Through Trustee ceases to be eligible to continue
as Trustee with respect to a Trust or becomes incapable of acting as Trustee or
becomes insolvent,
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the Company may remove such Trustee. In addition, any holder of Pass Through
Certificates of such Trust for at least six months may in such circumstances, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of such Trustee and the appointment of a
successor trustee. Any resignation or removal of the Pass Through Trustee with
respect to a Trust and appointment of the successor trustee for such Trust does
not become effective until acceptance of the appointment by the successor
trustee. (Section 7.9) Pursuant to such resignation and successor trustee
provisions, it is possible that a different trustee could be appointed to act as
the successor trustee with respect to each Trust. All references in this
Prospectus to the Pass Through Trustee are to the trustee acting in such
capacity under each of the Trusts and should be read to take into account the
possibility that each of the Trusts could have a different successor trustee in
the event of such a resignation or removal.
The Basic Agreement provides that the Company will pay the Pass Through
Trustee's fees and expenses and will indemnify the Pass Through Trustee in
accordance with the Participation Agreement with respect to certain taxes. To
the extent not indemnified by the Company with respect to such taxes, the Pass
Through Trustee may be entitled to be reimbursed by the applicable Trust.
(Section 7.7)
DESCRIPTION OF THE EQUIPMENT NOTES
The statements under this caption are summaries and do not purport to be
complete. Except as otherwise indicated below or as described in the applicable
Prospectus Supplement, the following summaries will apply to the Equipment
Notes, the Indenture, the Lease and the Participation Agreement relating to each
Equipment Group. Additional provisions with respect to the Equipment Notes, the
Indenture, the Lease and the Participation Agreement relating to any particular
Equipment Group will be described in the applicable Prospectus Supplement.
GENERAL
Each Equipment Note issued under the same Indenture will relate to a single
Equipment Group. The Equipment Notes with respect to each Equipment Group will
be issued under a separate Indenture between the related Indenture Trustee and
the Owner Trustee of a trust for the benefit of the Owner Participant which is
the beneficial owner of such Equipment Group.
The Equipment Notes will be nonrecourse obligations of the related Owner
Trustee. Except in certain circumstances involving the Company's purchase of
Equipment Units and the assumption of the Equipment Notes related thereto, the
Equipment Notes will not be direct obligations of, or guaranteed by, the
Company; however, the Company will be obligated to make or cause to be made
rental and other payments to the related Owner Trustee under the Lease of the
related Equipment Group in amounts that will be at least sufficient to pay when
due all payments required to be made on the Equipment Notes issued with respect
to such Equipment Group. The Company's rental obligations under each Lease will
be general obligations of the Company.
PRINCIPAL AND INTEREST PAYMENTS
Interest paid on the Equipment Notes held in each Trust will be passed
through to the Certificateholders of such Trust on the dates and at the rate per
annum set forth in the applicable Prospectus Supplement until the final
distribution date for such Trust. Principal paid on the Equipment Notes held in
each Trust will be passed through to the Certificateholders of such Trust in
scheduled amounts on the dates set forth in the applicable Prospectus Supplement
until the final distribution date for such Trust.
If any date scheduled for any payment of principal of, premium, if any, or
interest on the Equipment Notes is not a Business Day, such payment may be made
on the next succeeding Business Day without any additional interest.
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PREPAYMENTS
The applicable Prospectus Supplement will describe the circumstances,
whether voluntary or involuntary, under which the related Equipment Notes may be
prepaid or purchased, the premium, if any, related to certain prepayments or
purchases and other terms applying to prepayments or purchases of such Equipment
Notes.
SECURITY
The Equipment Notes issued with respect to an Equipment Group will be
secured by (i) an assignment by the related Owner Trustee to the related
indenture Trustee of such Owner Trustee's rights (except for certain limited
rights described in the Prospectus Supplement) under the Lease with respect to
such Equipment Group, including the right to receive payments of rent thereunder
and (ii) a perfected security interest to such Indenture Trustee in such
Equipment Group, subject to the rights of the Company under such Lease. Unless
and until an Indenture Event of Default with respect to an Equipment Group has
occurred and is continuing, the Indenture Trustee may not exercise the rights of
the Owner Trustee under the related Lease, except the right to receive payments
of rent due thereunder.
The Equipment Notes issued under different Indentures will not be
cross-collateralized and consequently the Equipment Notes issued in respect of
any one Equipment Group will not be secured by any other Equipment Group or the
Lease related to any other Equipment Group.
The Company will be required to file each Indenture, any indenture
supplement, each Lease and any lease supplement with respect to each Equipment
Group with the Surface Transportation Board and will be further required to
deposit such documents with the Registrar General of Canada under the Railway
Act of Canada and to publish notice of such deposit in accordance with such Act.
The filing with the Surface Transportation Board will give the Indenture Trustee
a perfected security interest in (i) each Equipment Unit in such Equipment Group
whenever it is located in the United States and (ii) the Lease. Such deposit and
publication in Canada will be done in order to protect the lien of the Indenture
Trustee in and to the Lease and the Equipment Units subject to the Indenture in
Canada or any province or territory thereof, to the extent provided for in the
Railway Act of Canada.
Each Equipment Unit may be operated by the Company or, subject to certain
limitations, under sublease or interchange arrangements in the United States,
Canada or Mexico. The extent to which the Indenture Trustee's security interest
would be recognized in an Equipment Unit located in countries other than the
United States is uncertain.
Funds, if any, held from time to time by the Indenture Trustee with respect
to any Equipment Units, including funds held as the result of the loss or
destruction of such Equipment Units or termination of the Lease, if any,
relating thereto, will be invested and reinvested by such Indenture Trustee, at
the direction of the Company (except in the case of a Lease Event of Default
under the applicable Lease, if any), in Specified Investments. The Company will
pay the amount of any loss resulting from any such investment directed by it.
The Company will be obligated, at its cost and expense, to maintain, repair
and keep each Equipment Unit in accordance with prudent industry maintenance
practices and in compliance in all material respects with all laws and
regulations.
LIMITATION OF LIABILITY
Except in certain circumstances involving the Company's purchase of
Equipment Units and the assumption of the Equipment Notes related thereto, the
Equipment Notes will not be direct obligations of, or guaranteed by, the Company
or the Owner Trustees. None of the Owner Trustees, the Owner Participants or the
Indenture Trustees, or any affiliates thereof, will be personally liable to any
holder of an Equipment Note or, in the case of the Owner Trustees and the Owner
Participants, to the Indenture Trustees for any amounts payable under the
Equipment Notes or, except as provided in each Indenture, for any liability
under such Indenture. Except in the circumstances described above, all payments
of principal of, premium, if any, and interest on Equipment Notes issued with
respect to any Equipment Group (other than payments made in
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connection with an optional prepayment or purchase by the related Owner Trustee)
will be made only from the assets subject to the lien of the Indenture with
respect to such Equipment Group or the income and proceeds received by the
related Indenture Trustee therefrom (including rent payable by the Company under
the Lease with respect to such Equipment Group).
Except as otherwise provided in the Indentures, each Owner Trustee in its
individual capacity shall not be answerable or accountable under the Indentures
or under the Equipment Notes under any circumstances except for its own wilful
misconduct or gross negligence. None of the Owner Participants will have any
duty or responsibility under any of the Indentures or the Equipment Notes to the
Indenture Trustees or to any holder of any Equipment Note.
INDENTURE EVENTS OF DEFAULT AND REMEDIES
The applicable Prospectus Supplement will describe the Indenture Events of
Default under the related Indenture, the remedies that the Indenture Trustee may
exercise with respect to the related Equipment Group, either at its own
initiative or upon instruction from holders of the related Equipment Notes, and
other provisions relating to the occurrence of an Indenture Event of Default and
the exercise of remedies. There will be no cross-default provisions in the
Indentures and events resulting in an Indenture Event of Default under any
particular Indenture (or a default under any other indebtedness of the Company)
will not necessarily result in an Indenture Event of Default under any other
Indenture.
In the event of the bankruptcy of an Owner Participant, it is possible
that, notwithstanding that the related Equipment Group is owned by an Owner
Trustee in trust, such Equipment Group and its Lease and the Equipment Notes
related thereto might become part of the bankruptcy proceeding. In such event,
payments on such Equipment Notes might be interrupted and the ability of the
Indenture Trustee to exercise its remedies under the applicable Indenture might
be restricted, although the Indenture Trustee would retain its status as a
secured creditor in respect of such Lease and the related Equipment Group. In
addition, in the event of an Owner Participant bankruptcy, the estate might seek
court approval to reject the related Lease as an executory contract. Such a
Lease rejection, if successful, would leave the Indenture Trustee as a secured
creditor in respect of the related Equipment Group with a claim for damages
against the estate.
THE LEASES
The following provisions will be applicable unless otherwise disclosed in
the Prospectus Supplement.
TERM AND RENTALS. Each Equipment Group will be leased separately by the
related Owner Trustee to the Company for a term commencing on the delivery date
thereof to such Owner Trustee and expiring on a date not earlier than the latest
maturity date of the Equipment Notes issued with respect to such Equipment Group
unless previously terminated as permitted by the related Lease. The basic rental
payments by the Company under each Lease will be payable on the dates specified
in the applicable Prospectus Supplement, and will be assigned by the Owner
Trustee under the related Indenture to provide the funds necessary to make
payments of principal and interest due from such Owner Trustee on the Equipment
Notes issued under such Indenture. Although in certain cases the basic rental
payments under the Leases may be adjusted, under no circumstances will rental
payments be less than the scheduled payments of principal and interest on the
Equipment Notes issued under the Indenture relating to such Lease. The balance
of any basic rental payments under each Lease, after payment of the scheduled
principal and interest on the Equipment Notes issued under the Indenture
relating to such Lease, will be paid over to the related Owner Trustee. The
Company's obligation to pay rent and to cause other payments to be made under
each Lease will be a general obligation of the Company.
NET LEASE. The Company's obligations in respect of each Equipment Group
leased to the Company by an Owner Trustee will be those of a lessee under a "net
lease." Accordingly, the Company will be obligated, at its cost and expense, to
maintain, repair and keep each Equipment Unit in any such Equipment Group in
accordance with prudent industry maintenance practices and in compliance in all
material respects with all laws and regulations and consistent with maintenance
practices used by the Company in respect of equipment owned or leased by the
Company similar in type to such Equipment Unit. Subject to certain exceptions,
the
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Company will, at its expense, make all alterations, replacements or
modifications required to be made by the Association of American Railroads, the
United States Department of Transportation, or any other United States, state or
local governmental agency. The Company reserves the right to contest the
validity or applicability of any required alterations, replacements or
modifications. The Company shall have the right to make alterations,
modifications and improvements with respect to each Equipment Unit in any such
Equipment Group, provided that no such alteration, modification or improvement
shall materially diminish the fair market value, utility or remaining economic
useful life of such Unit.
INSURANCE. Unless waived or otherwise excused by the terms of any Lease,
the Company will be required, at its own expense, to cause to be carried and
maintained insurance in respect of the Equipment in amounts and against such
risks and with deductibles and terms and conditions not less than the insurance,
if any, maintained by the Company in respect of similar equipment owned or
leased by the Company, but in no event shall such coverage be for amounts or
against risks less than the prudent industry standard for companies engaged in
full service leasing of tank and hopper cars. The Company does not maintain
casualty insurance with respect to the Equipment.
LEASE EVENTS OF DEFAULT; REMEDIES. The applicable Prospectus Supplement
will describe the Lease Events of Default under the related Lease, the remedies
that the Owner Trustee, or Indenture Trustee as assignee of the Owner Trustee,
may exercise with respect to an Equipment Group, and other provisions relating
to the occurrence of a Lease Event of Default and the exercise of remedies.
Lease Events of Default under each Lease will include, among other things,
(a) failure by the Company to make rental payments under the Lease, (b) failure
to maintain insurance as required by the Lease, (c) use of the Equipment Group
in contravention of the Lease, (d) breach of any representation or warranty made
by the Company in the Lease or in the related Participation Agreement and (e)
the occurrence of certain events of bankruptcy, reorganization or insolvency of
the Company. Upon the occurrence of a Lease Event of Default under any Lease,
the related Indenture Trustee, as assignee of the related Owner Trustee's rights
under such Lease, will be entitled to repossess the Equipment Units and use or
sell such Equipment Units free and clear of the Company's rights therein.
If the Company were to become a debtor in a bankruptcy or reorganization
case under the Bankruptcy Code, the Company or its bankruptcy trustee could
reject any or all Leases to which it is a party. In such event, there could be
no assurance that the amount of any claim for damages under such Leases that
would be allowed in such bankruptcy case would be in an amount sufficient to
provide for the repayment of the related Equipment Notes. In any case, rejection
of a Lease by the Company or its bankruptcy trustee would not deprive the
related indenture Trustee of its security interest in the related Equipment
Group.
The Company is not a railroad, and the protections against the automatic
stay in bankruptcy under Section 1168 of the Bankruptcy Code which are granted
to lessors, conditional vendors and purchase money financiers of rolling stock
to a common carrier by railroad will not be available to an Indenture Trustee
upon the occurrence of a Lease Event of Default.
THE PARTICIPATION AGREEMENTS
The Company will be required to indemnify the Pass Through Trustee, each
Indenture Trustee, each Owner Participant and each Owner Trustee for certain
losses and claims and for certain other matters. Each Owner Participant will be
required to discharge certain liens or claims on or against the assets subject
to the lien of the related Indenture that arise out of any act of or failure to
act by or claim against such Owner Participant. Subject to certain restrictions,
each Owner Participant may transfer its interest in the related Equipment Group.
DESCRIPTION OF THE ETCS
The statements under this caption are summaries only of the ETCs and the
Equipment Trust Agreements under which they will be issued and do not purport to
be complete. This summary makes use of terms to be defined in the Equipment
Trust Agreements, the form of which has been filed as an exhibit to the
Registration
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Statement of which this Prospectus is a part. Additional provisions relating to
any particular ETCs will be described in the applicable Prospectus Supplement.
GENERAL
The ETCs will be limited to the aggregate principal amount set forth in the
applicable Equipment Trust Agreement. The ETCs will be issued against the
deposit with the Equipment Trust Trustee by the Pass Through Trustee of like
amounts of Deposited Cash. Each ETC will represent an interest equal to its
principal amount in the trust created under the applicable Equipment Trust
Agreement.
PRINCIPAL AND INTEREST PAYMENTS
Interest paid on the ETCs held in each Trust will be passed through to the
Certificateholders of such Trust on the dates and at the rate per annum set
forth in the applicable Prospectus Supplement until the final distribution date
for such Trust. Principal paid on the ETCs held in each Trust will be passed
through to the Certificateholders of such Trust in scheduled amounts on the
dates set forth in the applicable Prospectus Supplement until the final
distribution date for such Trust.
If any date scheduled for any payment of principal of, premium, if any, or
interest on the ETCs is not a Business Day, such payment may be made on the next
succeeding Business Day without any additional interest.
GUARANTEE
The Company will fully and unconditionally guarantee the payment as and
when due of the principal of and interest on each ETC.
PREPAYMENT
The applicable Prospectus Supplement will describe the circumstances,
whether voluntary or involuntary, under which the related ETCs may be prepaid or
purchased, the premium (if any) related to certain prepayments or purchases and
other terms applying to prepayments or purchases of such ETCs.
SECURITY
Except as otherwise set forth in the applicable Prospectus Supplement, the
applicable Equipment Trust Agreement will provide for the sale by the Company to
the Equipment Trust Trustee, as trustee for the holders of ETCs, of railway tank
cars and other rail cars (the "Trust Equipment") of the types used in the
Company's business having an estimated cost of not less than 125% of the
principal amount of the related ETC. For the purpose of determining the cost of
any unit of Equipment built by the Company, so-called "car builder's cost"
(which includes direct cost of labor, material and overhead and, in certain
circumstances, a nominal manufacturing profit) will be used; otherwise the
actual cost to the Company will be used.
When and as any of the Trust Equipment shall be delivered to the Equipment
Trust Trustee, the Equipment Trust Trustee will pay to the Company, as the
purchase price for such Trust Equipment, out of Deposited Cash an amount which
will not exceed 80% of the aggregate cost (without deduction for depreciation)
of such Trust Equipment (or such other percentage as may be set forth in the
applicable Prospectus Supplement). The balance of the cost will be paid by the
Equipment Trust Trustee from advance rentals required by the applicable
Equipment Trust Agreement to be paid to the Equipment Trust Trustee by the
Company. The advance rental shall equal the amount by which the aggregate cost
of the Trust Equipment exceeds the net proceeds of the sale of the ETCs. Until
so paid out, Deposited Cash and other funds held by the Equipment Trust Trustee
pending delivery to it of Trust Equipment may be invested, at the risk of the
Company in direct obligations of the United States, in certain obligations
guaranteed by the United States, in certificates of deposit or time deposits or
in prime commercial paper.
Each Equipment Trust Agreement will contain provisions requiring the
Company to cause such agreements and each supplement thereto, promptly after the
execution and delivery thereof, to be recorded
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with the Surface Transportation Board and the Registrar General of Canada. In
addition, the Company will be required to take similar actions in all other
jurisdictions required by law or reasonably requested by the Equipment Trust
Trustee for the purposes of proper protection of the Equipment Trust Trustee's
title to the Trust Equipment subject thereto and the rights of the holders of
the ETCs; provided, however, that the Company will not be required to so record
in any jurisdiction if (1) in the opinion of the Company such recording would be
unduly burdensome, and (2) after giving effect to such failure to record, the
Company has taken all action required by law to protect the title of the
Equipment Trust Trustee to Trust Equipment having a value (defined as the
greater of (a) the actual value of such Trust Equipment and (b) the cost thereof
less 1/20th of such cost for each year the Trust Equipment has been in use) of
not less than 90% of the value of all such Trust Equipment.
Each Equipment Trust Agreement will provide for the lease to the Company of
all the Trust Equipment subject to such agreement for a period specified in the
applicable Prospectus Supplement. The rent and other amounts payable by the
Company will be sufficient to enable the Equipment Trust Trustee to pay when due
the principal of and interest on the applicable ETC, as well as all the expenses
of the trust created under the Equipment Trust Agreement and certain other
charges. At the termination of the lease and after all payments due or to become
due from the Company under the Equipment Trust Agreement shall have been fully
made, such payments shall be applied and treated as purchase money as the full
purchase price of the Trust Equipment, and title to all Trust Equipment held in
the trust shall vest in the Company.
Each Equipment Trust Agreement will permit the possession and use of the
Trust Equipment in the Company's business, including the sublease thereof to
others subject to the terms and conditions of such Equipment Trust Agreement.
The Trust Equipment subject to any Equipment Trust Agreement will not
secure the payment of an ETC issued under any other Equipment Trust Agreement.
MAINTENANCE, RELEASE AND SUBSTITUTION OF TRUST EQUIPMENT
The Company will be required to maintain and keep the relevant Trust
Equipment in good order and proper repair unless and until it becomes worn out,
unsuitable for use, lost or destroyed (a "Casualty Occurrence"). Each Equipment
Trust Agreement will provide that, whenever Trust Equipment having a value
specified therein shall have suffered a Casualty Occurrence, the Company shall
either deposit with the Equipment Trust Trustee an amount in cash equal to the
value of such Trust Equipment or convey to the Equipment Trust Trustee
additional Equipment having a value not less than the value of the Trust
Equipment suffering the Casualty Occurrence.
Each Equipment Trust Agreement will provide that if the aggregate cost of
the Trust Equipment initially delivered to the Equipment Trust Trustee by the
Company shall exceed 125% of the aggregate principal amount of the ETC (or such
other percentage as may be specified in the applicable Prospectus Supplement),
the Equipment Trust Trustee, upon request of the Company shall release Trust
Equipment from the relevant trust having an aggregate cost of not more than the
amount of such excess.
Each Equipment Trust Agreement will provide for the release by the
Equipment Trust Trustee of any Trust Equipment upon request of the Company, and
(a) the conveyance to the Equipment Trust Trustee of other Equipment
(irrespective of when first put into use) of value not less than the value of
the Trust Equipment to be released or (b) the payment to the Equipment Trust
Trustee of cash in an amount not less than the value of the Trust Equipment to
be released. Any cash so deposited (and any cash deposited as provided in the
second preceding paragraph) will be paid over by the Equipment Trust Trustee to
the Company against the conveyance to the Equipment Trust Trustee of additional
Equipment having a value not less than the amount of cash to be paid over.
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INFORMATION CONCERNING THE EQUIPMENT TRUST TRUSTEE
Harris Bank will be the Equipment Trust Trustee under each Equipment Trust
Agreement. Harris Bank will also be the Pass Through Trustee and the Indenture
Trustee. See "Description of the Pass Through Certificates -- Information
Concerning the Pass Through Trustee."
EQUIPMENT TRUST EVENTS OF DEFAULT AND PROVISIONS RELATING THERETO
Equipment Trust Events of Default will be defined in each Equipment Trust
Agreement as being: default for more than 10 Business Days in the payment of any
rental payable under an Equipment Trust Agreement; any unauthorized assignment
or transfer of the Company's rights under the Equipment Trust Agreement,
continuing as provided therein; any unauthorized transfer, sublease or parting
with the possession of any Trust Equipment, continuing as provided therein; any
failure or refusal to perform any other covenant in such Equipment Trust
Agreement for the shorter of (i) 60 days after the Equipment Trust Trustee shall
have demanded in writing such performance and (ii) 30 days after the Company has
knowledge of any such failure; certain events of bankruptcy; or the termination
of the lease provided for in an Equipment Trust Agreement by operation of law or
by the Equipment Trust Trustee in the event of any unauthorized assignment or
transfer of the Company's rights under such Equipment Trust Agreement or any
unauthorized transfer or sublease of any of the Trust Equipment. (Section 5.01)
The appointment of a receiver or trustee in bankruptcy or reorganization for the
Company or for its property will be deemed to be an unauthorized assignment if,
prior to the exercise of the remedies of the Equipment Trust Trustee under an
Equipment Trust Agreement, such receiver or trustee shall not be discharged or
duly assume the Company's obligations under such agreement. (Section 4.09) Each
Equipment Trust Agreement will provide that the Equipment Trust Trustee shall,
promptly after the occurrence of any Equipment Trust Event of Default thereunder
known to it, give to the holders of the related ETC notice of the occurrence
thereof. However, unless such default is the failure to make payments in respect
of the principal of or interest on an ETC, the Equipment Trust Trustee shall be
protected in withholding such notice if and so long as it in good faith
determines that the withholding of such notice is in the interest of the holders
of the defaulted ETC. (Section 5.07)
In the event of the bankruptcy or reorganization of the Company, the right
of the Equipment Trust Trustee to repossess or dispose of Trust Equipment
subject to an Equipment Trust Agreement would be subject to the provisions of
the Bankruptcy Code of 1978, as amended, applicable to industrial companies
generally, and not those provisions applicable to railroads, particularly
Section 1168 thereof.
Upon the happening of an Equipment Trust Event of Default, the Equipment
Trust Trustee or the holders of not less than a majority in aggregate principal
amount of the relevant ETC may declare the principal thereof and all accrued
interest thereon to be due and payable. (Section 5.04) Subject to certain
conditions, however, any such declaration may be rescinded by the holders of
66 2/3% in principal amount of such ETC upon payment of all sums then due
otherwise than by acceleration. Prior to such declaration, the holders of a
majority in principal amount of the outstanding ETC may waive any past Equipment
Trust Event of Default, except an Equipment Trust Event of Default in the
payment of rentals due in respect of the principal of or interest on such ETC.
(Section 5.04)
The right of any holder of an ETC to institute action for any remedy under
an Equipment Trust Agreement (except such holder's right to enforce payment of
the principal of and interest on an ETC when due if such enforcement will not
impair the Equipment Trust Trustee's title to the Trust Equipment) will be
subject to certain conditions precedent, including a written request by the
holders of not less than a majority in principal amount of such ETC to the
Equipment Trust Trustee to take action, and an offer to the Equipment Trust
Trustee of reasonable indemnification against liabilities incurred by it in so
doing. (Section 5.09)
Each Equipment Trust Agreement will require the annual filing by the
Company with the Equipment Trust Trustee of a certificate as to the absence of
default and as to compliance with the terms of the relevant equipment trust
agreement. (Section 4.08)
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ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, Pass
Through Certificates may be purchased by or with assets of an employee benefit
plan (a "Plan") subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). A fiduciary of a Plan must determine that the purchase of
a Pass Through Certificate is consistent with its fiduciary duties under ERISA
and does not result in a non-exempt prohibited transaction as defined in Section
406 of ERISA or Section 4975 of the Code (as hereinafter defined). Employee
benefit plans which are governmental plans (as defined in Section 3(32) of
ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are not
subject to the fiduciary responsibility provisions of ERISA. Any Plan that
purchases a Pass Through Certificate must be an "accredited investor" as defined
in Rule 501(a)(1) of Regulation D promulgated under the Securities Act.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The statements of law and legal conclusions contained in the following
discussion set forth the opinion of Neal, Gerber & Eisenberg, counsel to the
Company, with respect to the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Pass Through
Certificates. This summary is based on laws, regulations, rulings and court
decisions now in effect, all of which are subject to change by legislative,
administrative or judicial action, which change may be retroactive. The
discussion below does not purport to address federal income tax consequences
applicable to particular categories of investors, some of which (for example,
banks, tax exempt organizations, insurance companies or foreign investors) may
be subject to special rules. Investors should consult their own tax advisors in
determining the federal, state, local and foreign tax consequences to them of
the purchase, ownership and disposition of Pass Through Certificates, including
the advisability of making any election discussed below. Prospective investors
should note that no rulings have been or will be sought from the Internal
Revenue Service (the "IRS") with respect to any of the federal income tax
consequences discussed below and no assurance can be given that the IRS will not
take contrary positions. The Pass Through Trusts are not indemnified for any
federal income taxes that may be imposed upon them, the imposition of which
could significantly reduce the amounts available for distribution to the
Certificate Owners. For purposes of this "Material Federal Income Tax
Consequences" section, the terms "Pass Through Certificate" and "Certificate"
also refer to an indirect interest in a Pass Through Certificate held by a
Certificate Owner.
GENERAL
In the opinion of Neal, Gerber & Eisenberg, based upon an interpretation of
analogous authorities under currently applicable law, the Trusts will not be
classified as associations taxable as a corporation, but rather each will be
classified as a grantor trust for purposes of Sections 671 through 679 of the
Internal Revenue Code of 1986, as amended (the "Code"), and each Certificate
Owner of a Trust will be treated as the owner of a pro rata undivided interest
in each of the Equipment Notes, ETCs, if any, or any other property held in such
Trust.
Each Certificate Owner of a Trust will be required to report on its federal
income tax return its pro rata share of the entire income from the Equipment
Notes, ETCs, if any, or any other property in such Trust, in accordance with
such Certificate Owner's method of accounting. A Certificate Owner using the
cash method of accounting should take into account its pro rata share of income
as and when received by the Pass Through Trustee. A Certificate Owner using the
accrual method of accounting should take into account its pro rata share of
income as it accrues or is received by the Pass Through Trustee, whichever is
earlier.
A purchaser of a Pass Through Certificate should be treated as purchasing
an interest in each Equipment Note, ETC, if any, and any other property in a
Trust at a price determined by allocating the purchase price paid for the Pass
Through Certificate among such Equipment Notes, ETCs and other property in
proportion to their fair market values at the time of purchase of the Pass
Through Certificate. When a Trust has acquired all the Equipment Notes, ETCs, if
any, and any other property to be held by such Trust, the purchase price paid
for a Pass Through Certificate by an original purchaser of such certificate will
be allocated among such
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<PAGE> 55
Equipment Notes, ETCs and any other property in such Trust in proportion to
their respective purchase prices.
SALES OF PASS THROUGH CERTIFICATES
A Certificate Owner that sells or exchanges a Pass Through Certificate will
recognize gain or loss (in the aggregate) equal to the difference between its
adjusted tax basis in the Pass Through Certificate and the amount realized
(except to the extent attributable to accrued interest, which would be taxable
as interest income). Subject to the market discount provisions of the Code
(described below), if the Certificate Owner held such Pass Through Certificate
as a capital asset, any such gain or loss should be capital gain or loss, which
will be mid-term capital gain or loss if the Pass Through Certificate was held
for more than one year but not more than 18 months or long-term capital gain if
held for more than 18 months (but only to the extent the Trust also held the
underlying Equipment Notes, ETCs, if any, or other property for the applicable
period). Any mid-term or long-term capital gains realized on a sale or exchange
of Pass Through Certificates will be taxable under current law to corporate
taxpayers at the rates applicable to ordinary income, and to individual
taxpayers at their applicable marginal rate for mid-term or long-term capital
gains, as the case may be. Any capital losses realized generally will be
deductible by a corporate taxpayer only to the extent of capital gains and by an
individual taxpayer only to the extent of capital gains plus $3,000 of other
income.
ORIGINAL ISSUE DISCOUNT
It is anticipated that neither the Equipment Notes nor the ETCs will be
issued with original issue discount.
MARKET DISCOUNT
A subsequent purchaser of a Pass Through Certificate will be considered to
have acquired an interest in an Equipment Note or ETC, if any, held in a Trust
at a "market discount" to the extent the remaining aggregate principal amount of
such Equipment Note or ETC exceeds the Certificate Owner's tax basis allocable
to such Equipment Note or ETC, provided such excess exceeds a prescribed de
minimis amount. If such excess exceeds the de minimis amount, the Certificate
Owner will be subject to the market discount rules of Section 1276 of the Code
with regard to its interest in such Equipment Note or ETC.
In the case of a sale or other disposition of indebtedness subject to the
market discount rules, Section 1276 of the Code requires that gain, if any, from
such sale or other disposition be treated as ordinary income to the extent such
gain represents market discount that has accrued during the period in which the
indebtedness was held.
In the case of a partial principal payment on indebtedness subject to the
market discount rules, Section 1276 of the Code requires that such payment be
included in gross income as ordinary income to the extent such payment does not
exceed the market discount that has accrued during the period such indebtedness
was held. The amount of any accrued market discount later required to be
included in income upon a disposition, or subsequent partial principal payment,
will be reduced by the amount of accrued market discount previously included in
income.
Market discount generally accrues under either a straight line method or,
at the election of the taxpayer, a constant interest rate method. However, in
the case of installment obligations (which may include certain of the Equipment
Notes and ETCs), determination of the manner in which market discount is to be
accrued has been left to Treasury regulations not yet issued. Until such
Treasury regulations are issued, the Conference Committee Report to the Tax
Reform Act of 1986 (the "Conference Report") indicates that holders of
installment obligations with market discount may elect to accrue market discount
either (i) on the basis of a constant interest rate or (ii) by treating as
accrued market discount an amount equal to total remaining market discount times
a fraction, the numerator of which is the amount of stated interest paid in the
accrual period and the denominator of which is the total amount of stated
interest remaining to be paid on the installment obligation as of the beginning
of such period.
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<PAGE> 56
Under Section 1277 of the Code, if in any taxable year interest paid or
accrued on indebtedness incurred or continued to purchase or carry indebtedness
subject to the market discount rules exceeds the interest currently includible
in income with respect to such indebtedness, deduction of the excess interest
must be deferred to the extent of the market discount allocable to the taxable
year. The deferred portion of any interest expense will generally be deductible
when such market discount is included in income upon the sale or other
disposition (including repayment) of the indebtedness.
A taxpayer may elect to include market discount in gross income currently.
If such election is made, the rules of Sections 1276 and 1277 (described above)
will not apply to the taxpayer.
PREMIUM
A Certificate Owner will generally be considered to have acquired an
interest in an Equipment Note or ETC, if any, held in a Trust at a premium to
the extent the purchaser's tax basis allocable to such interest exceeds the
remaining aggregate principal amount of the Equipment Note or ETC allocable to
such interest. In that event, a Certificate Owner who holds a Pass Through
Certificate as a capital asset may elect to amortize that premium as an offset
to interest income under Section 171 of the Code, with corresponding reductions
in the Certificate Owner's tax basis in its interest in the Equipment Note or
ETC. Generally, such amortization is on a constant yield basis. However, in the
case of installment obligations, the Conference Report indicates a Congressional
intent that amortization will be in accordance with the same rules that will
apply to the accrual of market discount on installment obligations (see the
discussion above).
In the case of obligations that may be called at a premium prior to
maturity, amortizable bond premium may be determined by reference to an early
call date. Due to the complexities of the amortizable premium rules,
particularly where there is more than one possible call date and the amount of
any premium is uncertain, Certificate Owners are urged to consult their own tax
advisors as to the amount of any amortizable premium.
BACKUP WITHHOLDING
Payments made on the Pass Through Certificates and proceeds from the sale
of the Pass Through Certificates to or through certain brokers may be subject to
a "backup" withholding tax of 31% unless the Certificate Owner complies with
certain reporting procedures or is an exempt recipient under Section 6049(b)(4)
of the Code. Any such withheld amounts will be allowed as a credit against the
Certificate Owner's federal income tax.
CERTAIN ILLINOIS TAXES
The Pass Through Trustee is an Illinois banking corporation with its
principal corporate trust office in Chicago, Illinois. Neal, Gerber & Eisenberg,
counsel to the Company, has advised the Company that, in its opinion, under
currently applicable law, (i) the Trusts will not be subject to any tax
(including, without limitation, net or gross income, tangible or intangible
property, net worth, capital, franchise or doing business tax), fee or other
governmental charge under the laws of the State of Illinois or any political
subdivision thereof and (ii) Certificate Owners who are not residents of or
otherwise subject to tax in Illinois will not be subject to any tax (including,
without limitation, net or gross income, tangible or intangible property, net
worth, capital, franchise or doing business tax), fee or other governmental
charge under the laws of the State of Illinois or any political subdivision
thereof solely as a result of purchasing, holding (including receiving payments
with respect to) or disposing of a Pass Through Certificate, except to the
extent (a) the Indenture Trustee forecloses on the Equipment Units and any such
Units are located in Illinois, (b) the Equipment Trust Trustee forecloses on the
Trust Equipment and any of the Trust Equipment is located in Illinois or (c) the
Indenture Trust, the trust created under an Equipment Trust Agreement, or the
Pass Through Trust, as applicable, engages in business in Illinois as a result
of such foreclosure. Neither the Trusts nor the Certificate Owners will be
indemnified for any state or local taxes imposed on them, the imposition of
which on a Trust could reduce the amounts available for distribution to the
Certificate Owners of such Trust. In general, should a Certificate Owner or a
Trust be subject to any state or local tax which would not be
25
<PAGE> 57
imposed if the Pass Through Trustee were located in a different jurisdiction in
the United States, the Pass Through Trustee will resign and a new Pass Through
Trustee in such other jurisdiction will be appointed.
PLAN OF DISTRIBUTION
The Company may sell the Pass Through Certificates being offered hereby:
(i) through agents, (ii) to or through underwriters, (iii) through dealers or
(iv) through a combination of any such methods of sale.
The distribution of the Pass Through Certificates may be effected from time
to time in one or more transactions either (i) at a fixed price or prices, which
may be changed, or (ii) at market prices prevailing at the time of sale, or
(iii) at prices related to such prevailing market prices, or (iv) at negotiated
prices.
Offers to purchase the Pass Through Certificates may be solicited by agents
designated by the Company from time to time. Any such agent, which may be deemed
to be an underwriter as that term is defined in the Securities Act, involved in
the offer or sale of the Pass Through Certificates in respect of which this
Prospectus is delivered will be named, and any commissions payable by the
Company to such agent will be set forth, in the applicable Prospectus
Supplement. Unless otherwise indicated in the Prospectus Supplement, any such
agent will be acting on a best efforts basis for the period of its appointment.
If an underwriter or underwriters are utilized in the sale, the Company
will execute an underwriting agreement with such underwriters at the time of
sale to them and the names of the underwriters and the terms of the transaction,
including commissions, discounts and other compensation of the underwriters and
dealers, if any, will be set forth in the Prospectus Supplement, which will be
used by the underwriters to make resales of the Pass Through Certificates in
respect of which this Prospectus is delivered to the public.
If a dealer is utilized in the sale of the Pass Through Certificates in
respect of which this Prospectus is delivered, the Company or the Pass Through
Trustee, as the case may be, will sell such Pass Through Certificates to the
dealer, as principal. The dealer may then resell such Pass Through Certificates
to the public at varying prices to be determined by such dealer at the time of
resale.
Underwriters, dealers, agents and other persons may be entitled, under
agreements which may be entered into with the Company, to indemnification
against certain civil liabilities, including liabilities under the Securities
Act.
Underwriters, dealers and agents may be customers of, engage in
transactions with or perform services for the Company in the ordinary course of
business.
LEGAL OPINIONS
Unless otherwise indicated in the Prospectus Supplement to this Prospectus,
the validity of the Pass Through Certificates will be passed upon for the
Company by Neal, Gerber & Eisenberg, Chicago, Illinois, and for any underwriters
or agents, by Mayer, Brown & Platt, New York, New York. Both Neal, Gerber &
Eisenberg and Mayer, Brown & Platt will rely on the opinion of the Law
Department of Harris Trust and Savings Bank as to matters relating to the
authorization, execution, authentication, issuance and delivery of the Pass
Through Certificates under the Basic Agreement.
EXPERTS
The consolidated financial statements of Union Tank Car Company appearing
in Union Tank Car Company's Annual Report (Form 10-K) for the year ended
December 31, 1996, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
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APPENDIX I
GLOSSARY OF CERTAIN TERMS
The following is a glossary of certain terms used in this Prospectus
relating to the Pass Through Certificates. The definitions of terms used in this
glossary that are also used in the Basic Agreement, Trust Supplements,
Indentures, Leases or Participation Agreements are qualified in their entirety
by reference to the definitions of such terms contained therein. Additional
terms or changes in the terms defined below may appear in the applicable
Prospectus Supplement.
"Basic Agreement" means the Pass Through Trust Agreement to be entered into
between the Company and the Pass Through Trustee.
"Business Day," when used with respect to the Pass Through Certificates of
any series, means any day other than a Saturday, a Sunday, or a day on which
commercial banking institutions in New York, New York, Chicago, Illinois or a
city and state in which the Pass Through Trustee or any related Indenture
Trustee maintains its Corporate Trust Office are authorized or obligated by law,
regulation or executive order to be closed.
"Certificate Account" means the one or more non-interest-bearing accounts
established and maintained by the Pass Through Trustee pursuant to the Basic
Agreement on behalf of the Certificate holders of each Trust for the deposit of
payments representing Scheduled Payments on the Equipment Notes held in such
Trust.
"Certificate Owner" means a person acquiring an interest in a Pass Through
Certificate registered in the name of Cede & Co. as the nominee of The
Depository Trust Company.
"Certificateholder" means the Person in whose name a Pass Through
Certificate is registered.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Company" means Union Tank Car Company and its wholly-owned subsidiaries
(unless the context otherwise requires).
"ETC" means each of the equipment trust certificates to be issued pursuant
to an Equipment Trust Agreement between the Company and the Equipment Trust
Trustee.
"Equipment Group" means all the railcars (which may include various types
or categories of standard gauge rolling stock) in respect of which a particular
series of Equipment Notes is issued.
"Equipment Note" means each of the equipment notes to be issued pursuant to
an Indenture to finance or refinance all or a portion of the equipment cost of
the Equipment Units.
"Equipment Trust Agreement" means an equipment trust agreement between the
Company and the Equipment Trust Trustee.
"Equipment Trust Event of Default" means each of the events designated as
an Event of Default in an Equipment Trust Agreement, as described in the
applicable Prospectus Supplement.
"Equipment Trust Trustee" means, unless otherwise specified in a Prospectus
Supplement, Harris Trust and Savings Bank, in its capacity as trustee under an
Equipment Trust Agreement, and each other person which may from time to time act
as successor trustee under such agreement.
"Equipment Unit" or "Unit" means an individual railcar.
"Event of Default" means, (i) with respect to the Equipment Notes held in
any Trust, the occurrence and continuance of an Indenture Event of Default under
one or more of the related Indentures, and (ii) with respect to ETCs held in a
Trust, the occurrence and continuance of an Equipment Trust Event of Default
under the related Equipment Trust Agreement.
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<PAGE> 59
"Indenture" means each of the separate trust indenture and security
agreements entered into from time to time between an Owner Trustee and an
Indenture Trustee with respect to the issuance of Equipment Notes, as each such
agreement may be amended or supplemented in accordance with its respective
terms.
"Indenture Event of Default" means each of the events designated as an
event of default in an Indenture, as described in the applicable Prospectus
Supplement.
"Indenture Trustee," when used with respect to any Equipment Note or the
Indenture applicable thereto, means, unless otherwise specified in a Prospectus
Supplement, Harris Trust and Savings Bank, and any successor to such Indenture
Trustee as such trustee.
"Lease" means each of the lease agreements entered into with respect to
Equipment Units between an Owner Trustee and the Company, as each such lease
agreement may from time to time be amended or supplemented.
"Lease Event of Default" means each of the events designated as an event of
default in a Lease, as described in the applicable Prospectus Supplement.
"Leased Equipment" means each Equipment Group leased by an Owner Trustee to
the Company pursuant to a Lease.
"Owner Participant" means each of the owner participants for whose benefit
an Owner Trustee owns an Equipment Group leased to the Company pursuant to a
Lease and its permitted successors and assigns.
"Owner Trustee," when used with respect to any Equipment Note or the
Indenture applicable thereto or the Lease related thereto, means the "Owner
Trustee" referred to in the applicable Indenture, not in its individual capacity
but solely as trustee; and each other Person which may from time to time be
acting as Owner Trustee in accordance with the provisions of the applicable
Indenture, Lease or Participation Agreement.
"Participation Agreement" when used with respect to any Equipment Note,
means the note purchase, participation, refinancing or similar agreement or
agreements referred to in the related Indenture, providing for, among other
things, the purchase of Equipment Notes by the Pass Through Trustee.
"Pass Through Certificate" means each of the Pass Through Certificates to
be issued by each of the Trusts pursuant to the Basic Agreement and the related
Trust Supplement.
"Pass Through Trustee" means, unless otherwise specified in a Prospectus
Supplement, Harris Trust and Savings Bank, in its capacity as Pass Through
Trustee under each Trust, and each other person which may from time to time act
as successor Pass Through Trustee under such Trust.
"Pool Balance" means, for each Trust, as of any date, the aggregate unpaid
principal amount of the Equipment Notes and ETCs, if any, held in such Trust on
such date plus any amounts in respect of principal on such Equipment Notes and
ETCs held by the Pass Through Trustee and not yet distributed plus the amount of
any moneys held in the related escrow account (other than earnings thereon). The
Pool Balance for each Trust as of any Regular Distribution Date or Special
Distribution Date shall be computed after giving effect to the payment of
principal, if any, on the Equipment Notes and ETCs, if any, held in such Trust
and distribution thereof to be made on that date.
"Pool Factor" means, for each Trust, as of any date, the quotient (rounded
to the seventh decimal place) computed by dividing (i) the Pool Balance of such
Trust by (ii) the aggregate original principal amount of the Equipment Notes
held in such Trust. The Pool Factor for each Trust as of any Regular
Distribution Date or Special Distribution Date shall be computed after giving
effect to the payment of principal, if any, on the Equipment Notes and ETCs, if
any, held in such Trust and distribution thereof to be made on that date.
"Regular Distribution Date" means each date on which a Scheduled Payment
will be distributed, as specified in the applicable Prospectus Supplement.
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<PAGE> 60
"Scheduled Payment" means each payment of interest or principal on an
Equipment Note scheduled to be received by the Pass Through Trustee on the
Regular Distribution Dates specified in the applicable Prospectus Supplement.
"Special Distribution Date" means each date on which a Special Payment will
be distributed, as specified in the applicable Prospectus Supplement.
"Special Payment" means (i) any payment of principal, premium, if any, and
interest resulting from the prepayment or purchase of an Equipment Note held in
a Trust, (ii) any payment of principal and interest (including any interest
accruing upon default) on or any other amount in respect of an Equipment Note
held in a Trust upon an Indenture Event of Default in respect of, or upon
acceleration relating to, such Equipment Note, (iii) any payment of principal,
premium, if any, and interest on an Equipment Note which is not in fact paid
within five days of a Regular Distribution Date, (iv) any proceeds from the sale
of any Equipment Note upon an Event of Default, or (v) the amounts available for
distribution from a Trust as a result of the failure to apply such amounts to
the purchase of Equipment Notes on or prior to the date specified in the
applicable Prospectus Supplement.
"Special Payments Account" means the one or more accounts established and
maintained by the Pass Through Trustee pursuant to the Basic Agreement on behalf
of the Certificateholders of each Trust for the deposit of payments representing
Special Payments on the Equipment Notes held in such Trust.
"Specified Investments" when used with respect to any Trust, means, unless
otherwise specified in the related Prospectus Supplement, (i) direct obligations
of the United States of America and agencies thereof for which the full faith
and credit of the United States of America is pledged, (ii) obligations fully
guaranteed by the United States of America, (iii) certificates of deposit issued
by, or bankers' acceptances of, or time deposits with, any bank, trust company
or national banking association incorporated or doing business under the laws of
the United States of America or one of the states thereof having combined
capital and surplus and retained earnings of at least $500,000,000 (including
any Indenture Trustee or Owner Trustee if such conditions are met) and (iv)
repurchase agreements with any financial institution having a combined capital
and surplus of at least $750,000,000 fully collateralized by obligations of the
type described in clauses (i) through (iii) above; provided that if all of the
above investments are unavailable, the entire amounts to be invested may be used
to purchase Federal funds from an entity described in clause (iii) above; and
provided further that no investment shall be eligible as a "Specified
Investment" unless the final maturity or date of return of such investment is 91
days or less from the date of purchase thereof.
"Trust" means each of the Union Tank Car Company Pass Through Trusts to be
formed pursuant to the Basic Agreement and a Trust Supplement.
"Trust Property" means the Equipment Notes and ETCs, if any, held as the
property of a Trust and all funds from time to time deposited in the related
Certificate Account, the related Special Payments Account and any other account
maintained as a part of such Trust, including any proceeds from the sale by the
Pass Through Trustee of any such Equipment Note or ETC in connection with an
Event of Default.
"Trust Supplement" means each of the Pass Through Trust Supplements between
the Company and the Pass Through Trustee, pursuant to each of which a Trust is
formed and a series of Pass Through Certificates is issued to evidence
fractional undivided ownership interests in the Trust Property held in such
Trust.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR THE PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS AND OR THE PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
THE PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS COMBINED WITH THE
PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............. S-3
The Company............................... S-10
Capitalization............................ S-11
Selected Financial and Operating Data..... S-12
Use of Proceeds........................... S-13
Description of Payment Flows.............. S-14
Description of the Pass Through
Certificates............................ S-15
Description of Equipment Notes............ S-18
Material Federal Income Tax
Consequences............................ S-30
ERISA Considerations...................... S-30
Underwriting.............................. S-31
Legal Opinions............................ S-31
PROSPECTUS
Available Information..................... 2
Reports to Certificateholders by the
Trustee................................. 2
Documents Incorporated by Reference....... 3
The Company............................... 4
Formation of the Trusts................... 4
Use of Proceeds........................... 4
Description of the Pass Through
Certificates............................ 5
Description of the Equipment Notes........ 16
Description of the ETCs................... 19
ERISA Considerations...................... 23
Material Federal Income Tax
Consequences............................ 23
Certain Illinois Taxes.................... 25
Plan of Distribution...................... 26
Legal Opinions............................ 26
Experts................................... 26
Glossary of Certain Terms...................I-1
</TABLE>
UNTIL JUNE , 1998 (90 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE PASS THROUGH CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
$96,325,000
UNION TANK CAR
COMPANY
1998-A
PASS THROUGH
TRUST
PASS THROUGH CERTIFICATES,
SERIES 1998-A
SALOMON SMITH BARNEY
PROSPECTUS
DATED MARCH , 1998
