<PAGE>
As filed with the Securities and Exchange Commission on September 4, 1998.
Registration No. 333-58731
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
General American Railcar Corporation II
(Exact Name of Registrant as Specified in its Charter)
Delaware __-_______
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
500 West Monroe Street
Chicago, Illinois 60661
(312) 621-6451
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
David B. Anderson, Esq.
GATX Corporation
500 West Monroe Street
Chicago, Illinois 60661
(312) 621-6495
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
Jennifer R. Evans, Esq. Trayton M. Davis, Esq.
Courtney A. Wilson, Esq. Milbank, Tweed, Hadley & McCloy
Vedder, Price, Kaufman & Kammholz 1 Chase Manhattan Plaza
222 North LaSalle Street, Suite 2600 New York, New York 10005
Chicago, Illinois 60601 (212) 530-5349
(312) 609-7500
-----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
-----------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
-----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================
AMOUNT AMOUNT OF
TITLE OF EACH CLASS OF TO BE MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE FEE/(1)/
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pass Through Certificates, Series 1998-1 $167,000,000 $167,000,000 $49,265
==========================================================================================
</TABLE>
(1) Registration fee calculated pursuant to Rule 457(o) on the basis of the
maximum principal amount of securities to be offered. Of the total
registration fee, $35,400 was previously paid upon filing of the
Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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, DATED SEPTEMBER 4, 1998
PROSPECTUS
167,000,000
General American Railcar Corporation II
1998-1 Pass Through Trust
Pass Through Certificates, Series 1998-1
Each Pass Through Certificate offered hereby will represent a fractional
undivided interest in the General American Railcar Corporation II 1998-1 Pass
Through Trust (the "Pass Through Trust") to be formed pursuant to a pass through
trust agreement between General American Railcar Corporation II (the "Company"),
a wholly-owned special purpose subsidiary of General American Transportation
Corporation ("GATC") newly organized in July 1998 as a Delaware corporation, and
The First National Bank of Chicago, as Pass Through Trustee (the "Pass Through
Trustee"). The property of the Pass Through Trust will consist of $167,000,000
aggregate principal amount of equipment notes (the "Equipment Notes") to be
issued on a nonrecourse basis by the trustee of one or more owner trusts (the
"Owner Trustee") in connection with one or more leveraged lease transactions to
finance in each case not more than 80% of the cost of certain railroad tank cars
and covered hopper cars (each railcar an "Equipment Unit" or "Unit" and,
collectively, the "Equipment") that will be purchased in each transaction by the
applicable Owner Trustee from the Company and leased back to the Company.
Amounts unconditionally payable under each lease will be sufficient to pay in
full when due all payments of principal of, if any, and interest on, the related
Equipment Notes held in the Pass Through Trust. The Equipment Notes are not
direct obligations of, nor are they guaranteed by, the Company.
(continued on following page)
When issued, the Pass Through Certificates will be investment grade
securities and are expected to be rated at least Aa2 and AA by Moody's and S&P,
respectively. See "Ratings."
See "Risk Factors" beginning on page 18 for a discussion of certain factors
that should be considered in connection with an investment in the Pass Through
Certificates.
THE PASS THROUGH CERTIFICATES ARE NOT OBLIGATIONS OF, NOR GUARANTEED BY, THE
COMPANY OR ANY AFFILIATE THEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===================================================================================================
Final
Pass Through Principal Interest Initial Principal Distribution Price to
Certificates Amount Rate Distribution Date/(1)/ Date/(1)/ Public/(2)(3)/
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998-1......... $167,000,000 % _______ 20, ____ September 20, 2020 100%
===================================================================================================
</TABLE>
(1) Based on the Rated Amortization Schedule. The initial principal
distribution date and final distribution date based on the Scheduled
Amortization Schedule are __________ 20, ____, and September 20, 2017,
respectively.
(2) Plus accrued interest, if any, from September __, 1998.
(3) 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 Trustees in the leveraged lease transactions. 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 Underwriters subject to
prior sale, when, as and if accepted by the Underwriters and subject to approval
of certain legal matters by Milbank, Tweed, Hadley & McCloy, counsel for the
Underwriters. It is expected that delivery of the Pass Through Certificates in
book-entry form will be made on or before September __, 1998 through the
facilities of The Depository Trust Company, against payment therefor in
immediately available funds.
Salomon Smith Barney Morgan Stanley Dean Witter
The date of this Prospectus is ____________ __, 1998
<PAGE>
Interest paid on the Equipment Notes held in the Pass Through Trust will be
passed through to the Certificateholders on the 20th day of each month,
commencing on October 20, 1998, at the rate per annum set forth above, and the
principal of the Equipment Notes held in the Pass Through Trust is expected to
be paid and passed through to the Certificateholders in scheduled amounts, if
any, on the 20th day of certain months, commencing on __________, ____.
The Equipment Notes will have a Rated Amortization Schedule and a Scheduled
Amortization Schedule, as described herein. Failure to pay interest on the
Equipment Notes or to pay principal on a cumulative basis in accordance with the
Rated Amortization Schedule will constitute an Event of Default. Failure to pay
principal on the Equipment Notes on a cumulative basis in accordance with the
Scheduled Amortization Schedule will not constitute an Event of Default but will
result in a premium being due and payable, as described herein. The Equipment
Notes will mature, based upon the Scheduled Amortization Schedule, on September
20, 2017, and will mature, based upon the Rated Amortization Schedule, on
September 20, 2020. Although neither the Pass Through Certificates nor the
Equipment Notes are direct obligations of, or guaranteed by, the Company, the
amounts of Basic Rent (as defined herein) unconditionally payable by the Company
under the leases are intended to be sufficient to pay in full when due all
payments of principal and interest on the related Equipment Notes in accordance
with the Scheduled Amortization Schedule and the expenses of the Owner Trustees
and the Pass Through Trustee. The Equipment Notes are non-recourse obligations
of the applicable Owner Trust and do not represent obligations of, and are not
guaranteed by GATC, the Company's parent corporation, or any affiliate thereof.
In each transaction, the applicable 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 related 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.
-------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PASS THROUGH
CERTIFICATES, INCLUDING OVERALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN THE PASS THROUGH CERTIFICATES, AND THE IMPOSITION OF A PENALTY
BID DURING AND AFTER THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
i
<PAGE>
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 will be subject to informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will file reports and other information with the Commission following
this offering. 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, DC 20549 at prescribed rates. Such material
also may be accessed electronically by means of the Commission's web site on the
Internet at http://www.sec.gov, containing reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
Other than the pro forma balance sheet giving effect to the completion of
this offering, no separate financial statements of the Company have been
included or incorporated by reference herein. The Company does not consider that
such financial statements would be material to holders of the Certificates
because the Company is a newly-formed special purpose entity, has had no prior
operations and will not engage in any activity other than leasing the Equipment
from the Owner Trusts, the purchase of which Equipment by the Owner Trusts is to
be funded in substantial part with the proceeds of this offering, and the
subleasing of such Equipment. In addition, the Company is a wholly-owned
subsidiary of GATC which is itself a reporting company under the Exchange Act.
REPORTS TO CERTIFICATEHOLDERS BY THE TRUSTEE
The First National Bank of Chicago, as trustee under the Pass Through Trust
Agreement, will provide to Certificateholders certain periodic statements
concerning distributions made with respect to the Pass Through Trust. See
"Description of the Pass Through Certificates -- Statements to
Certificateholders."
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus or incorporated by reference
herein. For an explanation of defined terms used in this Prospectus, please see
the Glossary attached to this Prospectus as Appendix A.
Transaction Overview
The Pass Through Certificates are being offered (the "Offering") as part of
a series of transactions that will close contemporaneously on the Closing Date
of the Offering in connection with the financing of the acquisition of a fleet
of railcars from GATC, as follows:
. The Company will form a Pass Through Trust, pursuant to a pass
through trust agreement between the Company and The First National
Bank of Chicago, as pass through trustee (the "Pass Through Trustee").
. Contemporaneously, GATC will sell the Equipment to the Company and
assign to the Company the related Subleases previously entered into by
GATC with its customers.
. In three separate leveraged lease transactions, the Company will then
immediately sell to each of three Owner Trusts a separate diversified
group of the Equipment such that the Owner Trusts together will own all
of the Company's railcar fleet.
. Each Owner Trust will finance the acquisition of its respective
Equipment Group by: (1) receiving at least 20% of the total Equipment
Cost from an equity investment in such Owner Trust by the related owner
participant, and (2) the sale to the Pass Through Trust of Equipment
Notes at par representing in aggregate principal amount not more than
80% of the Equipment Cost of the related Equipment Group.
. On the Closing Date, the Pass Through Trust will issue to investors
the Pass Through Certificates representing fractional undivided
interests in the assets of the Pass Through Trust.
. Using all of the proceeds from the Offering, the Pass Through Trust will
acquire all of the Equipment Notes issued by each of the Owner Trusts.
The aggregate principal amount of the Equipment Notes, and the principal
and interest payment dates and amounts thereof, will correspond in each
case to the aggregate principal amount and payment dates of the Pass
Through Certificates.
. Pursuant to the Leases, the Company will lease back from each Owner
Trust all of the Equipment purchased by such Owner Trust.
. On the Closing Date, the Company will enter into the Management
Agreement and the Intercreditor Agreement with certain of the other
parties as described below.
Pursuant to an Operation, Maintenance, Servicing and Remarketing
Agreement (the "Management Agreement"), the Company has engaged GATC to act
as the manager of the fleet of railcars leased by the Company and to
perform, on behalf of the Company, all services incidental to the
management of the Company's fleet. Rental payments in respect of the
Leases are expected to be, in the aggregate, sufficient to pay, among other
things, interest and principal due in respect of the Equipment Notes
according to the Scheduled Amortization Schedule (as defined herein) and
all fees and expenses of the Pass Through Trustee and the Owner Trustee.
The Pass Through Certificates and the Equipment Notes represent obligations
of the Pass Through Trust and the Owner Trusts, respectively, and do not
represent direct obligations of, and are not guaranteed by, the Company or
GATC or any of their affiliates.
In connection with the leveraged lease transactions described above,
pursuant to the Collateral Agency and Intercreditor Agreement among the
Company, the Owner Trustees, the Indenture Trustees, the Manager and the
Insurance Manager, the Company will pledge to a Collateral Agent all of its
rights, title and interests in the Collateral (including the Subleases and
the rights to receive any payments thereunder) along with any amounts held
in certain accounts to be maintained by the Collateral Agent. The parties
to the Intercreditor Agreement agree that so long as the Equipment Notes
are outstanding, all amounts due to the Company will flow through the
Collateral Agent and will be
<PAGE>
disbursed according to the terms of the Intercreditor Agreement. The security
interest of the Collateral Agent in the Collateral is subject to the terms of
the Intercreditor Agreement, and under such agreement, the Collateral Agent's
security interest in the Subleases will not be perfected. See "The Intercreditor
Agreement."
The Equipment
The equipment consists of 3,380 railroad tank cars and covered hopper cars
newly manufactured by Trinity Industries Inc. ("Trinity") during 1997 or 1998.
The fleet composition is approximately 75% tank cars and approximately 25%
covered hopper cars. Tank cars are specialized railcars used for the
transportation of a variety of products including chemicals, semi-gaseous or
gaseous products and other types of industrial liquids. Covered hopper cars
primarily carry plastic pellets, cement, grain and other granular products. The
Equipment is further classified into one of six categories of railcars: general
covered hopper, general service tank, high pressure tank, specialty covered
hopper, alloy and specialty chemical (each, a "Car Type"). Each Owner Trust will
purchase from the Company a portfolio of the Equipment (each, an "Equipment
Group") consisting of a diverse selection of Car Types. See "The Equipment."
The Company
General American Railcar Corporation II, a Delaware corporation, was newly
organized in July 1998 as a wholly-owned special purpose subsidiary of GATC,
solely for the purposes of (i) entering into one or more sales and leasebacks of
the Equipment, (ii) subleasing the Equipment to customers pursuant to subleases
and (iii) engaging in such other activities as are necessary, convenient or
incidental thereto. The Company has taken steps in structuring the transactions
contemplated hereby so as to avoid any consolidation of its assets and
liabilities with those of GATC in a GATC bankruptcy proceeding. See "The
Company" and "Risk Factors--Certain Legal and Bankruptcy Considerations--
Bankruptcy of GATC." The Company will be capitalized with equity of at least
$500,000 at the Closing Date. The Company's principal executive office is
located at 500 West Monroe Street, Chicago, Illinois 60661 (telephone: 312-621-
6451).
The Full Service Railcar Leasing Business
The Company will be engaged in the business of leasing specialized railcars
to its customers primarily under full service leases. Under full service leases,
the lessor maintains and services the railcars subject to the lease, pays ad
valorem property taxes and provides several other ancillary services, including
auditing of Railroad Mileage Credit payments due from railroads. See "--Summary
of Principal Agreements--Railroad Mileage Credits." Pursuant to the Management
Agreement, the Company has engaged the Manager to provide these services on the
Company's behalf to the Company's customers. See "The Management Agreement" and
"The Manager." The primary customers of the full service railcar leasing
industry are large industrial companies that ship and use food products,
chemicals, petroleum and other commodities. The full service railcar leasing
industry is comprised principally of GATC, Union Tank Car Company ("Union Tank
Car"), General Electric Railcar Service Corporation ("GE Railcar"), Shippers Car
Line division of ACF Industries, Incorporated ("ACF"), Procor Limited ("Procor")
and several smaller companies, including the Company. See "Railcar Leasing
Industry."
The Manager
GATC is principally engaged in leasing specialized railcars (primarily tank
cars) under full service leases and the management of railcars. Through its
wholly-owned subsidiary GATX Terminals Corporation ("Terminals"), GATC also is
engaged in the operation of public bulk liquid storage terminals and domestic
pipeline systems. GATC's principal executive office is located at 500 West
Monroe Street, Chicago, Illinois 60661 (telephone: 312-621-6200). GATC is a
wholly-owned subsidiary of GATX Corporation ("GATX").
2
<PAGE>
The Subleases and the Sublessees
The Company will sublease the Equipment to its customers (the "Sublessees")
pursuant to car service contracts and related riders (the "Subleases"). The
initial Subleases, which will be assigned to the Company by GATC in connection
with GATC's sale of the Equipment to the Company on the Closing Date, are
contracts which GATC has entered into with customers over the last two years
when the Equipment was newly delivered to GATC from the manufacturer. Most, if
not all, of the Sublessees will also continue to be customers of GATC and/or
other affiliates of GATC under separate agreements with respect to other
railcars. At the Closing Date, the Company will have Subleases with 82
Sublessees whose businesses fall within the chemical, petroleum, agriculture and
mineral industries. Currently, 51.3% of the Equipment is Subleased to Sublessees
which are, or whose parent companies are, rated BBB-or Baa3 or higher (although
the obligation of such Sublessees may not be guaranteed by their parent
companies) and 29.9% are unrated by the Rating Agencies. As of September 1, 1998
each of the Sublessees was current in respect of its obligations under its
Sublease. See "The Sublessees--Rating of Sublessees." The Management Agreement
will contain provisions requiring the Manager to lease and re-lease the railcars
it manages on behalf of the Company without regard to whether such railcars are
part of the Company Fleet (as defined herein), or its own fleet or other fleets
managed by the Manager. However, there can be no assurance that the composition
of the pool of Sublessees will continue to have similar industry concentration,
credit quality and other characteristics to that of the initial Sublessees. See
"The Sublessees."
3
<PAGE>
TRANSACTION SCHEMATIC
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Up to Up to
80% of 80% of
Equipment Equipment Beneficial
______________________ Cost ______________________ Cost ________________ Ownership ________________
| |______________| |______________| |_______________| |
| Certificateholders | | Pass Through Trust | | Owner Trusts | | Owner |
| |______________| |______________| (Lessors) |_______________| Participants |
______________________ _____________________ ________________ ________________
Pass Through Equipment Notes | | At least
Certificates | | 20% of
| | Equipment
| | Cost
| |
| |
Leases | | Proceeds
| |
| |
| |
Management | |
______________________ Agreement __________________________
| General |______________________________________________| General American |
| American |______________________________________________| Railcar Corporation II |
| Transportation | 100% Ownership | (Lessee) |
| Corporation |______________________________________________| |
______________________ Proceeds __________________________
|
|
| Subleases
|
|
__________________________
| |
| Sublessees |
| |
__________________________
</TABLE>
4
<PAGE>
Summary of Principal Agreements
The Pass Through Trust
Agreement........................... The Pass Through Trust will be formed
pursuant to the Pass Through Trust
Agreement between the Pass Through
Trustee and the Company. The Pass
Through Trust will issue Pass Through
Trust Certificates in the Offering
and will use the proceeds of the
Offering to purchase Equipment Notes
from the Owner Trusts pursuant to the
Participation Agreements.
The Indentures........................ Each Owner Trust will issue Equipment
Notes pursuant to an Indenture
between the related Indenture Trustee
and the related Owner Trustee. Each
Indenture provides for a Scheduled
Amortization Schedule and a Rated
Amortization Schedule on the
Equipment Notes as more fully
described under "Description of the
Equipment Notes--Principal and
Interest Payments--Principal."
The Participation Agreements.......... The Pass Through Trust will agree to
purchase the Equipment Notes from
each Owner Trust pursuant to a
Participation Agreement among the
Pass Through Trustee, the related
Owner Trustee, the respective Owner
Participant, the related Indenture
Trustee, the Company and the Manager.
Also, pursuant to the related
Participation Agreement, each Owner
Trust will agree to purchase an
Equipment Group from the Company.
Each Owner Trust will finance the
purchase of its Equipment Group with
the proceeds from the issuance of its
Equipment Notes.
The Leases............................ Each Owner Trustee will enter into a
Lease with the Company pursuant to
which the Company will lease the
Equipment Group owned by such Owner
Trustee and agree to make payments of
rent on such Equipment Group. The
payments of Basic Rent for each
Equipment Group are expected to be
sufficient to allow payment on the
related Equipment Notes in accordance
with the Scheduled Amortization Schedule
after payment of certain expenses of the
related Owner Trust.
The Management Agreement.............. The Company will engage GATC under a
Management Agreement with GATC
pursuant to which GATC will perform,
on behalf of the Company, all of the
Company's obligations under its
Subleases with its customers and
provide other services necessary for
a company operating in the full
service railcar leasing industry
effectively outsourcing all of the
Company's day-to-day operations.
Pursuant to the Management Agreement,
but subject to the direction of the
Company, GATC will also perform many
of the Company's operational
obligations under the other
agreements to which the Company is a
party. Under the terms of the
Management Agreement, the Manager
will receive a monthly fee consisting
of a Base Component and an Incentive
Component. The Base Component will
be the
5
<PAGE>
product of (i) a monthly fee payable per
Equipment Unit (initially $20)
multiplied by (ii) the number of Units
managed. The Incentive Component shall
be $5 per unit for the period from the
Closing Date through December 31, 1999.
Thereafter, the Incentive Component
shall be based on annual collections, as
more fully described under "The
Management Agreement--Compensation of
Manager."
The Intercreditor Agreement........... Pursuant to an Intercreditor
Agreement among the Company, the Owner
Trustees, the Indenture Trustees, the
Manager, the Insurance Manager and The
First National Bank of Chicago, as
collateral agent (the "Collateral
Agent"), the Company will pledge to the
Collateral Agent all of its rights,
title and interests under certain
documents to which it is a party
including the Subleases (as defined
herein), including the right to receive
any payments thereunder, along with any
amounts held in certain accounts
established by the Collateral Agent.
Each of the parties to the Intercreditor
Agreement will agree that, so long as
any Equipment Notes are outstanding, all
amounts due to the Company, including
Sublease payments, will flow through the
Collateral Agent to be disbursed in
accordance with the terms of the
Intercreditor Agreement.
The Insurance Agreement............... Pursuant to an Insurance Agreement
between the Company and the Insurance
Manager, the Insurance Manager will
maintain or cause to be maintained, with
insurers with whom the Insurance Manager
or its affiliates insure equipment owned
or managed by them, (i) public liability
insurance in respect of the Equipment,
in amounts not less than, and with
deductibles or retentions not greater
than, those customarily maintained by
the Insurance Manager or its affiliates
for similar equipment owned or managed
by them, and (ii) casualty insurance, in
amounts not less than, against risks and
with deductible and retention amounts
not greater than, those customarily
maintained by the Insurance Manager or
its affiliates for similar equipment
owned or managed by them, subject, in
each case to compliance with certain
insurance-related provisions in the
Leases. Compensation to the Insurance
Manager for its performance under the
Insurance Agreement will be included in
the Base Component under the Management
Agreement so long as the Insurance
Manager is acting as Manager under the
Management Agreement. See "The
Management Agreement."
The Subleases......................... The Company will sublease the
Equipment to its customers pursuant to
car service contracts and related riders
(the "Subleases"). On the Closing Date,
the Subleases will be assigned to the
Company by GATC.
6
<PAGE>
Railroad Mileage Credits.............. Railcars are required to carry a "mark"
consisting of letters registered in the
name of the owner of the railcar mark
and a car number (e.g., GATX 1234) (the
"Mark"). Such Marks are stenciled on the
side of each railcar.
Railroad Mileage Credits are cash
credits paid by the railroads to the
registered owner of the railcar Marks.
The credit is a product of the number of
miles a railcar travels on a given
railroad (which the railroad tracks by
the Mark) and a specific amount
determined by agreement with the
railroads. The latter amount is based
upon the original cost and age of the
railcar. Accordingly, the more expensive
a car is to manufacture and the newer
the car, the higher will be the
attributable amount of mileage credit.
Under the terms of the leases GATC
enters into with its customers and under
the terms of the Subleases, GATC and the
Company, respectively, agree to pay to
or credit their customers all of the
payments received in respect of Railroad
Mileage Credits with respect to the
related railcars or Equipment Units. At
or prior to the Closing Date, GATC's
railcars and the Equipment will carry
Marks registered with the AAR in the
name of General American Mark Company, a
Delaware business trust (the "Marks
Company"). Payment in respect of
Railroad Mileage Credits for GATC's
customers and the Company's customers
will be paid to the Marks Company. These
payments will then be allocated between
GATC and the Company in accordance with
the respective railcars in the Company
Fleet and the Manager's Fleet. GATC, as
the Manager, will, in turn, credit such
payments in accordance with the
applicable Sublease against the
Sublessee's account. Sublessees may
either apply the amount of the credit to
the amount due under their respective
Subleases or request payment of the
amount of such credit. See "Railcar
Leasing Industry --Railroad Mileage
Credits," "The Management Agreement" and
"Collection and Application of the
Company's Cash Flows--Collection of
Railroad Mileage Credits."
Glossary.............................. Included at the end of this Prospectus
as Appendix A is a Glossary of all
defined terms used herein.
The Offering
Securities Offered.................... $167,000,000 _____% General American
Railcar Corporation II Pass Through
Trust Certificates, Series 1998-1 in
denominations of $100,000 and $1,000
integral multiples in excess thereof.
7
<PAGE>
Ratings............................... It is expected that at the time of
sale the Pass Through Certificates
will be investment grade securities
with ratings of Aa2 by Moody's
Investors Service, Inc. ("Moody's")
and AA by Standard & Poor's Ratings
Services, a division of McGraw-Hill
Companies, Inc. ("Standard & Poor's"
or "S&P"). The ratings on the Pass
Through Certificates address only the
payment of interest when due and the
payment of principal on the Equipment
Notes, which will be passed through
to Certificateholders, according to
the Rated Amortization Schedule of
the Equipment Notes and do not
address the payment of principal in
accordance with the Scheduled
Amortization Schedule or any other
faster rate or the payment of any
Make-Whole Amounts, Late Payment
Premiums or interest on overdue
amounts. A security rating is not a
recommendation to buy, sell or hold
securities, and such ratings may be
subject to revision or withdrawal at
any time.
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 from the
Owner Trustees. The Owner Trustees
will use such proceeds to finance not
more than 80% of the cost of the
Equipment, representing in the
aggregate the entire debt portion of
one or more separate leveraged lease
transactions. See "Use of Proceeds."
Pass Through Trust Property........... The property of the Pass Through
Trust will consist of Equipment Notes
issued on a nonrecourse basis by the
Owner Trustees pursuant to one or
more separate leveraged lease
transactions to finance not more than
80% of the cost of the Equipment and
all funds deposited in the related
Certificate Account, Special Payments
Account and any other account
maintained as a part of the Pass
Through Trust, including any proceeds
from the sale by the Pass Through
Trustee of any Equipment Notes in an
Event of Default. For a description
of the Equipment securing the
Equipment Notes, see "The Equipment."
The Equipment Notes and any funds in
related accounts will constitute the
sole assets of the Pass Through Trust.
Pass Through Certificates:
Scheduled Maturity Date.............. September 20, 2017 represents the
Regular Distribution Date (as defined
herein) on which the Owner Trustee of
the applicable Owner Trust will pay the
final installment of principal, which
will be passed through to
Certificateholders by the Pass Through
Trustee, if all payments of principal on
the related Equipment Notes are made in
accordance with the Scheduled
Amortization Schedule set forth in
Appendix B.
8
<PAGE>
Pass Through Certificates:
Scheduled Weighted Average Life...... Assuming that payments on the
Equipment Notes are made in
accordance with the Scheduled
Amortization Schedule, the scheduled
weighted average life of the Pass
Through Certificates will be ______
years.
Pass Through Certificates:
Rated Maturity Date.................. September 20, 2020, which represents
the Regular Distribution Date by
which the Owner Trustee of the
applicable Owner Trust must pay all
outstanding principal, which will be
passed through to Certificateholders
by the Pass Through Trustee, on the
related Equipment Notes in accordance
with the Rated Amortization Schedule
set forth in Appendix B.
Pass Through Certificates:
Distributions........................ Payments of interest on the Equipment
Notes are scheduled to be received by
the Pass Through Trustee on the 20th
day of each month (a "Regular
Distribution Date"), commencing
October 20, 1998, and are to be
distributed to Certificateholders on
such dates. Payments of principal on
the Equipment Notes held in the Pass
Through Trust are scheduled to be
received in specified amounts by the
Pass Through Trustee on certain
Regular Distribution Dates commencing
_______ 20, _____, and are to be
distributed to the Certificateholders
on such dates. Payments of
principal, Make-Whole Amount, if any,
and interest on the Equipment Notes
resulting from prepayments thereof,
if any, will be received and
distributed on the 20th day of any
month (a "Special Distribution Date")
except in the case of a refinancing
which may occur on any Business Day.
See "Description of the Pass Through
Certificates--Payments and
Distributions."
Pass Through Certificates:
Interest............................. Interest on the Pass Through
Certificates will be passed through
to the Certificateholders at the rate
per annum indicated on the cover of
this Prospectus, which is the same
interest rate borne by the Equipment
Notes to be held by the Pass Through
Trust. Interest will be calculated
on the basis of a 360-day year of
twelve 30-day months. See
"Description of the Pass Through
Certificates--General."
Pass Through Certificates:
Principal............................ Scheduled principal payments made on
the Equipment Notes will be passed
through to Certificateholders. The
principal of the Equipment Notes is
payable monthly in scheduled amounts
(which may be zero) according to the
Scheduled Amortization Schedule set
forth in Appendix B. See "--Equipment
Notes: Scheduled Amortization."
9
<PAGE>
Equipment Notes:
Property of the Owner Trusts......... The assets of each Owner Trust will
consist of the Equipment owned by it
and the related Lease.
The Equipment Notes and the Pass
Through Certificates will not be
obligations of, or guaranteed by, the
Pass Through Trustee, any Indenture
Trustee, any Owner Trustee in its
individual capacity, the Collateral
Agent, the Company, GATC or any of
their respective affiliates. The
Equipment Notes are the obligations
solely of the related Owner Trust and
not of the Owner Participants or the
Owner Trustees in their individual
capacities. The Pass Through
Certificates are the obligations
solely of the Pass Through Trust.
Equipment Notes:
Interest............................. Interest will be payable on each of
the Equipment Notes on the unpaid
principal amount thereof on the 20th
day of each month, or, if such date
is not a Business Day, the next
succeeding Business Day, commencing
October 20, 1998.
Equipment Notes:
Scheduled Amortization............... It is anticipated that the Company's
payments on the Leases will be made
at a rate sufficient to permit
payment of principal and interest on
the Equipment Notes in accordance
with the Scheduled Amortization
Schedule. "Scheduled Amortization"
is the amount of principal of the
related Equipment Notes which an
Owner Trustee must have paid (on a
cumulative basis) through each
Regular Distribution Date in order to
avoid the payment of late payment
premiums ("Late Payment Premiums").
The "Scheduled Amortization Amount"
due on any Regular Distribution Date
will equal the excess of (i) the
cumulative amount of all Scheduled
Amortization which is required to
have been paid through and including
such Regular Distribution Date over
(ii) the cumulative amount of all
principal paid on the Equipment Notes
prior to and excluding such Regular
Distribution Date. Failure to pay
principal in accordance with the
Scheduled Amortization Schedule will
not result in a default under the
Equipment Notes (provided that the
cumulative amount of principal paid
to date is at least equal to the
cumulative amount of principal
required to be paid to such date
pursuant to the Rated Amortization
Schedule), but will result in the
incurrence of Late Payment Premiums.
The Scheduled Amortization Schedule
will be adjusted to reflect any
partial prepayment of the Equipment
Notes. See "Description of the
Equipment Notes--Prepayments." For a
description of certain structuring
assumptions used in the transaction,
see "Maturity, Payment and Yield
Considerations" and "Structuring
Assumptions."
10
<PAGE>
Equipment Notes:
Rated Amortization................... "Rated Amortization" is the minimum
amount of principal of the related
Equipment Notes which an Owner
Trustee must pay on or prior to each
Regular Distribution Date in order to
avoid a payment default under the
applicable Indenture. The "Rated
Amortization Amount" due on any
Regular Distribution Date will equal
the excess, if any, of (i) the
cumulative amount of all Rated
Amortization which is required to
have been paid through and including
such Regular Distribution Date over
(ii) the cumulative amount of all
principal paid on the Equipment Notes
prior to and excluding such Regular
Distribution Date. The Rated
Amortization Schedule will be
adjusted to reflect any partial
prepayment of the Equipment Notes.
See "Description of the Equipment
Notes--Prepayments."
Equipment Notes:
Late Payment Premiums................ If the amount of principal paid on
any Regular Distribution Date is less
than the Scheduled Amortization
Amount as of such Regular
Distribution Date, then the
applicable Owner Trustee will be
required to pay on the next Regular
Distribution Date a Late Payment
Premium. Late Payment Premiums will
be payable only on the difference
between (i) the greater of (a) the
principal amount of the Equipment
Notes paid on a Regular Distribution
Date and (b) the Rated Amortization
Amount payable on such Regular
Distribution Date and (ii) the
Scheduled Amortization Amount payable
on such Regular Distribution Date
(such difference, a "Payment
Deficiency"), at a rate equal to 1.5%
per annum (the "Late Payment Rate").
See "Description of the Equipment
Notes--Principal and Interest
Payments--Late Payment Premium."
Late Payment Premiums will be payable
solely out of funds available after
providing for payment of certain
expenses and indemnities, all Basic
Rent under the Leases in an amount
sufficient to pay accrued and unpaid
interest and principal then due on
the Equipment Notes in accordance
with the Scheduled Amortization
Schedule and the equity portion of
all scheduled payments of Basic Rent
due and payable and after making the
contributions required to be made to
certain reserve accounts required to
be maintained pursuant to the
Intercreditor Agreement, and will be,
in effect, subordinate to such
payments. The ratings on the Pass
Through Certificates do not address
the payment of Late Payment Premiums.
Any deficiency in the payment of Late
Payment Premiums will bear interest
at the Late Payment Rate, and will be
included in the Late Payment Premiums
owing on subsequent Regular
Distribution Dates.
11
<PAGE>
Equipment Notes:
Prepayment Without Make-Whole Amount. The Equipment Notes may be prepaid in
whole or in part without payment of
the Make-Whole Amount under the
following circumstances:
(a) Upon the occurrence of an Event
of Loss (as defined herein) with
respect to an Equipment Unit, if
such Equipment Unit is not replaced
within 120 days after knowledge of
the Manager of such Event of Loss,
the portion of the Equipment Notes
related to such Equipment Unit is
subject to prepayment without the
payment of any Make-Whole Amount.
(b) At the option of an Owner Trustee,
if under the related Indenture any
of the following shall have occurred
(i) one or more Lease Events of
Default under the related Lease
shall have occurred and be
continuing for 180 days or more,
(ii) the Equipment Notes issued
under such Indenture shall have been
accelerated or (iii) the applicable
Indenture Trustee, as assignee of
the related Lease, shall have
declared such Lease to be in default
and shall have commenced the
exercise of any significant remedy
in respect of the Equipment Units
under such Lease, then such Owner
Trustee may elect to purchase all of
the then outstanding Equipment Notes
issued under such Indenture at a
price equal to the aggregate unpaid
principal amount thereof, together
with accrued interest thereon, but
without the payment of any Make-
Whole Amount.
See "Description of the Equipment
Notes--Prepayments."
Equipment Notes:
Prepayment With Make-Whole Amount.... The Equipment Notes may be prepaid in
whole or in part with payment of the
Make-Whole Amount under the following
circumstances:
(a) In the event (i) the Company
elects to exercise its right to
terminate any Lease and purchase an
Equipment Group as a result of a
related Owner Participant or any
affiliate thereof being engaged in a
business that is in competition with
the Company's or the Manager's
railcar leasing business and (ii)
the Company elects not to assume the
related Equipment Notes, such
Equipment Notes will be prepaid on a
Special Distribution Date together
with accrued interest thereon, plus
the Make-Whole Amount (if any).
(b) In the event of a refinancing, all
(but not less than all) of the
Equipment Notes will be prepaid on
the date of such refinancing, which
may be any Business Day. In such
case the prepayment price shall be
equal to the unpaid principal amount
of such Equipment Notes,
12
<PAGE>
together with accrued interest
thereon, plus the Make-Whole Amount
(if any).
(c) If, at any time on or after seventh
anniversary of the Closing Date, the
Company elects to exercise its right
to terminate a Lease with respect to
one or more Equipment Units within
any Equipment Group because such
Equipment Units have become obsolete
or surplus to the Company's needs
(the "Obsolescence Termination
Option"), a portion of the Equipment
Notes issued with respect to such
Equipment Group will be prepaid with
the Make-Whole Amount.
(d) If (i) the Company exercises one or
more of its rights on an Early
Purchase Option Date to purchase all
of the Equipment pursuant to the
related Lease (each, an "Early
Purchase Option") (and the Company
elects not to assume the Equipment
Notes), the related portion of the
Equipment Notes will be prepaid with
the Make-Whole Amount, or, (ii) the
Company exercises its option to
purchase the Equipment in the event
that the Company is unable to
procure certain insurance coverages
the Equipment Notes will be prepaid
together with accrued interest
thereon, plus the Make-Whole Amount
(if any).
(e) If under an Indenture all of the
following shall have occurred (i)
one or more Lease Events of Default
under the related Lease shall have
occurred and be continuing for less
than 180 days, (ii) the Equipment
Notes issued under such Indenture
shall not have been accelerated and
(iii) the applicable Indenture
Trustee, as assignee of the related
Lease, shall not have declared such
Lease to be in default and shall not
have commenced the exercise of any
significant remedy in respect of the
Equipment Units under such Lease,
then the related Owner Trustee may
elect to purchase all of the then
outstanding Equipment Notes issued
under such Indenture at a price
equal to the aggregate unpaid
principal amount thereof, together
with accrued interest thereon, plus
the Make-Whole Amount.
See "Description of the Equipment Notes
--Prepayments" for a description of the
manner of computing the Make-Whole
Amount.
Equipment Notes:
Assumption........................... In the event that the Company elects,
prior to the maturity of the Equipment
Notes, to purchase some or all of an
Equipment Group pursuant to a related
Early Purchase Option or as a result of
the related Owner Participant or any
affiliate thereof being engaged in a
business in competition with the
Company's or the Manager's full service
railcar leasing business, the Company
will have the right to assume the
related Equipment Notes. In the event of
such an assumption, such Equipment Notes
will become the sole obligation of the
Company and would not in any way
represent obligations of GATC or any of
its affiliates, other than the Company.
See "Description of the Equipment
13
<PAGE>
Notes--Assumption of Equipment Notes
Under Certain Circumstances."
Equipment Notes:
Security............................. The Equipment Notes issued under each
Indenture will be equally and ratably
secured by (i) a perfected, first
priority security interest in the
Equipment leased by the Company under
the Lease relating to such Indenture,
(ii) a collateral assignment to the
applicable Indenture Trustee of
certain of the Owner Trustee's rights
under the Lease covering such
Equipment, including the right to
receive certain rental payments from
the Company in respect of such
Equipment pursuant to such Lease, and
(iii) a collateral assignment to the
applicable Indenture Trustee of
certain of the Owner Trustee's rights
under the Intercreditor Agreement,
including the right to receive
payments on the Leases, pro rata,
from the cash flows received by the
Collateral Agent from rent payable by
the Sublessees (after payment of
certain expenses and indemnities) and
certain reserve funds maintained by
the Collateral Agent. See "Description
of the Equipment Notes--Security" and
"The Intercreditor Agreement."
The Equipment Notes issued under the
Indentures are not cross-collateralized
and, consequently, any Equipment Notes
issued under an Indenture will not be
secured by any of the Equipment securing
another Indenture or by the Lease
related thereto. There are no cross-
default provisions in the Indentures,
and events resulting in an Indenture
Event of Default under any particular
Indenture will not necessarily result in
an Indenture Event of Default under any
other Indenture. However, the terms of
the Indentures are identical in all
material respects and to the extent that
an Event of Default arises under the
terms of any Indenture, an Event of
Default may also arise under the similar
or same term in any other Indenture.
Reserve and Other Collateral Accounts. Pursuant to the Intercreditor Agreement,
the Collateral Agent will establish a
Liquidity Reserve Account, a Stipulated
Loss Value Deficiency Account, a Special
Reserves Account and a Cash Trapping
Account. See "The Intercreditor
Agreement." On the Closing Date, the
Liquidity Reserve Account will be funded
in the amount of $500,000 out of the
proceeds of the capital contribution to
the Company by GATC. Thereafter, the
Company will fund the Liquidity Reserve
Account from available amounts with
equal monthly deposits of $42,000 until
such time as the balance in the
Liquidity Reserve Account shall equal
$2,000,000. At the Closing Date the
balance in the Cash Trapping Account
will be $0. Thereafter, the Company will
fund the Cash Trapping Account from
available amounts with equal monthly
deposits of $109,100 until such time as
the balance in the Cash Trapping Account
shall equal $6,000,000. Upon the
occurrence of certain Cash Trapping
14
<PAGE>
Events the amounts which would otherwise
be available for payment of the
Incentive Component of the Manager's fee
and for distribution to the Company will
be accumulated, for so long as such Cash
Trapping Event is continuing, and held
in the Cash Trapping Account, up to a
maximum aggregate balance of
$16,000,000. Amounts held in the Cash
Trapping Account will be released to the
Company, subject to a minimum balance
requirement of $0 on the Closing Date
and increasing to $6,000,000 after 55
months (i.e., increasing by $109,100
each month up to the $6,000,000), when
no Cash Trapping Event or Cash Trapping
Hold is continuing. See "Collection and
Application of the Company's Cash Flows
--Cash Trapping Events; Required Cash
Trapping Amount; Release From Cash
Trapping Account."
Certain Covenants..................... The Company has agreed to certain
covenants in the transaction documents
which require the Company to (i)
maintain its separate legal existence,
(ii) maintain its status as a
bankruptcy-remote entity, (iii) not
consolidate or merge, (iv) not engage in
any other business, (v) limit
transactions with affiliates, (vi)
maintain insurance, (vii) not enter
into, as lessee, additional leases
without the consent of the Owner
Trustees and only after obtaining Rating
Agency Confirmation, and (viii) restrict
the extent to which the Equipment is
used outside the United States.
Pass Through Trustee, Indenture
Trustee and Collateral Agent......... The First National Bank of Chicago will
act as Pass Through Trustee, and as
paying agent and registrar for the Pass
Through Certificates. The First National
Bank of Chicago also will act as the
Indenture Trustee under each Indenture
and as Collateral Agent pursuant to the
Intercreditor Agreement.
Federal Income Tax Considerations..... The Pass Through Trust will be
classified as a grantor trust for
federal income tax purposes, and each
Certificateholder 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 will be required to report on
its federal income tax return its pro
rata share of income from such Equipment
Notes and such other property in
accordance with such Certificateholder's
method of accounting. See "Federal
Income Tax Considerations."
ERISA Considerations.................. The Pass Through Certificates, with
certain exceptions, are eligible for
purchase by employee benefit plans. See
"ERISA Considerations." Each
Certificateholder will be deemed to have
represented and warranted that either
(i) no plan assets have been used to
purchase such Pass Through Certificate
or (ii) the purchase and holding of such
Pass Through Certificate is exempt from
the prohibited transaction restrictions
of Section 406 of ERISA (as defined
herein) and Section 4975 of the Code (as
defined herein). See "ERISA
Considerations." Each Plan fiduciary
(and each fiduciary for a governmental
or church plan subject to
15
<PAGE>
rules similar to those imposed on Plans
under ERISA) should consult with its
legal advisor concerning an investment
in any of the Pass Through Certificates.
16
<PAGE>
SCHEDULED AND RATED AMORTIZATION SCHEDULES
The Scheduled Amortization and Rated Amortization for the Equipment Notes
as of the last Regular Distribution Date at the end of each year in which the
Equipment Notes are outstanding, are set forth below (see "Appendix B" for a
schedule of monthly amortization rates and Pool Factors (as defined herein)):
<TABLE>
<CAPTION>
Scheduled Amortization* Rated Amortization*
----------------------- --------------------
Principal Principal Principal Principal Cumulative Excess of
Date Payment Balance Payment Balance Scheduled over Rated*
-------- --------- --------- --------- --------- ---------------------
<S> <C> <C> <C> <C> <C>
Closing $ $ $ $ $
12/20/98
12/20/99
12/20/00
12/20/01
12/20/02
12/20/03
12/20/04
12/20/05
12/20/06
12/20/07
12/20/08
12/20/09
12/20/10
12/20/11
12/20/12
12/20/13
12/20/14
12/20/15
12/20/16
12/20/17
12/20/18
12/20/19
12/20/20
</TABLE>
- ------------------
* May not total due to rounding.
17
<PAGE>
RISK FACTORS
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus or incorporated by
reference herein. Certain statements contained in this Prospectus,
including statements regarding the belief of the Company as to its future
operating performance, utilization rates and other statements contained in
this Prospectus that are not historical facts, are "forward-looking"
statements. Because such statements include risks and uncertainties, actual
results may differ materially from those anticipated in such forward-
looking statements as a result of certain factors, including those set
forth in "Prospectus Summary," "Risk Factors," "The Subleases," "The
Sublessees," "Collection and Application of the Company's Cash Flows," and
"Maturity, Payment and Yield Considerations." These forward-looking
statements are made as of the date of this Prospectus and the Company
assumes no obligation to update such forward-looking statements or to
update the reasons why actual results could differ materially from those
anticipated in such forward-looking statements.
Certain Legal and Bankruptcy Considerations
Bankruptcy of GATC. The creation of the Company as a special purpose
entity and other aspects of the structure of the transaction are intended
to protect the Company, the Owner Trustees and the Indenture Trustees from
the claims of creditors of GATC, any trustee in bankruptcy of GATC or any
GATC Managed Subsidiary or GATC or any GATC Managed Subsidiary as a debtor-
in-possession in the event of a bankruptcy of GATC. One such aspect is the
use of the Marks Company to own the "marks" with respect to the Equipment
Units and to collect, account for and disburse the Railroad Mileage
Credits. Since all of the marks will be owned by the Marks Company, monies
owed to the Company or a Sublessee in respect of Railroad Mileage Credits
should not become property of the bankruptcy estate if GATC were to become
a debtor in bankruptcy nor should monies owed to any Sublessee in respect
of Railroad Mileage Credits become property of the bankruptcy estate if the
Company were to become a debtor in bankruptcy. See "Collection and
Application of the Company's Cash Flows--Collection of Railroad Mileage
Credits."
Counsel to the Company, the Marks Company and GATC has delivered an
opinion to the effect that in the event of a bankruptcy of GATC or any GATC
Managed Subsidiary, a bankruptcy court, applying the principles serving as
the basis for such opinion, (i) would not order the consolidation of the
assets and liabilities of the Company or the Marks Company with those of
GATC or any GATC Managed Subsidiary on the basis of the equitable
bankruptcy doctrine commonly known as the substantive consolidation
doctrine, and (ii) would not hold that the Subleases and Equipment
transferred by GATC to the Company or the railcar identification marks
relating to the Equipment transferred to the Marks Company are property of
the estate of GATC in its bankruptcy case under Section 541 of the
Bankruptcy Code (as defined herein).
Such opinion is based on and subject to a number of assumptions
concerning facts and circumstances which have been noted, cited or
acknowledged by courts applying the substantive consolidation doctrine and
Section 541 and related authority in prior cases. Such opinion is also
based on certain factual assumptions, including, but not limited to, the
assumptions that: (i) GATC and the Company or the Marks Company, as the
case may be, will observe certain formalities and operating procedures that
are generally recognized requirements for maintaining the separate identity
of legal entities; (ii) the assets and liabilities of the Company and the
Marks Company can be identified as separate and distinct from those of
GATC; (iii) creditors of the Company or the Marks Company will rely on the
separate existence of the Company or the Marks Company in their dealings
with the Company; (iv) the representations and warranties of the Company
set forth in the Intercreditor Agreement are and will continue to be
accurate and that the parties thereto will continue to be in compliance
with their obligations thereunder; (v) the Equipment Cost to be paid for
each Equipment Group by the related Owner Trust, and the form of
consideration tendered in satisfaction of the Equipment Cost, represents a
fair market value for the Equipment Group; and (vi) the transfer of the
Subleases and Equipment to the Company or of the railcar identification
marks to the Marks Company does not constitute a fraudulent conveyance or
other voidable transfer under the Bankruptcy Code or other applicable state
law. The certificate of incorporation of the Company and the certificate of
trust of the Marks Company require that the Company and the Marks Company
conform substantially to several of the foregoing assumptions. However, as
stated in such opinion of counsel, there is no controlling precedent in
these areas. In addition, the adequacy of the formalities and operating
procedures, and the characterization of the transfers, referred to above
has not been considered by any court in the context of an entity such as
the Company, the Marks Company or the Owner Trusts involved in a
transaction similar to the one described herein. Based upon the present
state of the case law, the separate legal existence of the Company and the
Marks Company and the nature and circumstances of the transfers, the
reliance by the Certificateholders on the existence of each of the Company
and the Marks Company as being separate and distinct from that of GATC or
any other subsidiary of GATC and the characterization of the pertinent
transfers as being true contributions and not secured loans should
effectively
18
<PAGE>
preclude (1) the substantive consolidation of the assets and liabilities of
the Company or the Marks Company with those of GATC or any other subsidiary
of GATC, (2) the characterization of the Subleases and Equipment initially
transferred by GATC to the Company as property of the estate in the event
of a GATC bankruptcy, or (3) the characterization of the railcar
identification marks relating to the Equipment transferred by GATC to the
Marks Company as property of the estate in the event of a GATC bankruptcy,
however there can be no guarantee that a consolidation or property of the
estate claim by a creditor or trustee in bankruptcy of GATC or GATC as a
debtor-in-possession would not succeed under any set of circumstances. In
addition, if such a creditor, trustee in bankruptcy or debtor-in-possession
requests such an order of consolidation or order declaring such Subleases,
Equipment or railcar identification marks to be property of GATC's
bankruptcy estate, delays could occur in payments on the Equipment Notes,
and consequently distributions in respect of the Pass Through Certificates,
even if such request is ultimately denied, and if such consolidation is
granted, delays in payments on the Equipment Notes would occur and possible
reductions in the amount of such payments could occur.
Counsel to the Company, the Marks Company and GATC has also delivered an
opinion to the effect that based upon the present state of the case law, in
the event that a bankruptcy court orders the substantive consolidation of
the assets and liabilities of the Company with those of GATC and any other
subsidiary of GATC, the bankruptcy court would nonetheless recognize the
respective superior interests of the Owner Trustees and Indenture Trustees
in the Equipment and the Collateral Agent in the Collateral as against
creditors of the Company and the bankrupt or insolvent entity at least to
the same extent as it would have in the absence of such consolidation.
There can be no assurance, however, that a court would not decide any of
the issues described above differently from the views expressed in
counsel's opinions and such opinions represent only the best judgment of
counsel and are not binding on the courts. In particular, such opinions
depend on certain factual assumptions and the occurrence of different facts
could lead a court to reach a different conclusion.
Bankruptcy of an Owner Participant. 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 the Lease and the Equipment Notes related thereto might become part of,
or otherwise be affected by, 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 related Indenture Trustee would
retain its status as a secured creditor in respect of such Lease and the
related Equipment Group. See "Description of the Equipment Notes--
Remedies."
Ability of Pass Through Trust to Make Payments on the Pass Through
Certificates
The ability of the Pass Through Trust to make distributions in respect of
the Pass Through Certificates is directly dependent upon receipt by the
Pass Through Trust of corresponding payments on the Equipment Notes. The
Pass Through Trust will not have, nor is it permitted to have, any assets
available for distributions on the Pass Through Certificates other than the
Equipment Notes. Unless the Owner Trusts make payments as scheduled on the
Equipment Notes, the Pass Through Trust will not have the funds necessary
to make distributions of interest and principal to Certificateholders as
contemplated herein. There can be no assurance that the Pass Through Trust
will receive payment in full on the Equipment Notes.
Ability of Company to Make Payments on the Equipment Notes; Limited
Resources of the Company
Because the Company is a special purpose entity, its primary funding will
consist of payments made to it under the Subleases. Accordingly, payments
of rent under the Leases, and consequently principal, Late Payment Premiums
or Make-Whole Amounts, if any, and interest on the Equipment Notes, are
dependent on a number of factors, including: (i) the timing of receipt of
rental payments from the Sublessees under the Subleases and the ability of
such Sublessees to make such rental payments; (ii) the ability of the
Manager, following the expiration or termination of the initial or any
subsequent terms of the Subleases to re-lease a sufficient percentage of
the Equipment, without excessive levels of downtime, at sufficient rental
rates; (iii) the amount of maintenance and other obligations, including,
but not limited to, management fees, insurance, improvement costs and
taxes, of the Company related to the Equipment that the Company must pay;
and (iv) whether the proceeds, if any, received by an Owner Trust as a
result of an Event of Loss or other event impairing the Equipment, or
giving rise to liability, whether from insurance or reimbursements by
railroads or Sublessees
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or otherwise, are adequate to enable the Company to pay the amounts
required under the related Lease, which are designed to allow such Owner
Trust to prepay Equipment Notes as required by the related Indenture if
replacement Equipment has not been provided by the Company. Significant
negative variations with respect to one or more of these factors could
create a situation in which the Company would be unable to make rental
payments in respect of the Leases sufficient to satisfy the debt service
requirements of the Equipment Notes as they become due.
Failure of Actual Experience to Match the Structuring Assumptions
In structuring the transaction and determining the Rated Amortization
Schedule and the Scheduled Amortization Schedule, certain assumptions
regarding utilization of the Equipment, Sublease rates, Sublease terms,
operating and maintenance expenses and other expenses and other factors,
including, but not limited to, casualty occurrences or write-offs for
uncollectible Sublease payments, were made. The assumptions include, among
other things, that all rent payments pursuant to the Subleases are received
by the Company in a timely manner and that at the expiration of the initial
or any subsequent Sublease terms the Equipment is re-leased at sufficient
rental rates, without excessive levels of downtime. It is unlikely,
however, that the assumptions will correspond to actual experience. It is
possible, therefore, that funds may not be available to the Company in
amounts which are sufficient to enable the Company to make rental payments
which are sufficient to allow the Owner Trusts to pay the Equipment Notes
in accordance with the Scheduled Amortization Schedule. In addition, the
Equipment Notes are subject to payment, in certain circumstances, at levels
which are faster or slower than those provided by the Scheduled
Amortization Schedule, including prepayment in whole or in part at par, or,
in certain circumstances, at par plus a Make-Whole Amount, (i) in
connection with the Company's exercise of its Obsolescence Termination
Option after the seventh anniversary of the Closing Date, (ii) in
connection with the exercise, in whole or in part by the Company of an
Early Purchase Option relating to each Equipment Group on any specified
Early Purchase Option Date, (iii) following payment of Stipulated Loss
Value, and (iv) in certain other circumstances described herein. See
"Description of the Equipment Notes--Prepayments." Accordingly, payments of
principal on the Equipment Notes and the corresponding distributions on the
Pass Through Certificates may occur earlier (in certain limited
circumstances) or later than assumed, which may affect the yield on the
Pass Through Certificates. However, any such late payments would incur Late
Payment Premiums. See "Maturity, Payment and Yield Considerations" and
"Structuring Assumptions."
Reliance on the Manager
The Company will have no employees of its own (although the Company will
have a Board of Directors and officers) and, as such, the Company will rely
upon GATC, as Manager pursuant to the Management Agreement, as Insurance
Manager under the Insurance Agreement and as Administrator pursuant to an
Administrative Services Agreement between the Company and GATC (the
"Administrative Services Agreement"). The circumstances under which GATC or
the Company may terminate the Management Agreement, the Insurance Agreement
and the Administrative Services Agreement are limited and even in such
limited circumstances no termination is effective until a successor
manager, insurance manager or administrator, as the case may be, has been
appointed. In the event that the Management Agreement, the Insurance
Agreement or the Administrative Services Agreement is terminated, the
Company would have to enter into one or more replacement agreements with
one or more other railcar leasing companies or other service providers to
perform some or all of such functions. The ability of the Company to enter
into any such third-party agreement will, particularly in the case of the
Management Agreement, depend on a number of factors, including the number
of participants in the railcar leasing industry and the railcar leasing
market in general at such time and may require payment of additional fees
and expenses, particularly if more than one party is required to provide
all necessary management and lease administration services. There can be no
assurance that a suitable replacement manager or other service providers
may be found, or found in a timely manner, and engaged on terms acceptable
to the Company or that would not cause a reduction or withdrawal of the
then current rating relating to the Pass Through Certificates. The
Company's failure to contract with another railcar leasing company or other
service provider to perform such services would, in the case of the
Manager, and could, in the case of the Insurance Manager or the
Administrator, have a material adverse impact on the Company's ability to
meet its obligations under the Leases and the Subleases. See "The
Management Agreement" and "The Insurance Agreement."
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Effect of Year 2000 Upon the Manager
GATC utilizes in-house developed software as well as vendor-produced
software. Certain computer software GATC uses was written using two digits
rather than four to define the applicable year in a date. As a result,
dates beginning in the year 2000 and thereafter are not properly recognized
by the software. Since the software is time-sensitive, a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities could result from the
software's inability to recognize the correct date.
GATC has completed an assessment and has begun modifying and replacing
its in-house developed software as well as upgrading its vendor-supported
software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. Modification of GATC's software
is expected to be completed during 1999, prior to any anticipated impact on
its operating systems, and the cost thereof is estimated to be immaterial
to GATC's results of operations. GATC believes that with modifications to
existing software, upgrading vendor-supported software, and conversions to
new software, the Year 2000 issue should not pose significant operational
problems. However, the inability of the Manager to successfully address
Year 2000 issues could result in interruptions in both the Manager's and
the Company's business and have a material adverse effect on results of
operations.
Because the Company has been organized for the limited purpose of, and
may not engage in any business activity other than, leasing the Equipment,
and because the Company has effectively outsourced its operations to the
Manager, it is not expected that the Company will otherwise be impacted
directly by the Year 2000 issue.
Potential Conflicts of Interest
GATC, in addition to acting as Manager with respect to the Equipment,
also is and will be engaged in the leasing of its own railcars, and those
of affiliates, and providing railcar management and lease administration
services with respect to railcars of third parties or affiliates.
Therefore, GATC may from time to time have conflicts of interest in
performing its obligations to the Company and the other entities to which
it provides railcar management and lease administration services. Such
conflicts may be particularly acute in situations involving railcars owned
by GATC or its affiliates or investment vehicles sponsored by GATC or its
affiliates to the extent such railcars are available for re-lease. As
described below, the terms of the Management Agreement provide that GATC
may not discriminate in any way in the management of the Company Fleet and
the Manager's Fleet (as such terms are defined herein). The Company
believes that adherence to such terms by GATC would minimize any adverse
consequences that might result from such conflicts of interest. See "The
Management Agreement."
As of July 31, 1998, the portfolio of railcars owned or leased by GATC in
the United States (the "Manager's Fleet") consisted of approximately 73,339
railcars, including railcars managed for other wholly-owned special purpose
subsidiaries of GATC. At the Closing Date, the portfolio of railcars leased
by the Company (the "Company Fleet") will be comprised of 3,380 railcars,
or 4.6% of the aggregate of the Manager's Fleet and the Company Fleet (the
"Total Managed Fleet"). From time to time, GATC will own, lease or manage
additional railcars that will be included in the Total Managed Fleet. In
addition, GATC may from time to time provide railcar management and lease
administration services to additional third parties and sponsor additional
railcar or equipment leasing programs, some of which may have investment
objectives that are the same as, or similar to, those of the Company. It is
likely that the railcars in any such programs will compete with the
Equipment when the Equipment is being marketed for re-lease and such
programs may create additional conflicts of interest with respect to the
marketing of the Equipment for re-lease.
Pursuant to the terms of the Management Agreement, GATC has agreed to
perform the railcar management and lease administration services with
respect to the Equipment at a level of care and diligence consistent with
customary commercial practices as would be used by a prudent Person in the
railcar leasing industry and the level of care and diligence utilized by
the Manager in its business and in the management of the Manager's Fleet
(the "Services Standard"). To the extent that any particular Equipment
Units or the other railcars then managed by GATC are substantially similar
in terms of objectively identifiable characteristics that are relevant for
purposes of the particular services to be performed, GATC has agreed in the
Management Agreement not to discriminate between the Company Fleet and the
Manager's Fleet on the basis of ownership, on the basis of fees payable in
a particular transaction or on any other basis which could be considered
discriminatory.
The First National Bank of Chicago will act as the Pass Through Trustee,
the Indenture Trustee, the Collateral Agent and the Lockbox Bank. In
addition, an affiliate of the parent of The First National Bank of Chicago
is one of the Owner Participants. In the event any conflict of interest
should arise due to the multiple capacities in which the bank serves or
otherwise, the Pass Through Trustee, the Indenture Trustee and/or the
Collateral Agent may be required to resign or may be removed. Any delay in
the appointment of successor trustees could adversely affect the interests
of Certificateholders.
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Limitation of Obligations of the Manager
The duties and obligations of the Manager will be limited to those
expressly set forth in the Management Agreement and the Manager will not
have any fiduciary or other implied duties or obligations to any person,
including any Certificateholder.
Risks Related to the Leases
Sublease Renewals. The weighted average initial and remaining terms (as
of July 31, 1998) of the Subleases are approximately 5.7 years and 5.2
years, respectively. Certain of the Subleases have early termination
options, and if all of those were exercised such weighted average initial
and remaining terms would be approximately 5.4 years and 4.8 years,
respectively. Approximately 14%, 6%, 63% and 17% of the Equipment is
subject to Subleases expiring in up to three years, between three and four
years, between four and five years, and greater than five years,
respectively, from July 31, 1998. Because the terms of the Subleases are
shorter than the term of the Company's Leases with the Owner Trusts, the
Company, during the term of the Leases, will need to obtain renewals from
current Sublessees or obtain new Subleases from customers in sufficient
numbers to allow the Company to meet its payment obligations under the
Leases. GATC, as Manager pursuant to the Management Agreement, is obligated
to comply with the Services Standard to re-lease the Equipment. During
1995-1997 an average of approximately 86% of the railcars in the Manager's
Fleet that were re-leased with the same customer were at rents equal to or
above those in the expired leases. Adverse market conditions in the railcar
leasing market during a period when a substantial number of Subleases are
due to terminate could have a material adverse impact on the re-leasing of
the Equipment or on the rental rates that could be obtained for the
Equipment. See "The Subleases--Term and Renewal."
Competition in the full service railcar leasing business is based largely
on the ability to (i) supply the desired type of railcar when requested by
a customer, (ii) provide ongoing inspection and mandated testing, repair
and mileage credit audit services, (iii) provide value-added services such
as those which help customers track movement of their equipment or increase
utilization of their fleets and (iv) competitively price leased railcars.
The Company will rely on the Manager to supply such services to the
Sublessees under the Subleases. See "--Reliance on the Manager."
Industry Concentration. Approximately 42%, 29% and 29% of the covered
hopper cars (25% of all railcars) included in the Equipment are currently
leased to users in the plastics, minerals and food and agriculture
industries, respectively, and approximately 64%, 25%, 7% and 4% of the tank
cars (75% of all railcars) included in the Equipment are leased to users in
the chemical, petroleum, food and agriculture, and mineral industries,
respectively. Consequently, any significant economic downturn in these
industries could have a material adverse effect on the creditworthiness of
the Sublessees in these industries and on their ability to pay rent under
the Subleases as well as on the Company's ability to re-lease the Equipment
to those Sublessees.
Customer Concentration. The Company will initially sublease the
Equipment to 82 customers, none of which is expected to account initially
for more than 8.5% of the Company's total railcar leasing revenues. Over
time, however, the Company's customer base will vary, and there can be no
assurance that one or more Sublessees may not in the future account for a
larger percentage of the Company's revenues. All of the Company's current
customers were customers of GATC prior to the Offering. It is expected that
most or all of the Company's customers, both as of the Closing Date and
thereafter, are and will continue to be customers of GATC or affiliates of
GATC with respect to other railcars.
Sublessee Defaults. The ability of each Sublessee to perform its
obligations under its Sublease will depend primarily on such Sublessee's
financial condition. A Sublessee's financial condition may be affected by
various factors beyond the control of the Company, including competition,
operating costs, general economic conditions and environmental and other
governmental regulation of or affecting the Sublessee's industry. There can
be no assurance as to the extent to which Sublessees will be able to
perform their financial and other obligations under the Subleases.
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Risks Relating to the Equipment
Competing Railcars Available for Lease; Operational Restrictions. In
connection with re-leasing of the Equipment, the Company may encounter
competition from, inter alia, other railcars in the Total Managed Fleet,
other railcar leasing companies (including Union Tank Car, GE Railcar and
ACF) and special purpose entities including other special purpose vehicles
owned by GATC, formed for the purpose of acquiring, leasing and/or selling
railcars, some or all of which may have investment objectives similar to
those of the Company. Further, the market for full service railcar leasing
services may also be affected to the extent that potential customers choose
to own, rather than lease, their railcars. Competition in the railcar
leasing business is primarily based on the ability to supply the desired
type of railcar as and when needed by the customer and to provide related
services. Customers' demand for full service railcar leases is not
particularly price sensitive and competitive factors do not generally
affect early termination of Subleases due to costs to the customer
associated with the return of a railcar and to customization and delivery
of a replacement railcar. To the extent competitive factors adversely
affect the Company's utilization rates of the Equipment, the Company's
revenues would be adversely affected. See "-- Risks related to the Leases--
Sublease Renewals."
The Company will be subject to restrictions in the Leases and the
Intercreditor Agreement, including limitations on (i) the scope of the
Company's business activity, (ii) the Company's ability to enter into other
lease arrangements, (iii) the Company's ability to enter into transactions
with affiliates and (iv) the Company's use of the Equipment. Such
restrictions may impair the Company's operational flexibility as compared
to its competitors, because the Company's competitors may not be subject to
such limitations. As a result, the Company may in the future be less able
than its competitors to offer flexible, market-driven, responses to
commercial situations or provide financial services or other inducements to
potential Sublessees. In addition, certain competing full service railcar
leasing companies may have access to financial resources substantially
greater than those of the Company.
Limited Number of Potential Railcar Buyers. The re-sale market for
previously leased railcars is limited. The limited number of potential
purchasers, which could include other lessors and customers who seek to own
their own railcars, could impair the ability of the Indenture Trustee to
realize sufficient value upon a sale of the Equipment to satisfy an Owner
Trust's obligations following an Event of Default in respect of the
Equipment Notes.
Uncertain Enforceability of Remedies Relating to Use of Railcars Outside
of the United States. The Leases impose a restriction, among others, that
the Company may not simultaneously use more than 49% of the Equipment Units
outside the continental United States. The Company may, subject to certain
limits sublease a portion of such Equipment Units to Canadian or Mexican
Sublessees. The Company is generally restricted to Subleasing no more than
9% of the Company Fleet under each Lease to Mexican Sublessees and no more
than 10% of the Company Fleet under each Lease to Canadian Sublessees. See
"The Leases--Restrictions on Subleases." Accordingly, upon any exercise of
the remedies under the Indentures with respect to the Equipment Units, the
Indenture Trustee will be required, with respect to the Equipment Units
then located outside of the United States, to enforce such remedies in the
foreign jurisdiction or jurisdictions in which such Equipment Units are
located. There can be no assurance that the Indenture Trustee will be able
to enforce the remedies under the Indentures with respect to the Equipment
Units in any such jurisdictions. However, to the extent a U.S. entity
subleases Equipment and uses it outside of the continental United States,
certain remedies should be available against such Sublessee in the United
States. See "Description of the Equipment Notes--Security."
Technological Obsolescence Risks. The Company's ability to sublease the
Equipment may be affected to the extent that the availability for lease or
sale of newer, more technologically advanced railcars makes the Equipment
less competitive. The extent to which the Company is able to manage these
technological risks through optional modifications to the Equipment may be
limited. However, all of the Equipment is relatively new, having been
manufactured in 1997 or 1998. Additionally, the Manager's Fleet currently
has utilization rates which exceed 92% for railcars that have been in
service for 21 to 30 years. See "The Subleases--Term and Renewal." Although
the Company expects the utilization rates with respect to the Company Fleet
to be substantially similar to utilization rates the Manager has
historically experienced for the Manager's Fleet, there can be no assurance
that the Company's utilization rates will be consistent with those of the
Manager's Fleet either historically or on an ongoing basis. In the event
that the Company were to exercise its Obsolescence Termination Option,
which begins on the seventh anniversary of the Closing Date, with respect
to all or any portion of an Equipment Group, the related portion of
Equipment Notes would be prepaid with a Make-Whole Amount (if any) as
described under "Description of the Equipment Notes--Prepayments."
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Risks Relating to Regulation
Regulatory Matters. The Equipment is subject to regulation by various
governmental agencies and industry trade associations as described under
"Railcar Leasing Industry--Regulation of the Railcar Leasing Industry."
Regulations passed by government agencies have traditionally affected large
numbers of railcars and required the modification of such railcars.
However, the time period from original proposal of such regulation to
passage as law has generally ranged from 18 months to 4 years and
implementation periods have tended, in the Manager's experience, to allow
sufficient time to perform the required modifications on such railcars.
Regulation by the principal industry trade association, the Association of
American Railroads ("AAR"), while usually affecting fewer railcars, often
has had a shorter implementation period. Under the Leases the Company will
be responsible for keeping the Equipment in compliance with any regulations
affecting the Equipment. Both types of regulation can increase the costs of
operating the Equipment and, as a result, may affect the Company's ability
to make payments on the Leases. Further, if the Company is unable to keep
any or all of the Equipment in compliance with any current or future
regulation, the Company might be unable to sublease such portion of the
Equipment which would also affect the Company's ability to make payments on
the Leases.
The Scheduled Amortization Schedule and Rated Amortization Schedule of
the Equipment Notes were constructed after taking into account certain
assumptions as to utilization of the Equipment and the costs associated
with the operation of the Equipment, including certain assumptions
regarding current regulatory requirements. Any negative variations in such
assumptions caused by the Company's failure to comply with current or
future regulations could adversely affect the Company's ability to make
payments on the Leases and the Owner Trustees' ability to make payments on
the applicable Equipment Notes and, subsequently, payments by the Pass
Through Trustee on the Pass Through Certificates. Certain aspects of the
transaction have been structured to mitigate the effects of any such
regulation. Under the Intercreditor Agreement, the Collateral Agent upon
the instruction of the Manager will periodically deposit available amounts
into the Special Reserves Account (as defined herein) to fund the costs of
any required (or in certain circumstances, optional) modifications to the
Equipment. See "The Intercreditor Agreement--The Accounts," "Collection and
Application of the Company's Cash Flows--Application of Amounts in the
Collection Account" and "Collection and Application of the Company's Cash
Flows--Required Special Reserves Amount." Additionally, the Company may in
certain circumstances be able to pass the cost of any Required Modification
through to the Sublessees over time in the form of increased Sublease
rates.
The Company cannot predict what laws and regulations, if any, will be
adopted or how they will affect the Company and its ability to sublease the
Equipment.
Environmental Matters. The Company owns neither the Equipment nor the
maintenance facilities providing services to the Equipment. However, the
Company has agreed under the Participation Agreements to indemnify the
Owner Participants, the Owner Trustees, the Indenture Trustees and the Pass
Through Trustee against certain liabilities arising out of the use of the
Equipment Units, including environmental liabilities. Also, as operator of
the Equipment the Company may be liable under certain environmental
statutes for claims arising from accidents, spills or other casualties
involving the Equipment. Under certain of these statutes, including CERCLA
(as defined herein), the Company could be held strictly liable for such
claims. Such liability, in the case of CERCLA, would be joint and several
among the Company and any other responsible parties. In such a case the
Company could be responsible for all such liability if other potentially
responsible parties were not financially capable of discharging their
liability. Amounts available to the Company will generally be limited to
payments made on the Subleases, the ability to collect on policies of
insurance and payments from other responsible third parties such as the
Manager, any railroad on which an accident occurs or a Sublessee. There can
be no assurance that the Company will be able to obtain sufficient policies
of insurance to protect against such risks, or that if available, such
insurance will provide coverage for the specific risk giving rise to such
liability. See "The Insurance Agreement."
Lack of Prior Trading Market
There is currently no market for the Pass Through Certificates. Although
the Underwriters have informed the Company that they currently intend to
make a market in the Pass Through Certificates, they are not obligated to
do so and any such market-making may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Pass Through Certificates. The Company does
not intend to list
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the Pass Through Certificates on any securities exchange or for quotation
through the National Association of Securities Dealers Automated Quotation
System.
Ratings
Ratings are not a recommendation to purchase, hold or sell the Pass
Through Certificates, inasmuch as the ratings do not comment as to market
price or suitability for a particular investor. The ratings are based on
information furnished to Moody's and S&P by GATC and the Company and
obtained from other sources, including the Structuring Assumptions used to
develop the cash flow model on which the Rated Amortization Schedule has
been based. The ratings may be changed, suspended or withdrawn at any time
as a result of changes in, or unavailability of, such information.
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USE OF PROCEEDS
The Pass Through Certificates are being issued in order to facilitate the
financing by the Owner Trustees of their purchase from the Company of the
Equipment Groups to be leased back to the Company. All of the proceeds from the
sale of the Pass Through Certificates will be used by the Pass Through Trustee
on behalf of the Pass Through Trust to purchase the Equipment Notes issued by
each Owner Trustee which, in turn, will use the proceeds, together with funds
provided by the related Owner Participant, to purchase the related Equipment
Group from the Company, on behalf of such Owner Participant. The amounts paid to
the Company by the Owner Trustee will fund the Company's payment of its purchase
price of the Equipment from GATC.
The Equipment Notes will be issued under three separate Trust Indenture and
Security Agreements (each an "Indenture"), each such Indenture being between The
First National Bank of Chicago, 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
under each of three separate Delaware business trusts (one each for the benefit
of a single Owner Participant). Each Owner Participant will provide from sources
other than the Equipment Notes at least 20% of the Equipment Cost of the related
Equipment Group as an equity investment.
Each of the three Equipment Groups (consisting of an aggregate of 3,380
railcars) to be purchased by the Owner Trustees and leased to the Company is
expected to have approximately the same percentage composition of the six
different railcar types to be included in the total Company Fleet. The aggregate
Equipment Cost of the Equipment is anticipated to be approximately $209 million.
See "The Equipment" for a description of the different railcar types.
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THE COMPANY
The Company is a wholly-owned, special purpose subsidiary of GATC. The
Company has been organized for the limited purposes of, and may not engage in
any business activity other than, leasing the Equipment from the Lessors
pursuant to the Leases, subleasing the Equipment pursuant to the Subleases,
maintaining insurance for such Equipment, preserving, exercising and enforcing
rights of the Company under any applicable agreements, applying funds and making
payments in accordance with any applicable agreements and engaging in any
activity necessary, convenient or advisable to accomplish the foregoing. The
principal offices of the Company are located at 500 West Monroe Street, Chicago,
Illinois 60661-3676 (telephone: (312) 621-6451).
The Company has taken steps in structuring the transactions contemplated
hereby that are intended to insure that the voluntary or involuntary application
for relief by GATC under any Federal or state bankruptcy, insolvency,
reorganization or similar law for the relief of debtors in effect from time to
time (an "Insolvency Law") will not result in consolidation of the assets and
liabilities of the Company with those of GATC. These steps include (a) the
creation of the Company as a special purpose subsidiary of GATC pursuant to a
certificate of incorporation containing certain limitations (including
restrictions on the nature of the Company's business and restrictions on the
Company's ability to commence a voluntary case or proceeding under any
Insolvency Law without the prior affirmative vote of all of its directors,
including, without limitation, the affirmative vote of its two independent
directors), (b) the appointment of two independent directors to the board of
directors of the Company, (c) the maintenance by the Company of separate records
and books of account, and (d) the requirement that all transactions between the
Company and its affiliates be on an arms'-length basis. However, there can be no
assurance that the activities of the Company will not result in a court
concluding that the assets and liabilities of the Company should be consolidated
with those of GATC in a proceeding under any Insolvency Law. If a court were to
reach such a conclusion, delays in distributions on the Equipment Notes could
occur or reductions in the amounts of such distributions could result which
would lead to corresponding delays or reductions in payments on the Pass Through
Certificates. See "Risk Factors--Certain Legal and Bankruptcy Considerations--
Bankruptcy of GATC."
The Company expects to receive, concurrently with the issuance of the Pass
Through Certificates, an opinion of counsel to the Company to the effect that,
subject to certain facts, assumptions and qualifications, it would not be a
proper exercise by a court of its equitable discretion to disregard the separate
existence of the Company and to require the consolidation of the assets and
liabilities of the Company with the assets and liabilities of GATC in the event
of the application of any Insolvency Law to GATC. See "Risk Factors--Certain
Legal and Bankruptcy Considerations--Bankruptcy of GATC." Among other things,
such counsel will assume for the purposes of such opinion that the Company will
follow certain procedures in the conduct of its affairs, including maintaining
records and books of account separate from those of GATC or any affiliate
thereof, refraining from commingling its assets with those of GATC or any
affiliate thereof (except for amounts held in the lockboxes established under
the Management Agreement and the Servicing Agreement (as defined herein)) and
refraining from holding itself out as having agreed to pay, or being liable for,
the debts of GATC or any affiliate thereof. The certificate of incorporation of
the Company requires the Company to conform substantially to several of the
foregoing assumptions. Also, the Company intends to follow and
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will agree to certain covenants in the Intercreditor Agreement which require it
to follow the procedures outlined above related to maintaining its separate
identity.
Pursuant to the Management Agreement, the Company will hire GATC, as
Manager, to provide services with respect to the railcars leased to the Company
and the related Subleases. Pursuant to the Management Agreement, the Manager
will operate the Company Fleet in a manner substantially similar to the
Manager's current practices, subject to compliance with criteria consistent with
a bankruptcy remote subsidiary. See "The Management Agreement." As of the
Closing Date, the Company Fleet will consist of 3,380 railcars, including 2,533
tank cars and 847 covered hopper cars.
The following is a pro forma balance sheet of the Company as of the Closing
Date giving effect to the minimum capital contribution to be made by GATC at or
prior to the Closing Date:
<TABLE>
<CAPTION>
Assets:
<S> <C>
Cash........................ $ 0
Liquidity Reserve Amount.... 500,000
Cash Trapping Account....... 0
Collection Account.......... 1,500,000
Accounts Receivable......... 210,000
----------
Total Assets............... $2,210,000
==========
Liabilities and Equity:
Liabilities................. $ 0
Equity...................... 2,210,000
----------
Total Liabilities and Equity $2,210,000
==========
</TABLE>
THE EQUIPMENT
Each of the 3,380 Equipment Units in the Company Fleet was newly
manufactured by Trinity Industries Inc. during 1997 or 1998. The Company Fleet
is composed of 75% tank cars and 25% covered hopper cars.
Each Owner Trust will acquire a diversified portfolio of Equipment Units
consisting of tank cars and covered hopper cars. Tank cars are specialized
railcars used for the transportation of a variety of products including
chemicals, semi-gaseous or gaseous products and other types of industrial
liquids. Some of the tank cars have either exterior or interior heating coils,
and can be insulated, depending on the product being transported. Covered hopper
cars primarily carry plastic pellets, grain, cement and other dry products.
Although there are additional types of railcars currently in use in the full
service railcar leasing industry, the railcars included in the Company's Fleet
consist of six Car Types (general covered hopper, general service tank, high
pressure tank, specialty covered hopper, specialty chemical and alloy).
General covered hopper cars are freight cars with capacities ranging from
3,000 to 6,200 cubic feet that primarily carry plastic pellets, grain, cement,
soda ash and other dry commodities. General service tank cars are tank cars with
capacities ranging from 13,000 to 30,000 gallons that carry a variety of liquid
commodities including asphalt, caustic soda, lube oil additives, ethylene glycol
and vegetable oil, among others. High pressure tank cars have capacities ranging
from 17,200 to 33,500 gallons and carry products which require a pressurized
state due to their liquid, semi-gaseous or gaseous nature, including, among
others, anhydrous ammonia, propane, butane and carbon dioxide. Specialty covered
hopper cars which have capacities ranging from 4,180 to 5,125 cubic feet, use
air to assist unloading and carry primarily flour, sugar and corn starch. Alloy
cars are tank cars made of aluminum or stainless steel which range in size from
12,000 to 26,000 gallons. Alloy cars carry products such as hydrogen peroxide,
caprolactam and acetic acid. Specialty chemical cars are tank cars with
capacities ranging from 13,000 to 20,000 gallons. Specialty chemical cars are
cars dedicated to specific chemical products such as sulfuric acid or
hydrochloric acid.
In addition to being used for transporting commodities from one location to
another, certain railcar types are often used for storage purposes by customers
in certain industries. Covered hopper cars and, to a lesser degree, tank cars,
28
<PAGE>
are used as efficient alternatives to the construction of expensive storage
facilities. Use of railcars for storage facilities allows customers to vary
their storage capacity in accordance with current needs. Plastic pellet cars in
particular are used to a large extent for long-term storage purposes. One reason
for this is the inflexible production capacity of the plastic pellet industry;
production remains relatively constant regardless of product demand, resulting
in increased storage requirements for producers during periods of low demand.
Other customers may use railcars for short-term storage.
The Manager estimates that the average useful life of a railcar is
approximately 30 years. The useful life is affected by a number of factors such
as the commodity carried, structural components and market dynamics. A railcar's
projected useful life will be taken into account when establishing the initial
lease rate under a Sublease. Generally, newer railcars will be leased at higher
rates than older railcars. However, the age of a railcar is usually not
determinative of its utility.
The following table reflects the composition of the Company Fleet
categorized by the type of product typically transported by the cars initially
comprising the Company Fleet:
Product Distribution Among Company Fleet
<TABLE>
<CAPTION>
Percent of
Commodity Carried Number of Cars Total
- ------------------- -------------- -----------
<S> <C> <C>
Chemical.................. 1,612 48%
Petroleum................. 648 19%
Agricultural.............. 431 13%
Mineral................... 331 10%
Plastics.................. 358 10%
----- ---
3,380 100%
===== ===
</TABLE>
In certain instances, the past use of a railcar will determine the types of
products that it can carry in the future. For example, industry and regulatory
restrictions prohibit railcars from transporting food products if such railcars
have previously transported products such as chemicals or fuel. However, such
restrictions do not prohibit using railcars to transport chemical or fuel
products if they were previously used to transport food products. Typically,
clean or high-purity chemicals cannot be transported in a car that previously
held petroleum. Cars can be reconfigured throughout their lives to take
advantage of technological advancements or, within the restrictions described
above, to change the type of commodity being carried.
Casualties
Historically, the impact of railcar casualties on the Manager's Fleet has
been relatively small. The most common types of casualties are railroad
accidents or derailments. Typical derailments result in minor railcar damage
with little or no spillage of commodity. Upon the occurrence of a railroad
accident, the Manager and the railroad will generally conduct a joint inspection
of the resulting damage and consult to determine the extent of necessary repairs
or, if a railcar is beyond repair, declare the railcar a total loss. If the
accident has been caused by the railroad, once the Manager and the railroad
reach agreement on the required repairs or agree to declare the railcar a total
loss, the Manager will bill the railroad in accordance with AAR rules, which set
forth rate schedules for repairs and reimbursement of total losses. Railroads
are required to reimburse owners of totally destroyed railcars based on a
depreciated value established by the AAR. Such depreciated value may not be
sufficient to pay the Stipulated Loss Value with respect to an Equipment Unit.
See "The Leases--Events of Loss." In most instances, the liability for
casualties rests with a railroad. In other instances the liability will be
allocated between the railroad and other participants, including the Manager,
with the method and proportion of the allocation dependent upon the specific
facts and circumstances of each instance. See "Casualty Experience of the
Manager's Fleet" below. Under the Leases, the Company is required to carry
insurance. See "The Leases--Insurance" below.
Because the railroads generally reimburse the Manager for damaged or
destroyed railcars, it has not filed a property insurance claim with respect to
a damaged or destroyed railcar since 1974. Set forth below is historical
casualty experience (total loss of individual railcars) for the Manager's Fleet
from January 1, 1993 to June 30, 1998. In isolated
29
<PAGE>
instances, a customer or other third parties may be responsible for damage to,
or total loss of, a railcar, and is billed accordingly. The Manager believes
that such instances, combined with instances where the Manager itself is liable,
account for a very small percentage of the Manager's casualty experience. For a
discussion of the Manager's liability incurred in connection with railcar
accidents, see "The Manager--Recent Developments of the Manager." While the
Company expects its casualty experience with respect to the Company Fleet to be
similar to that of the Manager with respect to the Manager's Fleet, there can be
no assurance that the casualty experience of the Company Fleet will be
consistent with the historical experience of the Manager's Fleet.
Casualty Experience of the Manager's Fleet
(Total Railcar Losses)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
-------------- -------------------------------------------
June 30, 1998 1997 1996 1995 1994 1993
-------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Casualty Cars....................................... 47 153 153 136 141 108
Total Number of Cars in
Manager's Fleet (period ended)..................... 71,999 70,689 66,775 64,866 59,808 55,763
Casualty Cars as a
Percentage of Manager's Fleet...................... 0.07% 0.22% 0.23% 0.21% 0.24% 0.19%
</TABLE>
RAILCAR LEASING INDUSTRY
Overview
The railcar leasing industry has experienced steady growth in the last
decade. As of December 31, 1997, railcar ownership in the United States was
split predominantly between the railroads and private railcar owners, with
railroads owning approximately 690,000 railcars and private companies owning
approximately 700,000 railcars. Railcar leasing companies participate primarily
in the tank car and covered hopper car segments. There were approximately
226,000 tank cars and 380,000 covered hopper cars in use in the United States as
of December 31, 1997.
Full service lessors own approximately 72% of the nation's tank car fleet.
As of July 1, 1997, the approximate percentage of tank cars owned in the United
States by GATC, Union Tank Car, GE Railcar, ACF and Trinity was 27%, 21%, 16%,
2%, and 2%, respectively. Tank cars represent a specialized segment of rail
transportation and, as such, both railroads and shippers have relied on full
service lessors for their needs. Railroads have generally avoided owning tank
cars because, among other things, tank cars are relatively expensive, railroads
generally do not have the facilities or the requisite expertise to maintain and
manage tank cars and tank cars make relatively fewer revenue trips annually than
other types of railcars.
Based on number of tank cars, GATC is the largest full-service tank car
leasing and management company in the United States and in North America with
100 years of experience in the business. Historically, GATC, Union Tank Car and
ACF have been involved in specialty railcars such as tank cars and have offered
customers similar types of railcars. GE Railcar has historically offered a
broader, less specialized spectrum of railcars. In March 1997, GE Railcar
entered into a long-term lease agreement to manage a substantial portion of
ACF's railcar fleet.
The Manager estimates that full service lessors account for approximately
36% of the covered hopper fleet in the United States. As of July 1, 1997, the
approximate percentage of covered hopper cars owned by GATC, Union Tank Car, GE
Railcar, and ACF was 3%, 2%, 19%, and 3%, respectively. The covered hopper
market includes a variety of car types including grain type cars, plastic pellet
cars and cement cars. The railcar industry classifies covered hoppers by
unloading systems which include pneumatic, fluidized, and gravity unloading.
Demand for railcars is primarily driven by industrial production and
economic growth. The principal customers of the full service railcar leasing
companies are large industrial companies that ship and use food, chemicals,
petroleum and other commodities. For 1997, approximately 54% of GATC's railcar
leasing revenue was attributable to shipments of chemical products, 21% to
petroleum products, 18% to food products, 6% to minerals and 1% to other
products.
30
<PAGE>
A key factor affecting the demand for railcar leasing is a preference among
certain businesses for leasing rather than owning railcars. There are several
advantages to leasing railcars, including off-balance sheet financing,
flexibility in increasing or decreasing railcar fleet size, reduction or
elimination of the management of railcars, elimination of the monitoring of
regulatory requirements and reduction of administrative costs.
Generally customers in the railcar leasing industry do not maintain
exclusive relationships to lease railcars from one company. Customers often
prefer to have flexibility in meeting their railcar needs. The principal
competitive factors in the railcar leasing industry include price, service and
availability of railcars meeting customer specifications.
Regulation of the Railcar Leasing Industry
The primary regulatory and industry authorities involved in the regulation
of the railcar industry are the Department of Transportation ("DOT"), including
the Research and Special Programs Administration (the "RSPA") and the Federal
Railroad Administration (the "FRA"), both of which are divisions of DOT; and the
AAR (together with DOT, RSPA and FRA, the "Regulators").
The primary agencies with regulatory authority over commodities shipped in
tank cars and tank car design are DOT and the AAR. The AAR is not a government
agency but an industry trade association of the railroads which establishes
standards and specifications for railroad operations. Many of these standards
and specifications have been incorporated into DOT regulations. The AAR also has
its own enforcement teams and inspectors that work in conjunction with DOT field
inspectors to ensure compliance with requirements.
The FRA has regulatory authority over railroad train operations in the
United States and regulates the safety of railroad equipment, tracks and
operation. The FRA creates rules which govern train equipment, braking systems
and safety appliances. Compliance with the rules of FRA and RSPA are monitored
through a network of regional field inspectors.
All commodities transported in tank cars fall into one of two broad
categories, "hazardous" or "non-hazardous." RSPA has regulatory authority over
the movement of hazardous materials in the United States and creates rules
pertaining to packaging and transportation requirements for hazardous materials
(regardless of the mode of transportation). The rules created by RSPA affect the
design of tank cars and the equipment permitted to be installed on tank cars.
RSPA's rules are enforced by FRA field inspectors. Hazardous materials
transported in covered hopper cars are generally packaged in drums. As a result,
the railcar itself does not contain the hazardous materials and is therefore not
subject to the same rules as tank cars carrying similar materials.
In addition to DOT regulations for governing the shipment of hazardous
materials, the AAR also has tank car specifications covering the shipment of
both hazardous and non-hazardous commodities. These specifications are published
by the AAR under the direction of the AAR Tank Car Committee and cover many
aspects of tank car design, including welding, materials, fittings, repairs,
testing, and stenciling or marking of the tank cars.
From time to time, the Regulators will issue regulations requiring certain
improvements designed to increase safety in the industry ("Required
Modifications"). These regulations are of two types. The first type involves
improvement programs mandated by DOT. DOT pronouncements have tended to require
modifications to a large number of railcars. DOT is governed by the
Administrative Procedures Act under which there is a statutory process DOT must
follow in implementing a new regulation. Timing from original proposal of such
regulation to adoption has historically ranged from 18 months to 4 years. It is
the Manager's experience that participants in the railcar leasing industry have
input in this process, either directly or through a railcar leasing lobbying
specialist. Additionally, in the Manager's experience, affected parties can
sometimes negotiate with DOT as to preferred effective dates and implementation
periods.
The second type of Required Modifications are those instituted by the AAR.
The AAR is not a government agency and, therefore, is not subject to the same
procedural requirements as DOT. As a result, in the Manager's experience,
participants in the railcar leasing industry have had less input into the
process as compared to the more formal process pursuant to which DOT regulations
are promulgated. Further, AAR pronouncements generally have had shorter proposal
to adoption times, and allow little latitude for industry participants in terms
of implementation. AAR
31
<PAGE>
pronouncements have tended to affect only certain classes of cars, and generally
have required inspection of such railcars.
Three recent pronouncements issued by the Regulators have been directed to
the types of railcars carrying or capable of carrying hazardous materials and
limiting the types of railcars which can carry hazardous materials. The first
rule, HM175A, sets forth crash worthiness requirements for tank cars. The rule
became effective on July 1, 1996 and will be phased in over a ten-year period.
The second rule, HM201, also became effective on July 1, 1996 and will be
implemented in two steps the first of which begins on October 1, 1998 and the
second begins on July 1, 2000. HM201 sets forth new requirements for the
inspection and periodic requalification of tank cars. The new requirements
define six tests which must be performed on a periodic basis during the life of
the car to insure that the car may continue in service. The third rule, AAR Rule
88B, requires a thorough inspection and, if required, repair of the railcar
structure. This inspection includes body bolsters, center sills, crossbearers,
draft gears systems, end sills and trucks. Rules 88B and HM201 will apply to the
Company Fleet; the Company Fleet is already in compliance with HM175A.
In addition to the regulations described above, companies in the full
service railcar leasing industry are subject to various regulations regarding
air, water, solid waste, hazardous and toxic materials and noise pollution by
applicable agencies of the federal government and those states in which they do
business. The Manager, on behalf of the Company, is required under the
Management Agreement to conduct the Company's operations in compliance with
applicable laws and regulations, including environmental regulations. See
"Environmental Matters." The Manager's policy is to monitor and actively address
environmental concerns in a responsible manner.
Environmental Matters
The transportation by railcar of certain commodities raises potential risks
in the event of a derailment, spill or other accident. Generally, liability
under existing Federal, state and local laws in the United States for such an
event depends upon the negligence of a party, such as the railroad, the shipper
or the manufacturer of the railcar, unless the commodities being shipped are
inherently dangerous in which case strict liability concepts may be applicable.
Liability in the event of a spill or other accident that results in the exposure
of persons or property to dangerous or toxic materials can result in the
assessment of monetary damages for personal injury, property damage, emotional
distress, lost profits and, in certain circumstances, punitive damages. Under a
negligence theory it would be unlikely that the Company, as lessee under the
Leases and sublessor under the Subleases, would have any liability for damages
for such an occurrence unless the fault was found to have arisen in the
performance of those maintenance and similar obligations retained by the Company
under its Subleases and performed on its behalf by the Manager under the
Management Agreement (although the Company has agreed to indemnify the Owner
Participants, the Owner Trustees, the Indenture Trustees and the Pass Through
Trustee against environmental liabilities arising out of the operation or use of
the Equipment Units). However, liability under many Federal and state
environmental laws is based on strict liability concepts which would, in certain
circumstances, place liability upon the Company for such an event.
The principal Federal statute governing liability for releases of hazardous
substances into the environment is the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"). CERCLA authorizes
the Environmental Protection Agency ("EPA") to undertake investigation and
cleanup, and to seek recovery from responsible parties of costs it incurred in
connection with such investigation and cleanup, or to require responsible
parties to themselves undertake investigation and cleanup of contamination when
there has been release of "hazardous substances" into the environment. CERCLA
also authorizes certain private parties to recover investigation and cleanup
costs for releases of "hazardous substances." Damages for injury to or
destruction or loss of natural resources may also be assessed against
responsible parties. Costs under CERCLA for investigation and cleanup of
contamination, or for damages to natural resources can be significant. Most
states have laws similar to CERCLA.
CERCLA liability is imposed on "responsible parties," including the current
"owner and operator" of a facility, persons who arrange for the treatment,
disposal or transport of hazardous substances, transporters of hazardous
substances and persons who owned or operated the facility at the time of the
release. Railroad rolling stock is a "facility" for purposes of CERCLA and a
"release" is broadly defined to cover nearly any discharge of a hazardous
substance into the environment. Liability under CERCLA is strict (meaning
liability is assigned without fault) and joint and several. The defenses under
CERCLA have been narrowly construed and are difficult to prove. Thus, the intent
and operation
32
<PAGE>
of CERCLA puts an owner or lessee of a railcar at risk of strict joint and
several liability for cleanup costs and natural resource damages in the event of
a release from the car.
The term "hazardous substance" under CERCLA does not include petroleum,
natural gas or their fractions, although many comparable state laws do include
such substances. Oil spills into or upon "the navigable waters or adjoining
shorelines" are covered by the Oil Pollution Act of 1990. The Oil Pollution Act,
which also covers discharges from railroad rolling stock, is in many respects
similar to CERCLA though limited to discharges into water.
The Company currently has liability insurance policies in place which it
believes would be adequate to protect it in the event of a sudden and accidental
release giving rise to an environmental claim. There can be no assurance,
however, that such insurance coverage will continue to be made available to the
Company. In addition, to the extent that any such environmental claim would
arise out of the fault or negligence of GATC as Manager of the Units (or at a
facility owned or controlled by the Manager), GATC has agreed under the
Management Agreement to indemnify the Company against any such liabilities. For
a discussion of a recent development relating to GATC's liability experience
with the Manager's Fleet, see "The Manager--Recent Developments Relating to the
Manager."
THE SUBLEASES
General
The information set forth below with respect to the Subleases, including,
without limitation, information regarding lease rates, demand for Equipment
Units, Sublease renewal and other customer preferences is based on the
historical experience of the Manager in the management of the Manager's Fleet.
The Subleases relating to the Company Fleet were originated by GATC with
certain of its customers and, on the Closing Date, will be contributed to the
Company by GATC, the Company's sole stockholder. New Subleases entered into by
the Company will be arranged by the Manager pursuant to the Management Agreement
using marketing systems and procedures substantially identical to those
otherwise used by the Manager for the Manager's Fleet. Under such procedures,
railcars are leased to a customer pursuant to a car service contract which
specifies general terms applicable to the sublease of all Equipment to be leased
to such customer and one or more riders entered into from time to time which
describe the specific Equipment Units to be leased by the customer, together
with the applicable term and lease rates applicable to such Equipment Units
(each a "Rider" or "Riders"), which together form a Sublease. Customers are
invoiced monthly in advance. The Subleases are primarily "full service" leases
in that the Company is responsible for maintaining and servicing the Equipment,
paying applicable ad valorem taxes and providing many ancillary services to the
customers. The level of service provided under each Sublease may vary by
customer. Further, the Company (and the Manager on its behalf) may in the future
offer fewer or additional services to the Sublessees in accordance with changes
in industry practice or the Company's policies. All of these services, together
with all invoicing, collection and record keeping with respect to the Subleases
and the Equipment, will be provided on the Company's behalf by the Manager
pursuant to the Management Agreement. See "The Management Agreement."
Term and Renewal
The Manager typically leases new railcars to its customers for a term of
five years or, in connection with the lease of certain specialized railcars, up
to 10 or more years, with initial renewals typically being entered into for an
additional five-year term. Some subleases may allow for an early return of the
car under "early-out" options. In addition, under certain circumstances,
customers may be permitted to return cars earlier than provided under the
contractual lease terms if the Manager has an equivalent or better use for the
car or on the basis of subsequent negotiations of early termination terms.
Subsequent renewals and leases of used railcars are typically for periods
ranging from less than a year to seven years, with an average renewal term of
about three years. The renewal rate (the percentage of railcars for which
expiring subleases are renewed with the same customer) for the Manager's fleet
historically has been between 58% and 64%. Each Equipment Unit in the Company
Fleet was manufactured by and acquired from Trinity during 1997 or 1998, and the
entire Company Fleet is subject to Subleases.
33
<PAGE>
The initial Sublease terms average 5.7 years without taking into account
the exercise of any "early-out" option and 5.4 years assuming the exercise of
"early-out" options. As of July 31, 1998, the average remaining term for all
Subleases with respect to the Company Fleet was approximately 5.2 years without
taking into account the exercise of any "early-out" options and 4.8 years
assuming the exercise of "early-out" options. As of July 31, 1998, 14% of the
Subleases contained "early-out" options. The range of the Sublease terms with
and without the exercise of the "early-out" options is as follows:
Initial Sublease Term Stratifications
<TABLE>
<CAPTION>
Number of Equipment Units
-------------------------
Term Full Term Early-outs
---- ----------- ------------
<S> <C> <C>
1 year........ 1 28
2 years....... 0 128
3 years....... 30 325
4 years....... 0 0
5 years....... 2,756 2,338
6 years....... 8 13
Over 6 years.. 585 548
</TABLE>
GATC currently uses a centralized asset management process in conjunction
with a national sales force which together enable the Manager to allocate
existing railcars to meet demands in various industries in an effort to ensure a
high percentage of renewals and assignments and to locate new customers. Under
the centralized asset management process, each Sublease will be examined one to
two years prior to expiration for certain factors, including among other things,
type of railcar, type of commodity or product transported and the customer's
industry. This information allows the Manager to manage and allocate the future
Subleases of a particular railcar type and minimize idle time. Ninety days prior
to expiration, a Sublease will be examined again to quote renewal pricing.
During this 90-day period, a higher short-term rate is established by the
Manager which may be automatically charged to the customer 60 days after
expiration of the Sublease term unless the railcar is returned or the Sublease
renewed. Concurrently with securing renewals, the Manager's sales force seeks to
meet new market demands for railcars.
For most customers, the decision whether to renew a Sublease is based on a
combination of need, convenience and price. While the customers' specific needs
and lease economics will be principal factors, customers have an incentive to
renew their Subleases in that failure to do so will require that each Equipment
Unit be cleaned prior to return, resulting in a period of overlap during which
the customer must pay for the new Equipment Unit while cleaning and transporting
the old Equipment Unit. In addition to the required cleaning of Equipment Units,
upon return each Equipment Unit is inspected and made ready for assignment to
another customer. In certain instances an Equipment Unit may be leased "service
to service," in which case the Equipment Unit is transported from one customer
to another without spending time in a maintenance facility for inspection and
maintenance. Some customers prefer to rent used equipment, for which lease rates
tend to be lower and lease terms may be more flexible, while others prefer new
cars. Pursuant to the Management Agreement, the Manager will undertake to
remarket the Equipment Units with respect to which the related Sublease has
expired or been terminated.
As of December 31, 1997, the utilization rate for the Manager's Fleet was
96.4% and the utilization rate for all railcars owned or leased by the Manager
(including those in Canada and Mexico) was 95.8%. A portion of the Manager's
Fleet may remain idle (i.e., not subject to a sublease) at any time. Set forth
below is the historical year-end utilization for all railcars owned or leased by
the Manager (including those in Canada and Mexico) from 1979 through 1997,
showing the percentage of all railcars owned or leased by the Manager (including
those in Canada and Mexico) subject to a sublease. While the Company believes
that utilization rates for the Company Fleet will be similar to those of the
Manager's Fleet at any particular time, there can be no assurance that the
actual utilization rates for the Company Fleet in the future will be consistent
with the historical experience of the Manager's Fleet.
34
<PAGE>
Year-End Utilization Percentage For All
Railcars Owned or Leased by the Manager*
[GRAPH APPEARS HERE]
[PLOT POINTS TO COME]
- ------------------
* Including those in Canada and Mexico.
Sublease Rates
The sublease rate with respect to each Sublease is established at the
commencement of the related Sublease term. As of the Closing Date, all of the
Equipment will be subject to Subleases. After the initial Sublease terms have
expired, the Manager will establish renewal sublease rates for those Equipment
Units for which the related Subleases are renewed and new sublease rates for
Equipment Units that are assigned. While the initial sublease rates with respect
to each Sublease will remain in effect through the initial (or current) Sublease
term, renewal sublease rates are determined at the time of renewal, and are
based primarily on (i) the initial sublease rate, (ii) market strength, (iii)
customer demand, and (iv) the age of the applicable Equipment Unit. It has been
the experience of the Manager that sublease rates generally increase with
inflation and decrease with the aging of a railcar. However, sublease rate
increases resulting from inflation have generally exceeded reductions in
sublease rates resulting from aging.
35
<PAGE>
The initial Sublease rates average $622 per month per Equipment Unit and
range as follows:
Initial Sublease Rate Stratification
<TABLE>
<CAPTION>
Lease Rate # of Cars % of Cars
---------- --------- ---------
<S> <C> <C>
Less than $500...... 82 2.4%
$500-$599........... 1,540 45.6%
$600-$699........... 1,084 31.2%
$700-$799........... 660 19.5%
$800 and over....... 44 1.3%
----- -----
Total............... 3,380 100.0%
===== =====
</TABLE>
Although there has been some correlation between industry growth and demand
for railcars, the relationship is not linear. Increased production in a given
industry may lead to increased demand by such industry for Equipment Units,
resulting in upward pressure on applicable sublease rates. However, this
pressure may be offset by lack of growth (or contraction) in other industries,
in which case the demand for Equipment Units would not increase significantly.
Similarly, if overall industry growth is anticipated by the railcar industry and
supply is increased accordingly, sublease rates are not likely to increase.
Additional factors affecting sublease rates in any given period are the number
of railcars with expiring subleases in such period and the nature of such
railcars.
In order to continually monitor the strength of the railcar leasing market
as well as industry supply and demand, the Manager currently conducts periodic
market analyses including a comparison of industry-wide railcar registrations
(the AAR requires such registration for all railcars to be moved in interchange
service) versus registration trends in previous years, and a review of the level
of order inquiries received by the Manager. The Manager's sales representatives
assist in the monitoring process through regular interaction with customers.
Since the Manager's market share typically does not change in a material fashion
from month to month, the Manager believes these inquiries generally reflect
overall market demand. The Manager believes that the combination of its analyses
and the information obtained through its sales network allows it to develop a
fair assessment of the state of the railcar leasing market at any time.
Rental Payments
Rental payments under the Subleases commence upon delivery of the related
Equipment Unit to the customer and continue to accrue (subject to Rent
Abatement, as defined herein) until such Equipment Unit is returned to the
Company in accordance with the terms of the Sublease. Delivery to a customer is
usually deemed to occur (i) with respect to an Equipment Unit not in the
customer's service, upon acceptance by a railroad of instructions to forward
such Equipment Unit to a destination point designated by the related customer
and (ii) with respect to an Equipment Unit already in the customer's service
under an expiring Sublease or a Sublease being terminated by the new Sublease,
immediately upon the expiration or termination, as the case may be, of such
Sublease. Under the terms of the Sublease (i) each customer is required to
inspect any Equipment Unit delivered within five days after receipt at the
destination point designated by such customer, and (ii) failure of such customer
to promptly report to the Manager any defect in such Equipment Unit constitutes
acceptance of such Equipment Unit by such customer. An Equipment Unit will
usually be deemed to have been returned to the Company upon release of such
Equipment Unit by the customer to a forwarding railroad within the continental
United States in accordance with instructions to such customer from the Manager.
If a Sublease is not renewed and the Equipment Unit not returned within 60 days
of expiration, the Sublease may be deemed by the Manager to have been converted
to a month-to-month term at a monthly lease rate established by the Company and
quoted to the customer prior to the expiration of the related Sublease term.
Rental payments under the Subleases are billed monthly in advance. Although
initially most of the Company's customers will also be customers of GATC under
separate railcar leases with GATC, the terms of the Subleases prohibit any right
to setoff obligations owing by any customer to the Company against obligations
owing by GATC, as lessor, to such customer, including any Railroad Mileage
Credits (as defined herein) or Rent Abatements. Notwithstanding the foregoing,
some customers may net payments and offset between railcars leased from GATC and
Equipment Units leased
36
<PAGE>
from the Company, in which case the Manager will reconcile the related account
as described under "Collection and Application of the Company's Cash Flows--
Collection of Sublessee Payments." Customers may net Railroad Mileage Credits
owed to them by the Company against rental payments due under their Subleases.
If a physical alteration or modification to any Equipment Unit is required
by the AAR or any government, agency, group or committee exercising authority
over the design or operation of any Equipment (any such alteration or
modification, a "Required Modification"), the Manager will perform, or have a
third party perform, such Required Modifications and the Manager may require, as
is currently allowed under the Sublease, the customer to pay to the Company as
additional rent an amount equal to the greater of (i) $1.50 per Equipment Unit
per month for each $100 per Equipment Unit cost to perform such Required
Modification and (ii) such additional monthly charge that will cover the cost of
such Required Modification (including the Company's then current cost of money)
over the estimated life of such Required Modification of the Equipment Unit. Any
such charges become effective upon the date of acceptance by a railroad of
instructions to forward such Equipment Unit to the related customer upon
completion of the Required Modification. Rental charges with respect to any
Equipment Unit related to such alteration or modification are not subject to
abatement as described below.
Railcar Maintenance and Modifications
A railcar may require running repairs throughout its life to ensure safe
operation. These repairs may be undertaken by a railroad when the car passes
through interchange or by a mobile repair unit which can travel to the railcar
location.
Maintenance costs historically have been very low during the first five to
eight years, until the railcar requires its first "major shopping", and increase
somewhat thereafter. A major shopping may require routine maintenance such as
truck and underframe work, component repair or replacement, airbrake work and
periodic painting. Various railcar regulations require scheduled testing as
well, including tank and safety valve testing. While a railcar is in a service
center, Required Modifications or Optional Modifications may also be performed.
Required Modifications are the consequences of rules and regulations promulgated
by the Regulators, such as the AAR or the DOT, to enhance the safety record of
railcars. These rules require that, if applicable, the railcar be modified as a
condition of continued use or operation. Optional Modifications are requested by
a specific customer or may be programs determined by the Manager designed to
enhance the marketability of the railcar.
Equipment Units are expected to be routed for maintenance under the
following conditions: (i) the Manager will generally be contacted by a customer
when it requires work to be performed on specified Equipment Units; (ii) the
Manager may require Required Modifications testing to be done with respect to an
Equipment Unit; (iii) the Manager may repair an Equipment Unit between
Subleases; and (iv) railroads will make running repairs as Equipment Units pass
through interchange.
Rent Abatements
In certain circumstances, customers whose Equipment Units are being
serviced will not be required to pay rent on such Equipment Units for such
service period (a "Rent Abatement"). Rent Abatements during maintenance apply
whether the Equipment Unit is serviced at a facility run by the Manager or a
third-party. Once the Manager determines the actual amount of idle time as a
result of the related occurrence, the abatement may be adjusted and the customer
invoiced accordingly. Rent Abatement for any Equipment Unit subject to a
Sublease is adjusted or not granted, however, when such Equipment Unit is out of
service (a) due to damage to such Equipment Unit for which the customer is
responsible under the terms of the Sublease, (b) for lining application,
maintenance, renewal or removal for which the customer is responsible, (c)
during periods of delay in forwarding such Equipment Unit to a facility
designated by the Manager where such delay is caused by the customer, (d) for
work, other than normal maintenance, performed at the request of the customer,
(e) for any Required Modification or (f) when the customer has not caused the
Equipment Unit to be properly cleaned in accordance with the terms of the
Sublease.
37
<PAGE>
Customer Responsibility
Under the Subleases, each customer is responsible for any loss of or damage
to any Equipment Unit or any part thereof caused by the commodity contained
therein or incurred in the process of loading or unloading such commodity or
when abuse is evident, or caused by the chemical environment in which such
Equipment Unit is loaded, unloaded or stored. Generally, each customer is also
responsible for any risk of loss of, damage to, or destruction of any Equipment
Unit, or part thereof, occurring while such Equipment Unit is located upon
private tracks or premises (i.e., tracks or premises owned or leased by an
entity other than a railroad), other than those of the Manager or an affiliate
thereof. Each customer determines whether to insure against such risks and the
Company is not named in or a party to such insurance. Under the Leases, the
Company is required to carry insurance. See "The Leases--Insurance" below. Each
customer is further responsible for the cost of any customer owned interior
lining of any Equipment Unit and must renew and maintain all such linings
throughout the term of the Sublease. Upon expiration or termination of the
related Sublease, all linings generally must be removed prior to return of the
Equipment to the Company. In certain instances the Company may own some linings.
Remedies Upon Default
Upon the failure by any customer to perform any of its obligations under a
Sublease, the Company may (a) without notice or demand terminate such Sublease
with respect to any or all of the Equipment Units subject thereto and take
possession of any or all of such Equipment Units, (b) upon seven days prior
written notice to the related customer, change the term of the related Sublease
to a month-to-month term, subject to termination thereafter by either the
customer or the Company upon 10 days prior written notice, or (c) permit the
related customer to retain possession of any or all of the Equipment Units
subject thereto provided that such customer must (i) within five days after
written notice from the Company, cure any and all defaults under such Sublease,
and (ii) within such five-day period, provide to the Company adequate assurances
(including collateral security) of future performance under such Sublease. Each
Sublease is, by its terms, subordinate to the related Lease.
Use of Equipment
Without the prior written consent of the Company, the Subleases provide
that Equipment may not be utilized in unit train service, nor shall the average
loaded mileage of all Equipment subject to a Sublease exceed 18,000 miles during
any calendar year. Equipment Unit use is further limited to the continental
United States, Canada and Mexico. Each customer is responsible for all taxes and
duties, and for complying with all governmental requirements arising out of any
Equipment Unit leaving, being outside of or returning to the continental United
States. Pursuant to the terms of each Lease, there are certain restrictions on
the Company's use of the Equipment Units outside the continental United States
and upon subleasing Equipment Units to Canadian or Mexican Sublessees. See "The
Leases--Restrictions on Subleases."
Railroad Mileage Credits
Railcars are required to carry a Mark intended to designate the owner of
such railcars. Railroad Mileage Credits are cash credits the registered owners
(based on the "marks" thereon) receive from the railroads based on railcar
mileage. Since the tariffs charged by most railroads include the railroads'
"imputed" or "assumed" cost of the railroad owning the railcars, the Railroad
Mileage Credits represent the "assumed ownership" portion of the tariff to the
registered owners of the railcar Marks (whether or not the railcar is leased or
owned by the owner of the related Marks). This "assumed ownership" portion of
the railroad tariff is based in part on the original cost of the related
railcar. Accordingly, more expensive tank and covered hopper cars, based on
original cost, receive higher Railroad Mileage Credits than older or less
expensive railcars. Railroad Mileage Credits are determined by the railroads,
which track the mileage of railcars based on the markings on such railcars.
Under the terms of the leases GATC enters into with its customers and under
terms of the Subleases, GATC and the Company, respectively, agree to pay to
their customers all payments in respect of Railroad Mileage Credits with respect
to the related railcars or Equipment Units. At or prior to the Closing Date,
GATC's railcars and the Equipment will carry Marks registered with the AAR in
the name of the Marks Company. Payments in respect of Railroad Mileage Credits
for GATC's customers and the Company's customers will be paid to the Marks
Company. These payments will then be allocated between GATC and the Company in
accordance with the respective railcars in the Company Fleet and the Manager's
Fleet. GATC, as Manager will, in turn, credit such
38
<PAGE>
payments under the applicable Sublease against the Sublessee's account resulting
in a reduction of the amount due from such Sublessee. Sublessees may either
apply the amount of the credit to the amount due under their respective
Subleases or request payment of the amount of such credit. See "The Management
Agreement" and "Collection and Application of the Company's Cash Flows--
Collection of Railroad Mileage Credits."
Movement information with respect to each Equipment Unit is provided to
GATC, as servicer for the Marks Company, by the railroads. The Company will
agree to use its best efforts to collect Railroad Mileage Credits as paid by the
railroads to the Marks Company for all car movements during the term of each
Sublease and to credit such amounts to the related Sublessee's account. From
time to time a railroad may also assess certain charges on the Equipment to the
Marks Company as owner of the marks. Any such charges imposed by a railroad
against the Marks Company with respect to the Equipment will be paid by the
Manager as a reimbursable item under the Management Agreement.
Indemnification of the Company
The terms of the Subleases require each Sublessee to indemnify the Company
from and against any and all liabilities, charges, costs, losses, damages,
expenses or demands (including reasonable attorneys' fees and court costs)
(together, "claims") made against the Company or which the Company may incur
arising out of such Sublessee's failure to comply with the terms and conditions
of a Sublease, unless (i) such claim results directly from the negligent act or
omission of the Company or (ii) such claim is a claim for which one or more
railroads is responsible and has satisfied such responsibility.
The Subleases also require each Sublessee to indemnify the Company from and
against any and all claims made against the Company or which the Company may
incur resulting from (a) any condition which was, or should have been,
determined upon visual inspection by the Sublessee of any Equipment Unit prior
to the loading of such Equipment Unit, (b) any loss of or damage (including
corrosion damage) to any Equipment Unit or any part thereof caused by the
commodity contained therein or incurred in the process of loading or unloading
such commodity, or caused by the chemical environment in which such Equipment
Unit is loaded, unloaded or stored, unless such claim results directly from the
negligent act or omission of the Company, and (c) any claims made against the
Company or which the Company may incur arising out of any taxes, duties or
compliance with any governmental requirements arising out of any Equipment Unit
leaving, being outside of or returning to the continental United States.
Taxes
If the railcar is subject to a "full service" lease, the applicable
Sublease currently requires the Company to pay all ad valorem property taxes
levied upon the related Equipment Units and to file all necessary returns and
reports for such taxes. Each Sublessee must pay, cause to be paid or reimburse
the Company for all other taxes, including but not limited to sales, use,
rental, gross income and excise taxes (except net income taxes) as may be levied
or assessed against the Company or the Sublessee in connection with such
Sublease, or arising out of any sale, lease, rental, use, operation, ownership,
payment, shipment or delivery of any related Equipment.
Currently [34] states and 3 Native American tribes tax railcars on an ad
valorem (according to value) basis. The Manager is responsible for the filing of
returns, payment of taxes and, when necessary, contesting such taxes in an
appropriate forum in connection with the Company Fleet. Although the railcars'
owners (for tax purposes) are responsible for payment of taxes, the taxing
authorities levy the taxes on the owner of the marks on the individual railcars.
Accordingly, all ad valorem taxes with respect to the Equipment will be assessed
to the Marks Company, and GATC, as servicer of the Marks Company, will apportion
the taxes allocable to the Equipment and bill the Company. As the ad valorem
taxes cannot readily be traced to individual Equipment Units, the Company will,
under the Management Agreement, reimburse the Manager for its proportionate
share of the taxes assessed on the Company Fleet as a percentage of the Total
Managed Fleet. The Company currently expects ad valorem property taxes to be
approximately $550,000 per full calendar year and, since such taxes are based
upon the value of the railcars, expects that such amounts will generally decline
over time.
39
<PAGE>
THE SUBLESSEES
The Company's customers will initially use its Equipment to ship a wide
variety of different commodities, primarily chemicals, petroleum, food products
and minerals. Many of these products require cars with special features; the
Company offers a variety of sizes and Car Types to meet these needs. See
"--Description of the Equipment." At closing, the Company will be leasing
Equipment to approximately 82 customers, including major chemical, petroleum,
food and agricultural companies. Based on the Subleases currently in effect, no
single customer will initially account for more than 8.5% of the Company's total
railcar leasing revenue.
All of the Company's customers are, or were, prior to the contribution of
the Subleases by GATC to the Company, customers of GATC. The Company's customer
base will vary over time as Subleases expire or are terminated and the related
Equipment Units are re-leased to other current customers of the Company and of
GATC or new customers. As of the Closing Date, approximately 48% of the
Company's customers will be engaged in the chemical products industry, 19% in
the petroleum products industry, 13% in the food products industry, 10% in the
plastics industry and 10% in the mineral industry. For 1997, approximately 54%
of GATC's railcar leasing revenue was attributable to customers in the chemical
products industry, 21% to the petroleum products industry, 18% to the food
products industry and 7% to other industries. There can be no assurance that the
Company's customer base will be comparable to that of GATC. See "The Leases--
Restrictions on Subleases" regarding subleases to Canadian or Mexican
Sublessees.
On the Closing Date, the Company's Sublessees will consist of entities
rated by S&P and/or Moody's (or, in certain instances, entities whose parents
are rated by S&P and/or Moody's) as well as unrated entities. Parent companies
of Sublessees may not have guaranteed the obligations of their subsidiaries. All
new customers will be subject to prior credit approval, while in the case of
Sublease renewals existing customer approval will be based on the size of such
entity, payment history and the number of Equipment Units to be leased. All
credit approval, processing and reviewing of the Company's customers is the
responsibility of the Manager under the Management Agreement. The Manager
typically obtains Dun & Bradstreet reports ("D&B") and other financial
information (including audited financial statements when available) for all new
customers. If a new customer is a privately held company and sufficient
financial information is not publicly available, the Manager will contact other
creditors of such company to discuss its credit history. In some instances, even
if the Manager is satisfied with the results of discussions with other
creditors, financial information may still be requested from the customer. In
cases where the financial condition of a customer is not as strong as the
Manager desires, a security deposit of from 3 to 6 months rent may be required,
subject to the marketability of the Equipment Unit to be leased, as described
below. During sub-optimal market conditions, the Manager may become more
flexible in its credit requirements with respect to leasing the Equipment, so as
to maximize utilization. Set forth below are the ratings concentrations, by
number of Equipment Units, as of July 31, 1998, for the Sublessees or their
parents, as applicable.
40
<PAGE>
Ratings of Sublessees/(1)/
As of July 31, 1998
<TABLE>
<CAPTION>
MOODY'S S&P
- ------------------------------------------- --------------------------------------
Rating # of % of Cumulative Rating # of % of
- ---------------- Cars Rated ---------- ----------- Cars Rated Cumulative
----- ------ ----- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Aaa 2 0.1 0.1 AAA 47 2.1 2.1
Aa1 45 1.9 2.0 AA+ 5 0.2 2.4
Aa2 114 4.8 6.8 AA 48 2.2 4.5
Aa3 632 26.7 33.5 AA- 651 29.5 34.1
A1 77 3.3 36.7 A+ 44 2.0 36.1
A2 44 1.9 38.6 A 103 4.7 40.7
A3 255 10.8 49.4 A- 153 6.9 47.7
Baa1 222 9.4 58.7 BBB+ 295 13.4 61.0
Baa2 284 12.0 70.7 BBB 259 11.7 72.8
Baa3 56 2.4 73.1 BBB- 132 6.0 78.8
Ba1 132 5.6 78.7 BB+ 65 2.9 81.7
Ba2 102 4.3 83.0 BB -- -- 81.7
Ba3 200 8.4 91.4 BB- 328 14.9 96.6
B1 10 0.4 91.8 B+ 65 2.9 99.5
B2 189 8.0 99.8 B -- -- 99.5
B3 4 0.2 100.0 B- 10 0.5 100.0
----- ----- ----- ----- ----- -----
Total Rated 2,368 100.0% Total Rated 2,205 100.0%
Total Rated 2,368 70.1 2,205 65.2
Non-Rated 1,012 29.9 1,175 34.8
----- ----- ----- -----
Total Railcars 3,380 100.0% 3,380 100.0%
===== ===== ===== =====
- ----------
</TABLE>
(1) For unrated Sublessees whose parent companies are rated, the ratings
set forth are those of the rated parent. There can be no assurance
that the ratings assigned to the parent are reflective of the
creditworthiness of the Sublessee.
The Manager will conduct an annual credit review that will usually be
limited to Sublessees with a delinquent payment history. Such review generally
will consist of reviewing the D&B reports for such Sublessees and the periodic
"flagging" of delinquencies greater than 90 days. Certain customers seeking to
increase significantly the amount of their monthly obligations to the Company
will be reviewed more closely, similar to the process employed for new
customers, while the highly rated Sublessees and those with good payment
histories will require a less detailed review.
The Manager's experience has been that repossession of an Equipment Unit
is rarely necessary, seldom exceeding 50 railcars per year in the Manager's
Fleet. Although the Company expects similar collection and repossession
experience to that of the Manager's Fleet, there can be no assurance that the
Company's collection and repossession experience with respect to the Company's
Fleet will be similar to the Manager's experience with respect to the Manager's
Fleet, either historically or on an ongoing basis.
Manager's Delinquency and Write-Off Experience; Historical Rent Abatements
The following tables set forth certain information with respect to the
amount of writeoffs of the Manager in respect of its railcar lease receivables
for its fiscal years ended December 31, 1993 to December 31, 1997 and for the
six-month period ended June 30, 1998, and the aging of the Manager's railcar
lease receivables at June 30, 1998, and at the end of each of such years. On the
Closing Date, the Subleases will consist of Subleases originated by the Manager
that have been assigned to the Company. There can be no assurance that the
performance of the Sublessees under the Subleases will be similar to the
Manager's experience with respect to the Manager's Fleet, either historically or
on an ongoing basis.
41
<PAGE>
Manager's Fleet Receivables Write-offs
(Dollars in Millions)
<TABLE>
<CAPTION>
% of Lease
Period Lease Revenue Write-Offs Revenue
- ------ ------------- ---------- -----------
<S> <C> <C> <C>
Six months ended 06/30/98.. $210 $0.163 0.08%
Year ended 12/31/97........ 406 0.306 0.07%
Year ended 12/31/96........ 391 0.913 0.23%
Year ended 12/31/95........ 354 1.232 0.35%
Year ended 12/31/94........ 318 0.604 0.19%
Year ended 12/31/93........ 296 0.069 0.02%
</TABLE>
Accounts Receivable Aging of Manager's Fleet as a Percentage of Total
Receivables
(Dollars in Thousands)
<TABLE>
<CAPTION>
Number of Days
--------------------------------------------------------------------
0-30 days/(1)/ 31-60 days 61-90 days Over 90 days/(2)/
-------------- ------------------ ----------- -----------------
Total
Manager's
% of % of % of % of Fleet
Date Amount Total Amount Total Amount Total Amount Total Receivables
- ---------- ------- ----- ------ ------ ------ ----- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
06/30/98.. $13,771 129.7 $2,806 26.4 $1,403 13.2 $(7,365) (69.4) $10,615
12/31/97.. 12,836 102.9 3,319 26.6 300 2.4 (3,928) (31.0) 12,476
12/31/96.. 12,632 64.1 5,022 25.6 1,956 9.9 85 0.4 19,695
12/31/95.. 11,078 50.5 4,736 21.6 3,210 14.6 2,911 13.3 21,935
12/31/94.. 9,921 55.3 3,716 20.7 2,798 15.6 1,493 8.3 17,928
12/31/93.. 5,297 44.4 3,915 32.8 2,464 20.7 251 2.1 11,927
- -------------
</TABLE>
(1) The receivables aging set forth above begins on the day that the
related invoice was generated, typically the first day of a calendar month.
The Manager invoices its customers in advance for the use of the railcar
during that month.
(2) The credit balance for the period ending June 30, 1998 in the over 90
days past due column represents unapplied mileage credits paid to the
manager by the railroads and passed on to customers in the form of invoice
credits. Included as part of that net credit balance is $6.5 million of
accounts due from, or in dispute with, customers.
The level of past due receivables has not resulted in a high level of
write-offs (see table above). The majority of write-offs by the Manager has not
been the result of customer credit problems, but rather from billing disputes
related to Rent Abatement, car receipt or release dates, customer liability,
maintenance and cleaning charges, where a credit to adjust billing is being
processed and will not result in the write-off of such amount. Customers from
time to time dispute the railroads' calculation of mileage credit amounts as
well as the Manager's allocation thereof, and often adjust their lease payments
accordingly. From time to time, disputes arise over the number of days the
applicable railcars were not in service due to discrepancies in effective dates,
release dates and shipping dates. Rent Abatements result from GATC's policy not
to charge its customers rent during the time that a railcar is not in use for
certain maintenance conducted by the Manager. No Rent Abatements are granted
when repairs or maintenance are conducted by customer initiated contract shop
repairs, where the Manager is not properly notified in advance or for repairs
that take approximately one day.
Set forth below is historical Rent Abatement data for the Manager's Fleet
for the years ended December 31, 1993 to December 31, 1997 and the six months
ended June 30, 1998. The reduction in Rent Abatements over this period is due
primarily to the reduction in service center turnaround time. Turnaround time
has decreased due to major upgrades at all of the Manager's U.S. service centers
and the Manager's added focus on the scheduling and railcar repair process. The
Equipment Units subject to the Subleases will be subject to Rent Abatements, and
there can be no
42
<PAGE>
assurance that the Rent Abatement experience of the Company with respect to
the Company Fleet will be similar to the Manager's experience with respect
to the Manager's Fleet, either historically or on an ongoing basis.
Historical Rent Abatements
Manager's Fleet
(Dollars in Millions)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, ----------------------------------------------
1998 1997 1996 1995 1994 1993 1992
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Revenue...................... $ 210 $ 406 $ 391 $ 354 $ 318 $ 296 $ 285
Rental Abatements................... 2.9 6.9 6.4 7.1 8.2 8.0 8.3
Rent Abatement as a % of Revenue.... 1.38% 1.69% 1.64% 2.00% 2.58% 2.70% 2.91%
Average Maintenance Turnaround Time
(days)............................. 33 32 32 38 54 52 55
</TABLE>
THE MANAGER
GATC will act as the Manager for the Company pursuant to the Management
Agreement. GATC is primarily engaged in leasing specialized railcars, primarily
tank cars and, to a lesser extent, covered hopper cars, including specialty
covered hopper, grain and plastic pellet cars, under full service leases similar
to the Subleases. GATC also manages a fleet of railcars leased by General
American Railcar Corporation, a separate wholly-owned special purpose subsidiary
of GATC formed in 1997 and may in the future manage fleets of railcars owned or
leased by other GATC affiliates. The Manager's wholly-owned subsidiary, GATX
Terminals Corporation, is engaged in the operation of public bulk liquid
terminals and domestic pipeline systems. The Manager is the largest lessor of
railroad tank cars in the United States, and Terminals is one of the largest
independent operators of public bulk liquid terminals in the world. The
principal offices of the Manager are located at 500 West Monroe Street, Chicago,
Illinois 60661-3676 (telephone: 312-621-6200).
The Manager is a wholly-owned subsidiary of GATX Corporation ("GATX"). GATX
is also the parent of GATX Financial Services, which through its principal
subsidiary, GATX Capital Corporation as well as its other subsidiaries and joint
ventures, arranges and services the financing of equipment and other capital
assets on a worldwide basis, American Steamship Company, a shipping company
which operates self-unloading vessels on the Great Lakes, and GATX Logistics,
Inc., which provides distribution and logistics support services, warehousing
facilities, and related real estate services throughout North America.
In addition to its corporate headquarters in Chicago, Illinois, the Manager
maintains six business offices in three national regions to manage customer
accounts. (The Manager's Midwestern regional office is in Chicago, Illinois, its
eastern regional offices are in Hackensack, New Jersey, Pittsburgh, Pennsylvania
and Atlanta, Georgia and its southwestern regional offices are located in
Houston, Texas and Valencia, California.)
The Manager maintains, repairs and modifies railcars at service centers in
Texas, Georgia, California and Indiana. At June 30, 1998, the Manager's "Field
Service Network" included 39 mobile units operated out of 22 locations,
including several locations where repairs are completed inside customer plants.
In the area of railcar service, the Manager concentrates on maximizing
in-service time for customers' railcars. Training programs utilizing the
Manager's Tank Trainer and School House cars are intended to educate customers
regarding applicable government regulations and proper use and handling of
equipment. The Manager's owned service center network provides "one-stop
shopping" and environmentally responsible service. This network employs closed
loop car cleaning technology along with modern equipment for repairing and
painting railcars. Through its Field Services Network, the Manager performs
minor repairs at customer plants or railyards. This network eliminates the time
and expense associated with moving cars to major service locations and has the
effect of reducing the amount of Rent
43
<PAGE>
Abatements. Railroads complete repairs to the "running" components of the cars
(wheels, axles, brakes, couplers, etc.) under the AAR Interchange Rules and then
pass on the cost of such repairs to the owner of the marks contained on the
repaired railcars. The Manager has a process in place for monitoring and
auditing these "running repair" expenses.
The Manager also has several operating agreements with "preferred contract
shops." These preferred contract shops provide customer information including
repair estimates and repair status of the railcars. The Manager periodically
audits these preferred contract shops to monitor the quality of repairs and
compliance with applicable environmental regulations.
In the area of supplying railcars, the Manager utilizes its industry
expertise and design system to design railcars that efficiently transport a wide
variety of bulk products. Railcars designed by the Manager are built primarily
by Trinity. In addition to supplying new equipment to the marketplace, the
Manager utilizes its engineering, fleet management and service expertise to
provide customers with a supply of properly designed, well conditioned used cars
to meet their needs.
Recent Developments Relating to the Manager
In September of 1987, a tankcar fire occurred in the City of New Orleans.
The fire was caused by a leak of butadiene from a railcar owned by the Manager.
The fire resulted in no deaths or significant injuries, and only minor property
damage, but did result in the overnight evacuation of a number of residents from
the surrounding area. Immediately after the fire a number of lawsuits
(representing approximately 8,000 claims) were brought against a number of
defendants, including the Manager and its wholly-owned subsidiary GATX Terminals
Corporation ("Terminals"). The suits were ultimately consolidated into a class
action brought in the Civil District Court in the Parish of Orleans (the "Trial
Court"). A trial of the claims of twenty of the plaintiffs resulted in a jury
verdict in September 1997 which awarded the twenty plaintiffs approximately $1.9
million in compensatory damages plus interest from the date of the accident. In
addition, the jury awarded, and the Trial Court entered judgment on, punitive
damages totaling $3.4 billion against five of the nine defendants, including
$190 million as to Terminals. Subsequently, the Louisiana Supreme Court granted
a writ filed by one of the defendants, CSX Transportation, Inc., vacating the
punitive damage judgments and indicating that a judgment could not be entered
until all liability issues relating to all 8,000 class members have been
adjudicated. Having vacated the entire judgment in the process, the Louisiana
Supreme Court thus effectively precluded the defendants from seeking immediate
post-trial review of the finding of liability for punitive and compensatory
damage. Accordingly, the defendants filed a motion asking that the Trial Court
enter a judgment only on liability, and without reference to the amount of
damages, thereby permitting the defendants to seek review of the compensatory
and punitive liability findings but not the amount of damages.
In response to the defendants' motion, on June 18, 1998 the Trial Court
entered a judgment (a) finding each of the defendants responsible for
compensatory damages to the members of the plaintiff class in the specified
percentages in the jury verdict, including twenty percent as to the Manager and
ten percent to Terminals, but without specifying the quantum of damages; and (b)
finding five of the defendants, including Terminals, liable for punitive damages
in favor of the plaintiff class. The Trial Court designated the judgment to be
final and appealable. On June 25, 1998, the defendants filed post judgment
motions seeking a new trial or alternatively seeking to overturn the finding of
punitive liability.
Pursuant to a motion filed on behalf of the plaintiffs, the Trial Court
also ordered the commencement of trials of the claims of other members of the
class, and directed the defendants to show cause why there should not be a court
appointed statistician designated to assist the court in selecting
representative plaintiffs for such trials. The plaintiffs had asked the Trial
Court to conduct a sufficient number of trials of representative plaintiffs in
order to validate the findings of punitive damages. The defendants had urged the
Trial Court not to order additional trials until the defendants' Motion for a
New Trial addressing the errors attributable to the conduct of the plaintiffs'
attorneys had been resolved. It is not clear from the Trial Court's order when
such trials are to commence, the manner in which they are to proceed, or what
issues are to be tried. Terminals will oppose any attempt to enter judgment as
to the amount of punitive damages prior to the resolution of all liability
issues with respect to the remaining 8,000 claims.
The Manager and Terminals believe that the compensatory damages awarded
to the 20 plaintiffs are excessive, and intend to pursue post-judgment review of
the awards, and if necessary, vigorous appeals of any final judgment. The
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Manager and Terminals believe that the damages, if any, that are awarded to the
remaining plaintiffs, whether by the trial or appellate courts, will, on average
be substantially less than the damages awarded to the 20 plaintiffs whose claims
have been tried. Terminals also believes that the punitive liability judgment is
unsupported by law and evidence. Accordingly, Terminals intends to pursue
vigorous appeals of the punitive damages liability judgment if it survives post-
judgment review. In addition, Terminals further believes that the punitive
damages awards rendered by the jury are clearly excessive. If a judgment on the
award against Terminals is entered by the Trial Court, Terminals intends to
pursue post-judgment review in the Trial Court, and if necessary, vigorous
appeal of that judgment as well. While the amounts claimed are substantial and
the ultimate liability with respect to such litigation and claims cannot be
determined at this time, the Manager does not expect the result of the
litigation to have a material adverse effect on its ability to perform under the
Management Agreement, the Insurance Agreement, the Administrative Services
Agreement or the Servicing Agreement.
Since 1990, the Manager has made payments or otherwise agreed to a
settlement in connection with liability claims resulting from railcar accidents
in 60 cases. The amounts paid by the Manager and its insurer with respect to
such accidents have ranged from $700 to approximately $6.6 million, with over
88% of such incidents requiring payments of less than $250,000. In most of these
cases, the Manager, as the owner or sublessor of the railcar, has been one of a
number of defendants, along with its customer, the railroad, a shipper and a
manufacturer, and liability, whether upon judgment or pursuant to a settlement,
has been apportioned among the parties. While the Company expects its liability
claim experience to be similar to that of the Manager, there can be no assurance
that the Company's experience will actually reflect that of the Manager, either
historically or on an ongoing basis.
Impact of Year 2000
The Manager utilizes in-house developed software as well as vendor-produced
software. Certain of the Manager's computer software was written using two
digits rather than four to define the applicable year in a date. As a result,
dates beginning in the year 2000 and thereafter are not properly recognized by
the software. Since the software is time-sensitive, a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities could result from the software's inability
to recognize the correct date.
The Manager has completed an assessment and has begun modifying and
replacing its in-house developed software as well as upgrading its vendor-
supported software so that its computer systems will function properly with
respect to dates in the year 2000 and thereafter. Modification of the Manager's
software is expected to be completed during 1999, prior to any anticipated
impact on its operating systems, and the cost thereof is estimated to be
immaterial to the Manager's results of operations. The Manager believes that
with modifications to existing software, upgrading vendor-supported software,
and conversions to new software, the Year 2000 issue should not pose significant
operational problems.
The Manager is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith, files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information concerning the Manager may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at Room 1028, Seven World Trade Center, New
York, New York 10048 and at Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. The Commission maintains a web site (http://www.sec.gov.) that
contains reports, proxy statements and other information regarding registrants
that file electronically with the Commission. Copies of such material can also
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
THE MANAGEMENT AGREEMENT
The following summary relates to, and makes use of terms defined in, the
Management Agreement. Section references in parentheses are to the relevant
sections of the Management Agreement unless otherwise indicated. The statements
under this caption are a summary of the material terms of the Management
Agreement.
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General
Under the Management Agreement, the Manager has authority generally to
manage and administer the Equipment, the Leases and the Subleases. (Management
Agreement, Section 2.1) The Manager will perform various services for the
Company, including, without limitation: (i) monitoring the creditworthiness and
performance of Sublessees; (ii) discharging the Company's obligations under the
Subleases and collecting Sublease Payments and other payments due with respect
to Equipment; (iii) accounting for and remitting all amounts due to the Company;
(iv) maintaining the Equipment pursuant to the terms of the applicable Lease and
Sublease with reasonable care and diligence consistent with customary commercial
practices as would be used by a prudent person in the full service railcar
leasing industry; (v) preparing tax returns with respect to the Equipment and
paying such taxes on behalf of the Company; (vi) monitoring and recording
movements of the Equipment Units; (vii) crediting Railroad Mileage Credit
adjustments and other compensation received with respect to the Equipment to the
appropriate Sublessee; (viii) maintaining records of all transactions relating
to the Equipment, including with respect to maintenance, repair and Subleases;
(ix) providing railcar market industry research reports to the Company as
reasonably requested; (x) causing each Equipment Unit to be numbered with an
appropriate reporting mark; (xi) investigating Events of Loss and providing
recommendations to the Company regarding actions to be taken subsequent to such
Event of Loss; (xii) terminating Subleases for cause and recovering possession
of such Equipment Units, and otherwise generally enforcing all rights of the
Company with respect to such Subleases; (xiii) negotiating renewals of expired
Subleases or remarketing the related Equipment Units; (xiv) storing or arranging
for the storage of an Equipment Unit upon expiration or termination of its
related Sublease until re-lease of such Equipment Unit or until it is no longer
subject to the Lease; (xv) taking such actions as the Manager deems necessary or
appropriate to keep the Company in compliance with its obligations under the
Lease, the Participation Agreement and the Subleases; (xvi) making
recommendations to the Company as to whether to (a) terminate any Lease with
respect to obsolete or surplus Equipment Units, (b) exercise the Company's
purchase options for Equipment Units under the Lease or (c) exercise the
Company's renewal options for Equipment Units under the Lease; (xvii) taking
such actions as the Manager shall deem necessary or appropriate to keep the
Company in compliance with all laws, rules and regulations applicable to the
Company and the Equipment; (xviii) enforcing on behalf of the Company the
warranties with respect to all repairs, maintenance and modifications made with
respect to the Equipment Units; (xix) making any optional modifications or
alterations to an Equipment Unit or any Required Modifications, so long as such
modifications and alterations are not economically impractical; and (xx)
performing such other services as may be reasonably necessary in connection with
the operation and maintenance of the Equipment or the providing of the Equipment
to Sublessees or the entering into of Subleases. (Management Agreement, Sections
2.2, 4.1 and 4.2) Under the Management Agreement, the Manager has no obligation
to procure or maintain insurance on the Equipment; such services are to be
provided to the Company under the Insurance Agreement. (Management Agreement,
Section 2.2(t)) See "The Insurance Agreement."
In performing its duties and obligations under the Management Agreement,
the Manager is required to comply with the Services Standard. (Management
Agreement, Sections 2.2, 3.1) Under the Management Agreement, the Manager is
entitled to employ its standard collection procedures for late payments with
respect to the Equipment or Subleases, although the Manager is not responsible
for the failure of a Sublessee to make timely payments. The Manager is also not
required to threaten or commence any legal or other proceeding on the Company's
behalf if in the Manager's reasonable judgment the potential expense or risk of
such action is significantly prohibitive. Acts beyond the reasonable control of
the Manager may excuse the Manager from full performance in limited
circumstances. However, the Manager must exercise reasonable efforts to mitigate
or limit damages to the Company and must resume the performance of its
obligations as soon as practicable. The Management Agreement allows the Manager
to make decisions with respect to Equipment Units to reflect Sublessee
preferences and other factors it considers with respect to railcars in its fleet
of a similar type, condition and location. Nonetheless, the Manager may not,
without the Company's consent, enter into a Sublease which would result in a
Unit subject thereto being used in a manner inconsistent with the provisions of
the Lease, including, without limitation, that the term of such Sublease not
extend beyond three years after the Basic Term of the related Lease, nor shall
the Manager create or permit to be created any lien, charge or encumbrance on
any Equipment Unit other than a Permitted Lien. (Management Agreement, Section
3.1)
The Manager will not have any fiduciary or other implied duties or
obligations to the Company or any other party except the duties and obligations
expressly set forth in the Management Agreement. One such obligation prohibits
the Manager from discriminating between the Units and any other railcars in the
Manager's Fleet on the basis of ownership or any other potentially
discriminatory basis. (Management Agreement, Section 3.2) However, nothing
in
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the Management Agreement prevents, prohibits or restricts the Manager or any
affiliate of the Manager from manufacturing, selling, owning, leasing, managing
or otherwise dealing with other railcars. (Management Agreement, Section 3.4)
Compensation of Manager
As compensation to the Manager for its services under the Management
Agreement, the Company will pay the Manager a monthly management fee consisting
of a Base Component and an Incentive Component. (Management Agreement, Section
5.1) The Base Component shall be the product of (i) a monthly fee payable per
Equipment Unit, which shall initially be $20 per Unit, adjusted annually to
reflect inflation and changes in costs, multiplied by (ii) the number of Units
managed under the Management Agreement, each as determined on the first day of
each month. (Management Agreement, Section 5.2) The Incentive Component shall be
$5 per Unit for the period from the Closing Date through and including December
31, 1999, and shall thereafter be calculated based on the gross sublease
revenues of the Company net of write-offs, multiplied by .000238%. (Management
Agreement, Section 5.3) The Incentive Component will only be paid upon
satisfaction of certain performance criteria and only after payments of all
other amounts owing by the Company. See "Collection and Application of the
Company's Cash Flows--Application of Amounts in the Collection Account." In
addition to the Base and Incentive Components, the Company shall reimburse GATC
for costs and expenses, including, without limitation: (i) maintenance,
modification and repair expenses; (ii) all taxes (other than income taxes) paid
by the Manager; (iii) switching and storage expenses; and (iv) the amount of
fines, penalties, judgements or similar charges paid by GATC to governmental
authorities arising out of or in connection with the use and operation of the
Units, but excluding fines, penalties and judgments resulting from the Manager's
negligence or wilful misconduct. (Management Agreement, Section 5.4)
Sublease Payments
All Sublease payments from Sublessees and all other amounts relating to
the Equipment which are invoiced by GATC on behalf of the Company will be
deposited in the Sublease Lockbox. The name of the Sublease Lockbox will include
GATC, as trustee for itself individually and for the Company and may include
other entities (including affiliates of GATC) for which GATC manages railcars
and invoices customers. The Manager shall not create or permit to exist any
lien, charge or encumbrance on any Lockbox other than a Permitted Lien. The
Manager will invoice each Sublessee pursuant to a single invoice. Each invoice
will separately designate amounts owing to GATC with respect to its own fleet
for which payments are due to GATC in its capacity as the provider of the
railcars and services from amounts owing which are attributable to railcars,
including the Equipment Units, for which GATC acts as manager or agent for the
party who has contracted with the customer with respect to the car. Each invoice
will provide a detailed listing of the railcars, and the applicable amounts due
and owing with respect to each railcar, to which the invoice relates (including
in each case the Equipment Units). The Equipment Units will be sufficiently
identified in the detail of the invoice, by serial or other identification
number, to allow the parties to specifically identify the amounts which are due
to the Company. The invoice will instruct the Sublessee to make all payments
directly to the Lockbox. The Manager will allocate amounts on deposit in the
Sublease Lockbox as described under "Collection and Application of the Company's
Cash Flows--Collection of Sublessee Payments." (Management Agreement, Section
6.2)
Other Matters
In connection with the performance of its services under the Management
Agreement, the Manager will furnish to the Company, the Owner Trustees, the
Owner Participants, the Collateral Agent and the Rating Agencies monthly and
annual reports covering, among other things, amounts collected from Sublessees
and other sources, reimbursable services paid, and known material defaults under
any Subleases. (Management Agreement, Sections 7.1 and 7.2) Furthermore, the
Manager will provide on or before April 30 of each year a detailed Equipment
report to the Owner Trustees, Owner Participants and Indenture Trustees, which
report shall be as of the preceding December 31 and shall show, among other
things, the amount, description and reporting marks of the Units then leased
under the applicable Lease and the amount, description and reporting marks of
all Units subject to such Lease that may have suffered an Event of Loss during
the calendar year ending on such December 31. (Management Agreement, Section
7.3) The Manager shall also furnish to each Owner Participant on behalf of the
Company unaudited quarterly comparative financial statements, audited annual
comparative financial statements, copies of documents filed by the Company with
the Securities and Exchange Commission, and certain other information and
reports. (Management Agreement, Section 7.5)
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The term of the Management Agreement shall continue in effect until the
later of (i) the date that no Operative Agreement is continuing in effect (as
they may be renewed or otherwise extended) and (ii) the date on which no Unit
remains subject to a Lease. (Management Agreement, Section 8.1) The Manager's
services under the Management Agreement may, however, be terminated by the
Company upon certain events, including: (i) the Manager's failure to perform any
of its obligations under the Management Agreement where such failure materially
and adversely affects the rights of the Owner Trustees, the Owner Participants,
the holders of any Equipment Notes or any Certificateholders, and such failure
is not remedied within 60 days of receipt of written notice, subject to certain
conditions and exceptions; (ii) the Manager's failure to deliver to the
Collateral Agent any applicable Sublease payment or other payments actually
received, which failure remains uncured for five Business Days after the Manager
becomes aware of such failure, including as a result of written notice from any
Owner Trustee or Owner Participant or the Collateral Agent; (iii) certain events
involving the voluntary or involuntary bankruptcy of the Manager, subject to
certain conditions and exceptions; (iv) the Manager's ceasing to be actively
involved in the railcar management or maintenance businesses (other than
pursuant to the Management Agreement); or (v) under certain circumstances, if
any representation or warranty made by the Manager in the Operative Agreements
is untrue or incorrect in any material respect and the Manager fails to remedy
the untruth or incorrectness. The Manager's services under the Management
Agreement may also be terminated by an Owner Trustee, as assignee of the
Company's rights under the Management Agreement, if a default in the payment of
Basic Rent sufficient to pay the Rated Obligations Due shall have occurred under
the related Lease and such Owner Trustee shall have exercised certain cure
rights or its rights to purchase Equipment Notes under the related Indenture.
(Management Agreement, Section 8.2)
Upon the occurrence and during the continuation of a default by the
Manager, the Company, in its sole discretion, may (i) terminate the Management
Agreement, in certain circumstances, (ii) proceed by appropriate court action to
enforce performance of the Management Agreement, and/or (iii) sue to recover
actual direct damages which result from a breach by the Manager. (Management
Agreement, Section 8.3) However, the Manager may not resign nor may it be
terminated in whole or in part unless a Successor Manager has been appointed by
the Company with the approval of the Owner Trustees, the Owner Participants and
the Indenture Trustees, and such Successor Manager has accepted such appointment
and, the Company has received written confirmation from the Rating Agencies that
no lowering or withdrawal of the then current ratings on the Certificates will
occur. (Management Agreement, Section 8.4) Any Successor Manager must be (i) a
nationally known corporation incorporated in the United States which is engaged
in the railcar leasing or management business, (ii) be capable of performing the
services under the Management Agreement and (iii) have a net worth in excess of
$100,000,000. (Management Agreement, Section 8.4)
The Manager is required to indemnify the Company, the Owner Trustees, the
Owner Participants, the Indenture Trustee, the Collateral Agent and their
respective affiliates and the directors, officers, employees and agents of each
thereof for any claims relating to any inaccuracy in any representation or
warranty made by the Manager, any failure by the Manager to perform any of its
covenants or obligations, the presence, discharge, spillage, release or escape
of hazardous substances or damage to the environment at a facility owned or
controlled by the Manager or any affiliate of the Manager or for the negligence,
recklessness or wilful misconduct of the Manager. (Management Agreement, Section
9.1) Similarly, the Company is required to indemnify GATC for any claims
relating to any inaccuracy in any representation or warranty made by the
Company, any failure by the Company to perform any of its covenants or
obligations or for the negligence, recklessness or wilful misconduct of the
Company. (Management Agreement, Section 9.2) However, the indemnifying party
shall not be entitled to control and assume responsibility for the defense of
any claim, if in the good faith opinion of the party to be indemnified, there
exists an actual or potential conflict of interest such that it is advisable for
such party to retain control of such proceeding, in which circumstances the
party to be indemnified shall be entitled to control and assume the
responsibility for the defense of such claim at the expense of the indemnifying
party. (Management Agreement, Section 9.4)
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THE INTERCREDITOR AGREEMENT
General
The Company, the Owner Trustees, on behalf of the applicable Owner Trusts,
the Indenture Trustees, the Manager, the Insurance Manager and The First
National Bank of Chicago, not in its individual capacity but solely as
collateral agent (the "Collateral Agent"), will enter into a Collateral Agency
and Intercreditor Agreement dated as of September 1, 1998 (the "Intercreditor
Agreement"). Pursuant to the Intercreditor Agreement, the Company will grant a
security interest in and pledge to the Collateral Agent for the benefit of the
Lessors, the Manager and the Insurance Manager (the "Beneficiaries") of all of
its right, title and interest in and to (i) the Subleases, the Insurance
Agreement, the Management Agreement, the Administrative Services Agreement, the
Transfer and Assignment Agreement and any other document (other than the
Operative Agreements) to which the Company is or becomes a party or under which
the Company has rights as a third party beneficiary or otherwise (collectively,
the "Company Documents") including the right to receive payments thereunder,
(ii) its rights in the accounts established pursuant to the Intercreditor
Agreement (provided that only the specific Beneficiary to which the Non-Shared
Payment relates will have the benefit of the security interest in the related
Non-Shared Payment Account) including any securities purchased with funds on
deposit therein and all income from the investment of funds therein and (iii)
all proceeds, accessions, profits, income benefits, substitutions and
replacements, whether voluntary or involuntary, of and to any of the property,
now owned or hereafter acquired, of the Company described in (i) and (ii) above
(including any claims for indemnity thereunder and payments with respect thereto
and any property pledged as security for any Sublease) (the "Collateral"). Under
the terms of the Intercreditor Agreement, the Collateral Agent's security
interest in the Subleases will not be perfected.
The Intercreditor Agreement will provide that so long as any Equipment
Notes issued by any Owner Trustee which is a party to the Intercreditor
Agreement are outstanding, (i) each Owner Trustee will be entitled to a pro rata
portion of all cash flows receivable by the Company pursuant to the Company
Documents, after payment of certain expenses of the Company, as described in
"Collection and Application of the Company's Cash Flows--Application of Amounts
in the Collection Account," (ii) the cash flows of the Company shall be
collected and applied as set forth under "Collection and Application of the
Company Cash Flows," and (iii) as a condition to the Company, as lessee,
entering into any railcar leases in the future, the lessor under any such lease
shall be required to become a designated party to the Intercreditor Agreement
and agree to be bound by the provisions thereof.
The Accounts
The Collateral Agent will establish the following interest bearing accounts
(the "Accounts") under the Intercreditor Agreement:
(i) the "Collection Account" into which all amounts received by the
Collateral Agent in respect of Collateral will be deposited;
(ii) the "Operating Account" into which amounts owing with respect to
certain administrative, operating and other expenses of the Company will be
transferred from the Collection Account;
(iii) the "Stipulated Loss Value Deficiency Account" into which
amounts will be deposited and withdrawn as described under "Collection and
Application of the Company's Cash Flows--Application of Amounts in the
Collection Account";
(iv) the "Liquidity Reserve Account" into which amounts will be
deposited and withdrawn as described under "Collection and Application of
the Company Cash Flows--Application of Amounts in the Collection Account";
(v) the "Special Reserves Account" into which amounts will be
deposited and withdrawn in connection with certain Required Modifications
or Programmatic Optional Modifications (as herein defined) of the Equipment
or the payments of insurance deductibles with respect to casualty events
involving the Equipment;
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(vi) the "Cash Trapping Account" into which amounts will be deposited
and withdrawn in connection with the occurrence or discontinuance of a Cash
Trapping Event;
(vii) the "Excess Cash Account" into which any amounts remaining in
the Collection Account after distributions to the other Accounts will be
deposited;
(viii) the "Special Insurance Reserve Account" into which amounts
required to be held due to the occurrence of the unavailability of certain
insurance required under the Leases will be deposited (Lease, Section
12.3(c)) for the benefit of the Lessor and Owner Participant;
(ix) the "Non-Shared Payments Account" into which amounts with
respect to contributions by GATC to the capital of the Company subsequent
to the Closing Date made expressly for the purpose of paying the Stipulated
Loss Value related to an Event of Loss or Termination Value pursuant to a
Lease, insurance or other proceeds received with respect to any loss or
damage to any Equipment, proceeds of the sale of any Equipment, or excess
cash available to the Company in the Excess Cash Account that the Company
requests the Collateral Agent to transfer to the Non-Shared Payments
Account for the express purpose of paying the Stipulated Loss Value related
to Events of Loss or Termination Value pursuant to a Lease (the "Non-Shared
Payments") will be deposited.
The Collateral Agent will establish sub-accounts related to each Lease in
the Stipulated Loss Value Deficiency Account and the Non-Shared Payments Account
as the need requires. All amounts held in the Accounts will be held in the name
of the Collateral Agent for the benefit of the Beneficiaries. All amounts held
in a sub-account of the Non-Shared Payments Account will be held in the name of
the Collateral Agent for the benefit of the related Beneficiary for which such
Non-Shared Payment was made. Amounts on deposit in the Accounts will be invested
in Permitted Investments at the direction of the Company, which may, in the case
of (i) the Cash Trapping Account, include investing up to $3,000,000 of such
amounts in obligations of GATC, and (ii) the Special Insurance Reserve Account,
including investing all such amounts in the obligations of GATC, and any amounts
earned in respect of such investments will be deposited in the Collection
Account.
Actions Upon a Trigger Event
The Intercreditor Agreement provides that any rights or remedies a
Beneficiary may have with respect to the Collateral will be subject to the
provisions of the Intercreditor Agreement. The Intercreditor Agreement also
provides that upon the occurrence of an "Event of Default" pursuant to any
Company Document (other than the Subleases) or an "Event of Default" by the
Company under any Operative Agreement to which it is a party (a "Trigger
Event"), the Collateral Agent will exercise the rights and remedies available to
the Beneficiaries under the Intercreditor Agreement at the direction of the
Required Beneficiaries. Any proceeds received by the Collateral Agent from the
liquidation of any or all of the Collateral will be applied by the Collateral
Agent in the order of preference described under "Collection and Application of
the Company's Cash Flows--Application of Amounts in the Collection Account"
unless at the time of such application no Equipment Notes shall be outstanding
in which case such proceeds will be applied as otherwise provided in the
Intercreditor Agreement.
Certain Covenants in the Intercreditor Agreement
Pursuant to the Intercreditor Agreement the Company will agree to certain
covenants designed to protect the Beneficiaries' interests in the Collateral.
Those covenants include, but are not limited to, restrictions on the Company's
ability to (i) declare dividends unless funds are available therefor in the
Excess Cash Account, (ii) engage in business activities other than the leasing
and subleasing of the Equipment and certain activities related thereto, (iii)
incur additional indebtedness and (iv) enter into transactions with any
affiliates of the Company, including GATC, other than on an arm's-length basis.
The Company will be prohibited from issuing any additional stock to any Person
other than GATC, making any loan or providing any guarantee to any Person and
from merging or consolidating with, or selling any of its assets to, any Person.
The Company will also covenant that it will at all times be a party to the
Management Agreement, Administrative Services Agreement and an Insurance
Agreement or replacement agreements substantially similar thereto.
In addition to the covenants described above, the Company will agree to
certain covenants designed to protect the Company's assets from creditors of
GATC in the event of a bankruptcy of GATC. These covenants include, but are not
limited to, requirements that the Company (i) conduct its business separate from
GATC and any of GATC's affiliates and hold itself out as a separate and distinct
entity from any Person, (ii) maintain its own financial statements, books and
records, accounts and business forms, (iii) maintain an "arm's-length
relationship" with its affiliates, (iv) observe all
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corporate formalities required by the laws of the State of Delaware, and (v) not
commingle its assets with those of any Person, including any affiliate, except
with respect to Lockbox Accounts.
Pursuant to the Intercreditor Agreement the Company will also agree to
certain covenants with respect to its operation of the Equipment. These
covenants include, but are not limited to, covenants by the Company that it will
not (i) exercise any purchase or termination option under the Leases unless
funds are available to the Company therefor (x) in the Excess Cash Account, (y)
from the proceeds of any sale of the Equipment or insurance proceeds related to
the Equipment or (z) from a capital contribution by GATC; (ii) assume the
Equipment Notes unless the Company receives confirmation from the Rating
Agencies that the then current ratings on the Pass Through Certificates will not
be reduced after giving effect to any proposed assumption and the Company
receives an opinion of counsel that the assumption of such Equipment Notes will
not result in a consolidation of the Company's assets with those of GATC in the
event of a GATC bankruptcy; and (iii) act as lessee under any additional leases
with any Person unless such additional leases are consented to by the Owner
Participants and the Company receives from the Rating Agencies the confirmation
described in (ii) above.
COLLECTION AND APPLICATION OF
THE COMPANY'S CASH FLOWS
Collection of Sublessee Payments
Pursuant to the Management Agreement, the Manager will deliver an invoice
monthly to each of the Sublessees as described under "The Subleases--Rental
Payments." Many, or all, of the Sublessees are also customers of GATC's railcar
leasing business, or are customers of third parties or affiliates of GATC for
whom GATC manages their railcars, and will, therefore, be billed by a single
invoice which will designate the amount of rent owed: (i) to GATC (in its
individual capacity and not as Manager for the Company or as manager for any
other entity) under leases maintained by GATC with such Sublessee (the "GATC
Leases") and (ii) in the aggregate the amount of rent owed with respect to
railcars (including the Equipment Units) for which GATC is acting as manager or
agent with respect to such railcars (the "GATC Managed Leases"). All payments
made by the Sublessees under the Subleases, the GATC Leases and other GATC
Managed Leases will be deposited into a lockbox account (the "Sublease Lockbox")
in the name of "GATC, as Trustee for GATC, individually, General American
Railcar Corporation, General American Railcar Corporation II" and other persons
as their interests may appear and will be on deposit at The First National Bank
of Chicago, as lockbox bank (the "Lockbox Bank"). Interests in the Sublease
Lockbox may include other affiliates of GATC for which GATC manages railcars and
invoices customers.
Payments under each of the Subleases and the GATC Leases are payable
monthly in advance. By 1:00 p.m. on each Business Day, or as soon as practicable
thereafter, the Lockbox Bank will deliver to the Manager information with
respect to payments received in the Sublease Lockbox from 12:00 noon of the
previous Business Day through 12:00 noon of such Business Day. Using such
information, the Manager will segregate the amounts owing to: (i) GATC under the
GATC Leases, (ii) General American Railcar Corporation, and (iii) others
(including the Company) under the GATC Managed Leases. If such information is
insufficient to determine the allocation as between the Company, GATC and others
of any amounts in the Sublease Lockbox, the Manager will use such other
information as is available and conduct such other procedures as it deems
appropriate to determine the proper allocation of such amounts. In certain
circumstances a Sublessee which is a customer of more than one of the Company,
GATC or others for whom GATC manages railcars, may make payment of amounts owed
under the Subleases, the GATC Leases and/or the GATC Managed Leases by means of
a single payment which may be insufficient to pay the full amounts billed in
respect of the Subleases, the GATC Leases and the other GATC Managed Leases, if
the Sublessee disputes the amount billed for Equipment Units or other railcars
leased to it. Disputes typically arise, for example, when an Equipment Unit is
not being used because it is in a maintenance shop and the customer's record of
the number of days of Rent Abatement that should apply differs from the records
maintained by the Manager. In such cases, the Manager will use the information
provided by the Lockbox Bank, together with information gathered by contacting
the Sublessee, to determine the appropriate allocation of such payment between
the Company, GATC and others. By the close of business on the second Business
Day following receipt of the information by the Manager from the Lockbox Bank,
the Manager will transfer to the Collection Account and one or more accounts
designated by GATC all funds identified as belonging to the Company, GATC and
others, respectively. In the event that the Manager is unable to determine the
proper allocation
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of any amounts in the Sublease Lockbox through the process described above, the
Manager will allocate the remaining unallocated funds to the Company, GATC and
others pro rata based on the original amounts billed to each such customer with
respect to the Equipment and the other railcars reflected in the invoice. If
upon further investigation or otherwise the Manager determines that such pro
rata allocation did not accurately represent the actual allocation of such funds
between the parties, then the Manager will cause payment to be made among the
parties with an interest in the Sublease Lockbox in amounts sufficient to
reflect the actual allocation.
If GATC is terminated as Manager, a successor Manager (the "Successor
Manager") will be appointed and the Sublease Lockbox will be retitled in the
name of a third party as trustee for GATC, General American Railcar Corporation,
the Company and other affiliates of GATC which have an interest in amounts in
the Sublease Lockbox. Separate invoices for the Subleases will be prepared which
will refer to the Successor Manager, as Agent for the Company. Following any
such termination, the Successor Manager, the Company, GATC and other applicable
affiliates of GATC will each use commercially reasonable efforts to implement a
process on a timely basis whereby mutual customers of GATC, the Company and such
other affiliates will be invoiced separately. Until such time as separate
invoicing is accomplished, GATC and the Successor Manager will each submit
reports to the third party trustee indicating the amount billed to customers in
respect of the GATC Leases, the GATC Managed Leases and the Subleases,
respectively. The third party trustee will first allocate cash received to the
Company and the GATC Managed Leases in an amount equal to the Company's and the
GATC Managed Leases total reported billings and will allocate the balance to
GATC. In instances where the payment is insufficient to pay in full the amounts
due to the Company and with respect to the GATC Managed Leases, unless it is
manifestly clear to which party the shortfall should be allocated, any such
shortfall will be allocated pro-rata (based upon reported billings) between such
parties and GATC shall receive no payment. GATC will have the right to
investigate the reason for any shortfall and, if it is able to demonstrate to
the reasonable satisfaction of the third party trustee that the shortfall should
have been allocated to the Company or another party with an interest in the
Sublease Lockbox, the Company or such other party will refund such amount to
GATC, subject to a right to review the determination made by GATC.
Collection of Railroad Mileage Credits
Railroad Mileage Credits are paid by the railroad to the registered owner
of the "marks" carried by a railcar. Railcars owned or leased by GATC and its
affiliates, including the Equipment Units to be leased to the Company carry
marks that are registered with the AAR as being owned by the Marks Company, a
Delaware business trust formed in 1997 to own the marks registered to GATC, and
its affiliates or the marks relating to certain cars managed by GATC or its
affiliates. All of the marks relating to the Equipment are owned by the Marks
Company. As a result, monies owed to the Company or a Sublessee in respect of
Railroad Mileage Credits should not become property of the bankruptcy estate if
GATC were to become a debtor in bankruptcy. Payments of Railroad Mileage Credits
in respect of railcars carrying such marks (whether such cars are part of the
Equipment or are owned or leased by or to GATC and/or its affiliates) will be
directed to a lockbox account (the "Mileage Credits Lockbox") designated by the
Marks Company, which is maintained in the name of "General American Marks
Company, as agent for the beneficiaries of the Railroad Mileage Credits as their
interests may appear." Pursuant to a management and servicing agreement between
GATC and the Marks Company dated as of September 30, 1997, as to be supplemented
with respect to the Equipment to be leased to the Company (the "Servicing
Agreement"), GATC acts as servicer (the "Servicer") for the Mileage Credits
Lockbox. Within two Business Days of receipt of payments, the Servicer will
allocate mileage credits to the beneficiaries (including the Company) on a
cumulative, historical experience basis. The Servicer will make month-end
settlements once it is able to determine the allocation of mileage credit
receipts based on then available current information. Any final adjustments will
be made quarterly. All mileage credits received by the Company will be deposited
in the Collection Account maintained pursuant to the Intercreditor Agreement.
The Servicing Agreement contains provisions providing for the termination of
such agreement upon a bankruptcy of the Servicer (unless the Servicing Agreement
is affirmed by the trustee in such bankruptcy and the Marks Company is not
liquidated). It is anticipated that after such a termination a successor
servicer would be selected to service the Mileage Credits Lockbox pursuant to an
agreement similar to the Servicing Agreement.
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Application of Amounts in the Collection Account
The Collection Account will be assigned to the Collateral Agent for
the benefit of the Beneficiaries. See "The Intercreditor Agreement." By 1:00
p.m. on the 20th day of each month (a "Monthly Transfer Date") the Collateral
Agent will withdraw amounts on deposit in the Collection Account as of the close
of business on the last day of the calendar month immediately preceding such
Monthly Transfer Date (the "Calculation Date") and distribute such amounts in
the order of priority set forth below but, in each case, only to the extent that
all amounts ranking prior thereto have been paid in full:
First, to the Manager, for distribution to the Sublessees, if any,
whose payments in respect of the applicable Subleases are not made net of
any Railroad Mileage Credits due and owing to such Sublessee, an amount
equal to the Railroad Mileage Credits due to such Sublessees for which an
allocation has not previously been made pursuant to this clause as
certified to the Collateral Agent by the Manager not later than the Monthly
Report Date, see "Subleases--Railroad Mileage Credits";
Second, to the Operating Account, an amount which, together with any
amounts on deposit therein, is sufficient to pay (a) all Operating Expenses
of the Company which the Manager certifies to the Collateral Agent not
later than the Monthly Report Date are due or are to become due on or
before such Monthly Transfer Date, (b) the Base Component of the fee
payable pursuant to the Management Agreement (provided, that if a Lease
Default or a Lease Event of Default shall have occurred and be continuing
during any time when GATC is the Manager, then the Base Component of the
fee payable pursuant to the Management Agreement shall be paid pursuant to
clause Thirteenth below) and (c) any amounts that have been previously
requested to pay Operating Expenses that have not been paid; provided, that
if the amounts available in the Collection Account as of the applicable
Calculation Date are insufficient to make the transfers required pursuant
to this clause, the Collateral Agent will make up such insufficiency first
by withdrawing an amount equal to such insufficiency from the Cash Trapping
Account and if the amount on deposit in the Cash Trapping Account is less
than the amount of such insufficiency, then the Collateral Agent will
withdraw from the Liquidity Reserve Account the amount of any remaining
insufficiency;
Third, to each Lender Agent or Lessor Agent an amount sufficient to
pay (a) the amount certified to the Collateral Agent by an Authorized
Representative of each such Lender Agent or Lessor Agent to be the amount
of Category 1 Supplemental Expenses due or to become due pursuant to its
related Lender Document or Lease on or before such Monthly Transfer Date
and which are not payable to the Person to which such expenses are owed
directly from the proceeds of insurance obtained by or on behalf of the
Company pursuant to the Operative Agreements or are not then being
satisfied from the Special Reserve Account, and (b) any amounts that have
been previously requested pursuant to this clause for such expenses and not
paid, less amounts then on deposit in the Special Reserve Account for such
purpose; provided that if the amounts available in the Collection Account
as of the applicable Calculation Date are insufficient to make the
transfers required pursuant to this clause, the Collateral Agent will make
up such insufficiency first by withdrawing an amount equal to such
insufficiency from the Cash Trapping Account and then, to the extent
necessary to pay any remaining insufficiency, from the Liquidity Reserve
Account and transferring such amount pro rata among the Lender Agents and
the Lessor Agents in the same proportion that the Category 1 Supplemental
Expenses requested by each Lender Agent or Lessor Agent bears to the total
amount of Category 1 Supplemental Expenses requested by all agents with
respect to such Monthly Transfer Date;
Fourth, (a) to each succeeding Lessor Agent an amount sufficient to
pay any Basic Rent sufficient to pay Rated Obligations Due certified to the
Collateral Agent by an Authorized Representative of each such agent not
later than the applicable Monthly Report Date to be the amount of Basic
Rent sufficient to pay Rated Obligations Due or to become due pursuant to
its related Lease on or before such Monthly Transfer Date, (b) to each
Lender Agent any principal and interest due in respect of any Assumed Debt
certified to the Collateral Agent by an Authorized Representative of each
such agent not later than the applicable Monthly Report Date to be the
amount of principal and interest due or to become due pursuant to the
Lender Document related to such Assumed Debt on or before such Monthly
Transfer Date (to the extent the failure to pay such principal or interest
prior to the next Monthly Transfer Date would result in an "Event of
Default" with respect to such Assumed Debt); provided, that if the amounts
available in the Collection Account as of the applicable
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Calculation Date are insufficient to make the transfers required pursuant
to this clause, the Collateral Agent will make up such insufficiency by
withdrawing an amount equal to such insufficiency first, from the Cash
Trapping Account and then from the Liquidity Reserve Account, if necessary,
and transferring such amount pursuant to this clause; provided, further,
that if the aggregate amount available for transfer pursuant to this clause
continues to be insufficient to make all transfers required pursuant to
this clause, then the Collateral Agent will transfer the amounts then
available for transfer pro rata among the Lender Agents and the Lessor
Agents in the same proportion that the amount due pursuant to this clause
Fourth related to each Agent bears to the total amount due under this
clause Fourth to all such Agents on such Monthly Transfer Date;
Fifth, to the appropriate sub-account of the Stipulated Loss Value
Deficiency Account, an amount certified to the Collateral Agent by an
Authorized Representative of the Company not later than the applicable
Monthly Report Date to be sufficient to cause the amount on deposit in such
sub-account, to be at least equal to the Required Stipulated Loss Value
Deficiency Amount; provided, that, if the amounts available in the
Collection Account as of the applicable Calculation Date are insufficient
to make the transfers required pursuant to this clause, the Collateral
Agent will make up such insufficiency by withdrawing an amount equal to
such insufficiency from the Cash Trapping Account and depositing such
amount to the applicable sub-accounts of the Stipulated Loss Value
Deficiency Account; provided, further that, if the failure to pay such
Required Stipulated Loss Value Deficiency Amount on or before such Monthly
Transfer Date would result in a Lease Event of Default under the related
Lease, then the Collateral Agent will make up such insufficiency by
withdrawing from the Liquidity Reserve Account, an amount which, after
making the other transfers required pursuant to this clause, would prevent
such Lease Event of Default and depositing such amount in the applicable
sub-account of the Stipulated Loss Value Deficiency Account;
Sixth, to the Liquidity Reserve Account, an amount certified to the
Collateral Agent by an Authorized Representative of the Company not later
than the applicable Monthly Report Date to be sufficient to cause the
amount on deposit therein to be at least equal to the Required Liquidity
Reserve Amount; provided, that if the amounts available in the Collection
Account are insufficient to make the transfers required pursuant to this
clause, the Collateral Agent will make up such insufficiency by withdrawing
an amount equal to such insufficiency from the Cash Trapping Account and
depositing such amount in the Liquidity Reserve Account;
Seventh,(a) to each Lessor Agent an amount sufficient to pay any Basic
Rent sufficient to pay the Scheduled Amortization Amount less the Rated
Amortization Amount certified to the Collateral Agent by an Authorized
Representative of each such Lessor Agent not later than the applicable
Monthly Report Date to be the amount of Basic Rent sufficient to pay the
Scheduled Amortization Amount less the Rated Amortization Amount due or to
become due pursuant to its related Lease on or before such Monthly Transfer
Date, (b) to each Lender Agent, an amount sufficient to pay any principal
or interest due in respect of any Assumed Debt certified to the Collateral
Agent by an Authorized Representative of each Lender Agent to be the amount
of principal and interest due or to become due pursuant to the Lender
Document related to such Assumed Debt on or before such Monthly Transfer
Date (but only to the extent such amount has not been paid pursuant to
clause Fourth, above); provided, that if the amounts available in the
Collection Account as of the applicable Calculation Date are insufficient
to make the transfers required pursuant to this clause, the Collateral
Agent will make up such insufficiency by withdrawing an amount equal to
such insufficiency from the Cash Trapping Account and transferring such
amount pursuant to this clause; provided, further, that if the aggregate
amount available for transfer pursuant to this clause continues to be
insufficient to make all transfers required pursuant to this clause, then
the Collateral Agent will transfer the amounts then available for transfer
pro rata among the Lender Agents and the Lessor Agents in the same
proportion that the amount due pursuant to this clause Seventh related to
each Agent bears to the total amount due under this clause Seventh to all
such Agents on such Monthly Transfer Date;
Eighth, (a) to each Lessor Agent an amount sufficient to pay the
Equity Portion of Basic Rent and the Accumulated Equity Deficiency Amount
(as defined in each Lease) certified to the Collateral Agent by an
Authorized Representative of such Lessor Agent not later than the
applicable Monthly Report Date to be the amount of the Equity Portion of
Basic Rent and the Accumulated Equity Deficiency Amount due or to become
due pursuant to its related Lease on or before such Monthly Transfer Date;
provided, that if the amounts available in the Collection Account as of the
applicable Calculation Date are insufficient to make the transfers
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required pursuant to this clause, the Collateral Agent shall make up such
insufficiency by withdrawing an amount equal to such insufficiency from the
Cash Trapping Account and transferring such amount pursuant to this clause,
provided, further, that if the aggregate amount available for transfer
pursuant to this clause shall continue to be insufficient to make all
transfers required pursuant to this clause, then the Collateral Agent shall
transfer the amounts then available for transfer pro rata among the Lessor
Agents in the same proportion that the amount due pursuant to this clause
Eighth related to each Lessor Agent bears to the total amount due under
this clause Eighth to all such Lessor Agents on such Monthly Transfer Date;
Ninth, to the Special Reserves Account, an amount certified to the
Collateral Agent by an Authorized Representative of the Company not later
than the applicable Monthly Report Date to be sufficient to cause the
amount on deposit therein to be at least equal to the Required Special
Reserves Amount; provided, that if the amounts available in the Collection
Account as of the applicable Calculation Date are insufficient to make the
transfers required pursuant to this clause, the Collateral Agent will make
up such insufficiency by withdrawing an amount equal to such insufficiency
from the Cash Trapping Account and depositing such amount in the Special
Reserves Account;
Tenth, to each Lender Agent or Lessor Agent an amount certified to the
Collateral Agent by an Authorized Representative of each such Lender Agent
or Lessor Agent no later than the applicable Monthly Report Date to be the
amount sufficient to pay (a) Category 2 Supplemental Expenses due or to
become due pursuant to its related Lease or Lender Document on or before
such Monthly Transfer Date and for which request for payment has not been
previously made, and (b) any amounts of Category 2 Supplemental Expenses
that have been previously requested and not paid; provided, that if the
amounts available in the Collection Account as of the applicable
Calculation Date are insufficient to make the transfers required pursuant
to this clause, the Collateral Agent will pay such amounts pro rata among
the agents in the same proportion that the Category 2 Supplemental Expenses
requested by each Lender Agent and Lessor Agent bears to the total amount
of Category 2 Supplemental Expenses requested by all Lender Agents and
Lessor Agents with respect to such Monthly Transfer Date;
Eleventh, to the Cash Trapping Account, an amount certified to the
Collateral Agent by an Authorized Representative of the Company not later
than the applicable Monthly Report Date to be sufficient to cause the
amount on deposit therein to be at least equal to the Required Cash
Trapping Amount;
Twelfth, to each Person entitled to receive Category 3 Supplemental
Expenses an amount certified to the Collateral Agent by an Authorized
Representative of such Person not later than the applicable Monthly Report
Date to be the amount sufficient to pay (a) Category 3 Supplemental
Expenses due or to become due pursuant to any Company Document or any other
Operative Agreement to which the Company is a party on or before such
Monthly Transfer Date, and (b) any amounts of Category 3 Supplemental
Expenses that have been previously so certified and not paid; provided,
that if the amounts available in the Collection Account are insufficient to
make the transfers required pursuant to this clause, the Collateral Agent
will pay such amounts pro rata among such Persons and in the same
proportion that the Category 3 Supplemental Expenses requested by each
Person bears to the total amount of Category 3 Supplemental Expenses
requested by all Persons with respect to such Monthly Transfer Date;
Thirteenth, to the Manager, an amount certified to the Collateral
Agent by the Manager not later than the applicable Calculation Date to be
sufficient to pay (a) the Base Component of the Management Fee if not paid
pursuant to clause Second, above, as a result of a Lease Default or a Lease
Event of Default having occurred and continuing during a time when GATC is
the Manager, (b) the Incentive Component of the Management Fee due or to
become due on or prior to such Monthly Transfer Date, and (c) any portion
of the Incentive Component of the Management Fee previously requested and
not paid; and
Fourteenth, and if (a) the amounts on deposit in the Stipulated Loss
Deficiency Account (including each sub-account thereof), the Liquidity
Reserve Account, the Special Reserves Account and the Cash Trapping Account
are at least equal to the Required Stipulated Loss Value Deficiency Amount,
the Required Liquidity Reserve Amount, the Required Special Reserves Amount
and the Required Cash Trapping Amount, respectively, (b) no Lease Event of
Default or Lease Default with respect to payments or bankruptcy
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shall have occurred and be continuing and (c) no Trigger Event shall have
occurred and be continuing, to the Excess Cash Account, or such other
account as the Company may designate to the Collateral Agent, any remaining
amounts on deposit in the Collection Account; provided that if any Lease
Default or Lease Event of Default referred to in subclause (b) of this
clause Fourteenth or a Trigger Event shall have occurred and be continuing,
all remaining amounts shall remain on deposit in the Collection Account and
be applied on the next succeeding Monthly Transfer Date.
[DIAGRAM OF CASH FLOWS DEPICTING APPLICATION OF PAYMENTS]
Cash Trapping Events; Required Cash Trapping Amount; Release From Cash Trapping
Account
Under the Intercreditor Agreement, upon the occurrence of any of the
following events (each a "Cash Trapping Event") the Required Cash Trapping
Amount shall be determined as described below. A Cash Trapping Event shall exist
for a Monthly Transfer Date if:
(a) the Monthly Average Lease Rate as of the related Calculation
Date: (i) shall have decreased by 10% or more as compared to the Monthly
Average Lease Rate calculated as of the related Calculation Date for the
same month of any of the immediately preceding five years, and (ii) is less
than 100% of the Monthly Average Lease Rate as of the Closing Date; or
(b) the Monthly Utilization Rate for the immediately preceding
calendar month shall have been 86% or less; or
(c) (i) any Coverage Ratio shall be less than 1.15:1 (a "Level 1 Cash
Trapping Event), or (ii) any Coverage Ratio shall be less than 1.10:1 (a
"Level 2 Cash Trapping Event); provided that if a Level 2 Cash Trapping
Event exists a Level 1 Cash Trapping Event shall not be considered to be in
existence.
As used above, the following terms have the meanings set forth below.
"Monthly Average Lease Rate" means for any calendar month, the aggregate
Sublease monthly rental rates with respect to the Total Managed Fleet for such
calendar month divided by the total number of railcars in the Total Managed
Fleet which are subject to a lease or sublease on the last day of such calendar
month.
"Monthly Utilization Rate," for any calendar month, means the percentage
determined by dividing (i) the total number of railcars in the Total Managed
Fleet which are subject to a lease or Sublease on the last day of such calendar
month, by (ii) the total number of railcars in the Total Managed Fleet on the
last day of such calendar month.
"Coverage Ratio" means either the Historical Coverage Ratio or the
Projected Coverage Ratio where, as of any Calculation Date (1) "Historical
Coverage Ratio" means the ratio of (i) the sum of Available Amounts as of the
Calculation Date for each of the six calendar months immediately preceding such
Calculation Date to (ii) the sum of Basic Rent that was paid or payable on the
Rent Payment Dates which occurred or occur immediately after such Calculation
Dates, as such amounts are certified to by an Authorized Representative of each
of the Company and the Manager, and (2) "Projected Coverage Ratio" means the
ratio of (i) the sum of projected Available Amounts for the six month period
immediately succeeding such Calculation Date to (ii) the sum of Basic Rent due
or to become due and payable on the six consecutive Rent Payment Dates which
occur following such Calculation Date, as such amounts are certified to by an
Authorized Representative of each of the Company and the Manager.
"Available Amounts" means, in respect of any Calculation Date, the amount
in the Collection Account on such Calculation Date, less the amounts which would
be allocated on the next succeeding Monthly Transfer Date pursuant to clauses
First, Second, Third, Fifth and Sixth of "Applications of Amounts in Collection
Account" without giving effect to any transfers from any other Account.
Upon the occurrence or cessation of a Cash Trapping Event, the amount
required to be on deposit in the Cash Trapping Account (the "Required Cash
Trapping Amount") will be determined as follows for each Monthly Transfer Date:
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(i) if no Cash Trapping Event or, following a Cash Trapping Event, no Cash
Trapping Hold exists with respect to such Monthly Transfer Date, an amount equal
to $109,100 as of the first Monthly Transfer Date following the Closing Date and
thereafter increasing by $109,100 on each succeeding Monthly Transfer Date until
such time as such amount shall equal or exceed $6,000,000 and thereafter
$6,000,000; or
(ii) if for such Monthly Transfer Date a Cash Trapping Event exists, an
amount equal to $10,500,000, provided that in the event that a Level 2 Cash
Trapping Event exists such amount shall equal $15,000,000; provided further that
if a Forecasting Error exists as of such Monthly Calculation Date, the amount
will be increased to $11,500,000 (for a Level 1 Cash Trapping Event) or
$16,000,000 (for a Level 2 Cash Trapping Event).
On each Monthly Transfer Date amounts on deposit in the Cash Trapping
Account will be applied as provided in clauses First through Thirteenth under
"--Application of Amounts in the Collection Account." In addition, on each
Calculation Date, provided that no Cash Trapping Event or Cash Trapping Hold
exists on such Calculation Date, amounts on deposit in the Cash Trapping Account
in excess of any amounts as may be required pursuant to the definition of
Required Cash Trapping Amount shall be released in equal installments over 12
months (provided that no Cash Trapping Event occurs during such period and such
installments will be reduced by amounts otherwise drawn form the Cash Trapping
Account during such time period) from the Cash Trapping Account and transferred
by the Collateral Agent to the Collection Account for application on the next
succeeding Monthly Transfer Date as described under "--Application of Amounts in
the Collection Account." A "Cash Trapping Hold" shall exist on a Calculation
Date when there has previously been a Cash Trapping Event and with respect to
such Cash Trapping Event: (a) if such Cash Trapping Event related to the Monthly
Average Lease Rate, the Monthly Average Lease Rate on such Calculation Date is
less than 100% of the Monthly Average Lease Rate as of the Closing Date, (b) if
such Cash Trapping Event related to the Monthly Utilization Rate, the Monthly
Utilization Rate is less than 90% for such Calculation Date, or (c) if such Cash
Trapping Event is related to any Coverage Ratio (i) any Coverage Ratio on such
Calculation Date is less than 1.165:1 (a "Level 1 Cash Trapping Hold"), or (ii)
any Coverage Ratio on such Calculation Date is equal to or less than 1.14:1 (a
"Level 2 Cash Trapping Hold"); provided that if a Level 2 Cash Trapping Hold
exists a Level 1 Cash Trapping Hold shall not be considered to be in existence.
Required Special Reserves Amount
Under the Intercreditor Agreement, upon the determination by the Manager of
certain events as described below, the Collateral Agent shall transfer to the
Special Reserves Account the following amounts (the "Required Special Reserves
Amount") on the applicable Monthly Transfer Date:
(i) if the Company is required to make any Required Modifications to
the Equipment, an amount with respect to each Required Modification such
that an amount equal to one-third of the total cost of implementing such
Required Modification will be on deposit in the Special Reserves Account by
the date implementation of such Required Modification is scheduled to
begin; plus
(ii) if the Company has elected to implement any Programmatic
Optional Modification (i.e., the cost of implementing such modification in
any calendar year is reasonably expected to exceed $750,000) to any
Equipment an amount sufficient to fund the cost of such Programmatic
Optional Modification; plus
(iii) if an event shall occur with respect to which the Insurance
Manager determines (in accordance with the Insurance Services Standard)
that there exists a reasonable likelihood that the Company will be required
to pay any claim not covered by existing insurance or any applicable
insurance deductible set forth in the Insurance Agreement, an amount (to be
payable in level installments commencing with the first Monthly Transfer
Date after the Insurance Manager shall have determined (in accordance with
the Insurance Services Standard) that there exists a reasonable likelihood
that such claim or the insurance deductible will be required to be paid)
that will result in (A) 100% of the then current insurance deductible or
(B) such other amount (including legal costs) as the Insurance Manager
deems sufficient being on deposit in the Special Reserves Account by the
earliest date such claim or the insurance deductible may be required to be
paid.
Amounts on deposit in the Special Reserves Account will be withdrawn by the
Collateral Agent upon certification by an Authorized Representative of the
Company (i) requesting amounts on deposit in the Special Reserves
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Account to be made available to the Company to pay for Required Modifications,
Programmatic Optional Modification or to pay expenses not covered by any
insurance proceeds pursuant to the Company's insurance policies or (ii)
indicating that all amounts for which the respective reserves have been
accumulated have been paid or otherwise reduced to zero.
THE LEASES
The following summary relates to, and makes use of terms defined in, the
Leases. Section references in parentheses are to the relevant sections of the
Leases unless otherwise indicated. The statements under this caption are a
summary of the material terms of the Leases.
Term and Rentals
Each Equipment Group will be leased by each Lessor to the Company for
a term commencing on the Closing Date and expiring on September 20, 2020.
Each Lease requires the Company to pay rent on the 20th day of each month
(or, if such day is not a Business Day, on the next succeeding Business Day),
commencing on October 20, 1998. Rent payments made in respect of a Lease will be
used to make payments of principal and interest due on the Equipment Notes
issued under the related Indenture in accordance with the Scheduled Amortization
Schedule. Amounts received by the Company from the Subleases will be applied
from the Collection Account monthly (pursuant to a monthly report prepared by
the Manager) in the order of priority set forth in the Intercreditor Agreement.
See "Collection and Application of the Company's Cash Flows--Application of
Amounts in the Collection Account." Amounts distributed to each Indenture
Trustee as assignee of its related Owner Trust will be distributed in the order
of priority set forth in the related Indenture. See "Description of the
Equipment Notes--Payment Account; Distributions of Amounts Received by Indenture
Trustee."
Pursuant to the Leases, Basic Rent payable on any Rent Payment Date will be
payable monthly in accordance with a schedule designed to provide for the
payment of (i) principal and interest on the related Equipment Notes in
accordance with the Scheduled Amortization Schedule for such Equipment Notes and
(ii) in certain periods, cash distributions to the related Owner Trust for
distribution in accordance with the related Trust Agreement. Failure by the
Company to pay Basic Rent in full, however, will not result in a Lease Event of
Default so long as the amount of Basic Rent paid on any Rent Payment Date is
sufficient to make payments on the related Equipment Notes in accordance with
the Rated Obligations Due for such Equipment Notes. A premium equal to 1.5% per
annum payable monthly will be payable on each Rent Payment Date, together with
interest at the Note Rate, in respect of the cumulative amount of that portion
of Basic Rent not paid as of such Rent Payment Date equal to the Payment
Deficiency.
On any Rent Payment Date on which Basic Rent under a Lease includes an
amount for cash distributions to the Owner Trusts, such amounts will be
distributed to the related Owner Trustee for distribution to the related Owner
Participant on a specified distribution date in accordance with the related
Trust Agreement. Such cash distributions will only be payable to the extent
available and only to the extent that cumulative payments on the related
Equipment Notes have been paid in accordance with the Scheduled Amortization
Schedule for such Equipment Notes, but not including Late Payment Premium or
interest on overdue principal or interest on the Equipment Notes, which shall be
payable from available cash after payment to the Owner Trustees in respect of
Basic Rent. The Owner Trusts will also be entitled to interest on overdue
payments of Basic Rent, which shall be payable from cash available after payment
of Late Payment Premiums and interest on overdue principal or interest on the
Equipment Note.
Restrictions on Subleases
Pursuant to the Leases, the Company is permitted to sublease the Equipment
in the United States, Canada or Mexico to any company for use in its business;
provided that pursuant to each Lease the Company has agreed that it will not
sublease to a sublessee formed under the laws of Mexico or any state thereof
more than the lesser of (i) 9% (or, with Rating Agency confirmation, 20%) of the
Equipment Units within any Equipment Group, or (ii) the percentage of railcars
subleased to Mexican sublessees in the Total Managed Fleet. In addition, in no
event will the Company sublease more than 50 Equipment Units to any single
Mexican sublessee (other than (A) with Rating Agency confirmation, a wholly-
owned special purpose subsidiary of GATC organized under the laws of Mexico (or
any province or state thereof), a "Mexican Affiliate", which is sub-subleasing
such Equipment Units to Mexican sub-sublessees and which sub-subleases, as to
such Mexican Affiliate, satisfies either the 50 car limit with respect to each
Mexican sub-sublessee or such Mexican sub-sublessee satisfies the credit test
set forth next in this proviso or (B) a Mexican Sublessee with a credit rating
of a least BBB and Baa2
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as determined by S&P and Moody's, respectively (or, in the event that either S&P
or Moody's does not or ceases to provide a credit rating for such entity, a
credit rating of at least BBB or Baa2 by S&P or Moody's, as the case may be)).
Each Lease provides that the Equipment is to be used primarily on domestic
routes in the United States and that at no time shall more than 49% of the
Equipment Units within any Equipment Group be used outside the continental
United States at the same time. No default by a Sublessee under a Sublease will
relieve the Company of its obligations under the related Lease. The Company is
prohibited from subleasing to GATC and to its Affiliates, except that (i) an
aggregate of not more than 15% (or, with Rating Agency confirmation, 30%) of the
Company Fleet may be subleased by the Company to wholly-owned subsidiaries of
GATC organized under the laws of Canada ("Canadian Affiliates") and (ii) to
Mexican Affiliates subject to the restrictions described above. Any such
Equipment Units subleased to Affiliates must in turn be sub-subleased by the
Canadian Affiliates or Mexican Affiliates to customers under agreements
containing terms and conditions similar in all material respects to the
Subleases ("Foreign Subleases"). The Foreign Subleases will be assigned as
collateral by the Canadian or Mexican Affiliates to the Company, and in turn
assigned by the Company to the Collateral Agent under the Intercreditor
Agreement. No other Sublessee may sub-sublease any Equipment Unit. (Lease,
Sections 8.2 and 8.3) If any Equipment Unit is leased or possession is otherwise
transferred, such Equipment Unit will remain subject to the Lien of the
Indenture. See "--The Sublessees" and "The Subleases."
Liens
Each Lease requires the Company to maintain the related Equipment free of
any liens, other than the respective rights of the related Owner Participant and
Owner Trustee, the Collateral Agent, the holders of the related Equipment Notes,
the Company and any permitted sublessee, under the related Lease, Indenture or
Participation Agreement or the Intercreditor Agreement or the Trust Agreement
between such Owner Trustee and Owner Participant pursuant to which the Owner
Trustee acts as trustee for the benefit of such Owner Participant, and other
than certain limited liens permitted under the related Lease and Indenture,
including liens for taxes either not yet due and payable or being contested (so
long as there exists no material risk of sale, forfeiture, loss or loss of or
interference with use or possession of the Equipment or interference with the
payment of rent), materialmen's, mechanics' and other similar liens arising in
the ordinary course of business and securing obligations which are either not
yet due and payable or being contested (so long as there exists no material risk
of sale, forfeiture, loss or loss of or interference with use or possession of
the Equipment), judgment liens that are being appealed and whose enforcement has
been stayed pending such appeal, and salvage rights of insurers. (Lease, Section
7)
Early Termination
The Company may terminate a Lease pursuant to its Obsolescence Termination
Option at any time on or after the seventh anniversary of the Closing Date with
respect to any or all of the Equipment Units contained in a Functional Group
(provided that if such termination is for less than all of the Equipment Units
in a Functional Group across the Company Fleet, the Company shall exercise such
termination under all of the Leases, (i) with respect to at least 50 Equipment
Units in the aggregate of the type indicated in such Functional Group, (ii) no
fewer than 25 Equipment Units of the type included in such Functional Group
shall in the aggregate remain subject to the Leases, (iii) such termination
shall be made under the Leases pro rata in accordance with the number of
Equipment Units in such Functional Group subject to each Lease, and (iv) the
determination as to which Equipment Units are subject to termination shall
otherwise be made by the Company on a random basis without discrimination based
on maintenance status, operating condition or otherwise) (the "Terminated
Units") 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 and the Chief Financial
Officer of the Manager) that such Terminated Units have become obsolete or
surplus to its requirements, and that following the termination of such
Terminated Units, the Units remaining subject to each Lease will constitute a
pool of Units which is of sufficient quantity and quality to sustain the
Coverage Ratio over the remaining Basic Term. The Company is required to give
notice to the related Owner Trustee and the related Indenture Trustee of its
intention to exercise its Obsolescence Termination Option at least 120 days
prior to the proposed date of termination, which date shall be a Regular
Distribution Date, and to provide an Officer's Certificate in connection
therewith to the effect that there has been no discrimination in the selection
of the Terminated Units when measured against the other Units and the Manager's
Fleet. No Unit may be terminated as obsolete or surplus if it is subject to a
Sublease. The Company through the Manager will act as non-exclusive agent for
the related Owner Trustee in obtaining bids for the Terminated Units, and the
related Owner Trustee shall sell the Terminated Units to the bidder which has
submitted the highest cash bid (who may not be the Company, the Manager or any
affiliate of either thereof but who may be the related
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Owner Participant) on the termination date. The net proceeds of such sale shall
be paid to the related 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 related Owner Trustee an amount equal to the difference between
such proceeds and such Termination Value, together with certain other amounts
including, if applicable, unpaid Late Payment Premium and the Make-Whole Amount.
All funds to be paid to or deposited with the related Owner Trustee as described
in this paragraph shall, so long as the related Indenture shall not have been
discharged, be deposited directly with the Collateral Agent for deposit in the
Non-Shared Payments Account for the account of the related Indenture Trustee, as
assignee of the related Owner Trustee. Amounts in excess of the outstanding
principal amount of the Equipment Notes issued in respect of such Terminated
Units, any applicable premium or Make-Whole Amount thereon, and the then accrued
and unpaid interest thereon will be distributed by the related Indenture Trustee
in accordance with the terms of the related Indenture. The Lien of the related
Indenture shall terminate with respect to the Terminated Units after the full
Termination Value has been received by the related Indenture Trustee and, if all
amounts due the Owner Participant have also been paid, the related Lease shall
terminate with respect to such Terminated Units and the obligation of the
Company thereafter to make Basic Rent payments with respect thereto shall cease.
In the event any Terminated Unit is not sold by its proposed termination date,
the Lease relating thereto, including all the Company's obligations thereunder,
shall continue in effect. (Lease, Sections 3.5, 10.1, 10.2 and 10.4; Indenture,
Section 3.2)
The Owner Trustee shall have the option to retain the Terminated Units. In
such event, the Owner Trustee shall pay, or cause to be paid, to the Indenture
Trustee funds in an amount equal to the product obtained by multiplying the
unpaid principal amount of the Equipment Notes scheduled to be outstanding on
such date (after deducting therefrom the principal installment, if any, to be
paid on such date) by a fraction, the numerator of which shall be the Equipment
Cost of the Terminated Units and the denominator of which shall be the aggregate
Equipment cost of all Units then subject to the relevant Lease, Late Payment
Premium, if any, 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)
Early Purchase Option
The Company has an option to purchase on the respective Early Purchase
Option Date all (but not less than all) of the Equipment Units subject to such
Lease at a price equal to the Early Purchase Price of the Equipment Units. The
Company is required to give notice to the related Owner Trustee not less than 90
days prior to the date of its election to exercise an Early Purchase Option
described herein. So long as the related Indenture shall not have been
discharged, the amount of any Early Purchase Price shall be deposited by the
Company directly with the Collateral Agent for deposit in the Non-Shared
Payments Account for the account of the related Indenture Trustee, as assignee
of the related Owner Trustee, unless the Company exercises its right to assume
all obligations of the Owner Trustee under the Equipment Notes issued in respect
of such Equipment Units. Amounts in excess of the outstanding principal amount
of the Equipment Notes issued in respect of such Equipment Units and the then
accrued and unpaid interest thereon will be distributed by the related Indenture
Trustee in accordance with the terms of the related Indenture. The Lien of the
related Indenture shall terminate with respect to the Equipment Units after the
Early Purchase Price and the payment of all other amounts due and owing by the
Company with respect to such Equipment Units have been paid, unless the Company
has exercised its right to assume all obligations of the Owner Trustee under the
Equipment Notes issued in respect of such Equipment Units. (Lease, Section 22.1)
Events of Loss
If an Event of Loss occurs with respect to an Equipment Unit, the Company
shall give notice of the occurrence thereof (the "initial notice") to the
related Owner Trustee and Indenture Trustee as soon as reasonably practical and
in any event within 60 days after obtaining knowledge thereof. Within 60 days
after such initial notice the Company shall notify the applicable Owner Trustee
and Indenture Trustee ("second notice") of its election to either (i) pay the
Stipulated Loss Value of such Equipment Unit, together with certain additional
amounts, or (ii) if no Lease Event of Default under the applicable Lease has
occurred and is continuing, replace such Equipment Unit. If the Company elects
to replace such Equipment Unit, it must do so within 60 days after the second
notice with a railcar of the same Car Type of the same or newer model year (or
otherwise approved by the related Owner Trustee, which approval shall not be
unreasonably withheld), having a fair market value, utility, capacity, residual
value, remaining economic useful life and condition at least equal to the
Equipment Unit being replaced and then subject to a currently effective sublease
(which sublease shall
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be a permitted sublease under the terms of the relevant Lease) having a
remaining term of not less than six months. If the Company elects to pay the
Stipulated Loss Value of any Equipment Unit or fails to replace such Equipment
Unit within 60 days after the Company gives its second notice or if the Company
fails to give the second notice, it must pay the Stipulated Loss Value on the
Regular Distribution Date which is not less than 25 days nor more than 60 days
following the date of notice of the Company's election to pay the Stipulated
Loss Value or the expiration of the 60-day period, as the case may be. Such
payment will in all circumstances be at least sufficient to pay in full as of
the date of payment that portion of the aggregate unpaid principal of, and Late
Payment Premium, if any, on the outstanding related Equipment Notes together
with all unpaid interest thereon accrued to the date on which such amount is
paid, without the Make-Whole Amount. Upon making such payment, the Lien of the
related Indenture and Lease shall terminate with respect to such Equipment Unit,
title thereto shall be transferred to the Company or its designee and the
obligation of the Company thereafter to make rental payments with respect
thereto shall cease. The Stipulated Loss Value and other payments made by the
Company to the Collateral Agent shall be deposited in the Non-Shared Payments
Account for the account of the related Indenture Trustee, as assignee of the
related Owner Trustee. Amounts in excess of the allocable portion of the
outstanding principal amount of the Equipment Notes issued under the related
Indenture and then accrued and unpaid interest thereon to be prepaid as a result
of such Event of Loss will be distributed by the related Indenture Trustee in
accordance with the terms of the related Indenture. In the event of a partial
loss in respect of an Equipment Unit, the Company must use the insurance
proceeds or other available funds of the Company to repair the damage.
An Event of Loss with respect to any Equipment Unit shall mean any of the
following events: (i) damage or contamination of such Equipment Unit which, in
the Company's reasonable judgment (as evidenced by an Officer's Certificate of
the Company to such effect, confirmed by an Officer's Certificate by the
Manager), makes repair uneconomic or renders such Equipment Unit unfit for
commercial use; (ii) destruction of such Equipment Unit which constitutes a
total loss, or theft or disappearance (after reasonable efforts by the Company
to locate the same) thereof for a period exceeding twelve months (or, if
earlier, the end of the Basic Term or Renewal Term of the applicable Lease);
(iii) the permanent return of such Equipment Unit to the manufacturer pursuant
to any patent indemnity provisions; (iv) the taking or appropriating of title to
such Equipment Unit by any governmental authority under the power of eminent
domain or otherwise; or (v) the taking or requisitioning of such Equipment Unit
for use by any governmental authority or any agency or instrumentality thereof
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 any governmental authority,
agency or instrumentality of Mexico or any state 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 each Lease
include, among other things: (a) failure by the Company to make any payment of
Basic Rent, any purchase price to be paid by the Company for any Equipment Units
pursuant to such Lease or the related Participation Agreement, Stipulated Loss
Value or Termination Value within 10 Business Days after the same shall have
become due; provided, however, that, so long as any Equipment Note remains
outstanding, failure to pay Basic Rent on any Rent Payment Date will not be a
Lease Event of Default so long as the amount of Basic Rent actually paid by the
Company on any Rent Payment Date is sufficient to meet the Rated Obligations Due
on the Equipment Notes; (b) failure by the Company to make any payment of
Supplemental Rent, including indemnity or tax indemnity payments, but not
including Stipulated Loss Value, Termination Value or any purchase price to be
paid by the Company for any Equipment Unit pursuant to such Lease or the related
Participation Agreement, after the same shall have 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 related Owner Trustee, related Owner
Participant or related Indenture Trustee (provided, however, that, so long as
any Equipment Notes remain outstanding, failure to make payment of any of the
amounts referred to in clauses (i)-(iv) of the definition of Late Payment
Interest shall not constitute a Lease Event of Default); (c) failure to maintain
in effect insurance as required by such Lease, such failure not having been
waived by the Owner Trustee; (d) the Company shall (in any material respect) use
or permit any use of the Equipment or any portion thereof in a way which is not
permitted by such Lease (provided that such unauthorized use shall not
constitute a Lease Event of Default for a period of 45 days after the occurrence
thereof so long as (i) such unauthorized use is not the result of any willful
action of the Company and (ii) such unauthorized use is capable of being cured
and the Company diligently pursues such cure throughout such 45-day period) or
Lessee shall make or permit an unauthorized assignment or transfer of such
Lease; (e) failure by the Company to observe or perform (in any material
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respect) certain agreements or covenants contained in the Intercreditor
Agreement; (f) failure by the Company to perform or observe (in any material
respect) any other covenant or agreement to be performed or observed by it under
such Lease or other Operative Agreement to which it is a party (provided such
failure continues to be material) continuing for a period of 30 days after
notice of such failure from the related Owner Trustee, related Owner Participant
or the related Indenture Trustee, or, if such failure is capable of being
remedied (and the remedy requires an action other than, or in addition to, the
payment of money), for a period of 90 days after receipt of such notice so long
as the Company is diligently proceeding to remedy such failure and shall in fact
remedy such failure within such period; (g) any representation or warranty made
by the Company in such Lease or other Operative Agreement to which it is a party
being untrue or incorrect in any material respect at the time made and such
untruth or incorrectness continues to be material and unremedied; provided that
if such untruth or incorrectness is capable of being remedied, no such untruth
or incorrectness shall constitute a Lease Event of Default for a period of 30
days after receipt of such notice so long as the Company is diligently
proceeding to remedy such untruth or incorrectness and does in fact remedy such
untruth or incorrectness, including any adverse effects thereof, within such
period; (h) the occurrence of certain events of bankruptcy, reorganization or
insolvency of the Company; (i) the Manager shall have defaulted in the
performance of any of its obligations under the Management Agreement and the
Company shall have failed to exercise its rights under the Management Agreement
in respect of such default for a period of 30 days after receipt by the Company
of written notice from the related Lessor, Owner Participant or Indenture
Trustee demanding that such action be taken; (j) the Insurance Manager shall
have defaulted in the performance of any of its obligations under the Insurance
Agreement and the Company shall have failed to exercise its rights under the
Insurance Agreement in respect of such default for a period of 30 days after
receipt by the Company of written notice from the related Lessor, Owner
Participant or Indenture Trustee demanding that such action be taken; and (k)
the Administrator shall have defaulted in the performance of any of its
obligations under the Administrative Services Agreement and the Company shall
have failed to exercise its rights under the Administrative Services Agreement
in respect of such default for a period of 30 days after receipt by the Company
of written notice from the related Lessor, Owner Participant or Indenture
Trustee demanding that such action be taken. There are no cross-default
provisions in the Leases and events resulting in a Lease Event of Default under
any particular Lease will not necessarily result in a Lease Event of Default
under any other Lease. (Lease, Section 14)
Remedies Upon a Lease Event of Default
If a Lease Event of Default has occurred and is continuing and the
applicable Lease has been declared to be in default (or deemed to have been
declared in default), the related Indenture Trustee, as assignee of the related
Owner Trustee's rights under such Lease, may, subject to a stay of such rights
if the Company were to become a debtor in a bankruptcy or reorganization case
under the Bankruptcy Code, exercise one or more of the remedies provided in such
Lease with respect to the Equipment subject thereto. These remedies include the
right, subject to the Intercreditor Agreement, to repossess the Equipment, to
terminate such Lease and any Sublease and to require the Company to pay as
liquidated damages any unpaid rent plus, at the related Indenture Trustee's
option, any one of the following amounts: (i) the excess of the present value of
all rental payments for such Equipment Unit for the remainder of the Basic Term
or any Renewal Term then in effect over the present value of the then fair
market rental value of such Equipment Unit; (ii) the excess of the Stipulated
Loss Value of such Equipment Unit over the fair market sale value of such
Equipment Unit; or (iii) the higher of the Stipulated Loss Value for such
Equipment Unit or the fair market sales value of such Equipment Unit. If payment
is made pursuant to the foregoing clause (iii), such Equipment Unit shall be
transferred to the Company. (Lease, Section 15.1)
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 Leases. In such event, there could be no assurance that the amount of
any claim for damages under the Leases 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 a Lease by the Company or its
bankruptcy trustee would not deprive the related Indenture Trustee of its
security interest in the Equipment in an 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 the related Indenture
Trustee upon the occurrence of a Lease Event of Default.
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Insurance
Each Lease requires the Company, at its own expense, to keep or cause the
Insurance Manager under the Insurance Agreement to keep the Equipment insured by
a reputable insurance company or companies in amounts and against risks and with
deductibles and terms and conditions not less than the insurance, if any,
maintained by Company or GATC with respect to similar equipment which it owns or
leases, 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 railcars. (Lease, Section 12.1)
Each Lease requires that insurance against physical damage to any Unit
shall be in an amount not less than the Stipulated Loss Value attributable
thereto, subject to a limit of not less than $10,000,000 per occurrence (except
for a $10,000,000 annual aggregate each for flood and earth movement), provided
that such coverage may provide for deductible amounts of not more than
$1,000,000 per occurrence. (Lease, Section 12.1(a)) The insurance maintained
pursuant to the Lease is required to provide that (i) so long as the Equipment
Notes remain outstanding, the proceeds up to the Stipulated Loss Value for any
loss or damage to any Unit shall be made to the Indenture Trustee under a
standard loss payable clause, and thereafter to Lessor and (ii) so long as no
Lease Event of Default shall have occurred and be continuing, the Company will
be entitled, at its own expense, to make all proofs of loss and take all other
steps necessary to collect the proceeds of such insurance. (Lease, Section
12.2(a)) In lieu of maintaining the physical damage insurance required, the
Company may self-insure with respect to the Equipment for such amounts and
against such risks as shall be consented to by Lessor and the Indenture Trustee,
which consent shall be based upon reasonable practices then in effect in the
railcar leasing and insurance industries and upon the financial condition of the
Lessee taking into account the Lessee's capital structure and that the Lessee is
a special purpose vehicle. (Lease, Section 12.2(b))
Each Lease requires that public liability insurance be maintained naming
the Owner Participant, the Lessor (as Lessor of the Equipment and in its
individual capacity), the Indenture Trustee and the Loan Participant as
additional insureds (but only with respect to liability arising out of or
related to the Operative Agreements and the Equipment) against bodily injury,
death or property damage arising out of the use or operation of the Equipment
with general and excess liability limits of not less than $100,000,000 per
occurrence or in the aggregate, provided that such coverage may provide for
deductible amounts not exceeding the lesser of (x) $10,000,000 or (y) the
difference (not less than zero (0)) between (i) the level of the then current
deductible maintained by GATC for the GATC Fleet (or if GATC, its successors and
assigns is no longer engaged in the railcar leasing business under full service
leases, the average level of the then current deductible amounts maintained by
the three largest companies engaged in such business in the United States), and
(ii) such amount of additional coverage as may be obtained by the Lessee in
reduction of the then current deductible maintained by GATC for an additional
incremental annual premium payable by the Lessee in the aggregate in respect of
the entire Company Fleet of up to $75,000 (adjusted periodically for inflation).
(Lease, Section 12.1(b)) Each Lease requires the Company to use its reasonable
efforts to obtain public liability insurance policies stipulating that coverage
thereunder will not be invalidated (as to the Owner Participant, Loan
Participant, Lessor, as Lessor of the Equipment and in its individual capacity,
and the Indenture Trustee) due to any action or inaction of the Company or any
other person (other than the Owner Participant, Loan Participant, Lessor or the
Indenture Trustee, but only in respect of their respective coverages), but shall
be under no obligation to obtain such policies containing such stipulations if
they are not available to the Company at commercially reasonable rates in the
markets in which Company has then placed its insurance program. (Lease, Section
12.3(b))
The insurance required under the Lease may be part of a company-wide
insurance program of the Manager, including risk-retention and self-insurance.
Any policy of insurance maintained in accordance with the Lease and any policy
purchased in substitution or replacement for any of such policies shall provide
that if any such insurance is canceled or terminated for any reason whatever
(other than upon normal policy expiration), Lessor, the Indenture Trustee, Loan
Participant and Owner Participant shall receive 30 days' prior written notice of
such cancellation or termination. (Lease, Section 12.1)
In the event any public liability insurance policy or coverage thereunder
which are required by the Leases is not available to the Company in the
commercial insurance market on commercially reasonable terms, each Lessor agrees
not to unreasonably withhold its agreement to waive such requirement. (Lease,
Section 12.3(c)) In such circumstances the Lessee will, absent a waiver from the
Owner Participant of this requirement, be required to hold some or all cash that
would otherwise be available for dividends to GATC in the Special Insurance
Reserve Account for the benefit of the Lessor and Owner Participant. In the
event that the Company is unable to procure the waiver of such certain insurance
coverages required by a Lease, or the waiver by the Owner Participant of the
requirement to hold cash in the Special Insurance Reserve Account, the Company
has the option, in certain instances, to purchase the Equipment at a purchase
price equal to the greater of the Termination Value for such Units or the fair
market value of the Units as of the date of purchase (including the payment of
make-whole amount, if any, or other premium). The Lien of the related Indenture
shall terminate with respect to the Equipment Units after the payment of such
purchase price. (Participation Agreement, Section 6.9__)
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THE PARTICIPATION AGREEMENTS
The following summary relates to, and makes use of terms defined in, the
Participation Agreements. Section references in parentheses are to the relevant
sections of the Participation Agreements unless otherwise indicated. The
statements under this caption are a summary of material terms of the
Participation Agreements.
Pursuant to the Participation Agreements, the Company is required to
indemnify each Owner Participant, each Owner Trustee, each Indenture Trustee and
the Pass Through Trustee for certain losses, fees and expenses arising out of
the use or operation of the Equipment Units, and for certain other matters.
(Participation Agreement, Section 7.2) In addition, the Company is required to
indemnify the Loan Participant, each Owner Participant, each Owner Trustee and
each Indenture Trustee for certain taxes in connection with the ownership,
lease, sale or use of the Equipment. (Participation Agreement, Section 7.1) GATC
is required to indemnify each Owner Participant, each Owner Trustee, each
Indenture Trustee and the Pass Through Trustee for any failure by GATC to
perform any of its obligations under any of the Operative Agreements to which it
is a party, and for certain other matters. (Participation Agreements, Section
7.3)
Each Participation Agreement provides that if the related Owner Participant
or any affiliate thereof is or acquires, is acquired by, merges or otherwise
consolidates with any company or affiliate thereof which competes (directly or
indirectly) (other than as a passive investor or loan participant in the
financing of equipment or facilities used in full service railcar leasing) with
the Company or any affiliate of the Company, the Company may, on the Regular
Distribution Date which next succeeds the 25th day following the date of notice
to the related Owner Trustee and the related Indenture Trustee, purchase the
applicable Equipment Units within the Equipment Group for a purchase price equal
to either (i) the Termination Value for such Equipment Units calculated as of
such Regular Distribution Date, together with all other amounts due and owing by
the Company with respect to such Equipment Units, including, without limitation,
all accrued and unpaid rental payments and any Make-Whole Amount or (ii) if the
Company has elected to assume all of the related Owner Trustee's obligations in
respect of the Equipment Notes issued with respect to such Equipment Units, the
difference between the Termination Value for such Equipment Units, together with
all other amounts due and owing by the Company with respect to such Units, and
the product obtained by multiplying the unpaid principal amount of the Equipment
Notes scheduled to be outstanding as of the relevant Regular Distribution Date.
If the Company elects to exercise its right to purchase the applicable Equipment
Units within the Equipment Group, unless the Company elects to assume the
related Equipment Notes, the purchase price shall be used to prepay the
Equipment Notes issued with respect to such Equipment Units and the applicable
Make-Whole Amount, if any, shall be paid. See "Description of the Equipment
Notes--Prepayments." (Participation Agreement, Section 6.9)
THE INSURANCE AGREEMENT
The following summary relates to, and makes use of terms defined in, the
Insurance Agreement. Section references in parentheses are to the relevant
sections of the Insurance Agreement unless otherwise indicated. The statements
under this caption are a summary of material terms of the Insurance Agreement.
General
The Insurance Agreement establishes the terms and conditions pursuant to
which GATC shall act as insurance manager (the "Insurance Manager") on behalf of
the Company and perform certain specified insurance services with respect to
Equipment leased by the Company under the Leases. Under the Insurance Agreement,
the Insurance Manager will generally manage and administer all insurance
coverage placed or maintained on the Equipment as of the Closing Date, and has
the authority thereafter to enter into, administer and terminate all insurance
relating to the Equipment, subject to the terms and conditions of the Insurance
Agreement and the requirements of the applicable Lease. (Insurance Agreement,
Section 2.1) See "The Leases--Insurance."
The Insurance Manager is required to use reasonable care and diligence,
consistent with customary commercial practice, as would be used by a prudent
Person in the railcar leasing industry and the level of care and diligence
utilized by the Insurance Manager in its business and the management of its
fleet. (Insurance Agreement, Section 3.1) Under the Insurance Agreement, the
Insurance Manager will maintain or cause to be maintained, with insurers with
whom the
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Insurance Manager and its Affiliates insure equipment owned or managed by them
(or under certain self-insurance programs), (i) public liability insurance, in
amounts not less than, and with deductibles and retentions not greater than,
those customarily maintained by the Insurance Manager and its Affiliates for
similar equipment owned or managed by them and (ii) casualty insurance, in
amounts not less than, against risks and with deductible and retention amounts
not greater than, those customarily maintained by the Insurance Manager and its
Affiliates for similar equipment owned or managed by them, subject, in each
case, to compliance with certain insurance-related provisions in the Lease.
(Insurance Agreement, Section 2.2)
In addition to being required to maintain certain specified types and
levels of insurance in respect of the Equipment, the Insurance Manager will also
perform certain other duties under the Insurance Agreement, including, but not
limited to: (i) furnishing promptly to the Company and the Manager under the
Management Agreement copies of insurance policies and certificates of insurance
with respect to the Equipment; and (ii) notifying the Company, the Manager under
the Management Agreement, the Owner Participants and the Lessors immediately
upon (x) receipt of any notice of lapse of insurance coverage or decrease in
such coverage below the limits required under the Lease or (y) any default in
the payment of any premium. (Insurance Agreement, Section 2.3)
Reimbursement of Insurance Manager
The Company will reimburse the Insurance Manager monthly in an amount equal
to the greater of (i) an appropriate share of the Insurance Manager's insurance
costs for all railcars in the Total Managed Fleet, allocated on a basis
customarily used by the Insurance Manager or its affiliates in allocating
insurance costs or (ii) the Insurance Manager's marginal insurance costs
resulting from such insurance coverage, as reasonably determined by the
Insurance Manager. If insurance coverage is maintained through a separate
policy, whether obtained directly by or on behalf of the Company, the cost of
such policy will be borne by the Company. Furthermore, there will be no
apportionment of premiums in respect of insurance maintained by the Insurance
Manager under the Insurance Agreement for periods extending beyond the Insurance
Agreement's termination if coverage is effected through blanket insurance
policies which also cover other property owned, leased or managed by the
Insurance Manager or its affiliates. (Insurance Agreement, Section 4.1)
Other Matters
The term of the Insurance Agreement shall continue for the term of the
Leases. (Insurance Agreement, Section 6.1) The Insurance Manager's services
under the Insurance Agreement may, however, be terminated by the Company upon
certain events, including: (i) the Insurance Manager's failure to perform in any
material respect any of its obligations under the Insurance Agreement where such
failure materially and adversely affects the rights of holders of the Equipment
Notes, and such failure is not remedied within 60 days of receipt of written
notice, subject to certain conditions and exceptions or (ii) certain events
involving the voluntary or involuntary bankruptcy of the Insurance Manager,
subject to certain conditions and exceptions. (Insurance Agreement, Section 6.2)
The Insurance Manager may not resign as Insurance Manager nor may it be
terminated in whole or in part unless a successor Insurance Manager has been
appointed by the Company, the Owner Trustees, the Owner Participants and the
Indenture Trustees and has accepted such appointment and the Company has
received written confirmation from the Rating Agencies that no lowering or
withdrawal of the then current ratings on the Certificates will occur as a
result of the selection of the successor Insurance Manager. (Insurance
Agreement, Section 6.3)
The Insurance Manager is required to indemnify the Company, the Owner
Trustees, the Owner Participants, the Indenture Trustees, the Collateral Agent,
their affiliates and their respective directors, officers, employees and agents
for certain losses, fees and expenses and for certain other matters arising out
of its actions under the Insurance Agreement. (Insurance Agreement, Section 7.1)
The Company is also required to indemnify the Insurance Manager (to the extent
occurring or arising at a time when the Company and the Insurance Manager are
not Affiliates) for certain losses, fees and expenses and for certain other
matters arising out of its actions under the Insurance Agreement. (Insurance
Agreement, Section 7.2)
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FORMATION OF THE PASS THROUGH TRUST
The Pass Through Trust will be formed, and the related Pass Through
Certificates will be issued, pursuant to a Trust Supplement to be entered into
between the Pass Through Trustee and the Company in accordance with the terms of
the Basic Agreement. Concurrently with the execution and delivery of the Trust
Supplement, the Pass Through Trustee, on behalf of the Pass Through Trust formed
thereby, will enter into a Participation Agreement with respect to each
Equipment Group. Pursuant to such Participation Agreement, the Pass Through
Trustee, on behalf of the Pass Through Trust, will purchase the Equipment Notes
issued with respect to such Equipment Group so that all of the Equipment Notes
held in the Pass Through Trust will have an interest rate equal to the interest
rate on the Pass Through Certificates. The final distribution date of the Pass
Through Certificates will correspond to the Rated Maturity Date on the related
Equipment Notes although it is expected that the Equipment Notes will be fully
amortized by the Scheduled Note Maturity Date of the related Equipment Notes.
The Pass Through Trustee will distribute the amount of payments of principal,
Late Payment Premium, Make-Whole Amount, if any and interest received by it as
holder of the Equipment Notes to the Certificateholders of the Pass Through
Trust. See "Description of the Pass Through Certificates" and "Description of
the Equipment Notes."
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The following summary relates to the Basic Agreement and the Trust
Supplement, the Pass Through Trust to be formed thereby and the Pass Through
Certificates to be issued by the Pass Through Trust. Section references in
parentheses are to the relevant sections of the Basic Agreement unless otherwise
indicated. The statements under this caption are a summary of material terms of
the Basic Agreement and the Trust Supplement. This summary makes use of terms
defined in the Basic Agreement and the Trust Supplement.
General
Each Pass Through Certificate offered hereby will represent a fractional
undivided interest in the Pass Through Trust. The property of the Pass Through
Trust will consist of the Equipment Notes to be issued on a nonrecourse basis by
each of the Owner Trustees in connection with three separate leveraged lease
transactions to finance not more than 80% of the cost to such Owner Trustees of
certain railroad tank cars and covered hopper cars to be purchased by such Owner
Trustees from the Company and leased back to the Company. All of the Equipment
Notes acquired by the Pass Through Trust will have an interest rate equal to the
interest rate of the Pass Through Certificates and will have a Rated Maturity
Date corresponding to the final distribution date of the Pass Through
Certificates. The aggregate principal amount of the Equipment Notes will be the
same as the aggregate principal amount of the Pass Through Certificates to be
issued by the Pass Through Trust. For a description of the Equipment Notes and
the Indentures, see "Description of the Equipment Notes."
The Pass Through Certificates will be issued only in fully registered form,
without interest coupons, in minimum denominations of $100,000 and integral
multiples of $1,000 in excess thereof. (Sections 2.01. 2.02 and 3.01) Pass
Through Certificates will be issued at the closing of the Offering only against
payment in immediately available funds.
Interest will be passed through to Certificateholders of the Pass Through
Trust at the rate per annum set forth on the cover page of this Prospectus and
will be calculated on the basis of a 360-day year of twelve 30-day months.
The Pass Through Certificates represent interests only in the Pass Through
Trust and all payments and distributions shall be made only from the Trust
Property. (Section 2.01) The Pass Through Certificates do not represent an
interest in or obligation of the Company, GATC, the Pass Through Trustee or the
Owner Trustee in their individual capacities, the Owner Participant, or any
affiliate of any thereof.
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Book-Entry Registration
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 & Co. ("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 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 the Pass Through 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.
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Definitive Certificates. 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) DTC advises
the Pass Through Trustee in writing that DTC is unwilling or unable to continue
as depository with respect to such Pass Through Certificates and the Pass
Through Trustee or the Company is unable to locate a qualified successor within
90 days of such notice, (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 not less than a
majority in aggregate percentage interest in the Pass Through Trust 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.
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.
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 Pass Through Trust Agreement,
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 Pass
Through 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.
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 Pass Through Trust Agreement. 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.
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 Assumed Debt, 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, Late Payment
Premium and Make-Whole Amount, if any, and interest on the Equipment Notes will
be distributed by the Pass Through Trustee to the Certificateholders on the date
such receipt is confirmed, except in certain cases when some or all of such
Equipment Notes are in default. See "Events of Default and Certain Rights Upon
an Event of Default."
Payments of interest on the Equipment Notes are scheduled to be received by
the Pass Through Trustee on each Regular Distribution Date, commencing October
20, 1998, until the final distribution date for the Pass Through Trust, and
payments of principal on the Equipment Notes are scheduled to be received in
specified amounts by the Pass Through Trustee on each Regular Distribution Date
commencing ______________ 20, ____ (such regularly scheduled payments of
principal of, and interest on, the Equipment Notes are herein referred to as
"Regular Payments"). The Pass Through Trustee will distribute to the
Certificateholders on each Regular Distribution Date all Regular Payments, the
receipt of which is confirmed by the Pass Through Trustee on such Regular
Distribution Date. Each such distribution
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of Regular Payments will be made by the Pass Through Trustee to the holders of
record of the Pass Through Certificates on the fifteenth day immediately
preceding such Regular Distribution Date, subject to certain exceptions.
(Sections 4.01 and 4.02) If a Regular Payment is not received by the Pass
Through Trustee on a Regular Distribution Date but is received within five days
thereafter, it will be distributed on the date received to such holders of
record. If it is received after such five-day period, it will be treated as a
Special Payment and distributed as described below.
Each Certificateholder will be entitled to receive a pro rata share of any
distribution in respect of Regular Payments of principal, Late Payment Premium
and Make-Whole Amount, if any, and interest made on the Equipment Notes held by
the Pass Through Trust. After a partial or full prepayment or default in respect
of some or all of such Equipment Notes, a Certificateholder should refer to the
information with respect to the Pool Balance and the Pool Factor for the Pass
Through Trust reported periodically by the Pass Through Trustee. See "--Pool
Factors" and "--Statements to Certificateholders."
Payments of principal, Late Payment Premium and Make-Whole Amount, if any,
and interest received by the Pass Through Trustee on account of a partial or
full prepayment, if any, of the Equipment Notes and payments received by the
Pass Through Trustee following a default in respect of such Equipment Notes
(including payments received by the Pass Through Trustee on account of the
purchase by the related 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 on the 20th day of a month (a
"Special Distribution Date"), except in the case of a refinancing of such
Equipment Notes which will be distributed on the date of such refinancing, which
may occur on any Business Day. Not less than 20 days' notice of such Special
Payments or refinancing shall be provided by the Pass Through Trustee to the
holders of the Pass Through Certificates. See "Description of the Equipment
Notes--Prepayments" and "Description of the Pass Through Certificates--Events of
Default and Certain Rights Upon an Event of Default." 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 on the fifteenth day preceding such Special Distribution
Date. See "Description of the Equipment Notes--Prepayments" and "Description of
the Pass Through Certificates--Events of Default and Certain Rights Upon an
Event of Default."
The Pass Through Trust Agreement requires that the Pass Through Trustee
establish and maintain, for the Pass Through Trust and for the benefit of the
Certificateholders of the Pass Through Trust, one or more non-interest bearing
accounts (the "Certificate Account") for the deposit of payments representing
Regular Payments on the Equipment Notes. (Section 4.01) The Pass Through Trust
Agreement also requires that the Pass Through Trustee establish and maintain,
for the Pass Through Trust and for the benefit of the Certificateholders, one or
more accounts (the "Special Payments Account") for the deposit of payments
representing Special Payments.
Pursuant to the terms of the Pass Through Trust Agreement, the Pass Through
Trustee is required to deposit any Regular Payments received by it in the
Certificate Account and to deposit any Special Payments so received by it in the
Special Payments Account. (Section 4.01) 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 4.02)
At such time, if any, as the Pass Through Certificates are issued in the
form of Definitive Pass Through Certificates and not to Cede, as nominee for
DTC, distributions by the Pass Through Trustee from the Certificate Account or
the Special Payments Account on a Regular Distribution Date or a Special
Distribution Date, as appropriate, will be made by check mailed to each
Certificateholder of record on the applicable record date at its address
appearing on the register maintained by the Pass Through Trustee. (Section 4.02)
The final distribution for the Pass Through Trust, however, will be made only
upon presentation and surrender of the Pass Through Certificates 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, specifying the
date set for such final distribution and the amount of such distribution.
(Section 11.01) See "Termination of the Pass Through Trust."
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 12.10)
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Pool Factors
Unless there has been a prepayment, a payment of less principal than is
provided for by the Scheduled Amortization Schedule on the Equipment Notes or a
default in respect of one or more issues of the Equipment Notes held by the Pass
Through Trust, the Pool Factor for the Pass Through Trust will decline in
proportion to the repayments of principal on the Equipment Notes in accordance
with the Scheduled Amortization Schedule as described in "Description of the
Equipment Notes--Principal and Interest Payments--Principal." In the event of a
partial or full prepayment or default, the Pool Factor and the Pool Balance will
be recomputed after giving effect thereto and notice thereof will be mailed to
the Certificateholders.
The "Pool Balance" for the Pass Through Trust indicates, as of any date,
the aggregate unpaid principal amount of the Equipment Notes on such date plus
any amounts in respect of principal on such Equipment Notes held by the Pass
Through Trustee and not yet distributed. The Pool Balance for the Pass Through
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 distribution thereof to be made on that date.
The "Pool Factor" for the Pass Through Trust, as of any date, is the
quotient (rounded to the seventh decimal place) computed by dividing (i) the
Pool Balance, by (ii) the aggregate original principal amount of the Equipment
Notes. The Pool Factor 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 distribution thereof to be made on
that date. The Pool Factor for the Pass Through Trust will initially be
1.0000000, and thereafter, the Pool Factor will decline as described above to
reflect reductions in the Pool Balance of the Pass Through Trust. The amount of
a Certificateholder's pro rata share of the Pool Balance of the Pass Through
Trust can be determined by multiplying the original denomination of the
Certificateholder's Pass Through Certificate by the Pool Factor for the Pass
Through Trust as of the applicable Regular Distribution Date or Special
Distribution Date.
As of the date of issuance of the Pass Through Certificates, and assuming
that no prepayment, purchase or default in respect of any Equipment Notes shall
occur, the repayments of principal of such Equipment Notes in accordance with
both the Scheduled Amortization Schedule and the Rated Amortization Schedule and
the resulting Pool Factors for the Pass Through Trust after taking into account
each such repayment schedule are set forth in Appendix B. However, the Pool
Factor on any particular Regular Distribution Date may fall within the values
assigned for the Scheduled and Rated Pool Factors set forth on Appendix B to the
extent that payments are not made in accordance with either schedule.
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 Regular
Payment or Special Payment to Certificateholders of record 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, as to (i) and
(ii) below):
(i) the amount of such distribution allocable to principal and
the amount allocable to Late Payment Premium or Make-Whole Amount, if
any;
(ii) the amount of such distribution allocable to interest;
(iii) the Scheduled Pool Balance, Rated Pool Balance, Scheduled
Pool Factor and Rated Pool Factor; and
(iv) the Pool Balance and Pool Factor, if different from the Pool
Balances and Pool Factors provided in (iii) above. (Section 4.03 of
the Basic Agreement and Section 4.01 of the Trust Supplement)
So long as the Pass Through Certificates are registered in the name of
Cede, as nominee for DTC, on the applicable record date prior to such Regular
Distribution Date or 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
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books as holding interests in the Pass Through Certificates on such record date.
On such 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.
In addition, after the end of each calendar year, the Pass Through Trustee
will prepare for each Certificateholder of record 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 Pass Through 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 4.03) 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.
In addition to the statements provided for above, the Manager will provide
to the Certificateholders semiannually a statement setting forth certain
information regarding the Equipment, including Sublease rates and utilization
rates for such period.
At such time, if any, as the Pass Through Certificates are issued in the
form of Definitive Pass Through Certificates, the Pass Through Trustee will
prepare and deliver the information described above to each Certificateholder of
record 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
The Pass Through Trustee, as holder of the Equipment Notes, has the right
to vote and give consents and waivers in respect of such Equipment Notes under
the applicable Indenture. The Pass Through Trust 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 at its own discretion and the
circumstances in which the Pass Through Trustee shall seek instructions from the
Certificateholders of the Pass Through Trust. In circumstances in which the Pass
Through Trustee is required to seek instructions from the Certificateholders,
the principal amount of the Equipment Notes 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 taking the
corresponding position. (Sections 6.01 and 10.01)
Events of Default and Certain Rights Upon an Event of Default
The Pass Through Trust Agreement defines an event of default (an "Event of
Default") as the occurrence and continuance of an event of default under one or
more of the Indentures (an "Indenture Event of Default"). The Indenture Events
of Default are described in "Description of the Equipment Notes--Indenture
Events of Default, Notice and Waiver" below. The Indenture Events of Default
will include events of default under the related Lease (except in certain
limited circumstances).
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 Pass Through Trust will be deemed to be cured.
The Pass Through Trust Agreement provides that, as long as an Indenture
Event of Default under any Indenture shall have occurred and be continuing, the
Pass Through Trustee may vote all of the Equipment Notes issued under such
Indenture, and upon the direction of the holders of Pass Through Certificates
evidencing fractional undivided interests aggregating not less than a majority
in interest shall vote not less than a corresponding majority of such Equipment
Notes in favor of directing the related Indenture Trustee to declare the unpaid
principal amount of all Equipment Notes issued under such Indenture and any
accrued and unpaid interest or Late Payment Premium thereon to be due and
payable. The Pass Through Trust Agreement also provides that, if an Indenture
Event of Default under any Indenture shall have
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occurred and be continuing, the Pass Through Trustee may, and upon the direction
of the holders of Pass Through Certificates evidencing fractional undivided
interests aggregating not less than a majority in interest shall, subject to
certain conditions, vote all of the Equipment Notes issued under such Indenture
in favor of directing the related Indenture 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
under such Indenture. (Sections 6.01 and 6.04)
As an additional remedy if an Indenture Event of Default shall have
occurred and be continuing, the Pass Through Trust Agreement provides that the
Pass Through Trustee may, and upon the direction of the holders of Pass Through
Certificates evidencing fractional undivided interests aggregating not less than
a majority in interest shall, sell all or part of the Equipment Notes issued
under such Indenture for cash to any Person. (Sections 6.01 and 6.02) Any
proceeds received by the Pass Through Trustee upon any such sale shall be
deposited in the Special Payments Account and shall be distributed to the
Certificateholders on a Special Distribution Date. (Sections 4.01 and 4.02) The
market for Equipment Notes in default may be very limited and there can be no
assurance that they could be sold for a reasonable price. If the Pass Through
Trustee sells any such Equipment Notes with respect to which an Indenture Event
of Default exists for less than their outstanding principal amount, the
Certificateholders will receive a smaller amount of principal distributions than
anticipated and will not have any claim for the shortfall against the Company,
the related Owner Trustee, the related Owner Participant or the Pass Through
Trustee. Furthermore, neither the Pass Through Trustee nor the
Certificateholders could take any action with respect to any remaining Equipment
Notes held by the Pass Through Trust so long as no Indenture Event of Default
existed with respect thereto.
Any amount distributed to the Pass Through Trustee by the Indenture Trustee
under any Indenture following an Indenture Event of Default under such Indenture
shall be deposited in the Special Payments Account and shall be distributed to
the Certificateholders on a Special Distribution Date. In addition, if,
following an Indenture Event of Default under any Indenture, the related Owner
Trustee exercises its option to purchase the outstanding Equipment Notes issued
under such Indenture as described under "Description of the Equipment Notes--
Indenture Events of Default, Notice and Waiver", the price paid by such Owner
Trustee to the Pass Through Trustee for the Equipment Notes issued under such
Indenture shall be deposited in the Special Payments Account and shall be
distributed to the Certificateholders on a Special Distribution Date. (Sections
4.01 and 4.02)
Any funds held by the Pass Through Trustee in the Special Payments Account
representing either payments received with respect to any Equipment Notes
following an Indenture Event of Default or proceeds from the sale by the Pass
Through Trustee of any such Equipment Notes, 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 4.01 and 4.04)
The Pass Through Trust Agreement provides that the Pass Through Trustee
shall, within 90 days after the occurrence of a default (as defined below), give
to the Certificateholders notice, transmitted by mail, of all uncured or
unwaived defaults with respect to the Pass Through Trust known to it; provided
that, except in the case of default in the payment of principal, Late Payment
Premium or Make-Whole Amount, if any, or interest on any of the Equipment Notes,
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" shall mean any event which is, or
with the giving of notice or the passage of time or both would become, an
Indenture Event of Default. (Section 7.02)
The Pass Through Trust Agreement contains a provision entitling the Pass
Through Trustee, subject to the duty of the Pass Through Trustee during a
default to act with the required standard of care, to be indemnified by the
holders of the Pass Through Certificates before proceeding to exercise any right
or power under the Pass Through Trust Agreement at the request of such
Certificateholders. (Section 7.03)
In certain cases, the holders of Pass Through Certificates evidencing
fractional undivided interests aggregating not less than a majority in interest
may on behalf of the holders of all Pass Through Certificates waive any past
default or Event of Default with 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 the deposit of any Regular Payment
or Special Payment or in the distribution of any such payment, (ii) a default in
payment of the principal, Late Payment Premium or Make-Whole Amount, if any, or
interest on any of the Equipment Notes, and (iii) a default in respect of any
covenant
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<PAGE>
or provision of the Pass Through Trust Agreement that cannot be modified or
amended without the consent of each Certificateholder affected thereby. (Section
6.05) For a discussion of waivers of Indenture Events of Default under the
Indentures, see "Description of the Equipment Notes--Indenture Events of
Default, Notice and Waiver."
Modifications of the Pass Through Trust Agreement
The Pass Through Trust Agreement contains provisions permitting the Company
and the Pass Through Trustee to enter into supplemental trust agreements,
without the consent of the holders of any of the Pass Through Certificates, (i)
to add to the covenants of the Company for the benefit of the holders of such
Pass Through Certificates, (ii) to cure any ambiguity, to correct any manifest
error or to correct or supplement any defective or inconsistent provision of the
Pass Through Trust Agreement 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
the Pass Through Certificates, (iii) to evidence and provide for a successor
Pass Through Trustee for the Pass Through Trust, or (iv) to make any other
amendments or modifications which shall only apply to Pass Through Certificates
of one or more series to be issued thereafter, provided that in each case, such
modification does not adversely affect the status of a Pass Through Trust as a
grantor trust under Subpart E, Part I of Subchapter J of Chapter 1 of Subtitle A
of the Code (as hereinafter defined) for U.S. federal income tax purposes.
(Section 9.01)
The Pass Through Trust Agreement also contains provisions permitting the
Company and the Pass Through Trustee, with the consent of the Certificateholders
evidencing fractional undivided interests aggregating not less than a majority
in interest of the Pass Through Trust, to execute supplemental trust agreements
adding any provisions to or changing or eliminating any of the provisions of the
Pass Through Trust Agreement, to the extent relating to the Pass Through Trust,
or modifying the rights or obligations 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 distributions in respect of any Pass Through
Certificate, 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 to institute suit for the enforcement of any such payment when
due, (b) permit the disposition of any Equipment Note, except as provided in the
Pass Through Trust Agreement, (c) reduce the percentage of the aggregate
fractional undivided interests of the Pass Through Trust provided for in the
Pass Through Trust Agreement, the consent of the holders of which is required
for any such supplemental trust agreement or for any waiver provided for in the
Pass Through Trust Agreement, (d) modify any of the provisions relating to
supplemental agreements that may be executed with the consent of
Certificateholders as described in this paragraph or relating to the rights of
the Certificateholders in respect of the waiver of Events of Default or receipt
of payment or (e) adversely affect the status of the Pass Through Trust as a
grantor trust under Subpart E, Part I of Subchapter J of Chapter 1 of Subtitle A
of the Code for U.S. federal income tax purposes. (Section 9.02)
Modification and Consents and Waivers under the Indentures and Related
Agreements
In the event that the Pass Through Trustee, as the holder of any Equipment
Notes, receives a request for its consent to any amendment, modification, waiver
or supplement under an Indenture, any Lease or other document relating to such
Equipment Notes, which requires the consent of the Certificateholders of the
Pass Through Trust, the Pass Through Trustee shall mail a notice of such
proposed amendment, modification, waiver or supplement to each Certificateholder
as of the date of such notice. The Pass Through Trustee shall request
instructions from the Certificateholders as to whether or not to consent to such
amendment, modification, waiver or supplement. The Pass Through Trustee shall
vote or consent with respect to such Equipment Notes in the same proportion as
the Pass Through Certificates were actually voted by the holders thereof by a
certain date. Notwithstanding the foregoing, if an Event of Default shall have
occurred and be continuing, the Pass Through Trustee, subject to the voting
instructions referred to under "Description of the Pass Through Certificates--
Events of Default and Certain Rights Upon an Event of Default," may in its own
discretion consent to such amendment, modification, waiver or supplement, and
may so notify the Indenture Trustee to which such consent relates. (Section
10.01)
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Termination of the Pass Through Trust
The obligations of the Company and the Pass Through Trustee with respect to
the Pass Through Trust will terminate upon the distribution to
Certificateholders of all amounts required to be distributed to them pursuant to
the Pass Through Trust Agreement and the disposition of all property held in the
Pass Through Trust. The Pass Through Trustee will mail to each Certificateholder
of record a notice of the termination of the Pass Through Trust, specifying the
amount of the proposed final payment and the proposed date for the distribution
of such final payment. The final distribution to any Certificateholder 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 11.01)
Merger, Consolidation and Transfer of Assets
The Company will be prohibited from consolidating with or merging into any
other corporation or transferring substantially all of its assets as an entirety
to any other corporation. (Section 5.02)
The Pass Through Trustee
The First National Bank of Chicago will be the Pass Through Trustee for the
Pass Through Trust. The Pass Through Trustee and any of its affiliates may hold
Pass Through Certificates in their own names. (Section 7.05) With certain
exceptions, the Pass Through Trustee makes no representations as to the validity
or sufficiency of the Pass Through Trust Agreement, the Pass Through
Certificates, the Equipment Notes, the Indentures, the Leases or other related
documents. (Section 7.04) The First National Bank of Chicago will also be the
Indenture Trustee of the Indentures under which the Equipment Notes are issued
and the Collateral Agent under the Intercreditor Agreement. An affiliate of the
parent of The First National Bank of Chicago is one of the Owner Participants.
See "Risk Factors -- Potential Conflicts of Interest."
The Pass Through Trustee may resign 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 Pass Through Trustee or becomes incapable
of acting as Trustee or becomes insolvent, the Company may remove such Pass
Through Trustee. In addition, any holder of Pass Through Certificates for at
least six months may in such circumstances, on behalf of itself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of such Pass Through Trustee and the appointment of a successor trustee. Any
resignation or removal of the Pass Through Trustee and appointment of the
successor trustee does not become effective until acceptance of the appointment
by the successor trustee. (Section 7.09) All references in this Prospectus to
the Pass Through Trustee are to the trustee acting in such capacity and should
be read to take into account the possibility that the Pass Through Trust could
have a different successor trustee in the event of such a resignation or
removal.
The Pass Through Trust 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 Pass Through
Trust. (Section 7.07)
MATURITY, PAYMENT AND YIELD CONSIDERATIONS
The expected maturity and weighted average life of the Pass Through
Certificates have been based on certain structuring assumptions. See
"Structuring Assumptions."
Principal payments on the Equipment Notes, and thereby the Pass Through
Certificates, will be affected by a number of factors, including (i) the timing
of receipt of payments under the Subleases or the failure of the Sublessees to
make all payments due under their Subleases, (ii) the ability to re-lease any
Equipment upon expiration of the Sublease terms, (iii) the exercise by the
Company of its Obsolescence Termination Option under the Lease, (iv) the
occurrence of an Event of Loss with respect to any Equipment Unit held by the
Owner Trust issuing such Equipment Notes and the timing of an Owner Trust's
receipt of insurance proceeds, if any, in respect thereof if the Company does
not elect to replace such Unit, and (v) the exercise by an Owner Trust of its
refinancing option which would lead to a redemption of the Equipment Notes. The
likelihood of a Lessee default or delinquency will depend in part on the
financial strength of the Sublessees and their ability to make the required
payments under the Subleases. The ability of the Manager on
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<PAGE>
behalf of the Company to re-lease the Equipment will be affected by a variety of
economic, political, geographic, legal, tax, regulatory and other factors
affecting the supply of and demand for railcars in general and the Equipment in
particular.
Greater than expected payments of principal will increase the yield on the
Pass Through Certificates purchased at a price less than par. Similarly, greater
than anticipated payments of principal will decrease the yield on Pass Through
Certificates purchased at a price greater than par. In addition, the yield on
Pass Through Certificates purchased at less than par will decrease if principal
payments are received later than expected.
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<PAGE>
STRUCTURING ASSUMPTIONS
The following discussion summarizes certain of the key assumptions used by
the Company to develop the cash flow model (the "Structuring Assumptions") from
which the Scheduled Amortization Schedule has been derived. The Structuring
Assumptions are based on a complex set of detailed modelling assumptions
developed for each railcar type in the Company Fleet on the basis of the
Manager's historical experience and other considerations deemed relevant by the
Company. The summary below does not purport to describe the many variables in
detail but rather is intended only to provide an overview of the resulting key
assumptions used to develop the Scheduled Amortization Schedule. On the basis of
the Structuring Assumptions, the resulting net cash flow computed by deducting
all assumed expenses from assumed gross revenues (the "Pre-Financing Cash Flow")
is sufficient to pay all amounts of interest and principal when scheduled under
the Scheduled Amortization.
Any projections, forecasts or estimates and other "forward-looking"
statements reflected in or by the Structuring Assumptions are inherently subject
to significant business and economic uncertainties and contingencies beyond the
control of the Company. While the Company believes the Structuring Assumptions
are reasonable based on the historical experience of the Manager, the model does
not purport to represent a complete set of factors which may affect the revenues
and expenses of the Company and is not intended to be a forecast of the
Company's future results. Furthermore, actual results will vary from the
Structuring Assumptions since there can be no assurance that the Company's
future results will be comparable to the Manager's historical experience, and
the variations may be material. Some of the factors which could cause results to
differ materially include changes in interest rates, markets, financial or legal
uncertainties, casualty occurrences and differences in Sublease rental rates and
utilization rates.
Also set forth below are a sensitivity analysis and stress scenario which
are intended merely to illustrate certain, but not all, payment sensitivities of
the Pass Through Certificates to certain, but not all, market and economic
stresses. These tables have been developed by fixing certain of the Structuring
Assumptions and by varying other Structuring Assumptions and certain other
factors which will affect the Company's revenues and expenses. More severe
stresses may lead to payments of principal on the Pass Through Certificates
being delayed or decreased, or in certain cases, an Event of Default.
The Company does not intend to update or revise the information presented
to reflect changes occurring after the date hereof. Actual experience will vary
from the Structuring Assumptions.
Revenue Assumptions
General
(i) The average useful life for the Equipment Units is assumed to
exceed 22 years.
(ii) All future payments in respect of the Subleases are assumed to be
received on a timely basis by the Company when due.
(iii) The one-month London Interbank Borrowing Rate ("LIBOR") is assumed
to remain constant at 5.625% per annum.
(iv) Funds on deposit in the Liquidity Reserve Account, Cash Trapping
Account and Collection Account are assumed to earn interest at one-
month LIBOR.
(v) All other transaction accounts are assumed to earn no interest.
Sublease Rates
(i) The aggregate average monthly lease rate for the first five years is
assumed to be the actual average lease rate at closing.
(ii) After the first four years, the average sublease rate is assumed to
increase at an average annual rate of 0.919%, reflecting the combined
effects of assumed inflation and lease rate reductions over time due
to aging of the Company Fleet.
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<PAGE>
Utilization
(i) The utilization for the first five years is assumed to be 100%.
Thereafter, utilization rates for the Company Fleet are assumed to
decline somewhat as set forth in the table below:
<TABLE>
<CAPTION>
Year Utilization
---- -----------
<S> <C>
5 97%
10 97%
15 96%
20 96%
</TABLE>
(ii) The initial Subleases are assumed to have five year terms.
Thereafter, the assumed lease renewal terms range from one to five
years, with the average Sublease term for the Equipment assumed to be
approximately 3 years over the entire transaction.
Expense and Operating Cost Assumptions
Cost Inflation
(i) An assumed inflation rate of 2.25% was applied to all Operating
Expenses.
Maintenance
(i) It is assumed that during the first four years of the transaction
the Equipment Units will not require maintenance.
(ii) Commencing in year five, maintenance costs are assumed to increase
with the age of the Equipment Units. Maintenance age curves were
developed for each of the Equipment Types based on the Manager's
historical experience. Maintenance costs are assumed to be 6.3% of
gross revenues in year five, increasing linearly to 23% in year 20.
Rent Abatements
(i) Rent is assumed to be abated for the period that an Equipment Unit
is in a maintenance facility.
(ii) It is assumed that an Equipment Unit will spend an average of 30
days in a maintenance facility each time repair or maintenance is
performed on the Equipment Unit at such facility.
(iii) An Equipment Unit is assumed to require maintenance once every five
years for years five through ten of the transaction and once every
three years thereafter.
Receivables Write Offs
Write-offs are assumed to be 0.25% per year of gross revenues for the
entire transaction.
Required Maintenance Programs
Two types of Required Maintenance Programs are assumed to be performed on
each applicable Equipment Unit. The average incremental costs (before
inflation) for the Required Maintenance Programs (including costs related
to Rule HM201 and Rule 88B) is assumed to be approximately $2,667 per
Unit, which costs are assumed to be incurred once every approximately 10
years and are adjustable for inflation through the date assumed to be
incurred.
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Optional Modifications
(i) Optional Modifications that are to be made by the Company at its
own expense are assumed to occur over the course of the transaction
with respect to approximately 14% of the cars.
The average amount for such Optional Modifications is assumed to be
$1,359 per modified car.
(ii) Optional Modifications are assumed to be requested by customers
with respect to approximately 0.5% of the cars over the course of the
transaction and are assumed to be repaid over five years with
interest as specified in the Subleases.
Management Fee
(i) The management fee provided for in the Management Agreement is made
up of a Base Component and an Incentive Component.
(ii) The Base Component, equal to $240 per Equipment Unit per year, is
assumed to be inflated by 2.25% every year.
(iii) The Incentive Component, equal to a percentage of revenue, is $60 per
Equipment Unit in the first year of the transaction, increasing
thereafter based on revenue increases.
Car Tax
Initially, car taxes, principally ad valorem property taxes, are assumed to
be $160 per Equipment Unit per year. Thereafter, car taxes are assumed to
decrease with the book value of the Equipment Unit (which is amortized
"straight line" over a 30-year period), inflated by 2.25% per year.
Other Expense
Switching, tracking, insurance and other expenses are assumed initially to
be $114 per Equipment Unit per year (before inflation) and are thereafter
inflated by 2.25%.
Trustees Fees
Aggregate fees of the Owner Trustee, Pass Through Trustee and the Indenture
Trustee are assumed to be $25,000 per year.
Sensitivity Analysis
The following table shows the effect on the assumed Pre-Financing Cash Flow
when selected factors underlying the Structuring Assumptions are varied
throughout the transaction (except as otherwise noted) as indicated under the
"Stress" column (in each case holding other Structuring Assumptions unchanged):
<TABLE>
<CAPTION>
Resulting Cash Flow as a
% of Pre-Financing
Cash Flow under
Variable Stress Structuring Assumptions
-------- ------ -------------------------
<S> <C> <C>
Monthly Lease Rates 20% permanent decrease 78.2%
Annual Maintenance Cost 40% increase 92.8
Mandated Improvements 40% increase 98.1
Utilization after year five 70% 75.4
Lease Rate Growth Rate 100 bps lower than the expense inflation rate 84.3
Receivable Write-Offs Expense 1% of revenues 99.0
</TABLE>
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<PAGE>
Stress Scenario
The following set of stress factors is presented for illustrative purposes
only as an example of the combined effect on the cash flow model of a number of
stress factors which could occur concurrently. This combination results in Cash
Flow that is approximately a 69.1% decrease of the Pre-Financing Cash Flow under
the Structering Assumptions. Other combinations of stress factors could result
in greater reductions in Pre-Financing Cash Flow, and expanding the above
stresses would result in a still greater reduction in annual Pre-Financing Cash
Flow. Unless otherwise stated, all other Structuring Assumptions remain the
same.
Monthly Lease Rates sustain a permanent 10% decrease (before inflation).
Annual Maintenance Cost is increased by 20%.
Required Modification Costs are increased by 20%.
Utilization after year 5 is equal to 86% for the remainder of the
transaction.
The Lease Rate Inflation (1.90%) is 0.35% below the expense inflation
rate (2.25%).
Receivables Write-Offs are 0.50% of revenues.
When applying all of the above stresses simultaneously:
The Equipment Notes were repaid in 22 years.
The weighted average life of the debt was 12.3 years.
The resulting Cash Flow is 69.1% of Pre-Financing Cash Flow under the
Structuring Assumptions. All rated obligations (Interest and Rated
Amortization) were paid.
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<PAGE>
THE OWNER TRUSTS
Each Owner Trust was formed pursuant to a Trust Agreement between the Owner
Trustee and an Owner Participant, and prior to formation had no assets or
obligations. Concurrently with the execution and delivery of each Trust
Agreement, each Owner Trustee entered into a Participation Agreement, a Lease
and an Indenture. Pursuant to the Trust Agreement and the Participation
Agreement, each Owner Trust acquired an Equipment Group from the Company, and,
pursuant to the Lease, leased the Equipment Group to the Company. On the Closing
Date, each Owner Trust will assign all its right, title and interest (subject to
certain limitations) in, to and under an Equipment Group and the Lease to the
Indenture Trustee. Also, each Owner Trust will assign certain of its rights
under the Intercreditor Agreement. The Owner Trusts will not engage in any
business activity other than owning and leasing an Equipment Group, issuing
Equipment Notes and certain other matters incidental thereto. As a consequence,
each Owner Trust is not expected to have any need for, or source of, additional
capital resources other than the assets of the Owner Trust. Each Owner
Participant will initially be the sole beneficiary of its Owner Trust.
DESCRIPTION OF THE EQUIPMENT NOTES
The summaries below make use of terms defined in the Equipment Notes, the
Indentures, the Leases, the Participation Agreements and the Trust Agreements.
Except as otherwise indicated, the following summaries describe material terms
of the Equipment Notes, the Indenture, the Participation Agreement and the Trust
Agreement relating to each Equipment Group.
General
The Equipment Notes with respect to each Equipment Group will be issued
under a separate Indenture between Wilmington Trust Company, as Owner Trustee of
a Delaware business trust for the benefit of the Owner Participant who is the
beneficial owner of such Equipment Group, and The First National Bank of
Chicago, as Indenture Trustee.
The related Owner Trustee will lease each Equipment Group to the Company
pursuant to a separate Lease between such Owner Trustee and the Company with
respect to such Equipment Group. The Company is obligated to make or cause to be
made Basic Rent and other payments to the related Indenture Trustee on behalf of
the related Owner Trustee in amounts that are expected to be sufficient to pay
the principal of, and interest on, the Equipment Notes issued with respect to
such Equipment Group when due and payable in accordance with the Scheduled
Amortization Schedule. The Equipment Notes are not, however, direct obligations
of, or guaranteed by, the Company or any affiliate thereof. The Company's rental
and other obligations under the Leases are secured pursuant to the Intercreditor
Agreement and each Owner Trustee's obligations under its Equipment Notes are
secured pursuant to the related Indenture. See "The Intercreditor Agreement."
Principal and Interest Payments
Principal
The aggregate principal amount of the Equipment Notes is $167,000,000.
Scheduled Amortization of the Equipment Notes represents the amount of
principal which the Owner Trust must pay (on a cumulative basis) through each
Regular Distribution Date in order to avoid payment of Late Payment Premiums.
The "Scheduled Maturity Date," which is September 20, 2017, represents the
Regular Distribution Date on which the Owner Trust will pay the final
installment of principal, if all payments of principal are made in accordance
with Scheduled Amortization. Rated Amortization of the Equipment Notes
represents the minimum amount of principal which the Owner Trust must pay (on a
cumulative basis) through each Regular Distribution Date in order to avoid an
Indenture Event of Default attributable to the failure to make payments of
principal on the Equipment Notes. The "Rated Maturity Date," which is September
20, 2020, is the Regular Distribution Date by which the Owner Trust must pay all
outstanding principal on the Equipment Notes.
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<PAGE>
The Scheduled Amortization and Rated Amortization for the Equipment Notes
as of the last Regular Distribution Date at the end of each year in which the
Equipment Notes are outstanding, are set forth below (see "Appendix B" for a
schedule of monthly amortization rates and Pool Factors (as defined herein)):
<TABLE>
<CAPTION>
Scheduled Amortization* Rated Amortization*
------------------------- --------------------
Principal Principal Principal Principal Cumulative Excess of
Date Payment Balance Payment Balance Scheduled over Rated*
- ------ ------------- ---------- --------- --------- ---------------------
Closing $ $ $ $ $
<C> <S> <C> <C> <C> <C>
12/20/98
12/20/99
12/20/00
12/20/01
12/20/02
12/20/03
12/20/04
12/20/05
12/20/06
12/20/07
12/20/08
12/20/09
12/20/10
12/20/11
12/20/12
12/20/13
12/20/14
12/20/15
12/20/16
12/20/17
12/20/18
12/20/19
12/20/20
</TABLE>
- ------------
* May not total due to rounding.
The "Scheduled Amortization Amount," at any Regular Distribution Date,
equals the excess, if any, of (i) the cumulative amount of all Scheduled
Amortization through and including such Regular Distribution Date over (ii) the
cumulative amount of all principal paid on the Equipment Notes prior to and
excluding such Regular Distribution Date. The "Rated Amortization Amount," at
any Regular Distribution Date, equals the excess, if any, of (i) the cumulative
amount of all Rated Amortization through and including such Regular Distribution
Date over (ii) the cumulative amount of all principal paid on the Equipment
Notes prior to and excluding such Regular Distribution Date.
If, on any Regular Distribution Date, a Payment Deficiency exists, Late
Payment Premium will be payable on the next Regular Distribution Date with
respect to such Payment Deficiency.
If, on any Regular Distribution Date, the principal paid on such date is
less than the Rated Amortization Amount, an Event of Default will occur if such
default continues beyond the applicable grace period.
If any date scheduled for any payment of principal, Late Payment Premium
or Make-Whole Amount, if any, or interest on the Equipment Notes is not a
Business Day, such payment will be made on the next succeeding Business Day
without any additional interest. (Indenture, Section 2.04(b))
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Interest
Interest is payable on the outstanding principal amount of the Equipment
Notes at the rate set forth on the cover page hereof (computed on the basis of a
360-day year of twelve 30-day months) (the "Note Rate") on each Regular
Distribution Date. Interest on principal which is overdue under the Rated
Amortization Schedule and, to the extent permitted by law, overdue interest is
payable at the rate per annum equal to Note Rate plus 1.5% (the "Default Rate")
on each Regular Distribution Date. Interest on any overdue Late Payment Premium
payable in respect of the Equipment Notes is payable at the Late Payment Rate on
each Regular Distribution Date. See "--Late Payment Premium" below. Interest on
overdue principal and interest is payable solely out of funds available after
payment of the Scheduled Amortization Amount then due and the equity portion of
all scheduled Basic Rent then due. See "Payment Account" below.
If interest is payable on any date which is not a Business Day, the
interest which would be payable on such date shall be payable on the next
Business Day.
Late Payment Premium
The Late Payment Premium payable on any Regular Distribution Date with
respect to a Payment Deficiency on the previous Regular Distribution Date equals
an amount of interest (computed on the basis of a 360-day year of twelve 30-day
months) on the Payment Deficiency, for the period from and including the
previous Regular Distribution Date to but excluding such Regular Distribution
Date, at a rate per annum equal to the Late Payment Rate.
Late Payment Premiums and interest on Late Payment Premiums are payable
on a Regular Distribution Date solely out of funds available after payments of
interest (excluding interest on any past due principal and interest or interest
on Late Payment Premiums), after payment of the Rated Amortization Amount, after
payment of certain fees, expenses and indemnities of the Owner Trust, the
Indenture Trustee, the Pass Through Trustee and the Owner Participant, after
payment of the Scheduled Amortization Amount after giving effect to the payment
of the Rated Amortization Amount, after payment of the equity portion of all
scheduled payments of Basic Rent then due, after any required deposit to the
Liquidity Reserve Account, the Special Reserve Account and the Stipulated Loss
Value Deficiency Account on such Regular Distribution Date and after payment of
any interest on any past due principal and interest. In addition, funds in the
Liquidity Reserve Account, the Special Reserve Account and the Stipulated Loss
Value Deficiency Account are not available for payment of Late Payment Premiums
or interest on Late Payment Premiums to the Pass Through Trustee, as holder of
the Equipment Notes. Accordingly, payments of Late Payment Premiums and interest
on Late Payment Premiums are effectively subordinated to payments of the
foregoing amounts, and the ratings of the Certificates are not based on the
payment of Late Payment Premiums or interest on Late Payment Premiums on the
Equipment Notes.
Prepayments
If the Company elects to pay the Stipulated Loss Value following an Event
of Loss with respect to an Equipment Unit, or fails to replace such Equipment
Unit within a 120-day period following knowledge by the Manager of such Event of
Loss, a portion of the Equipment Notes issued with respect to such Equipment
Unit is required to be prepaid on the Regular Distribution Date next succeeding
the date 25 days after the Company gives notice of its election to pay the
Stipulated Loss Value of such Equipment Unit or the expiration of such 120-day
period at a price equal to the sum of (i) as to principal, an amount equal to
the product obtained by multiplying the unpaid principal amount of the Equipment
Notes issued with respect to such Equipment Unit (after deducting therefrom the
principal installment, if any, paid on such date) by a fraction, the numerator
of which shall be the Equipment Cost of such Equipment Unit and the denominator
of which shall be the aggregate Equipment Cost of all Equipment Units in such
Equipment Group immediately prior to such prepayment date, (ii) as to interest,
the aggregate amount of interest accrued and unpaid in respect of the principal
amount to be prepaid pursuant to clause (i) above to but not including such
prepayment date after giving effect to the application of any Basic Rent paid on
such prepayment date and (iii) any unpaid Late Payment Premium (and accrued and
unpaid interest thereon) in respect of the principal amount to be prepaid
pursuant to clause (i), but without the payment of any Make-Whole Amount or
other premium. See "The Leases--Events of Loss." (Lease, Sections 11.1 and 11.2;
Indenture, Section 2.10(b))
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In the event of a termination by the Company, pursuant to its Obsolescence
Termination Option, of the Lease with respect to any Equipment Unit or the
purchase by the Company, pursuant to its Early Purchase Option, of all of the
Equipment Units (and the election by the Company not to assume the Equipment
Notes as described under "The Leases--Early Purchase Option), or the exercise of
the option to purchase the Equipment in the event of the Company's inability to
procure certain insurance coverages, the applicable Owner Trustee is required to
prepay all or a portion, as applicable, of the Equipment Notes issued with
respect to the Equipment Group in which such Equipment Unit was included. In the
case of an exercise of the Obsolescence Termination Option or an Early Purchase
Option, such prepayment will be made on a Regular Distribution Date upon at
least 25 days' prior notice from the applicable Owner Trustee to the applicable
Indenture Trustee. In the case of an exercise of either the Obsolescence
Termination Option or an Early Purchase Option, the prepayment price shall be
equal to the unpaid principal amount thereof (computed as provided in the
preceding paragraph) together with accrued and unpaid interest thereon to the
date of prepayment and any unpaid Late Payment Premium (and accrued and unpaid
interest thereon) plus the applicable Make-Whole Amount, if any. If the Company
exercises its Obsolescence Termination Option it will be required, pursuant to
the applicable Lease, to either sell such Equipment Unit as agent for the
applicable Owner Trust and to pay the proceeds of such sale to the applicable
Indenture Trustee on behalf of such Owner Trust, or elect not to sell the
Terminated Units but retain such Units as provided in such Lease and pay, or
cause to be paid, to the applicable Indenture Trustee an amount equal to the
outstanding principal amount of the Equipment Notes issued in respect of such
Terminated Units and all accrued and unpaid interest thereon to the date of
prepayment of such Equipment Notes and an amount equal to the Make-Whole Amount,
if any, and any unpaid Late Payment Premium in respect of the principal amount
of the Equipment Notes to be prepaid, without in any manner relieving the
Company of its obligation to pay any unpaid rent under such Lease. To the extent
such proceeds are insufficient to prepay the required portion of the Equipment
Notes, the Company will also be required, as a condition to exercise its
Obsolescence Termination Option, to pay to the applicable Indenture Trustee the
amount of such insufficiency. No later than the Business Day immediately
preceding the 60th day prior to the proposed date of termination, the Company
shall provide the applicable Owner Trustee with assurances reasonably
satisfactory to the related Owner Participant of the Company's ability to pay
the Termination Value for the Terminated Units and other amounts payable by the
Company on such date of termination as provided in the relevant Lease, and if
such assurances have not been given by such date, the termination notice
previously given by the Company shall be deemed to have been withdrawn on such
date. See "The Leases--Termination" and "--Early Purchase Option." (Lease,
Sections 10.1, 10.2, 10.3 and 22.1; Indenture, Sections 2.10(a) and 2.10(c))
In the event (i) the Company elects to exercise its right to terminate
any Lease and purchase the related Equipment Group as a result of the related
Owner Participant or any affiliate thereof becoming or acquiring, or being
acquired by, merged or otherwise consolidated with any company or affiliate
thereof engaged in full service railcar leasing, whether or not a direct
competitor to the Company, the Manager or any affiliate of the Company or the
Manager or any Person that has a material interest (whether held directly or
indirectly) in an enterprise that engages in a business that is competitive with
the Company's or the Manager's full service railcar leasing business, and (ii)
the Company elects, in connection with such exercise of its right to purchase
such Equipment Group, not to assume all of the applicable Owner Trustee's
obligations in respect of the related Equipment Notes, all of the related
Equipment Notes issued by the applicable Owner Trustee will be prepaid on a
Special Distribution Date. In the event of a refinancing of the Equipment Notes
issued with respect to any Equipment Group, all of the related Equipment Notes
issued by the applicable Owner Trustee will be prepaid on the date of such
refinancing, which may be any Business Day. In either such case, the applicable
Indenture Trustee shall receive at least 25 days' prior notice from the
applicable Owner Trustee and the prepayment price shall be equal to the unpaid
principal amount thereof, together with accrued interest thereon to the date of
prepayment, any unpaid Late Payment Premium (and accrued and unpaid interest
thereon), plus Make-Whole Amount, if any. See "Description of the Equipment
Notes--The Participation Agreements." (Indenture, Section 2.10(c) and (d))
The Equipment Notes issued with respect to any Equipment Group are also
subject to purchase in whole by the applicable Owner Trustee, upon 30 days'
irrevocable notice on a Special Distribution Date, in the case of (i) one or
more Lease Events of Default having occurred and are continuing under the
related Lease, (ii) any acceleration of such Equipment Notes, or (iii) the
applicable Indenture Trustee, as assignee of the related Lease, having declared
such Lease to be in default and having commenced the exercise of any significant
remedy in respect of the Equipment Units under such Lease. Such prepayment 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. If, however, an Owner Trustee exercises its rights pursuant
to clause (i) above within 180 days of such Lease Event of Default and none of
the events described in clauses (ii) and (iii) thereof has occurred, then such
prepayment would be at a price equal to
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the unpaid principal amount thereof and accrued interest on such Equipment Notes
to the date of payment plus Make-Whole Amount, if any. During such 30-day notice
period, the applicable Indenture Trustee shall not exercise any of the rights,
remedies or powers under the related Lease or the related Indenture so long as
the applicable Owner Trustee (or any nominee of the Owner Trustee reasonably
acceptable to the Indenture Trustee) has notified the Indenture Trustee that
such notice constitutes a binding obligation of the Owner Trustee to purchase
such Equipment Notes. (Indenture, Section 4.4(b))
The Scheduled Amortization Schedule and the Rated Amortization Schedule
will be adjusted in the event of a partial prepayment of the Equipment Notes.
The Make-Whole Amount, if any, payable with respect to the Equipment Notes
will be determined by an independent investment banking institution of national
standing (the "Investment Banker") selected by the Company or, if the applicable
Indenture Trustee does not receive notice of such selection at least ten days
prior to a scheduled prepayment date or if a Lease Event of Default under the
applicable Lease shall have occurred and be continuing, selected by the
applicable Indenture Trustee.
The term "Make-Whole Amount" means, with respect to the principal amount of
any Equipment Note to be prepaid on any prepayment date, an amount to be
determined by the Investment Banker as of the third Business Day prior to the
applicable prepayment date, which amount shall equal 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 principal and interest based upon Scheduled
Amortization from the prepayment date to the Scheduled Maturity Date of such
Equipment Note, discounted monthly at a rate equal to the Treasury Rate plus
0.15%, based on a 360-day year of twelve 30-day months, over (ii) the aggregate
unpaid principal amount of such Equipment Note, based upon Scheduled
Amortization, plus any accrued but unpaid interest thereon by (b) a fraction,
the numerator of which shall be the aggregate unpaid 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) above shall be determined after deducting
the principal installment, if any, due on such prepayment date.
The term "Treasury Rate" means, with respect to each Equipment Note to be
prepaid, a per annum rate (expressed as a monthly equivalent and as a decimal
and, in the case of United States Treasury bills, converted to a bond equivalent
yield), determined to be the per annum rate equal to the monthly yield to
maturity for United States 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
United States 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 of 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 third Business Day preceding the scheduled prepayment date.
The term "Average Life Date" of each Equipment Note shall be the date which
follows, in the case of an Equipment Note being prepaid, the prepayment date or,
in the case of an Equipment Note not being prepaid, the date of such
determination, by a period equal to the Remaining Weighted Average Life of such
Equipment Note. The "Remaining Weighted Average Life" of such Equipment Note, at
the prepayment or determination date of such Equipment Note, shall be the number
of days equal to the quotient obtained by dividing (a) the sum of the products
obtained by multiplying (i) the amount of each then remaining principal payment
on such Equipment Note in accordance with the Scheduled Amortization Schedule by
(ii) the number of days from and including the prepayment or determination date
to but excluding the scheduled payment date of such principal payment, by (b)
the unpaid principal amount of such Equipment Note.
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Assumption of Equipment Notes Under Certain Circumstances
In the event that the Company elects to purchase the applicable Equipment
Units of an Equipment Group prior to the maturity of the related Equipment
Notes, either pursuant to an Early Purchase Option or as a result of a related
Owner Participant or any affiliate thereof engaging in a business in competition
with the Company's or the Manager's full service railcar leasing business as
described under "The Participation Agreements," the Company shall have the right
to assume the related Equipment Notes. Such assumption shall be subject to
certain terms and conditions, including, among other things, (i) delivery by the
Company of an indenture supplement giving effect to such assumption reasonably
satisfactory to the related Indenture Trustee and execution and delivery by the
Company of Equipment Notes reflecting such assumption, (ii) delivery by the
Company to the related Indenture Trustee and the related Owner Trustee of a
certificate stating that the Company has paid to such Owner Trustee all amounts
required to be paid to such Owner Trustee pursuant to the applicable Lease in
connection with such purchase and assumption, (iii) no Indenture Event of
Default or event which with notice or passage of time or both would become an
Indenture Event of Default having occurred and be continuing immediately
subsequent to such assumption, and (iv) receipt by the related Indenture Trustee
and the related Owner Trustee of an opinion of counsel to the Company to the
effect that, after giving effect to the indenture supplement, (x) the related
Indenture, the indenture supplement and the Equipment Notes issued thereunder
each constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their respective terms
(subject to customary exceptions), (y) all filings and recordings and other
action necessary or appropriate to protect the interests of the related
Indenture Trustee in the Equipment Units purchased by the Company have been
accomplished, and (z) no holder of Equipment Notes will be required to recognize
gain or loss for tax purposes in connection with such assumption. Following such
assumption, the Equipment Units so purchased by the Company shall remain subject
to the lien of the Indenture securing the related Equipment Notes but the
related Owner Trustee shall be released from all obligations under such
Equipment Notes and under the related Indenture in respect of such Equipment
Notes. (Indenture, Section 3.6; Lease, Section 22.1; and Participation
Agreement, Section 6.9)
Payment Account; Distributions of Amounts Received by the Indenture Trustee
Amounts distributed to the Indenture Trustee in respect of each Owner Trust
will be deposited into a Payment Account maintained by the Indenture Trustee
pursuant to the related Indenture. On each Regular Distribution Date the
Indenture Trustee shall apply the amounts on deposit in the applicable Payment
Account in the following order of priority:
(i) First, to the payment of interest accrued and unpaid on the
Equipment Notes issued by the related Owner Trust as of such date (but not
including interest on past due principal and interest, or interest on Make-
Whole Amounts or Late Payment Premiums);
(ii) Second, in accordance with the Rated Amortization Schedule, to
the payment of principal on the Equipment Notes issued by the related Owner
Trust;
(iii) Third, in accordance with the Scheduled Amortization Schedule,
to the payment of principal on the Equipment Notes issued by the related
Owner Trust, after giving effect to and without duplication of principal
paid pursuant to clause (ii) above;
(iv) Fourth, to the related Owner Trustee, the excess of the amount
of Basic Rent payable under the applicable Lease on or prior to such
Regular Distribution Date over the amount required to be paid pursuant to
clause (iii);
(v) Fifth, an amount equal to any interest on any past due
principal and interest on the Equipment Notes (but not including interest
on Make-Whole Amounts or Late Payment Premiums);
(vi) Sixth, an amount equal to any interest on any Late Payment
Premium then due and owing on the Equipment Notes;
(vii) Seventh, to the payment of any Late Payment Premiums, if any,
due on the Equipment Notes; and
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(viii) Eighth, to the related Owner Trustee, the balance of such
Payment Account for distribution in accordance with the related Trust
Agreement.
Security
The Equipment Notes issued with respect to each Equipment Group will be
equally and ratably secured by (i) a collateral assignment by the related Owner
Trustee to the related Indenture Trustee of such Owner Trustee's rights (except
for certain rights described below) under the Lease with respect to such
Equipment Group, including the right to receive certain payments of rent
thereunder, (ii) a perfected first priority security interest of the related
Indenture Trustee in the related Equipment Group, (iii) a collateral assignment
to the Indenture Trustee of certain of the Owner Trustee's rights under the
Intercreditor Agreement, including the right to receive payments on the Leases,
pro rata, from the cash flows received by the Collateral Agent from rent payable
by the Sublessees (after payment of certain expenses and indemnities) and (iv)
certain reserve funds maintained by the Collateral Agent as described under "The
Intercreditor Agreement--The Accounts." The assignment by such Owner Trustee to
the related Indenture Trustee of its rights under such Lease excludes certain
rights of such Owner Trustee and the related Owner Participant, including rights
relating to indemnification by the Company for certain matters, insurance
proceeds payable to such Owner Trustee in its individual capacity and to such
Owner Participant under liability insurance maintained by the Company under such
Lease or by such Owner Trustee or such Owner Participant, insurance proceeds
payable to such Owner Trustee in its individual capacity or to such Owner
Participant under certain casualty insurance maintained by such Owner Trustee or
such Owner Participant under such Lease or certain reimbursement payments made
by the Company to such Owner Trustee. (Indenture, Granting Clause)
The Company will be required to file each Indenture, Indenture Supplement,
Lease, and Lease Supplement with respect to each Equipment Group with the United
States 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 each Equipment Unit in such Equipment Group
whenever it is located in the United States and in the related 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 created by 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 relating
thereto, will be invested and reinvested by such Indenture Trustee, at the
direction and at the risk and expense of the Company, in Specified Investments.
The Manager will be obligated, pursuant to the terms of the Management
Agreement 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 limited circumstances involving the Company's purchase of
Equipment 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 (in their individual capacities). None of the Collateral
Agent, the Owner Trustees (in their individual capacities), the Owner
Participants or the Indenture Trustees, or any affiliates thereof, shall be
personally liable to any holder of an Equipment Note or, in the case of the
Collateral Agent, the Owner Trustees (in their individual capacities) 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, Make-Whole Amount, if any, Late Payment Premium and interest on
Equipment Notes issued with respect to any Equipment Group (other than payments
made in connection with an optional
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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 issued thereunder 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, Notice and Waiver
Indenture Events of Default under each Indenture include: (a) a Lease Event
of Default under the related Lease; provided that a Lease Event of Default
resulting solely from the Company's failure to pay Supplemental Rent under the
applicable Lease will only be an Indenture Event of Default if the Indenture
Trustee, upon the direction of 100% of the holders of the Equipment Notes then
outstanding, declares such Lease Event of Default to be an Indenture Event of
Default, (b) default by the related Owner Trustee (not resulting from a default
by the Company under the Lease) in making payments when due of the Rated
Amortization Amount, Make-Whole Amount, if any, or interest (other than interest
on overdue principal and interest) on any Equipment Note and continuance of such
default for three Business Days, (c) failure by the related Owner Trustee or the
related Owner Participant to perform any covenant contained in the Indenture,
the Equipment Notes issued thereunder or in the related Participation Agreement
continued for a period of 30 days after written notice by the related Indenture
Trustee or any holder of an Equipment Note issued under the Indenture, or, if
such failure is capable of being remedied (and the remedy requires an action
other than, or in addition to, the payment of money), for an additional period
of 30 days after the expiration of the aforesaid 30-day period so long as such
Owner Trustee or Owner Participant, as the case may be, is diligently proceeding
to remedy such failure and shall in fact remedy such failure within such period,
(d) any representation or warranty made by the related Owner Trustee in the
Indenture or made by such Owner Trustee or the related Owner Participant in the
related Participation Agreement or in any document or certificate furnished to
the related 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 related Owner Trustee and related Owner
Participant, or, if such incorrectness is capable of being remedied, for an
additional period of 15 days after the expiration of the aforesaid 30-day period
so long as such Owner Trustee or Owner Participant, as the case may be, is
diligently proceeding to remedy such incorrectness and shall in fact remedy such
incorrectness, including any adverse effects thereof, within such period, and
(e) the occurrence of certain events of bankruptcy, reorganization or insolvency
of the related Owner Participant or the related Owner Trustee as Owner Trustee
(and not in its individual capacity). There are 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. (Indenture, Section 4.1)
In the event that (i) at any time one or more Lease Events of Default under
the related Lease shall occur and be continuing, (ii) such Equipment Notes shall
have been accelerated or (iii) the related Indenture Trustee, as assignee of the
related Lease, shall have declared such Lease to be in default and shall have
commenced the exercise of any significant remedy in respect of the Equipment
Units under such Lease, upon 30 days' irrevocable notice the related Owner
Trustee may elect to purchase all, but not less than all, of the Equipment Notes
then outstanding under such 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. If, however, an Owner Trustee exercises its rights pursuant to
clause (i) above within 180 days of such Lease Event of Default and none of the
events described in clauses (ii) and (iii) thereof has occurred, then such
prepayment would be at a price equal to the unpaid principal amount thereof and
accrued interest on such Equipment Notes to the date of payment plus Make-Whole
Amount, if any. During such 30-day notice period, the applicable Indenture
Trustee shall not exercise any of the rights, remedies or powers under the
related Lease or the related Indenture so long as the applicable Owner
Participant (or any nominee of the Owner Participant reasonably acceptable to
the Indenture Trustee) has notified the Indenture Trustee that such notice
constitutes a binding obligation of the Owner Trustee to purchase such Equipment
Notes. (Indenture, Section 4.4(b))
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In the event the Company fails to make Basic Rent payments sufficient for
the Indenture Trustee to make principal payments on the Equipment Notes in
accordance with the Rated Amortization Schedule within ten Business Days after
the date the same shall become due under a Lease, then and as long as no other
Indenture Event of Default under the related Indenture (which is not being
concurrently cured) shall have occurred and be continuing, the applicable Owner
Participant or the applicable Owner Trustee may, during the ten Business Days
after receiving written notice of the Indenture Event of Default resulting from
such failure from the applicable Indenture Trustee, pay to the applicable
Indenture Trustee the Rated Amortization Amount due and payable together with
any interest thereon on account of the delayed payment thereof, in which event
such payment by such Owner Participant or such 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 applicable Owner Participant and the applicable Owner
Trustee, collectively, shall not be entitled to cure more than eighteen
consecutive or thirty-six total failures to make such monthly Basic Rent
payments. In the event there shall occur a Lease Event of Default under a Lease
in respect of any payment of rent other than Basic Rent, or which is curable by
the payment of money and such Lease Event of Default constitutes an Indenture
Event of Default, then and as long as no other Indenture Event of Default under
the related Indenture (which is not being concurrently cured) shall have
occurred and be continuing, the applicable Owner Participant or the applicable
Owner Trustee may, during the period of 30 days after receiving written notice
of such Indenture Event of Default from the applicable Indenture Trustee, pay to
such 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 such
Owner Participant or such 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 applicable Owner Participant and the applicable Owner Trustee,
collectively, shall not be entitled to cure such other Lease Events of Default
if the amount of such payments which have not been reimbursed by the Company
shall exceed $10,000,000, which amount shall be adjusted annually for inflation.
With respect to any amounts advanced by and owing to the applicable Owner
Trustee and the applicable Owner Participant, such Owner Trustee and such Owner
Participant shall be expressly subordinated to the rights of the holders of the
Equipment Notes to receive any and all amounts of principal and interest in
accordance with the Scheduled Amortization Schedule then due and owing on the
Equipment Notes prior to any payment from the Company to such Owner Participant
or such Owner Trustee. (Indenture, Section 4.4(a))
Each Indenture provides that in the event the applicable Indenture Trustee
shall have knowledge of an Indenture Default or Indenture Event of Default
thereunder, such Indenture Trustee shall give notice thereof to the holders of
the Equipment Notes issued thereunder, the Company, the applicable Owner Trustee
and the applicable Owner Participant. (Indenture, Section 5.1)
The holders of a majority in aggregate principal amount of the outstanding
Equipment Notes issued under an Indenture by notice to the related Indenture
Trustee may on behalf of all holders thereof waive any past default under such
Indenture except a default in the payment of the Rated Amortization Amount,
Make-Whole Amount or Late Payment Premium, if any, or interest on any Equipment
Note issued thereunder or a default in respect of any covenant or provision of
such Indenture that cannot be modified or amended without the consent of each
holder of an Equipment Note affected thereby. (Indenture, Section 4.6)
Remedies
If an Indenture Event of Default shall occur and be continuing under an
Indenture, the Indenture Trustee thereunder may, and when instructed by the
holders of a majority in aggregate principal amount of the Equipment Notes
outstanding under such Indenture shall, declare the unpaid principal of all such
Equipment Notes issued thereunder to be due and payable, together with all Late
Payment Premium and accrued interest thereon. The holders of a majority in
aggregate principal amount of Equipment Notes outstanding under such Indenture
may rescind and annul any such declaration by the related Indenture Trustee at
any time prior to the sale of the related Equipment Group after such an
Indenture Event of Default if (i) there has been paid to or deposited with such
Indenture Trustee an amount sufficient to pay all overdue installments of
interest and Late Payment Premium (and accrued interest thereon) on the
Equipment Notes and the principal of any Equipment Notes outstanding under such
Indenture 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 and Indenture Events of Default under
such Indenture, other than nonpayment of principal, Late
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Payment Premium or interest on the Equipment Notes outstanding under such
Indenture that have become due solely because of such acceleration, have been
cured or waived. (Indenture, Section 4.2)
Each Indenture provides that, if an Indenture Event of Default thereunder
has occurred and is continuing, the Indenture Trustee thereunder may, subject to
the Intercreditor Agreement, exercise certain rights or remedies available to it
under applicable law, including (if the related Lease has been declared in
default) one or more of the remedies under such Indenture or such Lease with
respect to the Equipment Group subject to such Lease. An Indenture Trustee's
right to exercise remedies under an Indenture is subject to the Intercreditor
Agreement and in certain circumstances to its having proceeded to terminate such
Lease and repossess the related Equipment Group, unless at the time such
Indenture Trustee is stayed or otherwise prevented from doing so by operation of
law, in which case such Indenture Trustee has agreed to refrain from exercising
remedies under such Indenture for a period of 90 days. Further, an Indenture
Trustee may not exercise remedies under an Indenture in those circumstances in
which the Company, as the debtor in a bankruptcy proceeding, shall have assumed
such Lease with the approval of the bankruptcy court having jurisdiction over
such case, under Section 365 of Title 11 of the United States Code (the
"Bankruptcy Code") or any amended or successor version thereof, 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 under such Lease and
no Indenture Event of Default unrelated to a Lease Event of Default occurring
solely as a result of the bankruptcy of the Company shall have occurred and be
continuing under such Indenture. See "The Leases--Lease Events of Default." Such
remedies may be exercised by an Indenture Trustee to the exclusion of a related
Owner Trustee and, subject to the terms of the related 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 such Lease
with respect to such Equipment; provided that no exercise of any remedies by
such Indenture Trustee may conflict with the terms of the Intercreditor
Agreement, or affect the rights of the Company under such Lease unless a Lease
Event of Default under such Lease has occurred and is continuing. (Indenture,
Sections 4.3(a) and (c), 4.4(c) and 4.5; Lease, Section 15)
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 the Lease and the Equipment Notes
related thereto might become part of, or otherwise be affected by, 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 bankruptcy estate might seek court approval to
reject the related Lease under Section 365 of the Bankruptcy Code. 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 bankruptcy estate.
The holders of a majority of the aggregate principal amount of the
Equipment Notes outstanding under an Indenture may instruct the Indenture
Trustee thereunder to give such notice, direction or consent, or exercise such
right, remedy or power under such Indenture or the related Lease or in respect
of the Indenture Estate or take such other action as shall be specified in such
instructions, but in such event such Indenture Trustee shall not be required to
take or refrain from taking any action in connection therewith if it shall have
reasonable grounds for believing that adequate indemnity against such risk is
not reasonably assured to it. (Indenture, Sections 5.2 and 5.3)
If an Indenture Event of Default occurs and is continuing under an
Indenture and the Indenture Trustee thereunder (as security assignee) has
declared the related Lease to be in default or the Equipment Notes outstanding
under such Indenture have been accelerated or such Indenture Trustee has
exercised any remedies under such Indenture, any sums held or received by such
Indenture Trustee may be applied to reimburse such Indenture Trustee for any
tax, expense or other loss incurred by it and to pay any other amounts then due
such Indenture Trustee prior to any payments to holders of the Equipment Notes
issued under such Indenture. (Indenture, Section 3.3)
Modification of Indentures and Leases
Without the consent of holders of a majority of the aggregate principal
amount of the Equipment Notes outstanding under an Indenture, the provisions of
such Indenture and the related Lease and the related Participation Agreement may
not be amended or modified, except to the extent indicated below.
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Certain provisions of each Lease and each Participation Agreement may be
amended or modified by the parties thereto without the consent of any holders of
the Equipment Notes outstanding under such Indenture so long as no Indenture
Event of Default thereunder shall have occurred and be continuing. In the case
of each Lease, such provisions include, among others, provisions relating to (i)
the return to the related Owner Trustee of such Equipment Group at the end of
the term of such Lease and (ii) the renewal of such Lease and the option of the
Company at the end of the term of such Lease to purchase such Equipment Group.
(Indenture, Section 9.5)
Without the consent of the holder of each Equipment Note outstanding under
an Indenture, no amendment or modification of such Indenture may (a) change the
final maturity of, or reduce the principal amount of, or Late Payment Premium or
Make-Whole Amount, if any, or interest payable on any Equipment Notes issued
under such Indenture or impair the right to institute suit for the enforcement
of any such payment or change the date on which any principal, Late Payment
Premium or Make-Whole Amount, if any, or interest is due and payable, (b) create
any lien with respect to the property subject to the Lien of such Indenture
ranking prior to or on a parity with the security interest created by such
Indenture, except as permitted in such Indenture, or deprive any holder of an
Equipment Note issued under such Indenture of the benefit of the Lien of such
Indenture or (c) reduce the percentage in principal amount of outstanding
Equipment Notes issued under such Indenture necessary to modify or amend any
provision of such Indenture or to waive compliance therewith. (Indenture,
Section 9.1)
FEDERAL INCOME TAX CONSIDERATIONS
United States Federal Income Tax Considerations
The following is a summary of the material United States federal tax
consequences resulting from the ownership and disposition of Pass Through
Certificates, subject to the limitations stated herein. This summary does not
purport to consider all the possible tax consequences of the purchase, ownership
or disposition of the Pass Through Certificates, and it is not intended to
reflect the individual tax position of any Certificateholder. Except as
expressly indicated, it is addressed only to Certificateholders which are
"United States persons" (as defined below) purchasing Pass Through Certificates
at their issue price and holding such Certificates as capital assets and does
not deal with Certificateholders which are: (i) dealers in securities or
currencies, (ii) holding such Pass Through Certificates as a hedge against
currency risks or as part of a straddle with other investments or as part of a
"synthetic security" or other integrated investment (including a "conversion
transaction") consisting of a Pass Through Certificate and one or more other
investments, or (iii) situations in which the functional currency of the
Certificateholder is not the U.S. dollar. Except to the extent discussed below
under "--Taxation of Non-United States Certificateholders," this discussion may
not be applicable to non-United States persons not subject to United States
federal income tax on a net income basis. It is based upon the United States
federal tax laws and regulations as now in effect and as currently interpreted,
and does not take into account possible changes in such tax laws or such
interpretations, all of which may be applied retroactively. It does not include
any description of the tax laws of any state or local governments within the
United States, or of any foreign government, that may be applicable to the Pass
Through Certificates or Certificateholders thereof. Certificateholders should
consult their own tax advisors concerning the application of the United States
federal tax laws to their particular situations as well as any consequences
arising under the laws of any other taxing jurisdiction.
For purposes of this discussion, (i) "United States person" means a citizen
or resident of the United States, a corporation, partnership or certain other
entities created or organized in or under the laws of the United States, or any
political subdivision thereof, or an estate or trust the income of which is
includible in gross income for United States federal income tax purposes
regardless of its source and (ii) "non-United States person" means a person
other than a United States person.
Tax Status of the Trust
Vedder, Price, Kaufman & Kammholz, counsel to the Company, has provided its
opinion that the Pass Through Trust will be classified for United States federal
income tax purposes as a grantor trust and not as an association (or publicly
traded partnership) taxable as a corporation. Accordingly, each
Certificateholder will be treated as if it owned directly the portion of the
class of Equipment Notes allocable to such Pass Through Certificate.
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Taxation of United States Certificateholders
Each Certificateholder that is a United States person will be required
to include in income, in accordance with its usual method of accounting,
the portion of the stated interest with respect to the Equipment Notes that
is allocable to the Pass Through Certificates held by such
Certificateholder. Failure of an Owner Trust to make payments on the
Equipment Notes in accordance with the Scheduled Amortization Schedule will
result in the payment of Late Payment Premiums, increasing the effective
interest rate in the Equipment Notes (See "Description of the Equipment
Notes--Principal and Interest Payments--Late Payment Premium"). Under the
original issue discount ("OID") regulations, the possibility of such an
increase will not cause the Equipment Notes to be considered to be issued
with OID provided that, based on all the facts and circumstances as of the
issue date, it is significantly more likely than not that an Owner Trust
will make payments on the Equipment Notes in accordance with the Scheduled
Amortization Schedule. In this regard, GATC has concluded that it is
significantly more likely than not that payments on the Equipment Notes
will be made in accordance with the Scheduled Amortization Schedule. If,
however, an Owner Trust fails to make payments on the Equipment Notes in
accordance with the Scheduled Amortization Schedule, then, for purposes
only of the OID rules, the Equipment Notes would be treated as having been
retired and reissued, possibly with OID.
Each Certificateholder that is a United States person will be entitled
to deduct, consistent with its method of accounting, its pro rata share of
fees and expenses paid or incurred by the Pass Through Trust as provided in
Section 162 or 212 of the Internal Revenue Code of 1986, as amended (the
"Code"). Certain fees and expenses, including fees paid to the Trustee,
will be borne by parties other than the Certificateholders. It is possible
that such fees and expenses will be treated as constructively received by
the Pass Through Trust, in which event a Certificateholder that is a United
States person will be required to include in income and will be entitled to
deduct its pro rata share of such fees and expenses. If a Certificateholder
that is a United States person is an individual, estate or trust, the
deduction for such Certificateholder's share of such fees or expenses will
be allowed only to the extent that all of such Certificateholder's
miscellaneous itemized deductions, including such Certificateholder's share
of such fees and expenses, exceed 2% of such Certificateholder's adjusted
gross income. In addition, in the case of United States Certificateholders
who are individuals, certain otherwise allowable itemized deductions will
be subject generally to additional limitations on itemized deductions under
applicable provisions of the Code.
A Certificateholder that is a United States person will recognize
capital gain or loss upon the sale or exchange of a Certificate equal to
the difference between the amount realized from such sale or exchange
(exclusive of any portion thereof reflecting accrued but unpaid interest on
the underlying Equipment Note) and its tax basis in the Pass Through
Certificate. Amounts attributable to accrued interest are treated as
interest subject to the treatment described above. A Certificateholder
that is a United States person will have a tax basis in a Pass Through
Certificate equal to the Certificateholder's purchase price for such Pass
Through Certificate, decreased by any principal repayments and any
amortization of bond premium. Capital gain or loss recognized on the sale
or exchange of a Pass Through Certificate will be long-term capital gain or
loss if at the time of sale or exchange, the Pass Through Certificate has
been held for more than one year. In the case of individuals, the long-
term capital gains tax rate is generally 20% for capital assets held for
more than 12 months and 28% for capital assets held for 12 months or less.
Taxation of Non-United States Certificateholders
Subject to the discussion of backup withholding below, payments of
principal and interest on the Equipment Notes to, or on behalf of, any
beneficial owner of a Pass Through Certificate that is a non-United States
person (a "Non-U.S. Certificateholder") will not be subject to United
States federal withholding tax; provided, in the case of interest, that (i)
such Non-U.S. Certificateholder does not actually or constructively own 10%
or more of the total combined voting power of all classes of the stock of
any Owner Participant or any transferee of such Owner Participant's
interest in the Owner Trust, (ii) such Non-U.S. Certificateholder is not a
controlled foreign corporation for U.S. tax purposes that is related to any
Owner Participant or any transferee of such Owner Participant's interest in
the Owner Trust and (iii) either (A) the Non-U.S. Certificateholder
certifies, under penalties of perjury, that it is a non-U.S. person and
provides its name and address (and after December 31, 2000, proof of
foreign status and possibly a U.S. taxpayer identification number) or (B) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
(a "financial institution") and holds the Pass Through Certificate
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certifies, under penalties of perjury, that such statement has been
received from the Non-U.S. Certificateholder by it or by another financial
institution and furnishes the payor with a copy thereof.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a Pass Through Certificate will not be subject to U.S.
federal income or withholding taxes if (i) such gain is not effectively
connected with a United States trade or business of the holder and (ii) in
the case of an individual, such Certificateholder is not present in the
United States for 183 days or more in the taxable year of the sale,
exchange, retirement or other disposition or receipt.
Notwithstanding the foregoing, if interest or other income received
with respect to the Pass Through Certificates is effectively connected with
a United States trade or business conducted by a Certificateholder that is
a non-United States person, such Certificateholder, although exempt from
the withholding tax described above, may be subject to United States
federal income tax on such interest in the same manner as if it were a
United States person. In addition, if such Certificateholder is a
corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits for the taxable year, subject to
certain adjustments.
Backup Withholding
Backup withholding of United States federal income tax at a rate of
31% may apply to payments made in respect of the Pass Through Certificates
to Certificateholders who are not "exempt recipients" and who fail to
provide certain identifying information (such as the registered owner's
taxpayer identification number) in the manner required by IRS regulations.
Generally, individuals are not exempt recipients, whereas corporations and
certain other entities generally are exempt recipients. Payments made in
respect of the Pass Through Certificates to a Certificateholder that is a
United States person must be reported to the IRS, unless the
Certificateholder is an exempt recipient or establishes an exemption.
Compliance with the identification procedures described in clause (iii)(A)
of the first paragraph of the preceding section would establish an
exemption from backup withholding for those non-U.S. Certificateholders who
are not exempt recipients.
Payment of the proceeds from the sale of a Pass Through Certificate to
or through a foreign office of a broker will not be subject to information
reporting or backup withholding, except to the extent that, if the broker
is (i) a United States person, (ii) a controlled foreign corporation for
United States federal income tax purposes or (iii) a foreign person 50
percent or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment was
effectively connected with a United States trade or business, information
reporting may apply to such payments. Payments of the proceeds from the
sale of a Certificate to or through the United States office of a broker is
subject to information reporting and backup withholding unless the
Certificateholder or beneficial owner certifies as to its taxpayer
identification number or otherwise establishes an exemption from
information reporting and backup withholding.
CERTAIN ILLINOIS TAXES
Vedder, Price, Kaufman & Kammholz has provided its opinion that, under
existing Illinois law as of the date hereof (i) the Pass Through Trust will
not be classified as an association taxable as a corporation for purposes
of franchise and income taxation by the State of Illinois or any political
subdivision thereof; (ii) Certificateholders will be treated as the owners
of undivided interests in the assets of the Pass Through Trust for purposes
of franchise and income taxation by the State of Illinois and any political
subdivision thereof; (iii) the Pass Through Trust will not be subject to
taxation or any other governmental fee or charge by the State of Illinois
or any political subdivision thereof; (iv) neither the Equipment Notes nor
the Pass Through Certificates will be subject to ad valorem taxation or any
other tax on intangible property by the State of Illinois or any political
subdivision thereof; (v) neither the delivery of the Equipment Notes to the
Pass Through Trust nor the acquisition, ownership or disposition of the
interest of any Certificateholder in any Pass Through Certificate will be
subject to any sales, use or transfer taxes imposed by the State of
Illinois or any political subdivision thereof; and (vi) a Certificateholder
will not be subject to taxation or any governmental fee or charge by the
State of Illinois or any political subdivision thereof, if a
Certificateholder (a) is not a resident of the State of Illinois, or
otherwise subject to any tax, governmental charge or fee imposed by the
State of Illinois or any political subdivision thereof, (b) does not
otherwise have part of its receipt or income includible (either directly or
indirectly) in a tax return filed by a Certificateholder (or an affiliate
of the Certificateholder) in the State of Illinois, and (c) would not
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be subject to taxation or any governmental fee or charge by the State of
Illinois if, instead of owning said Pass Through Certificates, the
Certificateholder owned its share of the assets of the Pass Through Trust
directly.
Neither the Pass Through Trust nor the Certificateholders will be
indemnified for any state or local taxes imposed on them, and the
imposition of any such taxes on the Pass Through Trust could result in a
reduction in the amounts available for the distribution to the
Certificateholders of the Pass Through Trust. In general, should a
Certificateholder of the Pass Through Trust be subject to any state or
local tax which would not be imposed if the Pass Through Trustee were
located in a different jurisdiction in the United States, the Pass Through
Trustee will resign and a successor Pass Through Trustee in such other
jurisdiction will be appointed.
ERISA CONSIDERATIONS
In General
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on employee benefit plans subject
to ERISA ("ERISA Plans") and on those persons who are fiduciaries with
respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA's
general fiduciary requirements, including, but not limited to, the
requirements of investment prudence and diversification and the requirement
that an ERISA Plan's investments be made in accordance with the documents
governing the Plan.
In addition, Section 406 of ERISA and Section 4975 of the Code
prohibit certain transactions involving the assets of an ERISA Plan (as
well as those plans that are not subject to ERISA but which are subject to
Section 4975 of the Code, such as individual retirement accounts (together
with ERISA Plans, "Plans")) and certain persons (referred to as "parties in
interest" or "disqualified persons") having certain relationships to such
Plans, unless a statutory or administrative exemption is applicable to the
transaction. A nonexempt prohibited transaction may have to be rescinded,
and the party in interest or disqualified person that engages in the
nonexempt prohibited transaction may be subject to excise taxes and other
penalties under ERISA and the Code.
An investment in Pass Through Certificates by a Plan might also result
in the assets of the corresponding Pass Through Trust being deemed to
constitute Plan assets, which in turn might mean that certain aspects of
such investment, or actions involving the assets of the Pass Through Trust,
might be or become prohibited transactions under ERISA and/or the Code, and
the Plan fiduciary might have engaged in an improper delegation of its
investment management responsibilities. Under Section 2510.3-101 of the
United States Department of Labor ("DOL") regulations (the "DOL
Regulation"), a Plan's assets may include an interest in the underlying
assets of an entity (such as a trust) for certain purposes, including the
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and the Code, if the Plan acquires an "equity interest"
in such entity. Thus, if a Plan acquired a Pass Through Certificate, for
purposes of such fiduciary responsibility and prohibited transaction
provisions the Plan would be considered to own its share of the underlying
assets of the Pass Through Trust unless equity participation by "benefit
plan investors" in the Pass Through Certificates is not "significant".
Ownership of the Pass Through Certificates by benefit plan investors,
which are defined in the DOL Regulation as Plans, employee benefit plans
not subject to ERISA (for example, governmental plans and foreign plans)
and other entities deemed to hold Plan assets, would not be "significant"
if at all times less than 25 percent of the value of the Pass Through
Certificates is held by benefit plan investors. Investment in and transfer
of the Pass Through Certificates will not be restricted or monitored with
respect to this 25% limit. Accordingly, it is possible that during the
term of the Equipment Notes more than 25 percent or more of the Pass
Through Certificates will be held by Plans and other benefit plan
investors. Accordingly, under the DOL Regulation, an investment by a Plan
in a Pass Through Certificate during such period could, in effect, be
considered, for purposes of the fiduciary responsibility provisions of
ERISA and the prohibited transaction provisions of ERISA and the Code, to
be an investment in the corresponding Equipment Note and an ongoing loan to
the applicable Owner Trust and such transactions could be subject to the
prohibited transaction provisions of Section 406 of ERISA and Section 4975
of the Code unless a statutory or administrative exemption is applicable to
the transaction.
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Regardless of whether the assets of the Pass Through Trust are deemed
to be Plan assets, the fiduciary of a Plan that proposes to purchase and
hold any Pass Through Certificates should consider, among other things,
whether such purchase and holding may involve (i) the direct or indirect
extension of credit to a party in interest or a disqualified person, (ii)
the sale or exchange or lease of any property between a Plan and a party in
interest or a disqualified person, (iii) the transfer to, or use by or for
the benefit of, a party in interest or a disqualified person, of any Plan
assets. Such parties in interest or disqualified persons could include,
without limitation, the Company, GATC and its affiliates, the Initial
Purchaser, the Pass Through Trustee and the Indenture Trustee.
Any such prohibited transaction could be treated as exempt under ERISA
and the Code if the Pass Through Certificates were acquired pursuant to and
in accordance with one or more "class exemptions" issued by the DOL, such
as Prohibited Transaction Class Exemption ("PTCE") 91-38 (relating to
investments by bank collective investment funds), PTCE 84-14 (relating to
transactions determined by a "qualified professional asset manager"), PTCE
95-60 (relating to investments by an insurance company general account),
PTCE 96-23 (relating to transactions determined by an in-house asset
manager) or PTCE 90-1 (relating to investments by insurance company pooled
separate accounts). However, there can be no assurance that any of these
class exemptions or any other exemption will be available with respect to
any particular transaction involving the Pass Through Certificates.
Governmental plans and certain church plans that are not subject to
the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of Section 406 of ERISA and Section 4975 of the Code
may nevertheless be subject to state or other federal laws that are
substantially similar to the foregoing provisions of ERISA and the Code.
Fiduciaries of any such plans should consult with their counsel before
purchasing any Pass Through Certificates.
Any Plan fiduciary which proposes to cause a Plan to purchase any Pass
Through Certificates should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and Section 4975 of the Code to such an investment, and
to confirm that such purchase and holding will not constitute or result in
a nonexempt prohibited transaction or any other violation of an applicable
requirement of ERISA.
Underwriter Exemption
In addition to the class exemptions referred to above, an individual
exemption may apply to the purchase, holding and secondary market sale of
Pass Through Certificates by Plans, provided that certain specified
conditions are met. In particular, the DOL has issued an individual
administrative exemption to Salomon Brothers Inc. (the predecessor to
Salomon Smith Barney Inc.) in Prohibited Transaction Exemption 89-89 (54
Fed. Reg. 42569 (1989)), as amended (the "Underwriter Exemption"). The
Underwriter Exemption generally exempts from the application of certain,
but not all, of the prohibited transaction provisions of Section 406 of
ERISA and Section 4975 of the Code certain transactions relating to the
initial purchase, holding and subsequent secondary market sale of pass
through certificates which represent an interest in a trust that holds
equipment notes secured by leases and certain other assets, provided that
certain conditions set forth in the Underwriter Exemption are satisfied.
The Underwriter Exemption sets forth a number of general and specific
conditions that must be satisfied for a transaction involving the initial
purchase, holding or secondary market sale of certificates representing a
beneficial ownership interest in a trust to be eligible for exemptive
relief thereunder. In particular, the Underwriter Exemption requires that
the acquisition of certificates by a Plan be on terms that are at least as
favorable to the Plan as they would be in an arms'-length transaction with
an unrelated party; the trust corpus generally must be invested in
qualifying receivables, such as the Equipment Notes; the rights and
interests evidenced by the certificates must not be subordinated to the
rights and interests evidenced by other certificates of the same trust
estate; the certificates at the time of acquisition by the Plan must be
rated in one of the three highest generic rating categories by Moody's,
Standard & Poor's, Duff & Phelps Inc. or Fitch Investors Service, Inc., and
the investing Plan must be an accredited investor as defined in Rule
501(a)(1) of Regulation D of the Commission under the Securities Act.
Even if all of the conditions of the Underwriter Exemption are
satisfied with respect to the Pass Through Certificates, no assurance can
be given that the Underwriter Exemption would apply with respect to all
transactions involving the Pass Through Certificates or the assets of the
Pass Through Trust. Therefore, the fiduciary of a Plan considering the
purchase of a Pass Through Certificate should consider the availability of
the exemptive relief provided
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by the Underwriter Exemption, as well as the availability of any other
exemptions with respect to transactions to which the Underwriter Exemption
may not apply.
A plan fiduciary making an investment in the Pass Through Certificates
should consult its tax and/or legal advisors regarding under what
circumstances the assets of the Pass Through Trust would be considered plan
assets, the possibility of exemptive relief from any potential prohibited
transaction and other fiduciary issues and their potential consequences.
Each holder of a Pass Through Certificate will be deemed to represent
or have represented at the time of purchase either that it is not using
Plan assets or that its purchase and holding of the Pass Through
Certificate will not or did not result in a nonexempt prohibited
transaction under ERISA or the Code.
The sale of a Pass Through Certificate to a Plan is in no respect a
representation by the Underwriter, the Pass Through Trustee, the Indenture
Trustee, the Company or any of their affiliates that such an investment
meets all of the relevant legal requirements with respect to investments by
Plans generally or by any particular Plan, or that such an investment is
appropriate for Plans generally or any particular Plan.
UNDERWRITING
Under the terms of and subject to the conditions contained in the
underwriting agreement with the Company (the "Underwriting Agreement"),
Salomon Smith Barney Inc. and Morgan Stanley Dean Witter & Co. (the
"Underwriters") have 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
Underwriters 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
Underwriters are obligated to take and pay for all of the Pass Through
Certificates if any are taken.
The Underwriters propose 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 Underwriters 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 Underwriters and the
Underwriters have agreed to indemnify the Company, against certain
liabilities, including liabilities under the Securities Act.
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
Underwriters that the Underwriters presently intend to make a market in
the Pass Through Certificates, as permitted by applicable laws and
regulations. The Underwriters are 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 Underwriters.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Pass Through Certificates.
During and after the Offering, the Underwriters may purchase and sell
the Pass Through Certificates in the open market. These transactions may
include overallotment and stabilizing transactions and purchases to cover
short positions created in connection with the Offering. The Underwriters
also may impose a penalty bid, whereby selling concessions allowed to
broker-dealers in respect of the Pass Through Certificates sold in the
Offering for their account may be reclaimed by the Underwriters if such
Pass Through Certificates are repurchased by the Underwriters in
stabilizing or covering transactions. These activities may stabilize,
maintain or otherwise affect the market price of the Pass Through
Certificates which may be higher than the price that might otherwise
prevail in the open market, and, if commenced, may be discontinued at any
time.
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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 this Prospectus, which will be the fifth
business day following the date of pricing the Pass Through Certificates
(such settlement cycle being herein referred to as "T+5"). Under Rule 15c6-
1 of the Exchange Act, 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 T+5, 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 MATTERS
The validity of the Pass Through Certificates offered hereby will be
passed upon for the Company by Vedder, Price, Kaufman & Kammholz, Chicago,
Illinois. Certain legal matters in connection with the Pass Through
Certificates offered hereby will be passed upon for the Underwriters by
Milbank, Tweed, Hadley & McCloy, New York, New York. Both Vedder, Price,
Kaufman & Kammholz and Milbank, Tweed, Hadley & McCloy will rely on the
opinion of the law department of The First National Bank of Chicago as to
basic matters relating to the authorization, execution and delivery of the
Pass Through Certificates under the Basic Agreement and the Trust
Supplement.
RATINGS
It is a condition to their issuance that the Pass Through Certificates
be rated at least Aa2 and AA by Moody's and S&P, respectively. The ratings
of the Pass Through Certificates are based primarily on the value of the
Equipment, the lease payments due under the Leases and the availability of
amounts on deposit in the Accounts. The Owner Trusts' ability to pay any
Make-Whole Amount on the Pass Through Certificates has not been rated by
the Rating Agencies. The Owner Trusts' ability to pay Late Payment Premiums
has not been rated by the Rating Agencies. The ratings of the Pass Through
Certificates address the likelihood that any payments of interest which are
not timely made will be made with accrued interest no later than the "Rated
Maturity Date." Late Payment Premiums, if any, will be payable solely out
of funds available after providing for payment of certain expenses and
indemnities, all Basic Rent under the Leases in an amount sufficient to pay
accrued and unpaid interest and principal then due on the Equipment Notes
in accordance with the Scheduled Amortization Schedule and the equity
portion of all scheduled payments of Basic Rent due and payable and after
making the contributions required to be made to certain reserve accounts
required to be maintained pursuant to the Intercreditor Agreement. The
Owner Trusts' ability to pay in full the principal on the Equipment Notes
on the Scheduled Maturity Date for the corresponding series of Pass Through
Certificates (or on any other date prior to the Rated Maturity Date) has
not been rated by any of the Rating Agencies. See "Description of the
Equipment Notes--Principal and Interest Payments." The ratings assigned to
the Pass Through Certificates do not address the possible imposition of
withholding tax on any payments under the Leases, the Equipment Notes, the
Pass Through Certificates or otherwise.
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APPENDIX A
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, the Trust
Supplements, Indentures, Leases or Participation Agreements are qualified
in their entirety by reference to the definitions of such terms contained
therein.
"AAR" means the Association of American Railroads.
"ACF" means the Shippers Car Line division of ACF Industries,
Incorporated.
"Administrative Services Agreement" means the Administrative Services
Agreement (GARC II) dated as of September 1, 1998 between the Company and
GATC, as such agreement may be amended or supplemented in accordance with
its terms.
"Accounts" means each of the Collection Account, the Operating
Account, the Liquidity Reserve Account, the Special Reserves Account, the
Non-Shared Payments Account, the Stipulated Loss Value Deficiency Account,
the Cash Trapping Account and the Excess Cash Account.
"Accumulated Equity Deficiency Amount" shall mean, on any Payment
Date, the aggregate amount equal to the Equity Portion of Basic Rent
previously scheduled for payment and not paid plus the Equity Portion of
any Stipulated Loss Value, Equity Portion of Termination Value or Equity
Portion of Early Purchase Price, if any, then due and owing.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Available Amounts" means, in respect of any Calculation Date, the
amount in the Collection Account on such Calculation Date, less the amounts
which would be allocated on the next succeeding Monthly Transfer Date
pursuant to clauses First, Second, Third, Fifth and Sixth of "Applications
of Amounts in Collection Account" without giving effect to any transfers
from any other Account.
"Average Life Date" of each Equipment Note shall be the date which
follows, in the case of an Equipment Note being prepaid, the prepayment
date or, in the case of an Equipment Note not being prepaid, the date of
such determination, by a period equal to the Remaining Weighted Average
Life of such Equipment Note.
"Bankruptcy Code" means Title 11 of the United States Code.
"Base Component" for each calendar month means the product of (i) the
Unit Monthly Fee, multiplied by (ii) the number of Units managed under the
Management Agreement, each as determined on the first day of such month.
The Unit Monthly Fee shall initially be $20 per Unit, and shall be
thereafter adjusted annually.
"Basic Agreement" means the Pass Through Trust Agreement, dated as of
September 1, 1998, between the Company and the Pass Through Trustee.
"Basic Rent" shall mean the rent payable by the Company to a Lessor
under a Lease.
"Beneficiaries" means the Lessors, the Manager and the Insurance
Manager for whose benefit the Company grants a security interest in and
pledge to the Collateral Agent of all of its right, title and interest in
and to the Company Documents and the Collateral, pursuant to the terms of
the Intercreditor Agreement.
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"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.
"Calculation Date," with respect to any Monthly Transfer Date, means
the close of business on the last Business Day of the calendar month
immediately preceding such Monthly Transfer Date.
"Canadian Affiliate" means a wholly-owned subsidiary of GATC organized
under the laws of Canada.
"Car Type" means each of the six categories of railcars being:
general covered hopper, general service tank, high pressure tank, specialty
covered hopper, alloy and specialty chemical.
"Cash Trapping Account" means the account of that name established
pursuant to the Intercreditor Agreement for the purposes described under
"The Intercreditor Agreement--The Accounts."
"Cash Trapping Cap" has the meaning given to such term in "Collection
and Application of the Company's Cash Flows--Cash Trapping Events; Required
Cash Trapping Amount."
"Cash Trapping Event" has the meaning given to such term in
"Collection and Application of the Company's Cash Flows--Cash Trapping
Events; Required Cash Trapping Amount."
"Cash Trapping Hold" has the meaning given to such term in "Collection
and Application of Company's Cash Flows -- Cash Trapping Events, Required
Cash Trapping Amount, Release from Cash Trapping Account."
"Category 1 Supplemental Expenses" means all Supplemental Rent payable
under a Lease for (a) payments due from the Company to each Lender Agent,
each Loan Participant and each Lessor Agent in respect of fees and expenses
payable pursuant to each Participation Agreement; and (b) payments due from
the Company to each Lender Agent, each Loan Participant, each Lessor Agent
and each Owner Participant in respect of indemnities (including, without
limitation, the general tax indemnity and general indemnity) in each
Participation Agreement.
"Category 2 Supplemental Expenses" means all Supplemental Rent payable
under a Lease to pay any Late Rent Premium due and payable under such
Lease.
"Category 3 Supplemental Expenses" means all Supplemental Rent or
other amounts payable under a Lease, any other Operative Agreement to which
the Company is a party or any other Company Document to pay any and all
other amounts, liabilities, indemnities and obligations (other than Basic
Rent, renewal rent and other amounts included in other Categories of
Supplemental Expenses) which the Company assumes or agrees to pay to any
Person under any Lease or other Company Documents.
"Cede" means Cede & Co., as nominee for DTC.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Certificate Account" means the one or more non-interest-bearing
accounts established and maintained by the Pass Through Trustee pursuant to
the Pass Through Trust Agreement on behalf of the Certificateholders of the
Pass Through Trust for the deposit of payments representing Scheduled
Payments on the Equipment Notes held in such Pass Through 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.
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"Claims" means all liabilities, charges, costs, losses, damages,
expenses or demands (including reasonable attorneys' fees and court costs)
made against the Company or which the Company may incur arising out of a
Sublessee's failure to comply with the terms and conditions of a
Sublease.
"Closing Date" means September _____, 1998.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Collateral," with respect to the security interest granted by the
Company pursuant to the Intercreditor Agreement, means all of the Company's
right, title and interest in and to (i) the Company Documents, including
the right to receive payments thereunder, (ii) the Accounts (provided that
only the specific Beneficiary to which the Non-Shared Payment relates will
have the benefit of the security interest in the related Non-Shared Payment
Account) including any securities purchased with funds on deposit therein
and all income from the investment of funds therein and (iii) all proceeds,
accessions, profits, income benefits, substitutions and replacements,
whether voluntary or involuntary, of and to any of the property, now owned
or hereafter acquired, of the Company described in (i) and (ii) above
(including any claims for indemnity thereunder and payments with respect
thereto).
"Collateral Agent" means The First National Bank of Chicago, in its
capacity as Collateral Agent under the Intercreditor Agreement, and each
other Person which may from time to time act as successor Collateral Agent
under such Intercreditor Agreement.
"Collection Account" means the account of that name established
pursuant to the Intercreditor Agreement for the purposes described under
"The Intercreditor Agreement--The Accounts."
"Collections" for any period means, without duplication, (i) all
amounts paid to the Collection Account in respect of the Subleases,
including amounts received in respect of claims for damages or in respect
of breaches of contract or nonpayment of any amount due thereunder, (ii)
all income earned on amounts on deposit in the Accounts and (iii) all other
payments of whatever kind (other than Non-Shared Payments and the proceeds
from the sale of the Equipment Units to the Lessors pursuant to the
Participation Agreements on the Closing Date) received by the Company
pursuant to any other Company Document.
"Combined Exposure" means, as of any date of determination, the sum
(calculated without duplication) of all the Transaction Exposures as of
such date.
"Commission" means the Securities and Exchange Commission.
"Company" means General American Railcar Corporation II, a corporation
formed under the laws of the state of Delaware.
"Company Documents" means each Sublease, the Insurance Agreement, the
Management Agreement, the Administrative Services Agreement, the Transfer
and Contribution Agreement and any other agreement or document (other than
the Operative Agreements) to which the Company is or becomes a party or
under which the Company has rights as third party beneficiary or otherwise.
"Company Fleet" means the Equipment leased by the Company pursuant to
the Leases.
"Corporate Trust Office" with respect to the Pass Through Trustee and
the Indenture Trustee, means the office of such trustee in the city at
which at any particular time its corporate trust business shall be
principally administered.
"Coverage Ratio" means either of the Historical Coverage Ratio or the
Projected Coverage Ratio.
"D&B" means Dun & Bradstreet.
"Default Rate" means a rate per annum equal to the Note Rate plus
2.0%.
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"Definitive Certificates" means Pass Through Certificates which are
issued in fully registered, certificated form.
"DOL Regulations" means rules and regulations promulgated by the
DOL.
"DOL" means the United States Department of Labor.
"DOT" means the United States Department of Transportation.
"DTC" means the Depository Trust Company.
"DTC Participants" means participants whose securities are held by
DTC.
"Early Purchase Option" means the right of the Company pursuant to the
Leases to purchase all of the Equipment on an Early Purchase Option
Date.
"Early Purchase Option Dates" shall mean the dates set forth in each
Lease with respect to which the Company can elect, subject to certain
conditions, to purchase all of the Units subject to such Lease.
"Early Purchase Price" shall mean the amount set forth in each Lease
which represents the price the Company is required to pay to acquire all of
the Units on an Early Purchase Option Date.
"EPA" means the United States Environmental Protection Agency.
"Equipment" means all of the Equipment Units leased by the Owner
Trustees to the Company pursuant to the Leases.
"Equipment Cost" means the amount paid by the Owner Trust to the
Company for an Equipment Group or the amount of such payment allocable to
an Equipment Unit within such Equipment Group.
"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 Notes" means the equipment notes issued on a nonrecourse
basis by the Owner Trustees pursuant to the Indentures relating to the
Equipment.
"Equipment Unit" or "Unit" means an individual railcar.
"Equity Portion of Basic Rent" shall mean, at any Payment Date, the
amount set forth in on Schedule 3 of the relevant Participation Agreement
corresponding to such Payment Date.
"Equity Portion of Early Purchase Price" shall mean the amount
designated as such in accordance with Schedule 6 to the relevant
Participation Agreement.
"Equity Portion of Stipulated Loss Value" shall mean, as of any date,
the amount set forth in Schedule 4 of the relevant Participation Agreement
corresponding to such date.
"Equity Portion of Termination Value" shall mean, as of any date, the
amount set forth in Schedule 4 to the relevant Participation Agreement
corresponding to such date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plans" means employee benefits subject to the requirements of
ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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"Event of Default" means, with respect to the Equipment Notes held in
any Pass Through Trust, the occurrence and continuance of an Indenture
Event of Default under one or more of the related Indentures.
"Event of Loss" means, for any Equipment Unit, each of the events
designated as such in the related Lease. For a description of certain
events constituting an Event of Loss, see "The Leases."
"Excess Cash Account" means the account of that name established
pursuant to the Intercreditor Agreement for the purposes described under
"The Intercreditor Agreement--The Accounts."
"Excess Cash Flow" means any amount delivered to the Company on a
Monthly Transfer Date after payment of all amounts due on such Monthly
Transfer Date pursuant to the Intercreditor Agreement.
"Field Service Network" means the service centers where the Manager
maintains, repairs and modifies railcars.
"Financial Institution" means a securities clearing organization, bank
or other financial institution that holds customers' securities in the
ordinary course of its trade or business.
"Forecasting Error" means the occurrence of either of the following:
(i) the certification by the Manager of a Projected Coverage Ratio equal to
or greater than 1.15:1 for which the Historical Coverage Ratio for the same
period is below 1.15:1, or (ii) the certification by the Manager of a
Projected Coverage Ratio equal to or greater than 1.10:1 for which the
Historical Coverage Ratio for the same period is below 1.10:1. Once a
Forecasting Error is in effect, it shall remain in effect until such time
as the Projected Coverage Ratios certified by the Manager have equaled or
been exceeded by the Historical Coverage Ratios for the same periods over a
period of 3 consecutive Calculation Dates.
"Foreign Subleases" means subleases of Equipment Units by Canadian
Affiliates or Mexican Affiliates upon terms and conditions similar in all
material respects to the Subleases.
"FRA" means the Federal Railroad Administration, a division of the
DOT.
"Functional Group" means each and all of the various groups of
Equipment Units within an Equipment Group as designated in the applicable
Participation Agreement.
"GATC" means General American Transportation Corporation, a New York
corporation.
"GATC Leases" means the leases maintained by GATC (in its individual
capacity and not as Manager for the Company or manager for any other
entity) with certain Sublessees.
"GATC Managed Leases" means the leases maintained by GATC (in its
capacity as manager or agent) with certain Sublessees.
"GATC Managed Subsidiary" means a subsidiary of GATC for which GATC
manages railcars owned by or leased to such subsidiary on substantially
similar terms as those in the Management Agreement.
"GATX" means GATX Corporation, a New York corporation.
"GE Railcar" means General Electric Railcar Service Corporation.
"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.
"Historical Coverage Ratio" as of any Calculation Date, means the
ratio of (i) the sum of Available Amounts as of the Calculation Date for
each of the six consecutive calendar months immediately preceding such
Calculation Date to (ii) the aggregate of Basic Rent that was paid or
payable on the Rent Payment Dates which occurred or occur during the six
consecutive calendar months ending immediately after such Calculation
Dates, as such amounts are certified to in an officer's certificate signed
by an authorized representative of each of the Company and the Manager.
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"Incentive Component" means (i) $5.00 per Unit per month during the
period from the Closing Date through December 31, 1999, and (ii) the
Current Incentive Amount per Unit per month from and after January 1, 2000.
The "Current Incentive Amount" is an amount determined for each calendar
month, commencing January 1, 2000, which is equal to the product of (x)
.000238%, and (y) the gross sublease revenues of the Company net of any
write-offs.
"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 this Prospectus.
"Indenture Trustee," when used with respect to any Equipment Note or
the Indenture applicable thereto, means the bank or trust company
designated as indenture trustee under such Indenture, and any successor to
such Indenture Trustee as such trustee.
"Indirect Participants" means entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a DTC Participant either directly or indirectly.
"Insolvency Law" means any Federal or state bankruptcy, insolvency,
reorganization or similar law for the relief of debtors in effect from time
to time.
"Insurance Agreement" means the Insurance Agreement (GARC II) dated as
of September 1, 1998 between GATC and the Company, as such agreement may be
amended or supplemented in accordance with its terms.
"Insurance Manager" means GATC as insurance manager under the
Insurance Agreement.
"Intercreditor Agreement" means the Collateral Agency and
Intercreditor Agreement dated as of September 1, 1998 among the Company,
the Collateral Agent, the Owner Trustees, the Indenture Trustees, the
Manager and the Insurance Manager, as such agreement may be amended or
supplemented in accordance with its terms.
"Investment Banker" means an independent investment banking
institution of national standing selected by the Company or the applicable
Indenture Trustee to determine the Make-Whole Amount, if any, payable with
respect to the Equipment Notes.
"Late Payment Premium" means the premium due on any Regular
Distribution Date on the amount of any Payment Deficiency.
"Late Payment Rate" means 1.5% per annum.
"Late Rent Premium" means, with respect to any Lease and on any
Monthly Transfer Date, any premium on rent due under such Lease, in an
amount sufficient to pay the sum of (i) the supplemental rent or premiums,
if any, due on any overdue portions of principal and interest in respect of
any related Lender Loan, at the late payment rate set forth in the related
Lender Documents; (ii) the default rate interest or premiums, if any, due
on any defaulted principal or interest in respect of any related Lender
Loan, at the default interest rate set forth in the related Lender
Document; and (iii) default interest, if any, due on any unpaid cash
distributions to the related Owner Participants at the rate set forth in
such Lease.
"Lease" means each of the lease agreements entered into with respect
to the Equipment 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 this Prospectus.
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"Lender Agent" means any agent which is acting on behalf of holders of
Assumed Debt which, so long as any Assumed Debt is the Equipment Notes,
means the person acting as Indenture Trustee with respect to such Equipment
Notes or such other agent as the Indenture Trustee shall have notified to
the Lessor, the Manager and the Collateral Agent.
"Lender Document" means any Indenture, loan agreement or other
document pursuant to which a Lender makes a Lender Loan to a Lessor.
"Lender Loan" means, with respect to any Lease, any security issued or
loan made to a Lessor to finance all or any part of the Equipment Cost with
respect to any Equipment Unit leased to the Company pursuant to such Lease.
"Lessee" means the Company.
"Lessor" means each Owner Trustee and each other owner trustee or
other person who may from time to time lease equipment to the Company
pursuant to a Lease.
"Lessor Agent" means, with respect to each Lease, the Lessor
thereunder, and, so long as any Equipment Notes of such Lessor are issued
and outstanding, the Indenture Trustee with respect to such Equipment Notes
or such other agent as such Indenture Trustee shall have notified to the
Lessor, the Company, the Manager and the Collateral Agent.
"LIBOR" means the London Interbank Borrowing Rate.
"Lien" means, as applied to the property or assets (or the income,
proceeds, products, rents or profits therefrom) of any Person, in each case
whether the same is consensual or nonconsensual or arises by contract,
operation of law, legal process or otherwise: (a) any mortgage, lien,
right of detention, pledge, attachment, charge, lease, conditional sale or
other title retention agreement, or other security interest or encumbrance
of any kind; or (b) any arrangement, express or implied, under which such
property or assets (or such income, proceeds, products, rents or profits)
are transferred, sequestered or otherwise identified for the purpose of
subjecting or making available the same for payment of debt or performance
of any other obligation in priority to the payment of the general,
unsecured creditors of such Person.
"Liquidity Reserve Account" means the account of that name established
pursuant to the Inter-creditor Agreement for the purposes described under
"The Intercreditor Agreement--The Accounts."
"Loan Participant" shall mean and include each registered holder from
time to time of an Equipment Note issued under the Indenture, including, so
long as it holds any Equipment Notes issued thereunder, the Pass Through
Trustee under the Pass Through Trust Agreement.
"Lockbox Bank" means The First National Bank of Chicago.
"Make-Whole Amount" means the premium, if any, due in certain
circumstances upon the prepayment of the Equipment Notes, calculated as
described under "Description of the Equipment Notes--Prepayments."
"Management Agreement" means the Operation, Servicing, Maintenance and
Remarketing Agreement (GARC II) dated as of September 1, 1998 between the
Company and GATC, as such agreement may be amended or supplemented in
accordance with its terms.
"Management Fee" means the Base Component plus the Incentive
Component.
"Manager" means GATC, in its capacity as Manager under the Management
Agreement, and each other Person which may from time to time act as a
successor Manager under such Management Agreement.
"Manager's Fleet" means all railcars owned or leased by the Manager in
the United States, including those managed for other wholly-owned special
purpose subsidiaries of GATC.
"Mark" means the identification mark of a railcar consisting of
letters registered in the name of the owner of the railcar and the car
number.
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"Marks Company" or "General American Marks Company" means General
American Marks Company, a Delaware business trust, formed in 1997, to own
the marks registered to GATC and its affiliates or the marks relating to
certain cars managed by GATC or its affiliates.
"Mexican Affiliate" means a wholly-owned subsidiary of GATC organized
under the laws of Mexico or any political subdivision thereof.
"Mileage Credits Lockbox" means the lockbox account in the name of
"General American Marks Company, as agent for the beneficiaries of the
Railroad Mileage Credits as their interest may appear" into which all
payments of Railroad Mileage Credits in respect of railcars carrying marks
owned by the Marks Company will be deposited.
"Monthly Average Lease Rate," for any calendar month, means the
aggregate Sublease monthly rental rates with respect to the Total Managed
Fleet for such calendar month divided by the total number of railcars in
the Total Managed Fleet which are subject to a lease or sublease on the
last day of such calendar month.
"Monthly Report Date," with respect to any Monthly Transfer Date,
means the second Business Day prior to such Monthly Transfer Date.
"Monthly Transfer Date" means the 20th day of each calendar month, or,
if such day is not a Business Day, the next succeeding Business Day.
"Monthly Utilization Rate," for any calendar month, means the
percentage determined by dividing (i) the total number of railcars in the
Total Managed Fleet which are subject to a lease or Sublease on the last
day of such calendar month, by (ii) the total number of railcars in the
Total Managed Fleet on the last day of such calendar month.
"Moody's" means Moody's Investors Service, Inc. or any successor to
such corporation's business of rating securities which is then providing a
rating for any securities.
"Non-Shared Payments" means any (a) contribution of capital by GATC to
the Company subsequent to the Closing Date made expressly for the purpose
of paying the Stipulated Loss Value on any Unit or Units pursuant to a
Lease or amounts due with respect to a purchase by the Company of any Unit
or Units at the termination of a Lease, (b) insurance proceeds received
with respect to any Event of Loss or damage to any Equipment, (c) proceeds
of the sale of the Equipment or (d) excess cash available to the Company
from the Excess Cash Account that the Company requests the Collateral Agent
to transfer to the Non-Shared Payments Account for the express purpose of
paying the Stipulated Loss Value pursuant to a Lease or amounts due with
respect to a purchase by the Company of any Unit or Units at the
termination of a Lease.
"Non-Shared Payments Account" means the account of that name
established pursuant to the Intercreditor Agreement for the purposes
described under "The Intercreditor Agreement--The Accounts."
"Non-U.S. Certificateholder" means any beneficial owner of a Pass
Through Certificate that is a non-United States person.
"Note Rate" means the rate per annum set forth on the cover page of
the Prospectus (computed on the basis of a 360-day year of 12 30-day
months).
"Obsolescence Termination Option" means the right of the Company
pursuant to the Leases to terminate a Lease with respect to one or more
Equipment Units within any Equipment Group because such Equipment Units
have become obsolete or surplus to the Company's needs.
"Offering" means the offering of the Pass Through Certificates by the
Pass Through Trust.
"Officer's Certificate" shall mean a certificate signed (i) in the
case of a corporation, by the President, any Vice President, the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary of such
corporation, (ii) in the case of a partnership or limited liability
company, by the Chairman of the Board, the President or any Vice President,
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the Treasurer or an Assistant Treasurer of a corporate general partner or
member, as the case may be, and (iii) in the case of a commercial bank or
trust company, by the Chairman or Vice Chairman of the Executive Committee
or the Treasurer, any Trust Officer, any Vice President, any Executive or
Senior or Second or Assistant Vice President, or any other officer or
assistant officer customarily performing the functions similar to those
performed by the persons who at the time shall be such officers, or to whom
any corporate trust matter is referred because of his knowledge of and
familiarity with the particular subject.
"OID" means original issue discount.
"Operating Account" means the account of that name established
pursuant to the Intercreditor Agreement for the purposes described under
"The Intercreditor Agreement--The Accounts."
"Operative Agreements" shall mean the Transfer and Assignment
Agreement, the GATC Bill of Sale, the Participation Agreements, the Bills
of Sale, the Trust Agreements, the Pass Through Trust Agreement, the Pass
Through Trust Supplement, the Pass Through Certificates, the Equipment
Notes, the Leases, the Lease Supplements, the Indentures, the Indenture
Supplements, the Tax Indemnity Agreements, the Purchase Agreement, the
Management Agreement, the Insurance Agreement and the Intercreditor
Agreement.
"Operating Expenses" means expenses provided for in the annual budget
of the Company, including (a) payments due to the Collateral Agent in
respect of fees, expenses or indemnities pursuant to the Intercreditor
Agreement, (b) any payments in respect of insurance premiums required to be
paid in respect of the Insurance Agreement or other insurance maintained by
the Company, (c) any payment in respect of Reimbursable Services pursuant
to the Management Agreement, (d) the fees and expenses payable pursuant to
the Administrative Services Agreement, (e) maintenance or repair expenses
related to Events of Loss (including the payment of Stipulated Loss Value
or the cost of replacement of Equipment in connection with such Event Loss)
not in excess of $100,000 in any calendar month and (f) expenses in
connection with Optional Modifications to the Equipment.
"Optional Modifications" means, with respect to any Lease, all
modifications to the related Equipment other than Required Modifications or
Programmatic Optional Modifications.
"Owner Participant" means each owner participant or other person for
whose benefit Lessor owns an Equipment Group leased to the Company pursuant
to a Lease, and its permitted successors and assigns.
"Owner Trust" means the Delaware business trust formed between the
Owner Trustee, not in its individual capacity but solely as trustee, and an
Owner Participant.
"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 the Pass Through Trust pursuant to the Pass Through Trust
Agreement.
"Pass Through Trust" means the General American Railcar Corporation II
1998-1 Pass Through Trust to be formed pursuant to the Pass Through Trust
Agreement.
"Pass Through Trust Agreement" means the Basic Agreement as
supplemented by the Trust Supplement.
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"Pass Through Trustee" means The First National Bank of Chicago, in
its capacity as Pass Through Trustee and each other Person which may from
time to time act as successor Pass Through Trustee under such Pass Through
Trust.
"Payment Deficiency" means the difference between (i) the greater of
(a) the principal amount of the Equipment Notes paid on a Regular
Distribution Date and (b) the Rated Amortization Amount payable on such
Regular Distribution Date and (ii) the Scheduled Amortization Amount
payable on such Regular Distribution Date.
"Permitted Government Investment" means obligations of the United
States of America and agencies thereof for the payment of which the full
faith and credit of the United States of America is pledged, maturing in
not more than 60 days or such lesser time as is necessary for payment of
any Special Payments on a Special Distribution Date.
"Permitted Investments" means (i) direct obligations of, and
obligations fully guaranteed as to timely payment by, the United States of
America (having remaining maturities of no more than the number of
remaining days until the next Monthly Transfer Date), (ii) commercial paper
(having remaining maturities of no more than the number of days until the
next Monthly Transfer Date having, at the time of the investment or
contractual commitment to invest therein, a rating from each Rating Agency
in its highest investment category), (iii) a Guaranteed Investment Contract
(a "GIC") from an Acceptable GIC provider, (iv) a GIC provided by GATX;
provided that such obligations are supported by an Acceptable Letter of
Credit, (v) investments in funds rated in the highest investment category
by each Rating Agency, (vi) repurchase agreements and similar short term
instruments, (vii) so long as (A) no Cash Trapping Event is in effect, (B)
GATC maintains at least a rating of BBB- from S&P and Baa3 from Moody's,
and (C) GATC is not on credit watch with negative implications if its
rating is BBB- from S&P and Baa3 from Moody's, then, with respect to no
more than $3,000,000 of amounts on deposit in the Cash Trapping Account
which are in excess of $3,000,000, Permitted Investments will include
securities or obligations of GATC which are priced and documented on an
arm's length basis (and in the case of GATC commercial paper has a rating
of A2/P2 or better); provided further that if a Cash Trapping Event has
occurred and is continuing, such investments as they mature shall not be
reinvested in GATC securities or obligations until such Cash Trapping Event
shall no longer be continuing and all amounts in excess of those required
to be on deposit in the Cash Trapping Account in excess of those specified
in clause (i) thereof shall have been released, and (viii) with respect to
all amounts on deposit in the Special Insurance Reserve Account, Permitted
Investments will include securities or obligations of GATC which are priced
and documented on an arm's length basis.
"Person" means an individual, a corporation, a partnership, a trust,
an unincorporated organization, a limited liability company, or a
government or political subdivision thereof.
"Plans" means those plans not subject to ERISA but which are subject
to Section 4975 of the Code, together with ERISA Plans.
"Pool Balance" means, as of any date, the aggregate unpaid principal
amount of the Equipment Notes held in such Pass Through Trust on such date
plus any amounts in respect of principal on such Equipment Notes 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 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 held in such Pass Through Trust
and distribution thereof to be made on that date.
"Pool Factor" means, as of any date, the quotient (rounded to the
seventh decimal place) computed by dividing (i) the Pool Balance of such
Pass Through Trust by (ii) the aggregate original principal amount of the
Equipment Notes held in such Pass Through Trust. The Pool Factor 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 held in such Pass Through Trust and distribution thereof to be made
on that date.
"Pre-Financing Cash Flow" means the net cash flow computed by
deducting all assumed expenses from assumed gross revenues of the
Company.
"Procor" means Procor Limited.
A-10
<PAGE>
"Programmatic Optional Modifications" means any Optional Modification
to one or more Equipment Units in the Company Fleet which is reasonably
expected to cost more than $750,000.
"Projected Coverage Ratio," as of any Calculation Date, means the
ratio of (i) the sum of projected Available Amounts for the six month
period immediately succeeding such Calculation Date to (ii) the sum of the
Basic Rent due or to become due and payable on the six consecutive Rent
Payment Dates which occur following such Calculation Date, as such amounts
are certified to by an officer's certificate signed by an authorized
representative of each of the Company and the Manager.
"PTCE" means a Prohibited Transaction Class Exemption issued by the
DOL.
"Railroad Mileage Credits" means the mileage credit payments made by
the railroads under their applicable tariffs to the registered owner of the
identifying marks on the railcar.
"Rating Agency Confirmation" means a confirmation by each of the
Rating Agencies that, after taking into account the event which
necessitated such confirmation, such Rating Agency will not reduce its then
current rating on the Pass Through Certificates.
"Rated Amortization" means the minimum amount of principal of the
related Equipment Notes which an Owner Trustee must pay on a cumulative
basis on or prior to each Regular Distribution Date in order to avoid a
payment default under the applicable Indenture.
"Rated Amortization Amount" as of a Regular Distribution Date, means
the excess of (i) the cumulative amount of all Rated Amortization which is
required to have been paid through and including such Regular Distribution
Date over (ii) the cumulative amount of all principal paid on the Equipment
Notes prior to and excluding such Regular Distribution Date.
"Rated Maturity Date" means September 20, 2020.
"Rated Obligations Due" means, at any Regular Distribution Date, the
sum of (a) the Rated Amortization Amount at such Regular Distribution Date
plus (b) accrued and unpaid interest on the unpaid portions of the
principal amounts of the outstanding Equipment Notes that is due and
payable on such Regular Distribution Date.
"Rated Pool Balance" means the Pool Balance determined in accordance
with the Rated Amortization Schedule.
"Rated Pool Factor" means the Pool Factor determined in accordance
with the Rated Amortization Schedule.
"Rating Agencies" means, at any time, S&P and Moody's, or any
successor to any such corporation's business of rating securities, which is
then providing a rating for the Equipment Notes.
"Record Date," for each Regular Distribution Date or Special
Distribution Date, means the close of business on the day 15 days prior to
such Regular Distribution Date or Special Distribution Date.
"Registration Statement" means the Registration Statement on Form S-3
with respect to the Pass Through Certificates filed with the Commission by
the Company.
"Regular Distribution Date" means the 20th day of each month or, if
such day is not a Business Day, the next succeeding Business Day.
"Regular Payment" means each payment of interest or principal on an
Equipment Note scheduled to be received by the Pass Through Trustee on a
Regular Distribution Date.
"Regulators" means the AAR, DOT, RSPA and FRA.
A-11
<PAGE>
"Remaining Weighted Average Life" of such Equipment Note, at the
prepayment or determination date of such Equipment Note, shall be the
number of days equal to the quotient obtained by dividing (a) the sum of
the products obtained by multiplying (i) the amount of each then remaining
principal payment on such Equipment Note in accordance with the Scheduled
Amortization Schedule by (ii) the number of days from and including the
prepayment or determination date to but excluding the scheduled payment
date of such principal payment, by (b) the unpaid principal amount of such
Equipment Note.
"Rent Abatements" means sums not charged to a customer's rent during
the time that a railcar is not in use for certain maintenance conducted by
GATC.
"Rent Payment Date" or "Payment Date" shall mean the 20th day of each
month occurring during the Lease Term, commencing October 20, 1998,
provided that if any such date shall not be a Business Day, then "Rent
Payment Date" or "Payment Date" shall mean the next succeeding Business
Day.
"Required Beneficiaries" means, at any time, Beneficiaries (excluding
the Manager, the Administrator and the Insurance Manager) that at such time
hold at least 66 2/3% of the Combined Exposure.
"Required Cash Trapping Amount" means the amount required to be
deposited in the Cash Trapping Account on any Monthly Transfer Date,
calculated as described under "Collection and Application of the Company's
Cash Flows--Cash Trapping Events; Required Cash Trapping Amount."
"Required Liquidity Reserve Amount" as of the Closing Date will be
$2,000,000 (of which $500,000 will be funded on the Closing Date and the
balance in equal monthly installments of $42,000) and thereafter will mean
such amount as the Owner Participants shall consent to and which will not
result in a reduction of the then current rating on the Pass Through
Certificates by the Rating Agencies.
"Required Modification," with respect to any Equipment Unit, means the
definition of such term in the related Lease, whether expressly set forth
therein or by reference to another related document.
"Required Special Reserves Amount" means the amount required to be
deposited in the Special Reserves Account on any Monthly Transfer Date,
calculated as described under "Collection and Application of the Company's
Cash Flows--Required Special Reserves Amount."
"Required Stipulated Loss Value Deficiency Amount" as of any
Calculation Date and with respect to any Lease, means the aggregate of the
Stipulated Loss Value Deficiency Amounts due and payable as of the next
succeeding Monthly Transfer Date.
"Rider" means the rider to a car service contract entered into between
the Company and its customer which describes the specific Equipment Units
to be leased by the customer, together with the applicable term and lease
rates applicable to such Equipment Units.
"RSPA" means the Research and Special Programs Administration, a
division of the DOT.
"Rules" means the rules, regulations and procedures creating and
affecting DTC and its operations.
"S&P" or "Standard & Poor's" means Standard & Poor's Ratings Group, a
division of McGraw Hill, Inc., or any successor to such Corporation's
business of rating securities, which is then providing a rating for any
securities.
"Scheduled Amortization" means the amount of principal of the related
Equipment Notes which an Owner Trustee must have paid (on a cumulative
basis) through each Regular Distribution Date in order to avoid the payment
of a Late Payment Premium.
"Scheduled Amortization Amount" as of a Regular Distribution Date,
means the excess of (i) the cumulative amount of all Scheduled Amortization
which is required to have been paid through and including such Regular
A-12
<PAGE>
Distribution Date over (ii) the cumulative amount of all principal paid on
the Equipment Notes prior to and excluding such Regular Distribution Date.
"Scheduled Maturity Date" means September 20, 2017.
"Scheduled Pool Balance" means the Pool Balance determined in
accordance with the Scheduled Amortization Schedule.
"Scheduled Pool Factor" means the Pool Factor determined in accordance
with the Scheduled Amortization Schedule.
"Securities Act" means the Securities Act of 1933, as amended.
"Servicing Agreement" means the Management and Servicing Agreement
dated as of September 24, 1997, between the Marks Company and GATC, as such
agreement may be amended or supplemented in accordance with its terms.
"Service Standard" means customary commercial practices as would be
used by a prudent person in the full service railcar leasing industry.
"Servicer" means GATC as servicer for the Mileage Credits Lockbox
pursuant to the Servicing Agreement.
"Special Distribution Date" means each date on which a Special Payment
will be distributed.
"Special Insurance Reserve Account" means the Account of that name
established pursuant to the Intercreditor Agreement for the purposes
described under the "The Intercreditor Agreement -- The Accounts."
"Special Payment" means (i) any payment of principal, Make-Whole
Amount, if any, and interest resulting from the prepayment or purchase of
an Equipment Note held in a Pass Through 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 Pass Through
Trust upon an Indenture Event of Default in respect of, or upon
acceleration relating to, such Equipment Note, (iii) any payment of
principal, Make-Whole Amount if any, and interest on an Equipment Note
which is not in fact paid within five days of a Regular Distribution Date
or (iv) any proceeds from the sale of any Equipment Note upon an Event of
Default.
"Special Payments Account" means the one or more accounts established
and maintained by the Pass Through Trustee pursuant to the Pass Through
Trust Agreement on behalf of the Certificateholders for the deposit of
payments representing Special Payments on the Equipment Notes held in such
Pass Through Trust.
"Special Reserves Account" means the account of that name established
pursuant to the Intercreditor Agreement for the purposes described under
"The Intercreditor Agreement--The Account."
"Specified Investments" (i) direct obligations of, and obligations
fully guaranteed as to timely payment by, the United States of America
(having remaining maturities of no more than the number of remaining days
until the next Monthly Transfer Date), (ii) commercial paper (having
remaining maturities of no more than the number of days remaining until the
next Monthly Transfer Date having, at the time of the investment or
contractual commitment to invest therein, a rating from each Rating Agency
in its highest investment category), (iii) a Guaranteed Investment Contract
(a "GIC") from an Acceptable GIC provider, (iv) a GIC provided by GATX,
provided that such obligations are supported by an Acceptable Letter of
Credit, (v) investments in funds rated in the highest investment category
by each Rating Agency and (vi) repurchase agreements and similar short term
instruments.
"Stipulated Loss Value Deficiency Account" means the Account of that
name established pursuant to Intercreditor Agreement for the purposes
described under "The Intercreditor Agreement--The Accounts."
"Stipulated Loss Value Deficiency Amount" with respect to each Event
of Loss under a Lease, means the Stipulated Loss Value which will become
due and payable with respect to such Event of Loss within 120 days after
such Event of Loss occurs.
A-13
<PAGE>
"Structuring Assumptions" means the key assumptions used by the
Company to develop the cash flow model from which the Scheduled
Amortization Schedule is derived.
"Sublease" means each of the lease agreements entered into from time
to time with respect to the Equipment between the Company and a Sublessee,
as each such lease agreement may from time to time be amended or
supplemented.
"Sublease Lockbox" means the lockbox account in the name of "GATC, as
Trustee for GATC, individually, General American Railcar Corporation,
General American Railcar Corporation II and other beneficiaries as their
interests may appear" into which all payments made by the Sublessees under
the Subleases, the GATC Leases and other GATC Managed Leases will be
deposited.
"Sublessee" means any Person who subleases the Equipment from the
Company pursuant to a Sublease.
"Sublessor" means the Company.
"Successor Manager" means any successor Manager appointed upon the
termination of GATC as Manager.
"T+5" means the settlement cycle pursuant to which delivery of the
Pass Through Certificates will be made against payment therefor on or about
the fifth business day following the date of pricing of the Pass Through
Certificates.
"Terminated Units" means any Equipment Units with respect to which the
Company has terminated a Lease pursuant to its Obsolescence Termination
Option.
"Total Managed Fleet" means the Manager's Fleet and the Company Fleet.
"Transaction Exposure" means as of any date of determination and with
respect to each Lease, the present value (discounted at the interest rate
on the related Lender Loan) of all the remaining payments of Basic Rent
under such Lease through the remaining term of such Lease, plus (ii) if all
or a portion of a Lender Loan related to such Lease shall have been assumed
by the Company, the present value (discounted at the interest rate on such
assumed debt) of all the remaining payments of principal of such assumed
debt through the remaining term of such assumed debt.
"Treasury Rate" means, with respect to each Equipment Note to be
prepaid, a per annum rate (expressed as a monthly equivalent and as a
decimal and, in the case of United States Treasury bills, converted to a
bond equivalent yield), determined to be the per annum rate equal to the
monthly yield to maturity for United States 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 United States 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 of 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))
"Trial Court" means the Civil District Court in the Parish of Orleans
(Louisiana).
"Trinity" means Trinity Industries Inc., a manufacturer of railcars.
"Trigger Event" means the occurrence under any Operative Agreement or
Company Document (other than the Subleases) of an "Event of Default" as
such term, or a similar term, is defined under such Operative Agreement or
Company Document.
"Trust Property" means, with respect to any Pass Through Trust, the
Equipment Notes held as the property of such Pass Through 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 Pass Through Trust, including any proceeds from the sale by the
Pass Through Trustee of any such Equipment Note in connection with an Event
of Default.
A-14
<PAGE>
"Trust Supplement" means each of the Pass Through Trust Supplements
between the Company and the Pass Through Trustee, pursuant to each of which
a Pass Through 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 Pass Through Trust.
"Underwriters" mean Salomon Smith Barney Inc. and Morgan Stanley Dean
Witter & Co.
"Underwriting Agreement" means the underwriting agreement by and among
the Company and the Underwriters, pursuant to which the Underwriters have
agreed to purchase the Pass Through Certificates.
"Underwriter Exemption" means the individual administrative exemption
issued to Salomon Brothers Inc. (the predecessor to Salomon Smith Barney
Inc.) by the DOL in Prohibited Transaction Exemption 89-89 (54 Fed. Reg.
42569 (1989)), as amended.
"Union Tank Car" means Union Tank Car Company.
A-15
<PAGE>
APPENDIX B
SCHEDULE OF MONTHLY AMORTIZATION RATES AND POOL FACTORS
The Scheduled Amortization, Rated Amortization and Pool Factors for the
Equipment Notes, as of the 20th day of each month, are set forth below.
<TABLE>
<CAPTION>
Scheduled Amortization Rated Amortization
----------------------------- ---------------------------------- Cumulative Excess
Principal Principal Pool Principal Principal Pool of Scheduled
Date Payment Balance Factor Payment Balance Factor Over Rated
---- --------- --------- ------ -------- --------- ----------- -----------------
<C> <S> <C> <C> <C> <C> <C> <C>
Closing
09/20/98
10/20/98
11/20/98
12/20/98
01/20/99
02/20/99
03/20/99
04/20/99
05/20/99
06/20/99
07/20/99
08/20/99
09/20/99
10/20/99
11/20/99
12/20/99
01/20/00
02/20/00
03/20/00
04/20/00
05/20/00
06/20/00
07/20/00
08/20/00
09/20/00
10/20/00
11/20/00
12/20/00
01/20/01
02/20/01
03/20/01
04/20/01
05/20/01
06/20/01
07/20/01
08/20/01
09/20/01
10/20/01
11/20/01
12/20/01
01/20/02
02/20/02
03/20/02
04/20/02
05/20/02
06/20/02
07/20/02
08/20/02
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
Scheduled Amortization Rated Amortization
----------------------------- ---------------------------------- Cumulative Excess
Principal Principal Pool Principal Principal Pool of Scheduled
Date Payment Balance Factor Payment Balance Factor Over Rated
---- --------- --------- ------ -------- --------- ----------- -----------------
<C> <S> <C> <C> <C> <C> <C> <C>
09/20/02
10/20/02
11/20/02
12/20/02
01/20/03
02/20/03
03/20/03
04/20/03
05/20/03
06/20/03
07/20/03
08/20/03
09/20/03
10/20/03
11/20/03
12/20/03
01/20/04
02/20/04
03/20/04
04/20/04
05/20/04
06/20/04
07/20/04
08/20/04
09/20/04
10/20/04
11/20/04
12/20/04
01/20/05
02/20/05
03/20/05
04/20/05
05/20/05
06/20/05
07/20/05
08/20/05
09/20/05
10/20/05
11/20/05
12/20/05
01/20/06
02/20/06
03/20/06
04/20/06
05/20/06
06/20/06
07/20/06
08/20/06
09/20/06
10/20/06
11/20/06
12/20/06
01/20/07
02/20/07
03/20/07
04/20/07
05/20/07
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
Scheduled Amortization Rated Amortization
----------------------------- ---------------------------------- Cumulative Excess
Principal Principal Pool Principal Principal Pool of Scheduled
Date Payment Balance Factor Payment Balance Factor Over Rated
---- --------- --------- ------ -------- --------- ----------- -----------------
<C> <S> <C> <C> <C> <C> <C> <C>
06/20/07
07/20/07
08/20/07
09/20/07
10/20/07
11/20/07
12/20/07
01/20/08
02/20/08
03/20/08
04/20/08
05/20/08
06/20/08
07/20/08
08/20/08
09/20/08
10/20/08
11/20/08
12/20/08
01/20/09
02/20/09
03/20/09
04/20/09
05/20/09
06/20/09
07/20/09
08/20/09
09/20/09
10/20/09
11/20/09
12/20/09
01/20/10
02/20/10
03/20/10
04/20/10
05/20/10
06/20/10
07/20/10
08/20/10
09/20/10
10/20/10
11/20/10
12/20/10
01/20/11
02/20/11
03/20/11
04/20/11
05/20/11
06/20/11
07/20/11
08/20/11
09/20/11
10/20/11
11/20/11
12/20/11
01/20/12
02/20/12
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
Scheduled Amortization Rated Amortization
----------------------------- ---------------------------------- Cumulative Excess
Principal Principal Pool Principal Principal Pool of Scheduled
Date Payment Balance Factor Payment Balance Factor Over Rated
---- --------- --------- ------ -------- --------- ----------- -----------------
<C> <S> <C> <C> <C> <C> <C> <C>
03/20/12
04/20/12
05/20/12
06/20/12
07/20/12
08/20/12
09/20/12
10/20/12
11/20/12
12/20/12
01/20/13
02/20/13
03/20/13
04/20/13
05/20/13
06/20/13
07/20/13
08/20/13
09/20/13
10/20/13
11/20/13
12/20/13
01/20/14
02/20/14
03/20/14
04/20/14
05/20/14
06/20/14
07/20/14
08/20/14
09/20/14
10/20/14
11/20/14
12/20/14
01/20/15
02/20/15
03/20/15
04/20/15
05/20/15
06/20/15
07/20/15
08/20/15
09/20/15
10/20/15
11/20/15
12/20/15
01/20/16
02/20/16
03/20/16
04/20/16
05/20/16
06/20/16
07/20/16
08/20/16
09/20/16
10/20/16
11/20/16
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
Scheduled Amortization Rated Amortization
----------------------------- ---------------------------------- Cumulative Excess
Principal Principal Pool Principal Principal Pool of Scheduled
Date Payment Balance Factor Payment Balance Factor Over Rated
---- --------- --------- ------ -------- --------- ----------- -----------------
<C> <S> <C> <C> <C> <C> <C> <C>
12/20/16
01/20/17
02/20/17
03/20/17
04/20/17
05/20/17
06/20/17
07/20/17
08/20/17
09/20/17
10/20/17
11/20/17
12/20/17
01/20/18
02/20/18
03/20/18
04/20/18
05/20/18
06/20/18
07/20/18
08/20/18
09/20/18
10/20/18
11/20/18
12/20/18
01/20/19
02/20/19
03/20/19
04/20/19
05/20/19
06/20/19
07/20/19
08/20/19
09/20/19
10/20/19
11/20/19
12/20/19
01/20/20
02/20/20
03/20/20
04/20/20
05/20/20
06/20/20
07/20/20
08/20/20
09/20/20
</TABLE>
B-5
<PAGE>
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 in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or by the Underwriters. Neither the delivery of this
Prospectus 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 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 of solicitation.
-----------------------
Table of Contents
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Available Information............................................... ii
Reports to Certificateholders by the Trustee........................ ii
Prospectus Summary.................................................. 1
Risk Factors........................................................ 18
Use of Proceeds..................................................... 26
The Company......................................................... 27
The Equipment....................................................... 28
Railcar Leasing Industry............................................ 30
The Subleases....................................................... 33
The Sublessees...................................................... 40
The Manager......................................................... 43
The Management Agreement............................................ 45
The Intercreditor Agreement......................................... 49
Collection and Application of the Company's
Cash Flows........................................................ 51
The Leases.......................................................... 58
The Participation Agreements........................................ 64
The Insurance Agreement............................................. 64
Formation of the Pass Through Trust................................. 66
Description of the Pass Through Certificates........................ 66
Maturity, Payment and Yield Considerations.......................... 74
Structuring Assumptions............................................. 76
The Owner Trusts.................................................... 80
Description of the Equipment Notes.................................. 80
Federal Income Tax Considerations................................... 90
Certain Illinois Taxes.............................................. 92
ERISA Considerations................................................ 93
Underwriting........................................................ 95
Legal Matters....................................................... 96
Ratings............................................................. 96
Appendix A - glossary of Certain Terms.............................. A-1
Appendix B - Schedule of Monthly Amortization
Rates and Pool Factors............................................ B-1
</TABLE>
Until , 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.
$167,000,000
General American Railcar
Corporation II
1998-1
Pass Through Trust
Pass Through Certificates,
Series 1998-1
PROSPECTUS
Salomon Smith Barney
Morgan Stanley Dean Witter
Dated , 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table shows estimates of the various expenses to be paid in
connection with the registration of the Certificates offered pursuant to this
registration statement.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee.................... $49,265
Legal Fees.............................................................
Accounting Fees........................................................
Trustees' Fees and Expenses............................................
Rating Agencies' Fees..................................................
Printing Costs.........................................................
Miscellaneous..........................................................
------
Total............................................................. $
======
</TABLE>
Item 15. Indemnification of Directors and Officers
The Company's officers and directors are and will be indemnified against
certain liabilities in accordance with Section 145 of the Delaware General
Corporation Law ("DGCL"), the Certificate of Incorporation and the By-laws of
the Company. The Certificate of Incorporation requires the Company to indemnify
its directors and officers to the fullest extent permitted from time to time
under the DGCL. The DGCL permits a corporation to indemnify its directors and
officers, among others, against expenses (including reasonable attorneys' fees),
judgments, fines and amounts they incur actually and reasonably in connection
with any proceeding to which they are a party by reasons of their service in
these or other capacities provided that it is established that the director or
officer acted in good faith and in a manner such person reasonably believed to
be in and not opposed to the best interests of the Corporation, and, in the case
of any criminal action, such person had no reasonable cause to believe such
person's conduct was unlawful.
Item 16. Exhibits
The exhibits to this registration statement are listed in the exhibit index
which follows the signature page and which is hereby incorporated by reference.
Item 17. Undertakings
A. Undertaking Regarding Documents Subsequently Filed under the Exchange
Act.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered herein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
B. Undertaking in Respect of Indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions contained in the Certificate of Incorporation
and By-laws of the Company and the laws of the State of Delaware, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such
II-1
<PAGE>
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
C. Undertakings Pursuant to Rule 430A.
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus field by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
D. Undertakings Under the Trust Indenture Act of 1939.
The Company hereby undertakes to file an application for the purpose of
determining the eligibility of the trustee to act under subsection (a) of
Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act of 1939.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that the security rating
required for use of Form S-3 will be assigned by the date of the sale of the
securities offered hereby, and thus the registrant meets all of the requirements
for filing on Form S-3 and has duly caused this document or amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago, state of Illinois on the 4th day of September, 1998.
General American Railcar Corporation II
By: /s/ D. Ward Fuller*
-------------------
Name: D. Ward Fuller
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, or amendment thereto, has been signed by the following
persons in the capacities indicated on the 4th day of September, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ D. Ward Fuller* President and Director
- -------------------------
D. Ward Fuller
/s/ Donald J. Schaffer* Principal Financial and Accounting Officer
- -------------------------
Donald J. Schaffer
/s/ David B. Anderson* Director
- -------------------------
David B. Anderson
/s/ David M. Edwards* Director
- -------------------------
David M. Edwards
/s/ Ronald H. Zech* Director
- -------------------------
Ronald H. Zech
/s/ Frank B. Bilotta Director
- -------------------------
Frank B. Bilotta
/s/ Peter H. Sorensen Director
- -------------------------
Peter H. Sorensen
</TABLE>
*Signed pursuant to power of attorney By: /s/ Ronald J. Ciancio
---------------------
Ronald J. Ciancio
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement+
3.1 Certificate of Incorporation of the Company
4.1 Form of Pass Through Trust Agreement*
4.2 Form of Pass Through Certificate (included in Exhibit 4.1)
4.3 Form of Owner Trust Agreement
4.4 Form of Trust Indenture*
4.5 Form of Equipment Note (included in Exhibit 4.4)
4.6 Form of Intercreditor Agreement*
5.1 Opinion of Vedder, Price, Kaufman & Kammholz, counsel for the Company
5.2 Opinion of counsel for the Pass Through Trustee
8.1 Tax opinion of Vedder, Price, Kaufman & Kammholz, counsel for the Company
10.1 Form of Operation, Maintenance, Servicing and Remarketing Agreement*
10.2 Form of Administrative Services Agreement*
10.3 Form of Insurance Agreement*
10.4 Form of Equipment Lease Agreement*
10.5 Form of Participation Agreement*
23.1 Consent of Vedder, Price, Kaufman & Kammholz (included in Exhibit 5.1)
23.2 Consent of counsel for the Pass Through Trustee (included in Exhibit 5.2)
24.1 Powers of Attorney (included on the signature pages to the Registration Statement)
25.1 Statement of Eligibility of Pass Through Trustee on Form T-1
- ----------
</TABLE>
*Previously filed.
+To be filed by amendment.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
GENERAL AMERICAN RAILCAR CORPORATION II
FIRST: The name of the corporation is General American Railcar
Corporation II (the "Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business or purpose to be conducted or promoted
by the Corporation is to engage in the following business and financial
activities:
(a) Leasing railroad cars pursuant to one or more leases;
(b) Subleasing such leased railroad cars pursuant to subleases with
customers;
(c) Maintaining insurance for such leased railroad cars;
(d) Preserving, exercising and enforcing rights of the Corporation under
any applicable agreements;
(e) Applying funds and making payments in accordance with any applicable
agreements; and
(f) Engaging in any activity and exercising any powers permitted to
corporations under the laws of the State of Delaware that are related or
incidental to the foregoing and necessary, convenient or advisable to
accomplish the foregoing.
FOURTH: The total number of shares of all classes of capital stock that
the Corporation shall have authority to issue is One Thousand (1,000) shares of
common stock, par value one dollar ($1.00) per share (the "Common Stock").
(a) Common Stock
(i) Except as otherwise expressly provided by law, all voting
rights shall be vested in the holders of the Common Stock, and at each
meeting of the stockholders
1
<PAGE>
of the Corporation, each holder of Common Stock shall be entitled to
one vote for each share on each matter to come before the meeting.
(ii) Dividends may be declared upon and paid to the holders of the
Common Stock as the Board of Directors shall determine, provided that
such dividends shall be in accordance with all duly executed
agreements to which the Corporation is a party.
(iii) In the event of voluntary or involuntary liquidation or
dissolution of the Corporation, the holders of the Common Stock shall
be entitled to share ratably in all assets of the Corporation.
(b) Vote Required in Certain Events
Without (i) the affirmative vote of 100% of the members of the Board
of Directors of the Corporation, including, without limitation, the
affirmative vote of the directors required by Article SIXTH of this
Certificate of Incorporation, and (ii) the affirmative vote of the holders
of 100% of the Common Stock outstanding, the Corporation shall not amend
either this Article FOURTH(b), Article THIRD, Article SIXTH, Article NINTH,
Article TENTH(a) or (b) or Article TWELFTH of this Certificate of
Incorporation; provided that if there is no director required by Article
SIXTH of this Certificate of Incorporation then in office and acting, a
vote upon any matter set forth in this Article FOURTH(b) shall not be taken
unless and until a successor director, meeting the requirements of Article
SIXTH of this Certificate of Incorporation, shall have been elected.
FIFTH: The name and mailing address of the sole incorporator are as
follows:
Name Mailing Address
---- ---------------
Courtney A. Wilson c/o Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
SIXTH: (a) All corporate powers shall be exercised by the Board of
Directors, except as provided by statute or by this Certificate of
Incorporation.
(b) At any given time, each of at least two directors of the Corporation
shall be an individual who is not, and never was, (1) a stockholder, director,
officer, employee, affiliate, associate, customer or supplier of, or any person
that has received any benefit (excluding, however, any compensation received by
the director, in such person's capacity as such director, required by this
Article SIXTH, or in such person's capacity as a director of any other direct or
indirect subsidiary of a direct or ultimate parent of the Corporation which
subsidiary is organized solely for
2
<PAGE>
limited purposes similar to those enumerated in Article THIRD hereof and which
conducts its affairs subject to the same conditions enumerated in Article TENTH
hereof (any such other subsidiary being hereinafter referred to as a "special
purpose subsidiary")) in any form whatsoever from, or any person that has
provided any service (excluding, however, any service provided by the director,
in such person's capacity as such director, required by this Article SIXTH, or
in such person's capacity as a director of any other special purpose subsidiary)
in any form whatever to, GATX Corporation or any of its affiliates or
associates, or (2) any person owning beneficially, directly or indirectly, any
outstanding shares of common stock of GATX Corporation or any of its affiliates,
or a stockholder, director, officer, employee, affiliate, associate, customer or
supplier of, or any person that has received any benefit (excluding, however,
any compensation received by the director, in such person's capacity as such
director, required by this Article SIXTH, or in such person's capacity as a
director of any other special purpose subsidiary) in any form whatever from, or
any person that has provided any service (excluding, however, any service
provided by the director, in such person's capacity as such director, required
by this Article SIXTH, or in such person's capacity as a director of any other
special purpose subsidiary) in any form whatever to, such beneficial owner or
any such beneficial owner's affiliates or associates.
(c) No director serving pursuant to the requirements of this Article SIXTH
shall, with regard to any act, or failure to act, in connection with any matter
referred to in Article NINTH, owe a fiduciary duty or other obligation to the
stockholders (except as may be specifically required by the statutory law of any
applicable jurisdiction); instead, such director's fiduciary duty and other
obligations with regard to such act, or failure to act, in connection with any
matter referred to in Article NINTH shall be owed to the Corporation, including,
without limitation, the creditors of the Corporation. Every stockholder shall be
deemed to have consented to the foregoing by virtue of such stockholder's
purchase of shares of capital stock of the Corporation, no further act or deed
of any stockholder being required to evidence such consent.
(d) As used in this Article SIXTH, the term "person" means a natural
person, corporation or other entity, government, or political subdivision,
agency or instrumentality of a government; an "affiliate" of a person is a
person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, or owns, directly or
indirectly, 50% or more of, the person specified; and the term "associate," when
used to indicate a relationship with any person, means (1) a corporation or
organization of which such person is an officer, director or partner, or is
directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities, (2) any trust or other estate in which such person serves as
trustee or in a similar capacity, and (3) any relative or spouse of such person,
or any relative of such spouse, who has the same home as such person.
SEVENTH: The Corporation shall have perpetual existence.
EIGHTH: Meetings of stockholders shall be held at such place, within or
without the State of Delaware, as may be designated by or in the manner provided
in the By-laws or, if not so designated or provided, at the registered office of
the Corporation in the State of Delaware.
3
<PAGE>
Elections of directors need not be by ballot unless and except to the extent
that the By-laws so provide. The books of the Corporation may be kept (subject
to any provision contained in any applicable statute) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-laws of the Corporation.
NINTH: The Corporation shall not, without the affirmative vote of 100%
of the members of the Board of Directors of the Corporation, including the
affirmative vote of the directors required by Article SIXTH of this Certificate
of Incorporation, make an assignment for the benefit of creditors, file a
petition in bankruptcy, petition or apply to any tribunal for the appointment of
a custodian, receiver or any trustee for it or for a substantial part of its
property, commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereinafter in effect, consent or acquiesce in
the filing of any such petition, application, proceeding or appointment of or
taking possession by the custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Corporation or any substantial
part of its property, or admit its inability to pay its debts generally as they
become due or authorize any of the foregoing to be done or taken on behalf of
the Corporation; provided that if there shall not be the directors required by
Article SIXTH of this Certificate of Incorporation then in office and acting, a
vote upon any matter set forth in this Article NINTH shall not be taken unless
and until directors meeting the requirements of Article SIXTH of this
Certificate of Incorporation shall have been elected.
TENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized:
(a) To make, alter, amend or repeal the By-laws of the Corporation, except
that such By-laws or any alteration, amendment or repeal thereof shall not
in any manner impair, nor impair the intent of Article THIRD, Article
FOURTH(b), Article SIXTH, Article NINTH, this Article TENTH(a), Article
TENTH(b) or Article TWELFTH of this Certificate of Incorporation.
(b) By a majority of the Board of Directors, to designate one or more
committees, each committee to consist of one or more directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. The By-laws may
provide that in the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in
the place of any such absent or disqualified member. Any such committee, to
the extent provided in the resolution of the Board of Directors, or in the
By-laws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation
to be affixed to all papers which may require it; but no such committee
shall have the power or authority in reference to amending the
4
<PAGE>
Certificate of Incorporation, to authorize or take any action described in
Article THIRD, Article FOURTH(b), Article SIXTH, Article NINTH, Article
TENTH(a) and (b) or Article TWELFTH, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the By-laws of the Corporation;
and, unless the resolution or By-laws expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
In addition to the foregoing, the Corporation shall conduct its affairs in
the following manner: (i) the Corporation's funds and other assets will be
identifiable and will not be commingled with those of any direct or ultimate
parent of the Corporation or any subsidiary or affiliate of any such parent
except for any temporary commingling of collections from customers paid to
appropriately designated lockbox accounts; (ii) the Corporation will maintain
separate bank accounts, corporate records and books of account from those of any
direct or ultimate parent of the Corporation or any subsidiary or affiliate of
any such parent; (iii) the Corporation will pay from its funds and assets all
obligations and indebtedness incurred by it; and (iv) the Corporation will
maintain an arms' length relationship with any direct or ultimate parent of the
Corporation or any subsidiary or affiliate of any such parent.
ELEVENTH: A director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omission not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. Any repeal or modification of this Article
ELEVENTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
TWELFTH: Except as set forth in Article FOURTH(b), the Corporation
reserves the right to amend, alter or repeal any provision contained in this
Certificate of Incorporation in the manner now or hereafter prescribed by
statute, and all rights of stockholders herein are subject to this reservation.
[SIGNATURE PAGE TO FOLLOW]
5
<PAGE>
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, as amended, do make this certificate, hereby declaring and
certifying that this is my act and deed and that the facts herein stated are
true and that I have accordingly hereunto signed my signature this 8th day of
July, 1998
/s/ Courtney A. Wilson
Sole Incorporator
6
<PAGE>
Exhibit No. 4.3
FORM OF
- --------------------------------------------------------------------------------
Trust Agreement (GARC II 98-A)
Dated as of September 1, 1998
between
[OWNER PARTICIPANT],
Owner Participant
and
WILMINGTON TRUST COMPANY,
Owner Trustee
Tank Cars and Covered Hopper Cars
- --------------------------------------------------------------------------------
Vedder, Price, Kaufman & Kammholz
Chicago, Illinois
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions............................................ 1
Section 1.2 Interpretation......................................... 1
ARTICLE II
AUTHORITY; DECLARATION OF TRUST
Section 2.1 Authority to Execute and Perform Various Documents..... 2
Section 2.2 Declaration of Trust................................... 2
ARTICLE III
DISTRIBUTIONS AND PAYMENTS
Section 3.1 Payments to the Indenture Trustee...................... 3
Section 3.2 Payments to the Owner Trustee; Other Parties........... 3
Section 3.3 Certain Distributions to the Owner Participant......... 3
Section 3.4 Excepted Property...................................... 3
Section 3.5 Method of Payment...................................... 4
ARTICLE IV
CERTAIN DUTIES OF THE OWNER TRUSTEE
Section 4.1 Notice of Certain Events............................... 4
Section 4.2 Action Upon Instructions............................... 5
Section 4.3 Indemnification........................................ 5
Section 4.4 No Duties Except as Specified.......................... 5
Section 4.5 No Action Except Under Specified
Agreements or Instructions............................. 6
Section 4.6 Tax Returns; Records................................... 6
Section 4.7 Absence of Certain Duties.............................. 6
Section 4.8 Furnishing of Documents................................ 7
ARTICLE V
THE OWNER TRUSTEE
Section 5.1 Acceptance of Trusts and Duties........................ 7
Section 5.2 No Representations or Warranties
as to Equipment or Documents........................... 8
Section 5.3 No Segregation of Moneys; No Interest.................. 8
Section 5.4 Reliance; Advice of Counsel............................ 9
Section 5.5 Not Acting in Individual Capacity...................... 9
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification of Trust Company....................... 9
Section 6.2 Expenses............................................... 11
ARTICLE VII
TERMINATION OF TRUST AGREEMENT
Section 7.1 Termination of Trust Agreement......................... 11
Section 7.2 Termination at Option of the Owner Participant......... 12
</TABLE>
<PAGE>
[Trust Agreement (GARC II 98-A)]
<TABLE>
<S> <C> <C>
Section 7.3 Bankruptcy of the Owner Participant.......................... 12
ARTICLE VIII
SUCCESSOR OWNER TRUSTEES, CO-OWNER TRUSTEES
Section 8.1 Resignation of the Owner Trustee; Appointment of Successor... 12
Section 8.2 Additional and Separate Trustees............................. 14
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS
Section 9.1 Supplements and Amendments................................... 16
ARTICLE X
MISCELLANEOUS
Section 10.1 No Legal Title to Trust Estate in the Owner Participant...... 16
Section 10.2 Sale of Accepted Equipment by the Owner Trustee is Binding... 16
Section 10.3 Notices...................................................... 16
Section 10.4 Severability................................................. 16
Section 10.5 Separate Counterparts........................................ 17
Section 10.6 Waivers, Etc................................................. 17
Section 10.7 Successors and Assigns....................................... 17
Section 10.8 Transfer of Owner Participant's Interest..................... 17
Section 10.9 Actions of the Owner Participants............................ 17
Section 10.10 Headings; Table of Contents.................................. 17
Section 10.11 Governing Law................................................ 18
Section 10.12 Benefit...................................................... 18
Section 10.13 Performance by the Owner Participant......................... 18
Section 10.14 Conflict with Operative Agreements........................... 18
Section 10.15 Agency Relationship for Tax Purposes Only.................... 18
Section 10.16 Limitation on Owner Participant's Liability.................. 18
Section 10.17 Identification of Trust...................................... 18
</TABLE>
ii
<PAGE>
TRUST AGREEMENT (GARC II 98-A)
This Trust Agreement (GARC II 98-A) is entered into as of September 1, 1998
between [Owner Participant], a [________________] (the "Owner Participant"), and
Wilmington Trust Company, a Delaware banking corporation (in its individual
capacity, "Trust Company", and otherwise not in its individual capacity but
solely as trustee hereunder, the "Owner Trustee"). In consideration of the
mutual agreements herein contained, the agreements contained in the other
Operative Agreements and the acceptance by Trust Company of the trusts hereby
created, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Unless otherwise defined herein or unless
otherwise required by the context, the capitalized terms used in this Trust
Agreement have the meanings given in Appendix A to the Equipment Lease Agreement
(GARC II 98-A) dated as of September 1, 1998 between the Owner Trustee, as
lessor and General American Railcar Corporation II, a Delaware corporation, as
lessee. For all purposes hereof, the following terms shall have the following
meanings:
"Accepted Equipment" means all of the Accepted Units.
"Accepted Unit" means each Unit that has been purchased by the Owner
Trustee pursuant to the Participation Agreement.
"Actual Knowledge" of Trust Company or the Owner Trustee means actual
knowledge of, including any written notices received by, a responsible officer
in the Corporate Trust Administration of Trust Company.
Section 1.2 Interpretation. Unless otherwise indicated, references in
this Trust Agreement to Sections, subsections, paragraphs and Appendices are to
Sections, subsections, paragraphs and Appendices of this Trust Agreement. The
terms "hereof," "herein," "hereby," "hereto" and "hereunder" refer to this Trust
Agreement, taken as a whole. References to a given agreement or instrument are
references to such agreement or instrument as originally entered into, as
modified, amended, supplemented and restated through the date as of which such
reference is made.
<PAGE>
[Trust Agreement (GARC II 98-A)]
ARTICLE II
AUTHORITY; DECLARATION OF TRUST
Section 2.1 Authority to Execute and Perform Various Documents. The
Owner Participant hereby authorizes and directs the Owner Trustee to, and the
Owner Trustee agrees for the benefit of the Owner Participant that it will, (i)
execute and deliver the Participation Agreement, (ii) on the Closing Date, upon
receipt of the confirmation by the Owner Participant pursuant to Section 2.4 of
the Participation Agreement, execute and deliver the Operative Agreements
contemplated by the Participation Agreement to be executed and delivered by the
Owner Trustee on the Closing Date, in the respective forms thereof in which
delivered by the Owner Participant to the Owner Trustee for execution and
delivery, and to take the other actions contemplated to be taken by the Owner
Trustee on the Closing Date in Section 2 of the Participation Agreement, (iii)
execute and deliver any other agreement, instrument or certificate contemplated
by the Operative Agreements as the Owner Participant from time to time may
direct in writing, (iv) subject to the terms of this Trust Agreement, exercise
the rights (upon written instructions received from the Owner Participant) and
perform the duties of the Owner Trustee under each of the documents, agreements,
instruments and certificates referred to in clauses (i) through (iii) of this
Section 2.1 as set forth in such documents, agreements, instruments and
certificates, (v) take any and all actions and make any and all filings as may
be required by the Delaware Business Trust Act, 12 Del. C. Section 3801, et.
seq. (the "Delaware Business Trust Act") and (vi) subject to the terms of this
Trust Agreement, take such other action in connection with the foregoing as the
Owner Participant may from time to time direct in writing.
Section 2.2 Declaration of Trust. Trust Company hereby declares that it
will hold as Owner Trustee all estate, right, title and interest of the Owner
Trustee in and to the Accepted Equipment and the Owner Trustee Agreements, and
any other property contributed by the Owner Participant pursuant to the terms of
any of the Operative Agreements, including without limitation all amounts of
Rent, insurance proceeds and requisition, indemnity or other payments of any
kind, but specifically excluding Excepted Property (collectively, the "Trust
Estate"), upon the trusts set forth herein and for the use and benefit of the
Owner Participant as sole beneficiary, subject, however, to the provisions of
and the Lien created by the Indenture. The parties hereto acknowledge that the
trust created hereunder is intended to be a Delaware Business Trust within the
meaning of the Delaware Business Trust Act, governed by, among other things, the
Delaware Business Trust Act, including, without limitation, Section 3803(a)
thereof which provides for the limited liability of the beneficial owners of
business trust. Promptly after the execution hereof, Trust Company shall cause
the filing of a Certificate of Trust with the Delaware Secretary of State.
2
<PAGE>
[Trust Agreement (GARC II 98-A)]
ARTICLE III
DISTRIBUTIONS AND PAYMENTS
Section 3.1 Payments to the Indenture Trustee. Until the Lien of the
Indenture shall have been discharged pursuant to the terms thereof, all Basic
Rent, Supplemental Rent, insurance proceeds and requisition or other payments of
any kind (other than payments constituting Excepted Property and other than
payments received from the Indenture Trustee) for or with respect to any
Accepted Unit payable to the Owner Trustee shall be payable directly to the
Indenture Trustee for distribution in accordance with the provisions of the
Indenture, and if any such amount or payment is received by the Owner Trustee,
such amount or payment upon receipt thereof shall be paid over to the Indenture
Trustee without deduction, set-off or adjustment of any kind for distribution in
accordance with the provisions of the Indenture.
Section 3.2 Payments to the Owner Trustee; Other Parties. Any payment of
the type referred to in Section 3.1 (other than payments constituting Excepted
Property) received by the Owner Trustee after the Indenture shall have been
discharged pursuant to the terms thereof, any payment received from the
Indenture Trustee other than as specified in Section 3.4 and any other amount
received as part of the Trust Estate and for the application or distribution of
which no provision is made herein shall be distributed forthwith upon receipt by
the Owner Trustee in the following order of priority: first, so much of such
payment as shall be required to reimburse the Owner Trustee for any expenses not
otherwise reimbursed as to which the Owner Trustee is entitled to be so
reimbursed pursuant to the provisions hereof shall be retained by the Owner
Trustee; second, so much of the remainder for which provision as to the
application thereof is contained in the Lease, any of the other Operative
Agreements or any of the other Owner Trustee Agreements shall be applied and
distributed in accordance with the terms of the Lease, such other Operative
Agreement or such other Owner Trustee Agreement, as the case may be; and third,
the balance, if any, shall be paid to the Owner Participant.
Section 3.3 Certain Distributions to the Owner Participant. All amounts
from time to time distributable by the Indenture Trustee to the Owner
Participant pursuant to the terms of the Indenture shall, if paid to the Owner
Trustee, be distributed by the Owner Trustee to the Owner Participant.
Section 3.4 Excepted Property. Notwithstanding anything to the contrary
contained in this Trust Agreement, any amounts or payments constituting Excepted
Property received by the Owner Trustee shall be paid promptly by the Owner
Trustee to the Person to whom such amounts or payments are payable pursuant to
the terms of the Operative Agreements.
3
<PAGE>
[Trust Agreement (GARC II 98-A)]
Section 3.5 Method of Payment.
(a) All amounts payable to the Owner Participant or to the
Indenture Trustee pursuant to this Trust Agreement shall be paid by the Owner
Trustee, if to the Owner Participant, by transferring such amount in immediately
available funds to the account of the Owner Participant specified in Schedule 2
to the Participation Agreement or, if to the Indenture Trustee, in the manner
specified in the Indenture. The Owner Trustee shall pay such amounts on the day
received if received in immediately available funds, or on the next succeeding
Business Day following receipt of immediately available funds if the funds to be
so paid shall not have been received in immediately available funds by the Owner
Trustee by [1:00 p.m. Chicago, Illinois] time, provided that the Owner Trustee
shall use reasonable efforts to invest overnight in Specified Investments at the
direction and for the benefit of the Owner Participant all funds received by it
at or later than [1:00 p.m. Chicago, Illinois] time.
(b) Notwithstanding the foregoing, the Owner Trustee will pay,
if so requested by the Owner Participant in writing, any or all amounts in
immediately available funds payable by the Owner Trustee hereunder to the Owner
Participant either (i) by crediting such amount or amounts to an account or
accounts maintained by the Owner Participant with Trust Company, (ii) by payment
to such account at such financial institution as the Owner Participant may from
time to time direct in writing or (iii) by mailing an official bank check or
checks in such amount or amounts payable to the Owner Participant at such
address as the Owner Participant may from time to time designate in writing.
ARTICLE IV
CERTAIN DUTIES OF THE OWNER TRUSTEE
Section 4.1 Notice of Certain Events. In the event that the Owner
Trustee shall have Actual Knowledge of any Lease Default, Lease Event of
Default, Indenture Default, Indenture Event of Default or Event of Loss, the
Owner Trustee shall give prompt telephonic notice thereof (promptly confirmed in
writing) to the Owner Participant, the Lessee and the Indenture Trustee unless
such Lease Default, Lease Event of Default, Indenture Default, Indenture Event
of Default or Event of Loss, as the case may be, has been remedied before the
giving of such notice and the Owner Trustee has Actual Knowledge that such Lease
Default, Lease Event of Default, Indenture Default, Indenture Event of Default
or Event of Loss has been so remedied. Subject to the terms of Section 4.3, the
Owner Trustee shall take or refrain from taking such action with respect
thereto, not inconsistent with the provisions of the Operative Agreements, with
respect thereto as the Owner Trustee shall be instructed in writing by the Owner
Participant. If the Owner Trustee shall have given the Owner Participant notice
of any event and shall not have received written instructions as provided above
within 30 days after mailing notice of such event to the Owner Participant, the
Owner Trustee shall take no action in respect of such event until instructed by
the Owner Participant.
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[Trust Agreement (GARC II 98-A)]
Section 4.2 Action Upon Instructions. Subject to the terms of Sections
4.1 and 4.3, upon the written instructions at any time and from time to time of
the Owner Participant, the Owner Trustee will take such of the following actions
as may be specified in such instructions: (i) give such notice or direction or
exercise such right, remedy or power under the Owner Trustee Agreements with
respect thereto or to any Accepted Equipment, including, without limitation, the
right to transfer, assign or convey the Owner Trustee's interest in the Owner
Trustee Agreements or any Accepted Unit, or take such other action with respect
to the Owner Trustee Agreements or any Accepted Unit as shall be specified in
such instructions; and (ii) after the expiration or earlier termination of the
Lease with respect to any Accepted Unit, convey all of the Owner Trustee's
right, title and interest in and to such Accepted Unit to the Owner Participant
or for such amount, on such terms and to such purchaser or purchasers as shall
be designated in such instructions, or net lease such Accepted Unit as
designated in such instructions; provided, however, that if such instructions
have not been delivered to the Owner Trustee prior to the expiration of one year
following such expiration or earlier termination of the Lease, the Owner Trustee
shall transfer title to such right, title and interest to the Owner Participant.
Section 4.3 Indemnification. The Owner Trustee shall not be required to
take or refrain from taking any action under Section 4.1 or 4.2 (other than the
actions specified in the first sentence of Sections 3.1 and 4.1 and the last
sentence of Section 4.4) unless the Owner Trustee shall have been indemnified,
in manner and form reasonably satisfactory to the Owner Trustee, against any
liability, fee, cost or expense (including, without limitation, reasonable
attorneys' fees and expenses) which may be incurred or charged in connection
therewith, other than any such liability, fee, cost or expense which results
from the willful misconduct or gross negligence of the Owner Trustee. The Owner
Trustee shall not be required to take any action under any Operative Agreement
or any Owner Trustee Agreement (other than the actions specified in the first
sentence of Section 4.1) if the Owner Trustee reasonably shall determine, or
shall have been advised by counsel, that such action is likely to result in
unindemnified personal liability to the Owner Trustee or is contrary to the
terms hereof or of any documents contemplated hereby to which the Owner Trustee
is a party, or is otherwise contrary to law, and the Owner Trustee in such case
shall deliver promptly to the Owner Participant written notice of the basis of
its refusal to act.
Section 4.4 No Duties Except as Specified. The Owner Trustee shall not
have any duty or obligation to manage, control, use, make any payment in respect
of, register, record, insure, inspect, sell, dispose of or otherwise deal with
any Accepted Unit or any other part of the Trust Estate, or to otherwise take or
refrain from taking any action under, or in connection with, any Owner Trustee
Agreement or any of the other Operative Agreements, except as expressly provided
by the terms of this Trust Agreement, the Indenture or the Owner Trustee
Agreements or in written instructions from the Owner Participant received
pursuant to Section 4.1 or 4.2; and no implied duties or obligations shall be
read into this Trust Agreement against the Owner Trustee. Notwithstanding and
without limiting the foregoing, Trust Company agrees that it will
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[Trust Agreement (GARC II 98-A)]
promptly (without any right to indemnification hereunder) take all action
necessary to discharge any Lessor's Lien attributable to Trust Company on any
part of the Trust Estate or Indenture Estate. Trust Company agrees to indemnify,
protect, save and keep harmless the Owner Participant for, from and against any
loss, cost or expense (including reasonable legal fees and expenses) incurred by
the Owner Participant as a result of the imposition or enforcement of any such
Lessor's Lien against the Accepted Units, any interest herein or on the Trust
Estate or the Indenture Estate resulting from any Lessor's Lien attributable to
Trust Company.
Section 4.5 No Action Except Under Specified Agreements or Instructions.
The Owner Trustee shall have no right, power or authority to, and the Owner
Trustee agrees that it will not, manage, control, use, sell, dispose of or
otherwise deal with any Accepted Unit or any other part of the Trust Estate
except as (i) expressly provided by the terms of this Trust Agreement, (ii)
expressly required by the terms of any Owner Trustee Agreement or (iii)
expressly directed or authorized in written instructions from the Owner
Participant pursuant to Section 4.1 or 4.2.
Section 4.6 Tax Returns; Records. The Owner Trustee shall be responsible
for the keeping of all appropriate books and records relating to the receipt and
disbursement of all money which it may receive or be entitled to hereunder or
under any agreement contemplated hereby. The Owner Trustee agrees at the expense
of the Lessee to file an application with the Internal Revenue Service for a
taxpayer identification number with respect to the trust created by this Trust
Agreement. The Owner Participant shall be responsible for causing to be prepared
all income tax returns required to be filed by the Owner Participant. The Owner
Trustee shall be responsible for causing to be prepared, at the request of the
Owner Participant and the expense of the Lessee, all income tax returns required
to be filed with respect to the trusts created hereby and shall execute and file
such returns. The Owner Trustee and the Owner Participant, upon request, will
furnish each other with all such information as may be reasonably required in
connection with the preparation of such tax returns; provided that the Owner
Trustee shall send a completed copy of such return to the Owner Participant not
more than 60 nor less than 30 days prior to the due date of the return (provided
that the Owner Trustee shall have timely received all necessary information to
complete and deliver to the Owner Participant such return). The Owner Trustee
shall keep copies of all returns delivered to or filed by it.
Section 4.7 Absence of Certain Duties. Except in accordance with written
instructions furnished pursuant to Sections 4.1 and 4.2, and except as expressly
provided in clause (vi) of Section 2.1 or in any Owner Trustee Agreement, and
without limiting the generality of Section 4.4, the Owner Trustee shall not have
any duty to (i) file, record or deposit any Operative Agreement or Owner Trustee
Agreement, including, without limitation, this Trust Agreement, or any other
document, or to maintain any such filing, recording or deposit, or to refile,
re-record or redeposit any such document, except that the Owner Trustee shall,
upon written request by the Lessee or the Owner Participant, sign and file such
documents as Lessee or the Owner Participant prepares as necessary to maintain
the filing and recordation for the Lease, any Lease
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[Trust Agreement (GARC II 98-A)]
Supplement, the Indenture and any Indenture Supplement in the name of the Owner
Trustee with the STB pursuant to 49 U.S.C. (S)11301 of the Act or the Registrar
General of Canada pursuant to Section 90 of the Railway Act of Canada, or as
otherwise required under applicable law, and to the extent that such documents
for that purpose are supplied by the Lessee pursuant to any of the Operative
Agreements, timely submit any and all such documents and reports with respect to
the Accepted Units which may from time to time be required by the STB, the AAR,
or any other authority having jurisdiction, (ii) obtain insurance with respect
to any Accepted Unit or to effect or maintain any such insurance, other than to
receive and forward to the Owner Participant any notices, policies, certificates
or binders furnished to the Owner Trustee by the Lessee or its insurance
brokers, (iii) maintain or mark any Accepted Unit, (iv) pay or discharge any
tax, assessment or other governmental charge, or any Lien or encumbrance of any
kind, owing with respect to or assessed or levied against any part of the Trust
Estate, except as provided in Sections 4.4 or 5.1, and Section 6.3 of the
Participation Agreement (v) confirm, verify, investigate or inquire into the
failure to receive any reports or financial statements of the Lessee, (vi)
inspect the Accepted Equipment at any time, or ascertain or inquire as to the
performance or observance of any of the covenants of the Lessee or any other
Person under any Operative Agreement or Owner Trustee Agreement with respect to
any Accepted Unit or any other part of the Trust Estate or (vii) manage,
control, use, sell, dispose of or otherwise deal with any Accepted Unit or any
other part of the Trust Estate, or any part thereof, except as provided in
clauses (i), (ii) and (iii) of Section 4.5.
Section 4.8 Furnishing of Documents. The Owner Trustee will furnish to
the Owner Participant, promptly upon receipt thereof, duplicates or copies of
all reports, notices, requests, demands, opinions, certificates, financial
statements and any other instruments furnished to the Owner Trustee under any
Operative Agreement or any Owner Trustee Agreement, unless the Owner Trustee
shall have determined that the same already has been furnished to the Owner
Participant.
ARTICLE V
THE OWNER TRUSTEE
Section 5.1 Acceptance of Trusts and Duties. Trust Company accepts the
trusts hereby created and agrees to perform the same on the terms of this Trust
Agreement. Trust Company also agrees to disburse all moneys actually received by
it constituting part of the Trust Estate pursuant to the terms of this Trust
Agreement. Trust Company shall not be answerable or accountable under any
circumstances except (i) for its own willful misconduct or gross negligence
(including, without limitation, in connection with any activities of the Owner
Trustee in violation of Section 4.5), (ii) in the case of the breach or
inaccuracy of any of its representations or warranties contained in any
Operative Agreement given expressly in its individual capacity and not in its
capacity as a trustee hereunder, (iii) as arising from its failure to perform
obligations expressly undertaken by it in the penultimate and last sentences of
Section 4.4 hereof or expressly undertaken by it in its individual capacity
under the Participation
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[Trust Agreement (GARC II 98-A)]
Agreement, (iv) for any Taxes based on or measured by any fees, commissions or
compensation received by it for acting as Owner Trustee in connection with any
of the transactions contemplated by the Operative Agreements or (v) for its
failure to disburse or invest funds in accordance with the terms hereof or the
Lease or for any negligence or willful misconduct of the Owner Trustee arising
out of its obligations under Sections 4.1, 4.6 or 8.2.
Section 5.2 No Representations or Warranties as to Equipment or
Documents.
(a) NEITHER TRUST COMPANY NOR THE OWNER TRUSTEE MAKES ANY
REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE DESIGN,
OPERATION OR CONDITION OF ANY UNIT OR ANY PART THEREOF, THE MERCHANTABILITY
THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR PURPOSE, TITLE TO ANY UNIT OR
ANY PART THEREOF, THE QUALITY OF THE MATERIALS OR WORKMANSHIP THEREOF OR
CONFORMITY THEREOF TO SPECIFICATIONS, OR THE PRESENCE OR ABSENCE OF ANY LATENT
OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, except that Trust Company hereby
represents and warrants that (i) on the Closing Date for such Accepted Unit, the
Owner Trustee shall have received whatever title thereto was conveyed to it by
the Lessee and (ii) while a part of the Trust Estate, such Accepted Unit shall
be free and clear of Lessor's Liens attributable to it.
(b) Neither Trust Company nor the Owner Trustee makes any
representation or warranty as to the validity or enforceability of any Operative
Agreement, or as to the correctness of any statement therein, except to the
extent that any such representation, warranty or statement is expressly made
therein or in any written certificate delivered pursuant thereto by the Owner
Trustee or Trust Company and except that Trust Company hereby represents and
warrants that this Trust Agreement has been duly executed and delivered by Trust
Company and each of the Owner Trustee Agreements has been or will be executed
and delivered by officers of the Owner Trustee who are or will be duly
authorized to execute and deliver documents on its behalf, and that each of this
Agreement and each of the other Owner Trustee Agreements constitutes (assuming
the due authorization, execution, and delivery of this Agreement and each such
other agreement by the other parties thereto) the legal, valid and binding
obligation of the Trust Company (or the Owner Trustee if expressly stated
therein) enforceable against it in accordance with its terms except as limited
by bankruptcy, insolvency, reorganization or other similar laws or equitable
principles of general application to or affecting the enforcement of creditors
rights generally from time to time in effect.
Section 5.3 No Segregation of Moneys; No Interest. Except as required by
Section 3.5 of the Lease or Section 2.4 of the Participation Agreement, moneys
received by the Owner Trustee hereunder need not be segregated in any manner
except to the extent required by law, and such moneys may be deposited under
such general conditions as may be prescribed by law, and the Owner Trustee shall
not be liable for any interest thereon.
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[Trust Agreement (GARC II 98-A)]
Section 5.4 Reliance; Advice of Counsel. The Owner Trustee shall not
incur any liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
document or paper reasonably believed by it in good faith to be genuine and
reasonably believed by it in good faith to be signed by the proper party or
parties. Any request, direction, order or demand of the Owner Participant or the
Lessee mentioned herein or in any other Operative Agreement to which the Owner
Trustee is a party shall be sufficiently evidenced by an Officer's Certificate
of the Owner Participant or the Lessee, as the case may be. The Owner Trustee
may accept in good faith a certified copy of a resolution of the Board of
Directors or other governing body of any corporate party as conclusive evidence
that such resolution has been duly adopted by such body and that the same is in
full force and effect. As to any fact or matter the manner of ascertainment of
which is not specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on an Officer's Certificate of the relevant party as to
such fact or matter, and such Officer's Certificate shall constitute full
protection to the Owner Trustee for any action taken or omitted to be taken by
it in good faith in reliance thereon. In the administration of the trusts
hereunder, the Owner Trustee may execute any of the trusts or powers hereof and
perform its powers and duties hereunder directly or through agents or attorneys,
and may consult with counsel, accountants and other skilled persons to be
selected and employed by it (other than persons regularly employed by it), and
the Owner Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the advice or opinion within the scope of
the competence of any such counsel, accountants or other skilled persons and not
contrary to this Trust Agreement, except for the use of due care in the
appointment of counsel, accountants or other skilled persons.
Section 5.5 Not Acting in Individual Capacity. Trust Company is entering
into this Agreement and accepting the trust created hereby in its individual
capacity. Otherwise, except as provided in this Trust Agreement and in the other
Operative Agreements, Trust Company agrees to act solely as trustee hereunder
and not in its individual capacity; and all Persons having any claim against the
Owner Trustee by reason of the transactions contemplated by the Operative
Agreements or the Owner Trustee Agreements shall look only to the Trust Estate
(or a part thereof, as the case may be) for payment or satisfaction thereof,
except as specifically provided in this Trust Agreement and except to the extent
the Owner Trustee otherwise shall agree in any Owner Trustee Agreement.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification of Trust Company. The Owner Participant
agrees to assume liability for, and to indemnify and hold harmless Trust Company
against and from any and all liabilities, obligations, losses, damages, taxes
(excluding any taxes, fees or other charges payable by Trust Company or measured
by any compensation received by Trust Company for its services hereunder),
penalties, claims, actions, suits, proceedings, costs, expenses and
disbursements of any kind and nature whatsoever, including, without limitation,
the reasonable
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[Trust Agreement (GARC II 98-A)]
fees and expenses of counsel (collectively, "Trust Expenses") which may be
imposed on, incurred by or asserted against Trust Company (whether or not also
indemnified by any other Person (provided, however, that to the extent Trust
Company shall have actually received any payment in the nature of an indemnity
payment from any such other Person relating to a claim hereunder, Trust Company
shall not be entitled to the amount of any such payment pursuant to this Section
6.1)) in any way relating to or arising out of (i) the administration of the
Trust Estate or the action or inaction of Trust Company hereunder or under the
other Operative Agreements, (ii) any Accepted Equipment or any part thereof,
(iii) the Operative Agreements or any of them, or the enforcement by Trust
Company of any of its rights under the Operative Agreements, or (iv) the design,
manufacture, financing, refinancing, installation, acceptance, rejection,
ownership, delivery, nondelivery, lease, sublease, possession, control, use,
operation, condition, modification, servicing, maintenance, repair, improvement,
replacement, sale, return or other disposition of the Accepted Equipment, any
Accepted Unit or any part thereof including, without limitation, (A) any
inadequacy or deficiency or defect therein, including latent defects, whether or
not discoverable or any claim based on negligence or arising from any violation
of law or for strict liability in tort or any claim for patent, trademark or
copyright tort or any claim for patent, trademark or copyright infringement, and
(B) any loss or damage to property or the environment or injury or death to any
Person; except only that the Owner Participant shall not be required to
indemnify Trust Company for Trust Expenses arising or resulting from any of the
matters described in clauses (i) through (v) of the last sentence of Section
5.1; provided that the Owner Participant shall be liable under this Section 6.1
only to the extent that the Owner Trustee is indemnified by the Lessee pursuant
to Section 7 of the Participation Agreement (with the exception of the
limitations to Lessee's indemnification obligations set forth in Sections
7.2(d)(i), 7.2(d)(iv) (to the extent relating to any such transfer by the Owner
Participant or transfer by the Owner Trustee at the direction of the Owner
Participant), 7.1(c)(ii) (to the extent relating to any return of the Equipment
to the Owner Participant), 7.1(c)(iv) (to the extent relating to any such
transfer by the Owner Participant or transfer by the Owner Trustee at the
direction of the Owner Participant), and 7.2(d)(vi) (when the Owner Trustee is
acting on instructions from the Owner Participant) of the Participation
Agreement); provided, further, that before asserting its right to
indemnification pursuant to this Section 6.1, the Owner Trustee shall first
demand its corresponding right to indemnification, if any, pursuant to Section 7
of the Participation Agreement, and the Owner Participant shall have the right
to pursue any such remedies against the Lessee which are not pursued by the
Owner Trustee. The indemnities contained in this Section 6.1 shall survive the
termination of this Trust Agreement. To secure the foregoing indemnities, the
Owner Trustee shall be entitled to apply any amount otherwise distributable to
the Owner Participant pursuant to Section 3.2 against any such indemnity which
has not been paid when due. The indemnities contained in this Section 6.1 extend
to Trust Company only and shall not be construed as indemnities of the Trust
Estate. The payor of any indemnity under this Section 6.1 shall be subrogated to
any right of the Person indemnified in respect of the matter as to which such
indemnity was paid.
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[Trust Agreement (GARC II 98-A)]
Section 6.2 Expenses. The Owner Participant shall pay, or reimburse the
Owner Trustee for, all reasonable expenses of the Owner Trustee, including,
without limitation, the reasonable expenses and disbursements of such agents,
representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its rights and duties under the
Operative Agreements, unless and to the extent that the Owner Trustee otherwise
receives payment or reimbursement pursuant to any Operative Agreement, whether
or not the transactions contemplated hereby are consummated; provided that the
Owner Participant shall have no obligation hereunder to the extent Lessee is not
obligated to pay such amounts pursuant to Section 2.5 of the Participation
Agreement. The Owner Trustee agrees to look first to the Lessee for such payment
pursuant to Section 2.5 of the Participation Agreement. Except as provided
herein, the Owner Trustee and Trust Company shall have no right to compensation
with respect to the transactions contemplated by the Operative Agreements.
ARTICLE VII
TERMINATION OF TRUST AGREEMENT
Section 7.1 Termination of Trust Agreement.
(a) Subject to the terms of the Participation Agreement, the
Indenture and Section 7.2, this Trust Agreement and the trusts created hereby
shall terminate and the Trust Estate shall be distributed to the Owner
Participant, and this Trust Agreement shall be of no further force or effect,
upon the earlier of (i) the sale or other final disposition by the Owner Trustee
of all property constituting part of the Trust Estate and the final distribution
by the Owner Trustee of all moneys or other property or proceeds constituting
part of the Trust Estate in accordance with the terms of Article III and (ii)
twenty-one (21) years less one day after the death of the last survivor of all
of the descendants living on the date of this Trust Agreement of Joseph P.
Kennedy, the late ambassador of the United States of America to Great Britain,
but if any rights, privileges or options hereunder shall be or become valid
under applicable law for a period subsequent to the twenty-first anniversary of
the death of such last survivor (or, without limiting the generality of the
foregoing, if legislation shall become effective providing for the validity or
permitting the effective grant of such rights, privileges and options for a
period in gross exceeding the period for which such rights, privileges and
options are hereinabove stated to extend and be valid), then such rights,
privileges or options shall not terminate as aforesaid but shall extend to and
continue in effect, but only if such nontermination and extension shall then be
valid under applicable law, until such time as the same shall cease to be valid
under applicable law.
(b) Except as expressly provided in Section 7.2, the Owner
Participant shall not be entitled to revoke or terminate this Trust Agreement or
the trust created hereby. Except as otherwise provided herein, the Owner
Participant may not withdraw any of the Trust Estate until the Lien of the
Indenture on the Trust Estate shall have been discharged pursuant to the terms
thereof.
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[Trust Agreement (GARC II 98-A)]
Section 7.2 Termination at Option of the Owner Participant. The
provisions of Section 7.1 notwithstanding, this Trust Agreement and the trusts
created hereby shall terminate and the Trust Estate shall be distributed to the
Owner Participant, and this Trust Agreement shall be of no further force and
effect, upon the election of the Owner Participant by notice to the Owner
Trustee to revoke the trusts created hereby; provided that, in addition to the
giving of such notice, the Owner Participant, with the cooperation of the Owner
Trustee, shall execute and deliver such written agreements and instruments and
take such actions as shall be necessary in order to cause the succession of the
Owner Participant to all the rights, title, interests, duties and liabilities of
the Owner Trustee under the Operative Agreements (other than obligations
attributable to any gross negligence or willful misconduct of Trust Company or
any breach by the Owner Trustee of its obligations under the Operative
Agreements); provided, however, that until the Lien of the Indenture on the
Trust Estate shall have been discharged pursuant to the terms thereof, the Owner
Participant may not revoke such trusts without the consent of the Indenture
Trustee. The written agreements and instruments referred to in the preceding
sentence shall be reasonably satisfactory in form and substance to the Owner
Trustee and shall release the Owner Trustee from all further obligations of the
Owner Trustee hereunder and under the agreements and other instruments mentioned
in the preceding sentence.
Section 7.3 Bankruptcy of the Owner Participant. The bankruptcy,
insolvency or other similar incapacity of the Owner Participant shall not (i)
operate to terminate this Trust Agreement, (ii) entitle the Owner Participant's
legal representatives to claim an accounting or to take any action in any court
for a partition or winding up of the Trust Estate or (iii) otherwise affect the
rights, obligations and liabilities of the parties hereto.
ARTICLE VII
SUCCESSOR OWNER TRUSTEES, CO-OWNER TRUSTEES
AND SEPARATE OWNER TRUSTEES
Section 8.1 Resignation of the Owner Trustee; Appointment of Successor.
(a) The Owner Trustee may resign as the Owner Trustee at any
time without cause by giving at least sixty (60) days' prior written notice to
the Owner Participant, the Indenture Trustee and the Lessee, such resignation to
be effective on the acceptance of appointment by a successor to the Owner
Trustee under paragraph (b) of this Section 8.1. In addition, the Owner
Participant at any time may remove the Owner Trustee without cause by an
instrument in writing delivered to the Owner Trustee, the Indenture Trustee and
the Lessee, such removal to be effective upon the acceptance of appointment by a
successor to the Owner Trustee under paragraph (b) of this Section 8.1. In case
of the resignation or removal of the Owner Trustee, the Owner Participant may
appoint a successor to the Owner Trustee by an instrument in writing, signed by
the Owner Participant. If a successor to the Owner Trustee shall not have been
appointed within sixty (60) days after the giving of written notice of such
resignation or the
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[Trust Agreement (GARC II 98-A)]
delivery of the written instrument with respect to such removal, the Owner
Trustee or the Owner Participant may apply to any court of competent
jurisdiction to appoint a successor to the Owner Trustee to act until such time,
if any, as a successor shall have been appointed as above provided in this
Section 8.1. Any successor to the Owner Trustee so appointed by such court shall
immediately and without further act be superseded by any successor to the Owner
Trustee appointed as above provided in this Section 8.1.
(b) Any successor Owner Trustee, however appointed, shall
execute and deliver to the predecessor Owner Trustee an instrument accepting
such appointment and shall give the Owner Participant, the Indenture Trustee and
Lessee written notice of such acceptance. Upon the execution and delivery of
such instrument, such successor Owner Trustee, without further act, shall become
vested with all the estates, properties, rights, powers, duties and trusts of
the predecessor Owner Trustee in the trusts hereunder with like effect as if
originally named a trustee herein; provided, however, that upon the written
request of such successor Owner Trustee, such predecessor Owner Trustee shall
execute and deliver an instrument transferring to such successor Owner Trustee,
upon the trusts herein expressed, all the estates, properties, rights, powers,
duties and trusts of such predecessor trustee as the Owner Trustee hereunder,
and such predecessor trustee shall duly assign, transfer, deliver and pay over
to such successor Owner Trustee all moneys or other property then held by such
predecessor trustee as the Owner Trustee upon the trusts herein expressed. Upon
the appointment of any successor Owner Trustee hereunder, the predecessor Owner
Trustee, pursuant to written instructions of the Owner Participant, will execute
all documents and take all reasonable action within its control in order to
cause title to the Trust Estate to be transferred to the successor Owner
Trustee.
(c) Any successor Owner Trustee, however appointed, shall be a
bank or trust company incorporated and doing business within the United States
of America (and which bank or trust company shall satisfy any and all
requirements applicable to a "trustee" under the Delaware Business Trust Act)
and having a combined capital and surplus of at least $150,000,000, if there be
such an institution willing, able and legally qualified to perform the duties of
the Owner Trustee hereunder upon reasonable or customary terms.
(d) Any corporation into which the Owner Trustee may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Owner Trustee shall be
a party, or any corporation to which substantially all the corporate trust
business of the Owner Trustee may be transferred, shall be, subject to
compliance with the terms of paragraph (c) of this Section 8.1, the Owner
Trustee under this Trust Agreement without further act; provided, that such
corporation shall in no event be the Indenture Trustee.
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[Trust Agreement (GARC II 98-A)]
Section 8.2 Additional and Separate Trustees.
(a) If the Owner Trustee or the Owner Participant shall conclude
that it is necessary or prudent in order to conform to the law of any
jurisdiction in which all or any part of the Trust Estate shall be situated, or
to make or defend any claim or bring or defend any suit with respect to the
Trust Estate or any Operative Agreement, or pursuant to advice of counsel
satisfactory to it, or if the Owner Trustee shall have been instructed to do so
by the Owner Participant, the Owner Trustee shall appoint another Person to act
as additional or separate trustee for all or any part of the Trust Estate with
such property, title, right, power or duty of the Owner Trustee as the Owner
Trustee and the Owner Participant may determine. In case any such additional
trustee or separate trustee shall resign or be removed, all the assets,
property, rights, powers or duties of such additional trustee or separate
trustee, as the case may be, so far as permitted by any applicable law, shall
vest in and be exercised by a new successor to such additional trustee,
appointed in the manner otherwise provided in this Trust Agreement.
(b) In the event that either the Owner Participant or the Owner
Trustee shall determine to appoint another Person as additional or separate
trustee, the Owner Trustee and the Owner Participant shall execute and deliver
an agreement supplemental hereto, and all other instruments and agreements
necessary or proper to constitute another bank or trust company, or one or more
Persons approved by the Owner Trustee and the Owner Participant, either to act
as an additional trustee or trustees of all or any part of the Trust Estate,
jointly with the Owner Trustee, or to act as separate trustee or trustees of all
or any part of the Trust Estate, in any such case with such powers of the Owner
Trustee as may be provided in such agreement supplemental hereto, and to vest in
such bank, trust company or Person as such additional trustee or separate
trustee, as the case may be, any property, title, right or power of the Owner
Trustee deemed necessary or proper by the Owner Trustee or the Owner
Participant, subject to the remaining provisions of this Section 8.2. The Owner
Trustee may execute, deliver and perform any deed, conveyance, assignment or
other instrument in writing as may be required by an additional trustee or
separate trustee for more fully and certainly vesting in and confirming to such
Person any property, title, right or power which, by the terms of such agreement
supplemental hereto, are expressed to be conveyed or conferred to or upon such
additional trustee or separate trustee, and the Owner Participant shall, upon
the Owner Trustee's request, join therein and execute, acknowledge and deliver
the same.
(c) Every additional trustee and separate trustee hereunder
shall, to the extent permitted by law, be appointed to act and the Owner Trustee
shall act, subject to the following provisions and conditions:
(i) all powers, duties, obligations and rights conferred or
imposed upon the Owner Trustee in respect of the receipt, custody,
investment and payment of moneys, shall be exercised solely by the
Owner Trustee;
14
<PAGE>
[Trust Agreement (GARC II 98-A)]
(ii) all other rights, powers, duties, and obligations
conferred or imposed upon the Owner Trustee shall be conferred or
imposed upon and exercised or performed by the Owner Trustee and such
additional trustee or trustees and separate trustee or trustees
jointly, except to the extent that under any law of the jurisdiction
in which any particular act or acts are to be performed by the Owner
Trustee shall be incompetent or unqualified to perform such act or
acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust Estate in any such
jurisdiction) shall be exercised and performed by such additional
trustee or trustees or separate trustee or trustees;
(iii) no power hereby given to, or which may be exercised
by, any such additional trustee or separate trustee shall be exercised
hereunder by such additional trustee or separate trustee except
jointly with, or with the consent of, the Owner Trustee; and
(iv) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder.
(d) If at any time the Owner Trustee and the Owner Participant
shall deem it no longer necessary or prudent in order to conform to any
applicable law or shall be advised by its counsel that it is no longer necessary
or prudent in the interest of the Owner Trustee and the Owner Participant to
maintain the appointment of such additional or separate trustee as provided
herein, the Owner Trustee and the Owner Participant shall execute and deliver
any agreement supplemental hereto and all other instruments and agreements
necessary or proper to remove any such additional or separate trustee. The Owner
Participant, at any time, by an instrument in writing may remove any separate
trustee or additional trustee.
(e) Any additional trustee or separate trustee may at any time
by an instrument in writing constitute the Owner Trustee its agent or attorney-
in-fact with full power and authority, to the extent which may be authorized by
applicable law, to do all acts and things and exercise all discretion which it
is authorized or permitted to do or exercise, for and in its behalf and in its
name. In case any such additional trustee or separate trustee shall die, become
incapable of acting, resign or be removed, all the assets, property, rights,
powers, trusts, duties and obligations of such additional trustee or separate
trustee, as the case may be, so far as permitted by law, shall vest in and be
exercised by the Owner Trustee without necessity of any act by any party and
without the appointment of a new successor to such additional or separate
trustee, unless and until a successor is appointed in the manner provided in
this Section 8.2.
15
<PAGE>
[Trust Agreement (GARC II 98-A)]
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS
Section 9.1 Supplements and Amendments. Subject to Section 9.5 of the
Indenture, at the written request of the Owner Participant (and subject to the
provisions of Sections 6.5 and 6.6 of the Participation Agreement), this Trust
Agreement and each other Owner Trustee Agreement shall be amended by a written
instrument signed by Trust Company and the Owner Participant; provided, however,
if in the reasonable opinion of Trust Company any instrument required to be so
executed adversely affects any right, duty or liability of, or immunity or
indemnity in favor of, Trust Company under this Trust Agreement or any of the
documents contemplated hereby to which it is a party, or would cause or result
in any conflict with or breach of any term, condition or provision of, or
default under, its charter documents or by-laws, Trust Company in its reasonable
discretion may decline to execute such instrument, unless the Trust Company is
indemnified therefor under Section 4.3, as determined by the Trust Company in
its reasonable discretion.
ARTICLE X
MISCELLANEOUS
Section 10.1 No Legal Title to Trust Estate in the Owner Participant. The
Owner Participant shall not have legal title to any part of the Trust Estate. No
transfer, by operation of law or otherwise, of any right, title and interest of
the Owner Participant in and to the Trust Estate or hereunder, or insolvency,
dissolution or other termination of the Owner Participant, shall operate to
terminate this Trust Agreement or the trusts created hereby or entitle any
successor or transferee to an accounting or to the transfer to it of legal title
to any part of the Trust Estate.
Section 10.2 Sale of Accepted Equipment by the Owner Trustee is Binding.
Any sale, transfer or other conveyance of any Accepted Unit or part thereof by
the Owner Trustee made pursuant to the terms of this Trust Agreement or the
Lease shall bind the Owner Participant and shall be effective to transfer or
convey all right, title and interest of the Owner Trustee and the Owner
Participant in and to such Accepted Unit or part thereof, as the case may be. No
purchaser or other grantee shall be required to inquire as to the authorization,
necessity, expediency or regularity of such sale or conveyance or as to the
application of any sale or other proceeds with respect thereto by the Owner
Trustee.
Section 10.3 Notices. Unless otherwise expressly specified or permitted
by the terms hereof, all notices hereunder shall be given as provided in Section
10.4 of the Participation Agreement.
Section 10.4 Severability. If any term or provision of this Trust
Agreement is invalid or unenforceable in any jurisdiction, such term or
provision shall be ineffective to the extent of
16
<PAGE>
[Trust Agreement (GARC II 98-A)]
such invalidity or unenforceability without invalidating or rendering
unenforceable any remaining terms and provisions hereof, and any such invalidity
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 10.5 Separate Counterparts. This Trust Agreement may be executed
by the parties hereto in any number of counterparts and by the parties hereto on
separate counterparts, each of which when so executed and delivered shall be an
original, and all of which shall together constitute but one and the same
instrument.
Section 10.6 Waivers, Etc. No term or provision hereof may be changed,
waived, discharged or terminated orally, but may be changed, waived, discharged
or terminated by an instrument in writing, and any waiver of the terms hereof
shall be effective only in the specific instance and for the specific purpose
given.
Section 10.7 Successors and Assigns. This Trust Agreement, including the
terms and provisions hereof, shall be binding upon the Owner Participant and
Trust Company or the Owner Trustee, whichever is applicable pursuant to the
terms hereof, and their respective successors and assigns, and inure to the
benefit of the Owner Participant and Trust Company or the Owner Trustee,
whichever is applicable pursuant to the terms hereof, and their respective
successors and permitted assigns, all as herein provided. Any request, notice,
direction, consent, waiver or other instrument or action by the Owner
Participant shall bind the successors and assigns of the Owner Participant.
Section 10.8 Transfer of Owner Participant's Interest. All provisions of
Section 6.1 of the Participation Agreement shall (with the same force and effect
as if set forth in full, mutatis mutandis, in this Section 10.8) be applicable
to any assignment, conveyance or other transfer by the Owner Participant of any
of its right, title or interest in and to the Trust Estate or this Trust
Agreement or any other Operative Agreement.
Section 10.9 Actions of the Owner Participants. If at any time prior to
the termination of this Trust Agreement there is more than one Owner
Participant, then during such time, if any action is required to be taken by the
Owner Participant, such action shall be taken by or on behalf of all Owner
Participants and whenever any direction, authorization, approval, consent,
instruction or other action is permitted to be given or taken by the Owner
Participant it shall be given or taken only upon such percentage agreement of
the Owner Participants as all Owner Participants may instruct the Owner Trustee.
Section 10.10 Headings; Table of Contents. The division of this Trust
Agreement into sections, the provision of a table of contents and the insertion
of headings are for convenience of reference only and shall not affect the
construction or interpretation hereof.
17
<PAGE>
[Trust Agreement (GARC II 98-A)]
Section 10.11 Governing Law. The terms of this Trust Agreement and the
rights and obligations of the parties hereto shall be governed by, and construed
in accordance with, the laws of the State of Delaware applicable to contracts
made and to be performed entirely within such State without reference to any
choice-of-law or conflicts-of-laws rules which might lead to the application of
the laws of any other jurisdiction.
Section 10.12 Benefit. Nothing herein, whether express or implied, shall
be construed to give any Person other than the Owner Trustee, the Indenture
Trustee and the Owner Participant any legal or equitable right, remedy or claim
under or in respect of this Trust Agreement.
Section 10.13 Performance by the Owner Participant. Any obligation of
Trust Company or the Owner Trustee hereunder or under any other Operative
Agreement or other document contemplated hereby, may be performed by the Owner
Participant and any such performance shall not be construed as a revocation of
the trusts created hereby.
Section 10.14 Conflict with Operative Agreements. If this Trust Agreement
(or any instructions given by the Owner Participant pursuant hereto) shall
require that any action be taken with respect to any matter or any other
Operative Agreement (or any instruction duly given in accordance with the terms
thereof) shall require that a different action be taken with respect to such
matter, and such actions shall be mutually exclusive, the provisions of such
other Operative Agreement, in respect thereof, shall control.
Section 10.15 Agency Relationship for Tax Purposes Only. The Owner
Participant and the Owner Trustee acknowledge and agree that the purpose of the
trust created hereunder is to vest legal title to the Trust Estate in the Owner
Trustee and, that, subject to the provisions of this Trust Agreement and the
other Operative Agreements, the Owner Trustee shall act only at the direction of
the Owner Participant. As a result, the Owner Participant and the Owner Trustee
agree that for federal tax purposes, the Owner Trustee shall be considered to be
the Owner Participant's agent.
Section 10.16 Limitation on Owner Participant's Liability. The Owner
Participant shall not have any liability for the performance of this Trust
Agreement, except as expressly set forth herein.
Section 10.17 Identification of Trust. The trust created hereunder may be
referred to for convenience as _______________.
* * *
18
<PAGE>
[Trust Agreement (GARC II 98-A)]
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be duly executed and delivered as of the day and year first above written.
WILMINGTON TRUST COMPANY
By:___________________________________
Name:____________________________
Title:___________________________
[OWNER PARTICIPANT]
By:___________________________________
Name:____________________________
Title:___________________________
19
<PAGE>
EXHIBIT 5.1
September 3, 1998
General American Railcar Corporation II
500 West Monroe Street
Chicago, Illinois 60661
Re: Registration Statement on Form S-3
Pass Through Certificates, Series 1998-1
Ladies and Gentlemen:
We have acted as special counsel to General American Railcar Corporation
II, a Delaware corporation (the "Company"), in connection with the preparation
and filing with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), of a Registration Statement
on Form S-3 (Registration No. 333-58731) as amended by Amendment No. 1 thereto
(the "Registration Statement"). The Registration Statement relates to up to
$167,000,000 aggregate principal amount of Pass Through Certificates (the "Pass
Through Certificates"). The Pass Through Certificates will be issued under a
Pass Through Trust Agreement to be entered into by and between the Company and
The First National Bank of Chicago, as Trustee (the "Trustee"), substantially in
the form filed as Exhibit 4.1 to the Registration Statement as supplemented by a
Trust Supplement relating to the Pass Through Certificates (each as
supplemented, an "Agreement"). All capitalized terms used herein and not
otherwise defined have the meanings specified in such Exhibit 4.1.
In so acting, we have examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below.
Based upon the foregoing, we are of the following opinion with respect to
Pass Through Certificates of each series:
The execution and delivery by the Company of each Agreement has been
duly authorized by the Company. Assuming the due execution and
delivery by the Company of the related Agreement and the due
authorization, execution, issuance, authentication and delivery of the
Pass Through Certificates by the Trustee in accordance with the terms
of such Agreement and assuming the due authorization, execution and
delivery of such Agreement by the Trustee, the Pass Through
Certificates, when issued and sold in accordance with the terms of the
Prospectus related to Pass Through Certificates which constitutes part
<PAGE>
of the Registration Statement, will constitute valid and binding
obligations of the Trustee entitling the holders thereof to the
benefits of the Agreement except as may be limited by (a) applicable
bankruptcy, insolvency, moratorium, reorganization or other similar
laws affecting enforcement of creditors' rights generally and (b)
general principals of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
In rendering the foregoing opinion, we have relied on the opinion of the
Law Department of The First National Bank of Chicago, counsel to the Trustee,
with respect to all matters opined to therein, and our opinion is subject to all
the assumptions contained in such opinion. In addition, in regard to the
interpretation and enforceability of each Agreement we have assumed that the
substantive laws of the State of New York, which are the applicable governing
laws for the Agreements, are the same as the laws of the State of Illinois.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, the use of our name in the third paragraph under the
caption "Federal Income Tax Considerations" in the Prospectus relating to the
Pass Through Certificates which constitutes part of the Registration Statement,
under the caption "Certain Illinois Taxes" and under the caption "Legal Matters"
in such Prospectus. In giving such consent, we do not hereby concede that we are
within the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<PAGE>
Exhibit 5.2
[LOGO] FIRST CHICAGO
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
The Law Department
September 3, 1998
General American Railcar Corporation II
500 West Monroe Street
Chicago, Illinois 60661
Re: Registration Statement on Form S-3
Pass Through Certificates, Series 1998-1
Ladies and Gentlemen:
We have acted as counsel to the Corporate Trust Services Division of The
First National Bank of Chicago (the "First Chicago") in its individual capacity
and as Trustee (the "Trustee"), under a Pass Through Trust Agreement dated as of
September 1, 1998 (the "Agreement"), by and between General American Railcar
Corporation II, a Delaware corporation ("GARC-II") and the Trustee. Pursuant to
the Agreement, the Trustee will issue Pass Through Certificates in one or more
series in an aggregate principal amount of up to $167,000,000 (the "Pass Through
Certificates"), to be registered with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "1933 Act"), by a Registration
Statement on Form S-3 (File No. 333-58731), as amended (the "Registration
Statement").
As such counsel, we have participated in the preparation of the Pass
Through Certificates, the Agreement and other agreements and documents relating
to the transaction therein contemplated, and we have examined and relied upon
originals, or copies certified or otherwise identified to our satisfaction, of
such documents, corporate records and other instruments as we have deemed
necessary or advisable for the purposes of this opinion. We are familiar with
the articles of association and the bylaws of the Trustee, with certificates of
authority to exercise corporate trust powers issued to the Trustee by the
Federal Reserve Board of the United States (as predecessor in jurisdiction to
the Comptroller of the Currency of the United States), and with certain
resolutions of the board of directors of the Trustee pertaining to the operation
of the Corporate Trust Services Division of the Trustee with respect to the
authorization, execution, and delivery of the Agreement. Capitalized terms used
but not defined herein shall have the meanings assigned them in the Agreement.
The opinions set forth herein are based on and limited to the Federal laws
of the United States and the laws of the State of Illinois. Insofar as the
matters referred to herein relate to
<PAGE>
the laws of the State of New York, we have assumed that the laws of the State of
New York (as to which we express no opinion), are in all material respects
identical to the laws of the State of Illinois. Based on the foregoing, we are
of the opinion that:
1. The Trustee has full power and authority (corporate or other) to
execute and deliver the Agreement and to execute, issue, authenticate
and deliver the Pass Through Certificates on behalf of the respective
Trust.
2. With respect to the Pass Through Certificates of each series, when (a)
the execution and delivery of the Agreement by GARC-II shall have been
duly authorized by all necessary corporate action of GARC-II, (b) the
Agreement shall have been executed and delivered by GARC-II and the
Trustee, (c) the Trust Supplement establishing the terms of the Pass
Through Certificates of such series and forming the related Trust
shall have been duly authorized, executed and delivered by GARC-II and
the Trustee in accordance with the terms and conditions of the
Agreement, and (d) the Pass Through Certificates of such series are in
compliance with then applicable law, (i) the Agreement, as
supplemented by the Trust Supplement, will constitute a valid and
binding obligation of the Trustee enforceable against the Trustee in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights generally and by general principles
of equity, and (ii) the Pass Through Certificates of such series will
be validly issued and will be entitled to the benefits of the
Agreement and the related Trust Supplement.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement. In giving
this consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the 1933 Act or the Rules and
Regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ The Law Department
----------------------
The Law Department
The First National Bank of Chicago
2
<PAGE>
EXHIBIT 8.1
September 3, 1998
General American Railcar Corporation II
500 West Monroe Street
Chicago, Illinois 60661
Re: Registration Statement on Form S-3
Pass Through Certificates, Series 1998-1
Ladies and Gentlemen:
We have acted as special counsel to General American Railcar Corporation
II, a Delaware corporation (the "Company"), in connection with the preparation
and filing with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), of a Registration Statement
on Form S-3 (Registration No. 333-58731) as amended by Amendment No. 1 thereto
(the "Registration Statement"). The Registration Statement relates to up to
$167,000,000 aggregate principal amount of Pass Through Certificates (the "Pass
Through Certificates"). The Pass Through Certificates will be issued under a
Pass Through Trust Agreement to be entered into by and between the Company and
The First National Bank of Chicago, as Trustee (the "Trustee"), substantially in
the form filed as Exhibit 4.1 to the Registration Statement as supplemented by a
Trust Supplement relating to the Pass Through Certificates (each as
supplemented, an "Agreement"). All capitalized terms used herein and not
otherwise defined have the meanings specified in such Exhibit 4.1.
We are of the opinion that the anticipated material federal income tax
consequences to holders of the Pass Through Certificates of the purchase,
ownership and disposition of Pass Through Certificates are as set forth in the
discussion in the Prospectus relating to Pass Through Certificates which
constitutes part of the Registration Statement entitled "Federal Income Tax
Considerations," and we hereby confirm that the discussion therein, including
the statements of law and legal conclusions, constitutes our opinion. The
forgoing opinion is based on the Internal Revenue Code of 1986, as amended,
Treasury regulations (including proposed regulations) promulgated thereunder,
rulings, official pronouncements and judicial decisions, all as in effect as of
the date of this letter and all of which are subject to change, possibly with
retroactive effect, or different interpretations.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the third paragraph under
the caption "Federal Income Tax Considerations" in the Prospectus relating to
Pass Through Certificates which constitutes part of the Registration Statement.
In giving such consent, we do not thereby concede that we are within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission thereunder.
Very truly yours,
/s/ VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
--------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) _____
---------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
(Exact name of trustee as specified in its charter)
A National Banking Association 36-0899825
(I.R.S. employer
identification number)
One First National Plaza, Chicago, Illinois 60670-0126
(Address of principal executive offices) (Zip Code)
The First National Bank of Chicago
One First National Plaza, Suite 0286
Chicago, Illinois 60670-0286
Attn: Lynn A. Goldstein, Law Department (312) 732-6919
(Name, address and telephone number of agent for service)
---------------------------------------
General American Railcar Corporation II
(Exact name of obligor as specified in its charter)
Delaware to be applied for
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
500 West Monroe Street
Chicago, Illinois 60661
(Address of principal executive offices) (Zip Code)
Pass Through Certificates, Series 1998-1
(Title of Indenture Securities)
<PAGE>
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C.; Federal Deposit
Insurance Corporation, Washington, D.C.; and The Board of Governors of
the Federal Reserve System, Washington D.C..
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations With the Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
No such affiliation exists with the trustee.
Item 16. List of exhibits. List below all exhibits filed as a part of this
Statement of Eligibility.
1. A copy of the articles of association of the trustee now in
effect.*
2. A copy of the certificates of authority of the trustee to commence
business.*
3. A copy of the authorization of the trustee to exercise corporate
trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by Section 321(b) of the Act.
2
<PAGE>
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, The First National Bank of Chicago, a national
banking association organized and existing under the laws of the United
States of America, has duly caused this Statement of Eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago and State of Illinois, on the 2nd day of September,
1998.
The First National Bank of Chicago, Trustee
By /s/ Sandra L. Caruba
--------------------
Sandra L. Caruba
Vice President
* Exhibit 1, 2, 3 and 4 are herein incorporated by reference to Exhibits bearing
identical numbers in Item 16 of the Form T-1 of The First National Bank of
Chicago, filed as Exhibit 25.1 to the Registration Statement on Form S-3 of
SunAmerica Inc., filed with the Securities and Exchange Commission on October 2,
1996 (Registration No. 333-14201).
3
<PAGE>
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
September 2, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
In connection with the qualification of the indenture between General American
Railcar Corporation II and The First National Bank of Chicago, as Trustee, the
undersigned, in accordance with Section 321(b) of the Trust Indenture Act of
1939, as amended, hereby consents that the reports of examinations of the
undersigned, made by Federal or State authorities authorized to make such
examinations, may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Very truly yours,
The First National Bank of Chicago
By: /s/ Sandra L. Caruba
--------------------
Sandra L. Caruba
Vice President
4
<PAGE>
EXHIBIT 7
<TABLE>
<S> <C> <C>
Legal Title of Bank: The First National Bank of Chicago Call Date: 06/30/98 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0460 Page RC-1
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
---------
</TABLE>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for June 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding of the last business day of the
quarter.
Schedule RC--Balance Sheet
<TABLE>
<CAPTION>
Dollar Amounts in thousands C400
RCFD BIL MIL THOU ----
---- ------------
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RCFD
RC-A): ----
a. Noninterest-bearing balances and currency and coin(1).................. 0081 4,490,272 1.a
b. Interest-bearing balances(2)........................................... 0071 5,586,990 1.b
2. Securities
a. Held-to-maturity securities(from Schedule RC-B, column A).............. 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)........... 1773 8,974,952 2.b
3. Federal funds sold and securities purchased under agreements to resell.... 1350 5,558,583 3.
4. Loans and lease financing receivables: RCFD
a. Loans and leases, net of unearned income (from Schedule ----
RC-C)..................................................................... 2122 28,257,868 4.a
b. LESS: Allowance for loan and lease losses.............................. 3123 413,742 4.b
c. LESS: Allocated transfer risk reserve.................................. 3128 0 4.c
RCFD
d. Loans and leases, net of unearned income, allowance, and ----
reserve (item 4.a minus 4.b and 4.c)................................... 2125 27,844,126 4.d
5. Trading assets (from Schedule RD-D)....................................... 3545 6,073,169 5.
6. Premises and fixed assets (including capitalized leases).................. 2145 721,430 6.
7. Other real estate owned (from Schedule RC-M).............................. 2150 6,827 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M)............................................ 2130 184,515 8.
9. Customers' liability to this bank on acceptances outstanding.............. 2155 310,026 9.
10. Intangible assets (from Schedule RC-M).................................... 2143 302,859 10.
11. Other assets (from Schedule RC-F)......................................... 2160 2,137,491 11.
12. Total assets (sum of items 1 through 11).................................. 2170 62,191,240 12.
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: The First National Bank of Chicago Call Date: 06/30/98 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0460 Page RC-2
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
---------
</TABLE>
Schedule RC-Continued
<TABLE>
Dollar Amounts in
Thousands
-----------------
<S> <C> <C> <C>
LIABILITIES
13. Deposits: RCON
a. In domestic offices (sum of totals of columns A and C ----
from Schedule RC-E, part 1)................................................ 2200 21,810,607 13.a
(1) Noninterest-bearing (1)................................................ 6631 9,864,956 13.a
(2) Interest-bearing....................................................... 6636 11,945,651 13.a
RCFN
b. In foreign offices, Edge and Agreement subsidiaries, and................ ----
IBFs (from Schedule RC-E, part II)...................................... 2200 15,794,963 13.b
(1) Noninterest bearing................................................. 6631 482,528 13.b
(2) Interest-bearing.................................................... 6636 15,312,435 13.b
14. Federal funds purchased and securities sold under agreements
to repurchase: RCFD 2800 3,858,711 14
15. a. Demand notes issued to the U.S. Treasury RCON 2840 1,444,748 15.a
b. Trading Liabilities (from Schedule RC-D)................................ RCFD 3548 5,661,633 15.b
RCFD
16. Other borrowed money: ----
a. With original maturity of one year or less.............................. 2332 4,356,061 16.a
b. With original maturity of more than one year............................ A547 385,550 16.b
c. With original maturity of more than three years ........................ A548 320,386 16.c
17. Not applicable
18. Bank's liability on acceptance executed and outstanding.................... 2920 310,026 18.
19. Subordinated notes and debentures.......................................... 3200 2,200,000 19.
20. Other liabilities (from Schedule RC-G)..................................... 2930 1,176,564 20.
21. Total liabilities (sum of items 13 through 20)............................. 2948 57,319,249 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.............................. 3838 0 23.
24. Common stock............................................................... 3230 200,858 24.
25. Surplus (exclude all surplus related to preferred stock)................... 3839 3,188,187 25.
26. a. Undivided profits and capital reserves.................................. 3632 1,467,324 26.a
b. Net unrealized holding gains (losses) on available-for-sale
securities.............................................................. 8434 18,040 26.b
27. Cumulative foreign currency translation adjustments........................ 3284 (2,418) 27.
28. Total equity capital (sum of items 23 through 27).......................... 3210 4,871,991 28.
29. Total liabilities, limited-life preferred stock, and equity
capital (sum of items 21, 22, and 28)...................................... 3300 62,191,240 29.
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of
the statement below that best describes the
most comprehensive level of auditing work
performed for the bank by independent external -----
auditors as of any date during 1996............ RCFD 6724... N/A Number
----- M.1.
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated holding
company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
6
