<PAGE>
PROSPECTUS Filed Pursuant to Rule 424(b)(4)
Registration No. 333-58731
$158,517,000
GENERAL AMERICAN RAILCAR CORPORATION II
1998-1 PASS THROUGH TRUST
6.21% PASS THROUGH CERTIFICATES, SERIES 1998-1
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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 State Street Bank and Trust Company ("State Street"), as Pass
Through Trustee (the "Pass Through Trustee"). The property of the Pass Through
Trust will consist of $158,517,000 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 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE PASS THROUGH
CERTIFICATES.
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THE PASS THROUGH CERTIFICATES ARE NOT OBLIGATIONS OF, NOR GUARANTEED BY, THE
COMPANY OR ANY AFFILIATE THEREOF.
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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.
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<TABLE>
<CAPTION>
INITIAL PRINCIPAL FINAL
PASS THROUGH PRINCIPAL INTEREST DISTRIBUTION DISTRIBUTION PRICE TO
CERTIFICATES AMOUNT RATE DATE(1) DATE(1) PUBLIC(2)(3)
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<S> <C> <C> <C> <C> <C>
1998-1 $158,517,000 6.21% November 20, 2001 September 20, 2020 100%
- -------------------------------------------------------------------------------------
</TABLE>
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(1) Based on the Rated Amortization Schedule. The initial principal
distribution date and final distribution date based on the Scheduled
Amortization Schedule are November 20, 1998, and September 20, 2017,
respectively.
(2) Plus accrued interest, if any, from September 29, 1998.
(3) The underwriting commission is $1,030,360.50, which constitutes 0.65% of
the principal amount of the Pass Through Certificates. The underwriting
commission, and certain other expenses estimated at $1,000,000, 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.
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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 29, 1998
through the facilities of The Depository Trust Company, against payment
therefor in immediately available funds.
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SALOMON SMITH BARNEY MORGAN STANLEY DEAN WITTER
The date of this Prospectus is September 25, 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 November 20, 1998.
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."
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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
State Street, 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."
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<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 State Street 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 will equal the
aggregate face amount of the Pass Through Certificates and payments of
principal and interest on the Equipment Notes will be passed through to
holders of the Pass Through Certificates on the corresponding payment
date.
. 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
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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 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 an equity
contribution of $2,000,000 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"),
Trinity 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
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("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").
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, 51.6% 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 32.2% 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
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Transaction Schematic
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 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, an Incentive Component and a charge for
reimbursable services. The Base Component will be
the product of (i) a monthly fee payable per
Equipment Unit (initially $20) multiplied by (ii)
the number of Units managed. The Incentive
Component will be $5 per Unit per month for the
period from the Closing Date through December 31,
1999. Thereafter, the per Unit Incentive Component
will be calculated based on the gross sublease
revenues of the Company net
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of write-offs multiplied by .000238%, 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 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 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.
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 loaded 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
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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 Marks 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........ $158,517,000 6.21% 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.
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
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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
solely 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." See "Description of the Pass Through
Certificates--General" and
"--Payments and Distributions."
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.
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 11.7 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 November 20, 1998, 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
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<PAGE>
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."
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
9
<PAGE>
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."
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
10
<PAGE>
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.
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) (A) 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 or (B) the Company
exercises its option to purchase the Equipment
in the event that the Company is unable to
procure certain insurance coverages, 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,
together with accrued interest thereon, plus
the Make-Whole Amount (if any).
11
<PAGE>
(c) If, at any time on or after the 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 together with
accrued interest thereon plus the Make-Whole
Amount.
(d) If (i) the Company exercises its rights on the
applicable date, occurring on or after the
seventh anniversary of the Closing 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 together
with accrued interest thereon plus the Make-
Whole Amount.
(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 all of
an Equipment Group pursuant to the 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
or the Company being unable to procure certain
insurance coverages, 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 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
12
<PAGE>
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 equals $6,000,000. Upon the
occurrence of certain Cash Trapping 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
13
<PAGE>
"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......... State Street will act as Pass Through Trustee, as
paying agent and registrar for the Pass Through
Certificates, and as the Indenture Trustee under
each Indenture. The First National Bank of Chicago
will act as Collateral Agent pursuant to the
Intercreditor Agreement. See "Risk Factors--
Potential Conflicts of Interest."
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 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.
14
<PAGE>
SCHEDULED AND RATED AMORTIZATION SCHEDULES
The Scheduled Amortization and Rated Amortization for the Equipment Notes, on
an aggregate basis, as of the particular date shown for 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)).
All principal payments on the Equipment Notes will be passed through to
Certificateholders when received.
<TABLE>
<CAPTION>
SCHEDULED AMORTIZATION* RATED AMORTIZATION*
------------------------ ------------------------
CUMULATIVE
EXCESS OF
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL SCHEDULED
DATE PAYMENT BALANCE PAYMENT BALANCE OVER RATED*
---- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Closing................. $ -- $158,517,000 $ -- $158,517,000 $ --
9/20/99................. 2,486,263 156,030,737 -- 158,517,000 2,486,263
9/20/00................. 3,952,477 152,078,261 -- 158,517,000 6,438,739
9/20/01................. 4,204,669 147,873,592 -- 158,517,000 10,643,408
9/20/02................. 4,277,136 143,596,456 2,486,263 156,030,737 12,434,281
9/20/03................. 4,693,592 138,902,864 3,952,477 152,078,261 13,175,397
9/20/04................. 7,311,450 131,591,414 4,204,669 147,873,592 16,282,178
9/20/05................. 8,365,882 123,225,532 4,277,136 143,596,456 20,370,924
9/20/06................. 7,882,391 115,343,141 4,693,592 138,902,864 23,559,723
9/20/07................. 5,064,604 110,278,536 7,311,450 131,591,414 21,312,878
9/20/08................. 5,909,857 104,368,679 8,365,882 123,225,532 18,856,852
9/20/09................. 8,958,439 95,410,240 7,882,391 115,343,141 19,932,901
9/20/10................. 9,960,062 85,450,178 5,064,604 110,278,536 24,828,359
9/20/11................. 11,340,051 74,110,126 5,909,857 104,368,679 30,258,553
9/20/12................. 12,175,775 61,934,351 8,958,439 95,410,240 33,475,889
9/20/13................. 11,913,739 50,020,612 9,960,062 85,450,178 35,429,565
9/20/14................. 10,418,782 39,601,831 11,340,051 74,110,126 34,508,296
9/20/15................. 13,579,581 26,022,249 12,175,775 61,934,351 35,912,102
9/20/16................. 13,151,941 12,870,308 11,913,739 50,020,612 37,150,304
9/20/17................. 12,870,308 -- 10,418,782 39,601,831 39,601,831
9/20/18................. -- -- 13,579,581 26,022,249 26,022,249
9/20/19................. -- -- 13,151,941 12,870,308 12,870,308
9/20/20................. -- -- 12,870,308 -- --
</TABLE>
- --------
* Amounts may not total due to rounding.
15
<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
16
<PAGE>
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
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.
17
<PAGE>
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 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 by the Company of the Early
Purchase Option relating to each Equipment Group on the 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
18
<PAGE>
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."
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 the Manager's and the Company's businesses and
consequently could have a material adverse effect on both the Manager's and
the Company's 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-
19
<PAGE>
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 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 or
potential conflict of interest should arise due to the multiple capacities in
which the bank serves or otherwise, the Collateral Agent may elect to resign
or may be removed. Any delay in the appointment of a successor agent could
adversely affect the interests of Certificateholders.
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 5.1 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
1%, 8%, 71% and 20% of the Equipment is subject to Subleases which will expire
within the next three years, from three up to four years, from four up to five
years, and five or more 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 to 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
20
<PAGE>
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%, 28% 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%, 26%, 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.
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, ACF and
Trinity) 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. Although customer
selection of full service railcar suppliers may be price driven, industry
demand for full service railcar leases is not particularly price sensitive.
Competitive factors do not generally affect early termination of Subleases or
switching between railcars 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
21
<PAGE>
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 in Mexico
and Canada. The Company may, subject to certain limits, sublease a portion of
the Equipment Units to Mexican or Canadian Sublessees. However, 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 is generally restricted to subleasing no more than 9% of
the Company Fleet under each Lease to Mexican Sublessees and no more than 15%
of the Company Fleet under each Lease to Canadian Affiliates, provided that
the Company is permitted to sublease up to 20% and 30% of the Company Fleet to
Mexican Sublessees and Canadian Affiliates, respectively, if it receives a
Rating Agency Confirmation. In addition, under the Leases, the Company is not
permitted to sublease more than 50 Equipment Units to any single Mexican
Sublessee (other than (A) with Rating Agency Confirmation, to a Mexican
Affiliate which is sub-subleasing such Equipment Units to Mexican sub-
sublessees and which sub-sublessees satisfy 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 at least BBB and Baa2 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)). See "The Leases--
Restrictions on Subleases."
Upon any exercise of the remedies under the Indentures with respect to the
Equipment Units then located outside of the United States, the Indenture
Trustee will be required to enforce such remedies in the foreign jurisdiction
or jurisdictions in which such Equipment Units are located. Due to differences
in or an absence of Canadian and Mexican laws as compared to those of the
United States, 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 Mexican or Canadian jurisdictions and, accordingly,
collection of payments due under such foreign subleases, if any, may be more
difficult than in the United States. 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."
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
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<PAGE>
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 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
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<PAGE>
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.
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 Trustees 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
State Street 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. None of the Owner
Participants who has agreed with the Company to participate in the leveraged
lease transactions is related to the Company.
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 will be approximately $208.4
million. See "The Equipment" for a description of the different railcar types.
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."
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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 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>
<S> <C>
ASSETS:
Cash........................................................ $ 0
Liquidity Reserve Amount.................................... 500,000
Cash Trapping Account....................................... 0
Collection Account.......................................... 1,500,000
Accounts Receivable......................................... 210,100
----------
Total Assets.............................................. $2,210,100
==========
LIABILITIES AND EQUITY:
Liabilities................................................. $ 0
Equity...................................................... 2,210,100
----------
Total Liabilities and Equity.............................. $2,210,100
==========
</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).
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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, 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>
NUMBER PERCENT
OF OF
COMMODITY CARRIED CARS TOTAL
----------------- ------ -------
<S> <C> <C>
Chemical................................................... 1,612 47.7%
Petroleum.................................................. 648 19.2
Agricultural............................................... 431 12.7
Mineral.................................................... 331 9.8
Plastics................................................... 358 10.6
----- -----
3,380 100.0%
===== =====
</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
26
<PAGE>
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 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 YEAR ENDED DECEMBER 31,
ENDED --------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Casualty Cars........... 64 155 153 136 141 108
Total Number of Cars in
Manager's Fleet
(at period end)........ 72,815 70,689 66,775 64,866 59,808 55,763
Casualty Cars as a
Percentage of Manager's
Fleet.................. 0.09% 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
27
<PAGE>
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.
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
28
<PAGE>
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 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
29
<PAGE>
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 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
30
<PAGE>
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.
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 5.1 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.............................................. -- 128
3 years.............................................. 30 325
4 years.............................................. -- --
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
31
<PAGE>
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 (excluding those in Canada and Mexico) from 1979 through 1997,
showing the percentage of all railcars owned or leased by the Manager
(excluding those owned or leased 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.
YEAR-END UTILIZATION PERCENTAGE FOR ALL
RAILCARS OWNED OR LEASED BY THE MANAGER IN THE U.S.
32
<PAGE>
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.
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............................................. 1,054 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
33
<PAGE>
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 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.
34
<PAGE>
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.
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."
35
<PAGE>
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 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
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<PAGE>
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 expects ad valorem property
taxes initially to be approximately $640,000 per full calendar year based on
current tax rates and, since such taxes are based upon the value of the
railcars, expects that such amounts will generally decline over time.
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, 11% 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
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<PAGE>
ratings concentrations, by number of Equipment Units, as of July 31, 1998, for
the Sublessees or their parents, as applicable.
RATINGS OF INITIAL SUBLESSEES(1)
AS OF JULY 31, 1998
<TABLE>
<CAPTION>
MOODY'S
- --------------------------------
# OF % OF
RATING CARS RATED
- ------ ----- ------
<S> <C> <C>
Aaa................ 2 0.09
Aa1................ 45 1.96
Aa2................ 114 4.97
Aa3................ 632 27.56
A1................. 65 2.83
A2................. 56 2.44
A3................. 255 11.12
Baa1............... 142 6.19
Baa2............... 205 8.94
Baa3............... 56 2.44
Ba1................ 132 5.76
Ba2................ 82 3.58
Ba3................ 200 8.72
B1................. 114 4.97
B2................. 189 8.24
B3................. 4 0.17
----- ------
Total Rated..... 2,293 100.00%
===== ======
Total Rated........ 2,293 67.84
Non-Rated.......... 1,087 32.16
----- ------
Total Railcars.. 3,380 100.00%
===== ======
</TABLE>
<TABLE>
<CAPTION>
S&P
- --------------------------------
# OF % OF
RATING CARS RATED
- ------ ----- ------
<S> <C> <C>
AAA................ 47 2.21
AA+................ 5 0.24
AA................. 109 5.13
AA-................ 590 27.75
A+................. 44 2.07
A.................. 103 4.84
A-................. 153 7.20
BBB+............... 216 10.16
BBB................ 259 12.18
BBB-............... 132 6.21
BB+................ 40 1.88
BB................. 25 1.18
BB-................ 328 15.43
B+................. 65 3.06
B.................. -- --
B-................. 10 0.47
----- ------
Total Rated..... 2,126 100.00%
===== ======
Total Rated........ 2,126 62.90
Non-Rated.......... 1,254 37.10
----- ------
Total Railcars.. 3,380 100.00%
===== ======
</TABLE>
- --------
(1) The table reflects initial Sublessees only; the composition of the
Sublessees and assigned ratings will change over time. 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
38
<PAGE>
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.
MANAGER'S FLEET RECEIVABLES WRITE-OFFS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
% OF
LEASE WRITE- LEASE
PERIOD REVENUE 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
------------------------------------------------------
OVER 90
0-30 DAYS(1) 31-60 DAYS 61-90 DAYS 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 (3,979) (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 $7.8 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 have 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.
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<PAGE>
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 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 YEAR ENDED DECEMBER 31,
ENDED 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 6.5 6.4 7.1 8.2 8.0 8.3
Rent Abatement as a % of
Revenue........................ 1.38% 1.60% 1.64% 2.01% 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
40
<PAGE>
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 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, which application was denied by
the Louisiana Fourth Circuit Court of Appeals on September 18, 1998. It is
anticipated that the defendants will seek review by the Louisiana Supreme
Court of this denial.
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
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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
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 approximately $50 to approximately
$6.5 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.
AVAILABLE INFORMATION RELATING TO THE MANAGER
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
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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 following documents, previously filed by GATC with the Commission
pursuant to Section 15(d) of the Exchange Act, are incorporated herein by
reference:
(i) GATC's Annual Report on Form 10-K for the year ended December 31,
1997; and
(ii) GATC's Quarterly Reports on Form 10-Q for the periods ended March
31, 1998 and June 30, 1998.
All reports and any definitive proxy or information statements filed by GATC
with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Certificates shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
GATC HAS AGREED TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A
COPY OF ANY OR ALL OF THE GATC DOCUMENTS INCORPORATED HEREIN BY REFERENCE
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED
BY REFERENCE IN SUCH DOCUMENTS). WRITTEN REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO THE INVESTOR RELATIONS DEPARTMENT, GATX CORPORATION, 500 WEST
MONROE STREET, CHICAGO, IL 60661. TELEPHONE REQUESTS MAY BE DIRECTED TO (800)
428-8161.
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.
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 using
Company funds; (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, to the extent practicable, separate records of all transactions
relating to the Equipment, including with respect to
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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)
complying with the return conditions under the Lease with respect to any Units
which are being returned to the Lessor thereunder; (xviii) 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; (xix) enforcing on behalf of the Company the warranties with
respect to all repairs, maintenance and modifications made with respect to the
Equipment Units; (xx) 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 (xxi) 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, Section 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. Unless otherwise
directed by the Company, 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 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)
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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, an Incentive Component and a charge for
reimbursable services. (Management Agreement, Section 5.1) The Base Component
will 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 per Unit Incentive Component will be
$5 per month 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 for the preceding calendar month 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 will reimburse the Manager for costs and expenses,
including, without limitation: (i) maintenance, modification and repair
expenses; (ii) all taxes (other than income taxes) paid by the Manager with
respect to the Equipment; (iii) switching and storage expenses; and (iv) the
amount of fines, penalties, judgements or similar charges paid by the Manager
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 the Sublease Lockbox. 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
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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)
The term of the Management Agreement shall continue in effect until all the
obligations of the Company under any Operative Agreement have been satisfied
or waived or assumed by the Manager under an agreement in form and substance
satisfactory to each of the Owner Participants and the Indenture Trustees.
(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 (other than pursuant to the Management Agreement) to be actively
involved in the railcar management or maintenance businesses; 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. (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 $50,000,000. (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) In a third
party claim giving rise to indemnification under the Management Agreement, the
indemnifying party will have the right to defend such claim, at its expense,
by giving notice of such claim and acknowledging liability in respect to such
claim; provided 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 any Non-Shared Payment relates will have the benefit of the security
interest in the related Non-Shared Payments 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;
(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;
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(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 Reserves 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 Beneficiaries and Owner Participants;
(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; and
(x) the "Post Lease Term Reserve Account" into which $8,000,000 (or such
lesser amount as is available) will be deposited following the later to
occur of the date of payment of the Equipment Notes and the return of all
the Equipment to be returned under any Lease.
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 any 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 in the case of the Special Insurance Reserves Account will
include investments specified by the Beneficiaries and the Owner Participants,
and any amounts earned in respect of such investments will be deposited in the
Collection Account.
ACTIONS UPON A LEASE EVENT OF DEFAULT
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 a Lease Event of Default pursuant to any
Lease, the Collateral Agent will exercise the rights and remedies available to
the Beneficiaries under the Intercreditor Agreement at the direction of the
applicable Indenture Trustees. 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 except in accordance with the Intercreditor Agreement. 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
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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
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 the 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
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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 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
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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.
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 shall 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;
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 not later than the
applicable Monthly Report Date to be the amount of Category 1 Supplemental
Expenses due or to become due pursuant to its related Loan Documentation,
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 any Operative Agreement or are not then being satisfied from the Special
Reserves Account, and (b) any amounts that have been previously requested
pursuant to this clause and not paid, less amounts, if any, then on deposit
in the Special Reserves Account and being applied 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 shall make up such
insufficiency first by withdrawing an amount equal to such insufficiency
from the Cash Trapping Account and then from the Liquidity Reserve Account
and being applied, if necessary, and transferring such amount pursuant to
this clause; provided, further, that if the aggregate of all amounts
available for transfer pursuant to this clause shall continue to be
insufficient, then the Collateral Agent shall transfer the amounts then
available for transfer 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 Lessor Agent an amount sufficient to pay any Rated
Rent 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 Rated Rent due or to become due pursuant to its related
Lease on or before
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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 Lender 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 Loan Documentation related to
such Assumed Debt on or before such Monthly Transfer Date (but only 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), and (c) without duplication of amounts specified above
in this clause, to each Lessor Agent and each Lender Agent any amounts
pursuant to this clause that have been previously requested in respect of
Rated Rent or Assumed Debt 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 shall 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 shall
continue 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 related to each
Agent bears to the total amount due under this clause 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 shall 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 or Assumed Debt, 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 shall 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
Scheduled Rent as certified to the Collateral Agent by an Authorized
Representative of each Lessor Agent not later than the applicable Monthly
Report Date to be the amount of Scheduled Rent 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 such Lender Agent to be the amount of
principal and interest due or to become due pursuant to the Loan
Documentation 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) and (c) without duplication of amounts
specified above in this clause, to each Lessor Agent and Lender Agent any
amounts pursuant to this clause 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 shall make up such
insufficiency by withdrawing an amount equal to such insufficiency from the
Cash Trapping Account and transferring such
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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 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 related to each
Agent bears to the total amount due under this clause to all such Agents on
such Monthly Transfer Date;
Eighth, (a) to each Lessor Agent an amount sufficient to pay the
Accumulated Equity Deficiency Amount under 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
Accumulated Equity Deficiency Amount due or to become due pursuant to its
related Lease on or before such Monthly Transfer Date, and (b) without
duplication of amounts specified in this clause, to each Lessor Agent any
amounts pursuant to this clause 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 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
related to each Lessor Agent bears to the total amount due under this
clause 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 shall 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 Agent not
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 Lender Documents, Lease or Loan Documentation on or before
such Monthly Transfer Date, 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 shall 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 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
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 certified 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 shall pay such amounts pro rata among
such Persons 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;
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Thirteenth, unless a "Manager Default" (as defined in the Management
Agreement) has occurred and is continuing, 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 Base Component or
Incentive Component of the Management Fee previously requested and not
paid;
Fourteenth, to the Special Insurance 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 Insurance Reserves Amount; and
Fifteenth, and if (a) the amounts on deposit in the Stipulated Loss Value
Deficiency Account (including each sub-account thereof), the Liquidity
Reserve Account, the Special Reserves Account, the Special Insurance
Reserves Account and the Cash Trapping Account are at least equal to the
Required Stipulated Loss Value Deficiency Amount, Required Liquidity
Reserve Amount, the Required Special Reserves Amount, the Required Special
Insurance Reserves Amount and the Required Cash Trapping Amount,
respectively, and (b) no Lease Default with respect to payment or
bankruptcy or Lease Event of Default shall have occurred and be continuing,
to the Excess Cash Account any remaining amounts on deposit in the
Collection Account; provided that if any Lease Default with respect to
payment or bankruptcy or Lease Event of Default shall have occurred and be
continuing, all remaining amounts shall remain on deposit in the Collection
Account for application as provided above on the next succeeding Monthly
Transfer Date.
EXPLANATORY NOTES
The diagram following these explanatory notes depicts the typical
anticipated cash flows as described above. The following explanatory notes
should be read in connection with the diagram. The diagram illustrates the
typical operating cash inflows that are anticipated to occur between each
Monthly Transfer Date (i.e., Sublease revenues and Railroad Mileage Credit
collections) and the application of such amounts on each Monthly Transfer
Date. The diagram does not illustrate each of the possible cash flow
application scenarios. In particular, the diagram does not illustrate the
funding of the Post Lease Term Reserve Account. All transfers described in
(c)-(p) below are anticipated to occur on each Monthly Transfer Date to the
extent applicable.
Sublease Payments:
(a) All payments by Sublessees under the Subleases, the GATC Leases and other
GATC Managed Leases are deposited into the Sublease Lockbox in the name of
GATC, as trustee for itself, General American Railcar Corporation, the
Company and other persons as their interests may appear.
(b) On a daily basis, amounts on deposit in the Sublease Lockbox will be
segregated by the Manager and allocated among GATC, General American
Railcar Corporation, the Company and the other beneficiaries of the
Sublease Lockbox. Not later than the second Business Day after receipt,
amounts allocable to the Company will be transferred to the Collection
Account maintained with the Collateral Agent.
(c) To the extent required to allow the Manager to pay Sublessees entitled to
receive Mileage Credit payments from the Company in respect of their
Subleases, amounts in the Collection Account are transferred by the
Collateral Agent to the Manager to make such payments.
(d) To the extent amounts are available after making the transfer required
above, amounts are transferred from the Collection Account to the
Operating Account to pay Operating Expenses and the Base Component of the
Management Fee.
(e) To the extent amounts are available after making the transfers required
above, amounts are transferred from the Collection Account to each Lender
Agent or Lessor Agent to pay Category 1 Supplemental Expenses.
(f) To the extent amounts are available after making the transfers required
above, amounts are transferred from the Collection Account to each Lessor
Agent to pay an amount equal to Rated Rent and to each Lender
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Agent to pay principal and interest payable in respect of Assumed Debt. All
such amounts paid to the Agents will be passed through to
Certificateholders.
(g) To the extent amounts are available after making the transfers required
above, amounts, if any are required, are transferred from the Collection
Account to the Stipulated Loss Value Deficiency Account so that the balance
in such account is at least equal to the Required Stipulated Loss Value
Deficiency Amount.
(h) To the extent amounts are available after making the transfers required
above, amounts, if any are required, are transferred from the Collection
Account to the Liquidity Reserve Account so that the balance in such
account is at least equal to the Required Liquidity Reserve Amount.
(i) To the extent amounts are available after making the transfers required
above, amounts are transferred from the Collection Account to each Lessor
Agent to pay an amount equal to Scheduled Rent and to each Lender Agent an
amount sufficient to pay principal and interest due on any Assumed Debt.
All such amounts paid to the Agents will be passed through to
Certificateholders.
(j) To the extent amounts are available after making the transfers required
above, amounts are transferred from the Collection Account to each Lessor
Agent which are sufficient to pay the Accumulated Equity Deficiency Amount,
including Equity Portion of Basic Rent.
(k) To the extent amounts are available after making the transfers required
above, amounts, if any are required, are transferred from the Collection
Account to the Special Reserves Account so that the balance in such account
is at least equal to the Required Special Reserves Amount.
(l) To the extent amounts are available after making the transfers required
above, amounts are transferred from the Collection Account to each Lender
Agent or Lessor Agent to pay Category 2 Supplemental Expenses.
(m) To the extent amounts are available after making the transfers required
above, amounts, if any are required, are transferred from the Collection
Account to the Cash Trapping Account, up to the Required Cash Trapping
Amount.
(n) To the extent amounts are available after making the transfers required
above, amounts are transferred from the Collection Account to each Person
entitled to receive Category 3 Supplemental Expenses.
(o) To the extent amounts are available after making the transfers required
above, amounts are transferred from the Collection Account to the Manager
to pay the Incentive Component of the Management Fee, if any.
(p) To the extent amounts are available after making the transfers required
above, amounts, if any are required, are transferred from the Collection
Account to the Special Insurance Reserves Account.
(q) To the extent amounts are available after making the transfers required
above, and if (i) amounts on deposit in the Stipulated Loss Deficiency
Account, the Liquidity Reserve Account, the Special Reserves Account, the
Special Insurance Reserves Account and the Cash Trapping Account are each
at least equal to the balances required to be maintained in each such
account, and (ii) no Lease Event of Default or Lease Default relating to
payments or bankruptcy has occurred and is continuing, all remaining
available cash from the Collection Account is transferred to the Excess
Cash Account.
(r) It is contemplated that amounts on deposit in the Excess Cash Account will
be transferred at the direction of the Company from time to time to GATC as
dividends in respect of GATC's 100% ownership interest in the Company.
Mileage Credits Payments:
(1) The Railroads will pay to the Mileage Credits Lockbox all Railroad Mileage
Credits payable in respect of the Marks registered in the name of the Marks
Company (including the Marks on the Company Fleet).
(2) GATC, as Servicer for the Marks Company, will allocate amounts received in
the Mileage Credits Lockbox among GATC, General American Railcar
Corporation, the Company and the other beneficiaries of the Mileage Credits
Lockbox. Amounts payable to the Company are transferred to the Collection
Account maintained by the Collateral Agent.
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[Diagram of Typical Operating Cash Flows]
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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 $536;
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").
As used above, the following terms have the meanings set forth below.
"Monthly Average Lease Rate" means for any calendar month, the aggregate
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 with respect to which the Manager, the
Company or any Affiliate thereof is lessor or sublessor (as applicable) 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 with respect to which the
Manager, the Company or any Affiliate thereof is lessor or sublessor (as
applicable) 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 and principal and interest on any Assumed Debt 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:
(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;
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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);
or
(iii) if, following a Cash Trapping Event, a Cash Trapping Hold exists
with respect to such Monthly Transfer Date, the amount then on deposit in
the Cash Trapping Account at the time such Cash Trapping Event ceased to
exist (but in no event less than the amount required pursuant to clause (i)
above).
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
$536, (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) with
respect to a Level 1 Cash Trapping Event any Coverage Ratio on such
Calculation Date is less than 1.165:1 (a "Level 1 Cash Trapping Hold"), or
(ii) with respect to a Level 2 Cash Trapping Event any Coverage Ratio on such
Calculation Date is equal to or less than 1.14:1 (a "Level 2 Cash Trapping
Hold"). On each Monthly Transfer Date amounts on deposit in the Cash Trapping
Account will be applied as provided in "--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 the then
applicable Required Cash Trapping Amount shall be released from the Cash
Trapping Account 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 from the Cash Trapping Account during such time
period) 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."
REQUIRED SPECIAL RESERVES ACCOUNT; REQUIRED SPECIAL INSURANCE RESERVES ACCOUNT
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 aggregate cost of implementing such modification in
any 12-month period 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 expenses not covered as a
result of any insurance deductible, 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 applicable 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 amount 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 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.
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Under the Intercreditor Agreement amounts are required to be transferred to
the Special Insurance Reserves Account if (i) the Company is unable to obtain
certain insurance coverages required under each Lease, and (ii) the Lessor has
waived such requirement under Section 12.3(c) of the Lease (and the
Beneficiaries and the Owner Participants have not waived the requirement to
fund the Special Insurance Reserves Account). Such amounts, if any, are
accumulated only out of cash flow that would otherwise be available for
transfer to the Excess Cash Account and are held, as security, and to provide
payment, for the Company's obligations to the Beneficiaries and the Owner
Participants which would otherwise be covered by the insurance which has not
been obtained. Upon obtaining the required insurance coverage (or if such
coverage is no longer necessary), the Company may withdraw any amounts on
deposit in the Required Special Insurance Reserves Account.
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
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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 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-sublessees, 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 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 (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 included 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
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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 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 with respect to such Terminated
Units 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 Early Purchase Option Date all
(but not less than all) of the Equipment Units subject to each Lease, across
the Company Fleet, 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 and not more than 180 days prior to the date of
its election to exercise the 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
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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 (or certain specified
events which, with notice or lapse of time or both, would become a Lease Event
of Default) under the applicable Lease has occurred and is continuing and
sufficient amounts have been made available to the Collateral Agent for
certain payments under the Intercreditor Agreement, 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 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)
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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 Fifth
through Fourteenth in "Collection and Application of the Company's Cash
Flows--Application of Amounts in the Collection Account" 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 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 respect) certain
agreements or covenants contained in the Intercreditor Agreement; (f) failure
by the Company to perform or observe 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 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)
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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.
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 insurers of recognized responsibility 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
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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 $100,000 (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) by any act or neglect of the Lessee or
any breach or violation by the Lessee of any warranties, declarations or
conditions contained in such policies, 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)) Each Lease
requires the Company to use reasonable efforts to cause its independent
insurance broker to agree that, with respect to any policy of insurance
maintained pursuant to Section 12.1 of such Lease, such broker will provide
not less than 30 days' prior written notice to Lessor, the Indenture Trustee,
Loan Participant and Owner Participant of any non-renewal or material adverse
change with respect to such policy. For purposes of this provision, "material
adverse change" shall mean a material adverse change in policy limits,
exclusions or deductibles or any material adverse change in policy coverage
inconsistent with the requirements of Section 12.1(b) of each Lease. (Lease,
Section 12.1(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 the 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)
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
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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 GATC in any respect material to the business of GATC of leasing railcars
under full service operating leases, 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, subject
to certain conditions, 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, either the
purchase price specified in clause (i) or 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 unpaid
principal amount of the Equipment Notes outstanding as of the relevant Regular
Distribution Date (after deducting therefrom the principal installment, if
any, to be paid on such 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 Insurance Manager or 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 or 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)
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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)
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
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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 Trustees in their individual capacities, the Owner Participants, or
any affiliate of any thereof.
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
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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 November 20, 1998,
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(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 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
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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)
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
face 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
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(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 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) So long as the Certificates are
registered in the name of Cede, 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 Pass Through Trustee
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
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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 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
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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 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, if any, or
interest on any of the Equipment Notes, and (iii) a default in respect of any
covenant 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
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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)
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
State Street 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) State Street will also be the Indenture Trustee of
the Indentures under which the Equipment Notes are issued.
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
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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
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.
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 modeling
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
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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 five 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.
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>
6........................... 97%
11........................... 96%
16........................... 96%
21........................... 94%
</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.
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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 five years of the transaction the
Equipment Units will not require maintenance.
(ii) Commencing in year six, maintenance costs are assumed to increase with
the age of the Equipment Units. Maintenance age curves were developed for each
of the Equipment Types. Maintenance costs are assumed to be 6.2% of gross
revenues in year six, increasing to 23.4% 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 6 through 10 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 initial incremental costs (before
giving effect to the assumed cost of inflation) for the Required Maintenance
Programs (including costs related to Rule HM201 and Rule 88B) are assumed to
be $2,667 per Unit, which costs are assumed to be incurred once every
approximately 10 years and are adjusted for inflation through the date assumed
to be incurred.
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.
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(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 $189 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 Trustees, Pass Through Trustee and the Indenture
Trustees 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 79.2%
Annual Maintenance Cost 40% increase 92.8
Mandated Improvements 40% increase 98.1
Utilization after year 70% 76.8
five
Lease Rate Growth Rate 100 bps lower than the 84.3
expense inflation rate
Receivables Write-Offs 1% of revenues 99.0
</TABLE>
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 70.2% of the Pre-Financing Cash Flow under the
Structuring 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.
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When applying all of the above stresses simultaneously:
The Equipment Notes were repaid in 22 years.
The weighted average life of the debt was 12.9 years.
The resulting cash flow is 70.2% of Pre-Financing Cash Flow under the
Structuring Assumptions. All rated obligations (Interest and Rated
Amortization) were paid.
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 State Street, 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 $158,517,000.
Scheduled Amortization of the Equipment Notes represents the aggregate
amount of principal which the Owner Trusts must pay (on a cumulative basis)
through each Regular Distribution Date in order to avoid payment
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of Late Payment Premiums. The "Scheduled Maturity Date," which is September
20, 2017, represents the Regular Distribution Date on which the Owner Trusts
will pay the final installments of principal, if all payments of principal are
made in accordance with Scheduled Amortization. Rated Amortization of the
Equipment Notes represents the minimum aggregate amount of principal which the
Owner Trusts must pay (on a cumulative basis) through each Regular
Distribution Date in order to avoid any 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 Trusts must pay all outstanding principal
on the Equipment Notes.
The Scheduled Amortization and Rated Amortization for the Equipment Notes,
on an aggregate basis, as of the particular Regular Distribution Date shown
for 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................. $ -- $158,517,000 $ -- $158,517,000 $ --
9/20/99................. 2,486,263 156,030,737 -- 158,517,000 2,486,263
9/20/00................. 3,952,477 152,078,261 -- 158,517,000 6,438,739
9/20/01................. 4,204,669 147,873,592 -- 158,517,000 10,643,408
9/20/02................. 4,277,136 143,596,456 2,486,263 156,030,737 12,434,281
9/20/03................. 4,693,592 138,902,864 3,952,477 152,078,261 13,175,397
9/20/04................. 7,311,450 131,591,414 4,204,669 147,873,592 16,282,178
9/20/05................. 8,365,882 123,225,532 4,277,136 143,596,456 20,370,924
9/20/06................. 7,882,391 115,343,141 4,693,592 138,902,864 23,559,723
9/20/07................. 5,064,604 110,278,536 7,311,450 131,591,414 21,312,878
9/20/08................. 5,909,857 104,368,679 8,365,882 123,225,532 18,856,852
9/20/09................. 8,958,439 95,410,240 7,882,391 115,343,141 19,932,901
9/20/10................. 9,960,062 85,450,178 5,064,604 110,278,536 24,828,359
9/20/11................. 11,340,051 74,110,126 5,909,857 104,368,679 30,258,553
9/20/12................. 12,175,775 61,934,351 8,958,439 95,410,240 33,475,889
9/20/13................. 11,913,739 50,020,612 9,960,062 85,450,178 35,429,565
9/20/14................. 10,418,782 39,601,831 11,340,051 74,110,126 34,508,296
9/20/15................. 13,579,581 26,022,249 12,175,775 61,934,351 35,912,102
9/20/16................. 13,151,941 12,870,308 11,913,739 50,020,612 37,150,304
9/20/17................. 12,870,308 -- 10,418,782 39,601,831 39,601,831
9/20/18................. -- -- 13,579,581 26,022,249 26,022,249
9/20/19................. -- -- 13,151,941 12,870,308 12,870,308
9/20/20................. -- -- 12,870,308 -- --
</TABLE>
- --------
* Amounts 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.
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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))
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 2.0% (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 related
Owner Trust, the related Indenture Trustee, the Pass Through Trustee and the
related 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
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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))
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"), 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 the 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 the Early
Purchase Option, the prepayment price shall be equal to the unpaid principal
amount thereof (computed as provided in the preceding paragraph in the case of
the Obsolescence Termination Option) 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. 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 (A) 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, or
(B) exercises its option to purchase the Equipment due to the Company's
failure to maintain certain insurance coverages and the related Owner
Trustee's and Owner Participant's failure to waive such insurance coverages or
have granted such waiver but have refused to further waive the requirement of
holding cash in the Special Insurance Reserve Account, 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
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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 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
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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.
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 the 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" or the Company
being unable to procure certain insurance coverages, 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);
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(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
(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.
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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 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 ten 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)
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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))
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 20 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 18 consecutive or 36 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 $20,000,000, 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)
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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
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 270
days. The Indenture Trustee, after the occurrence of any Indenture Event of
Default, shall give the related Owner Participant and the related Owner
Trustee 10 business days (or such shorter period as practical) prior notice of
the date before which the Indenture Trustee shall not exercise any remedy
which would result in the exclusion of such Owner Trustee from the relevant
trust indenture estate. 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)
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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.
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)
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FEDERAL INCOME TAX CONSIDERATIONS
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of all 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.
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.
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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 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,
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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 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.
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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.
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
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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 individual administrative exemptions to
the Underwriters which are substantially the same as the administrative
exemption issued 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 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
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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 & Co. Incorporated (the
"Underwriters") have severally agreed to purchase from the Pass Through
Trustee the aggregate principal amount of Pass Through Certificates set forth
opposite their respective names below:
<TABLE>
<CAPTION>
AMOUNT OF
UNDERWRITERS PASS THROUGH CERTIFICATES
- ------------ -------------------------
<S> <C>
Salomon Smith Barney Inc.............................. $ 79,258,500
Morgan Stanley & Co. Incorporated..................... 79,258,500
------------
Total............................................. $158,517,000
============
</TABLE>
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 0.40% of the principal amount of the Pass Through Certificates. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of 0.25% 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 and GATC have 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,
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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.
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 Bingham Dana LLP,
Hartford, Connecticut, special counsel to the Pass Through Trustee, 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.
"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, the Post Lease Term Reserve Account, the Special Insurance
Reserves 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 on or prior to such Payment Date and not paid plus the
Equity Portion of any Stipulated Loss Value, Equity Portion of Termination
Value or Equity Portion of Early Purchase Price, or Basic Term Purchase Price,
if any, then due and owing.
"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.
"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.
"Agent" means each Lender Agent and each Lessor Agent.
"Assumed Debt" means any Lender Loan which, subject to Section 6.4(c) of the
Intercreditor Agreement, shall have been assumed by the Company in connection
with Section 22.1 of any Lease or Section 6.9 of a Participation Agreement.
"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, to be 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.
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"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.
"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 29, 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 (i) the Post
Lease Term Reserve Account is not included, (ii) only the specific Beneficiary
to which any Non-Shared Payment relates will have the benefit of the security
interest in the related subaccount of the Non-Shared Payments Account, and
(iii) with respect to the Special Insurance Reserves Account, only for the
Owner Participants to secure certain amounts payable) 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.
"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
Assignment 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 the Early Purchase Option Date.
"Early Purchase Option Date" means January 20, 2014, which is the date set
forth in each Lease on 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 the 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.
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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.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"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 6 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
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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.
"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 per Unit" 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.
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"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.
"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 debt security issued by
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 Documentation" means the documentation evidencing the Assumed Debt.
"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.
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<PAGE>
"Management Fee" means the Base Component plus the Incentive Component plus
a charge for reimbursable expenses.
"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, and those managed for other wholly-owned special purpose
subsidiaries of GATC, other than the Company Fleet.
"Mark" means the identification mark of a railcar registered with the AAR,
consisting of letters registered in the name of the owner of the railcar mark
and the car number.
"Marks Company" or "General American Marks Company" means General American
Marks Company, a Delaware business trust, formed in 1997, to own the marks
previously 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, Termination Value, Early Purchase Price,
Basic Term Purchase Price or other purchase price or termination sum of or
relating to 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.
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<PAGE>
"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, 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, the Intercreditor Agreement, and the agreement between
GATC and the Lockbox Bank relating to the Sublease Lockbox.
"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 (other than Programmatic Optional
Modifications).
"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.
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"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.
"Pass Through Trustee" means State Street Bank and Trust Company, 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 (other than commercial
paper issued by the Company or GATC or any Affiliate thereof having remaining
maturities of no more than the number of days to the Business Day next
preceding 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, and
(vii) so long as (A) no Cash Trapping Event is in effect, (B) the obligor
maintains at least a rating of BBB- from S&P and Baa3 from Moody's, and (C)
the obligor is not on credit watch with negative implications if its rating is
BBB- from S&P or 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 such obligor which are priced and documented on an arm's length
basis and have 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 such 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.
"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
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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.
"Post Lease Term Reserve Account" means the Account of that name established
pursuant to Section 3.1 of the Intercreditor Agreement.
"Pre-Financing Cash Flow" means the net cash flow computed by deducting all
assumed expenses from assumed gross revenues of the Company.
"Programmatic Optional Modifications" means any Optional Modification (other
than a Required Modification) to one or more Equipment Units in the Company
Fleet the aggregate cost of implementation for which in any 12-month period 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 (or
corresponding dates in respect of the Assumed Debt) 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.
"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.
"Rated Rent" means, as of any Rent Payment Date with respect to any Lease,
that portion of the accrued and unpaid Basic Rent and Supplemental Rent which
equals the Rated Obligations Due thereunder.
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"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.
"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 maintain a rating of at least A in the
case of S&P or A2 in the case of Moody's and in any event not reduce its then
current rating on the Pass Through Certificates.
"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.
"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; provided, however,
that interest and Late Payment Premium payable on such Rent Payment Date,
shall be computed as of the date which would have been a Rent Payment Date if
such date were a Business Day.
"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 Insurance Reserves Amount" means the sum of: (i) the
amount (not to exceed $90,000,000) by which the general and excess liability
limits of public liability insurance maintained by or on behalf of the Company
pursuant to Section 12.1(b) of the Leases, in respect of the current or any
prior period (which prior periods shall not include any period for which the
statute of limitations for making claims has
A-12
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expired), falls below $100,000,000 per occurrence or in the aggregate, and
(ii) the amount by which the deductible for such public liability exceeds
$10,000,000, in each case for which the Lessee shall, pursuant to Section
12.3(c) of each of the Leases, have received a waiver by the respective Lessor
in respect of the public liability insurance coverage required thereunder.
Notwithstanding the foregoing, the Required Special Insurance Reserves Amount
shall be zero if consented to by each of the Owner Participants in writing.
"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 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.
"Scheduled Rent" means, as of any Rent Payment Date with respect to any
Lease, that portion of the accrued and unpaid Basic Rent which equals the
Scheduled Obligations Due (as defined in such Lease) thereunder.
"Securities Act" means the Securities Act of 1933, as amended.
"Servicing Agreement" means the Amended and Restated Management and
Servicing Agreement dated as of September 1, 1998, between the Marks Company
and GATC, as such agreement may be amended or supplemented in accordance with
its terms.
"Services 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.
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"Special Insurance Reserves Account" means the Account of that name
established pursuant to the Intercreditor Agreement for the purposes described
under 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 (other than commercial
paper issued by the Company or GATC 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.
"State Street" means State Street Bank and Trust Company which will act as
Pass Through Trustee and as Indenture Trustee with respect to the Equipment
Notes issued by each Owner Trust.
"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.
"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.
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"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.
"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.
"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 & Co.
Incorporated.
"Underwriting Agreement" means the underwriting agreement by and among the
Company, GATC 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.
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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 OF
PRINCIPAL PRINCIPAL POOL PRINCIPAL PRINCIPAL POOL SCHEDULED
DATE PAYMENT BALANCE FACTOR PAYMENT BALANCE FACTOR OVER RATED
---- --------- ------------ --------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
09/30/98................ $ 0 $158,517,000 1.0000000 $ 0 $158,517,000 1.0000000 $ 0
10/20/98................ 0 158,517,000 1.0000000 0 158,517,000 1.0000000 0
11/20/98................ 199,023 158,317,977 0.9987445 0 158,517,000 1.0000000 199,023
12/20/98................ 720,351 157,597,626 0.9942002 0 158,517,000 1.0000000 919,374
01/20/99................ 0 157,597,626 0.9942002 0 158,517,000 1.0000000 919,374
02/20/99................ 0 157,597,626 0.9942002 0 158,517,000 1.0000000 919,374
03/20/99................ 0 157,597,626 0.9942002 0 158,517,000 1.0000000 919,374
04/20/99................ 0 157,597,626 0.9942002 0 158,517,000 1.0000000 919,374
05/20/99................ 0 157,597,626 0.9942002 0 158,517,000 1.0000000 919,374
06/20/99................ 0 157,597,626 0.9942002 0 158,517,000 1.0000000 919,374
07/20/99................ 113,802 157,483,824 0.9934822 0 158,517,000 1.0000000 1,033,176
08/20/99................ 724,668 156,759,156 0.9889107 0 158,517,000 1.0000000 1,757,844
09/20/99................ 728,418 156,030,737 0.9843155 0 158,517,000 1.0000000 2,486,263
10/20/99................ 730,886 155,299,852 0.9797047 0 158,517,000 1.0000000 3,217,148
11/20/99................ 734,668 154,565,184 0.9750701 0 158,517,000 1.0000000 3,951,816
12/20/99................ 738,470 153,826,714 0.9704115 0 158,517,000 1.0000000 4,690,286
01/20/00................ 0 153,826,714 0.9704115 0 158,517,000 1.0000000 4,690,286
02/20/00................ 0 153,826,714 0.9704115 0 158,517,000 1.0000000 4,690,286
03/20/00................ 0 153,826,714 0.9704115 0 158,517,000 1.0000000 4,690,286
04/20/00................ 0 153,826,714 0.9704115 0 158,517,000 1.0000000 4,690,286
05/20/00................ 0 153,826,714 0.9704115 0 158,517,000 1.0000000 4,690,286
06/20/00................ 0 153,826,714 0.9704115 0 158,517,000 1.0000000 4,690,286
07/20/00................ 257,358 153,569,356 0.9687879 0 158,517,000 1.0000000 4,947,644
08/20/00................ 743,623 152,825,732 0.9640968 0 158,517,000 1.0000000 5,691,268
09/20/00................ 747,472 152,078,261 0.9593814 0 158,517,000 1.0000000 6,438,739
10/20/00................ 750,041 151,328,220 0.9546498 0 158,517,000 1.0000000 7,188,780
11/20/00................ 753,923 150,574,297 0.9498937 0 158,517,000 1.0000000 7,942,703
12/20/00................ 757,824 149,816,473 0.9451130 0 158,517,000 1.0000000 8,700,527
01/20/01................ 0 149,816,473 0.9451130 0 158,517,000 1.0000000 8,700,527
02/20/01................ 0 149,816,473 0.9451130 0 158,517,000 1.0000000 8,700,527
03/20/01................ 0 149,816,473 0.9451130 0 158,517,000 1.0000000 8,700,527
04/20/01................ 0 149,816,473 0.9451130 0 158,517,000 1.0000000 8,700,527
05/20/01................ 0 149,816,473 0.9451130 0 158,517,000 1.0000000 8,700,527
06/20/01................ 0 149,816,473 0.9451130 0 158,517,000 1.0000000 8,700,527
07/20/01................ 411,181 149,405,292 0.9425190 0 158,517,000 1.0000000 9,111,708
08/20/01................ 763,874 148,641,418 0.9377002 0 158,517,000 1.0000000 9,875,582
09/20/01................ 767,827 147,873,592 0.9328564 0 158,517,000 1.0000000 10,643,408
10/20/01................ 769,976 147,103,615 0.9279990 0 158,517,000 1.0000000 11,413,385
11/20/01................ 773,961 146,329,655 0.9231165 199,023 158,317,977 0.9987445 11,988,322
12/20/01................ 777,966 145,551,688 0.9182087 720,351 157,597,626 0.9942002 12,045,937
01/20/02................ 0 145,551,688 0.9182087 0 157,597,626 0.9942002 12,045,937
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED AMORTIZATION RATED AMORTIZATION CUMULATIVE
-------------------------------- -------------------------------- EXCESS OF
PRINCIPAL PRINCIPAL POOL PRINCIPAL PRINCIPAL POOL SCHEDULED
DATE PAYMENT BALANCE FACTOR PAYMENT BALANCE FACTOR OVER RATED
---- --------- ------------ --------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
02/20/02................ $ 0 $145,551,688 0.9182087 $ 0 $157,597,626 0.9942002 $12,045,937
03/20/02................ 0 145,551,688 0.9182087 0 157,597,626 0.9942002 12,045,937
04/20/02................ 0 145,551,688 0.9182087 0 157,597,626 0.9942002 12,045,937
05/20/02................ 0 145,551,688 0.9182087 0 157,597,626 0.9942002 12,045,937
06/20/02................ 0 145,551,688 0.9182087 0 157,597,626 0.9942002 12,045,937
07/20/02................ 383,225 145,168,464 0.9157911 113,802 157,483,824 0.9934822 12,315,360
08/20/02................ 783,975 144,384,488 0.9108455 724,668 156,759,156 0.9889107 12,374,667
09/20/02................ 788,032 143,596,456 0.9058742 728,418 156,030,737 0.9843155 12,434,281
10/20/02................ 788,638 142,807,818 0.9008991 730,886 155,299,852 0.9797047 12,492,033
11/20/02................ 792,719 142,015,100 0.8958982 734,668 154,565,184 0.9750701 12,550,084
12/20/02................ 796,821 141,218,278 0.8908715 738,470 153,826,714 0.9704115 12,608,435
01/20/03................ 536,304 140,681,975 0.8874882 0 153,826,714 0.9704115 13,144,739
02/20/03................ 0 140,681,975 0.8874882 0 153,826,714 0.9704115 13,144,739
03/20/03................ 0 140,681,975 0.8874882 0 153,826,714 0.9704115 13,144,739
04/20/03................ 0 140,681,975 0.8874882 0 153,826,714 0.9704115 13,144,739
05/20/03................ 0 140,681,975 0.8874882 0 153,826,714 0.9704115 13,144,739
06/20/03................ 0 140,681,975 0.8874882 0 153,826,714 0.9704115 13,144,739
07/20/03................ 165,791 140,516,183 0.8864424 257,358 153,569,356 0.9687879 13,053,172
08/20/03................ 804,578 139,711,605 0.8813667 743,623 152,825,732 0.9640968 13,114,127
09/20/03................ 808,742 138,902,864 0.8762648 747,472 152,078,261 0.9593814 13,175,397
10/20/03................ 798,994 138,103,870 0.8712243 750,041 151,328,220 0.9546498 13,224,350
11/20/03................ 803,129 137,300,741 0.8661578 753,923 150,574,297 0.9498937 13,273,557
12/20/03................ 807,285 136,493,456 0.8610651 757,824 149,816,473 0.9451130 13,323,017
01/20/04................ 811,463 135,681,993 0.8559460 0 149,816,473 0.9451130 14,134,480
02/20/04................ 404,615 135,277,378 0.8533935 0 149,816,473 0.9451130 14,539,095
03/20/04................ 406,709 134,870,669 0.8508278 0 149,816,473 0.9451130 14,945,804
04/20/04................ 408,814 134,461,856 0.8482488 0 149,816,473 0.9451130 15,354,618
05/20/04................ 410,929 134,050,927 0.8456565 0 149,816,473 0.9451130 15,765,547
06/20/04................ 413,056 133,637,871 0.8430507 0 149,816,473 0.9451130 16,178,602
07/20/04................ 541,023 133,096,848 0.8396377 411,181 149,405,292 0.9425190 16,308,444
08/20/04................ 829,040 132,267,808 0.8344077 763,874 148,641,418 0.9377002 16,373,611
09/20/04................ 676,394 131,591,414 0.8301407 767,827 147,873,592 0.9328564 16,282,178
10/20/04................ 395,804 131,195,610 0.8276438 769,976 147,103,615 0.9279990 15,908,005
11/20/04................ 397,852 130,797,758 0.8251339 773,961 146,329,655 0.9231165 15,531,897
12/20/04................ 399,911 130,397,847 0.8226111 777,966 145,551,688 0.9182087 15,153,842
01/20/05................ 802,697 129,595,149 0.8175473 0 145,551,688 0.9182087 15,956,539
02/20/05................ 610,742 128,984,407 0.8136945 0 145,551,688 0.9182087 16,567,281
03/20/05................ 810,012 128,174,395 0.8085845 0 145,551,688 0.9182087 17,377,293
04/20/05................ 814,204 127,360,191 0.8034482 0 145,551,688 0.9182087 18,191,497
05/20/05................ 818,417 126,541,774 0.7982852 0 145,551,688 0.9182087 19,009,915
06/20/05................ 822,653 125,719,121 0.7930955 0 145,551,688 0.9182087 19,832,567
07/20/05................ 826,910 124,892,211 0.7878790 383,225 145,168,464 0.9157911 20,276,252
08/20/05................ 831,189 124,061,022 0.7826354 783,975 144,384,488 0.9108455 20,323,466
09/20/05................ 835,491 123,225,532 0.7773648 788,032 143,596,456 0.9058742 20,370,924
10/20/05................ 743,829 122,481,703 0.7726723 788,638 142,807,818 0.9008991 20,326,116
11/20/05................ 623,502 121,858,201 0.7687390 792,719 142,015,100 0.8958982 20,156,899
12/20/05................ 599,551 121,258,649 0.7649567 796,821 141,218,278 0.8908715 19,959,629
01/20/06................ 754,008 120,504,641 0.7602001 536,304 140,681,975 0.8874882 20,177,333
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED AMORTIZATION RATED AMORTIZATION CUMULATIVE
-------------------------------- -------------------------------- EXCESS OF
PRINCIPAL PRINCIPAL POOL PRINCIPAL PRINCIPAL POOL SCHEDULED
DATE PAYMENT BALANCE FACTOR PAYMENT BALANCE FACTOR OVER RATED
---- --------- ------------ --------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
02/20/06................ $757,910 $119,746,732 0.7554189 $ 0 $140,681,975 0.8874882 $20,935,243
03/20/06................ 761,832 118,984,900 0.7506129 0 140,681,975 0.8874882 21,697,075
04/20/06................ 651,131 118,333,769 0.7465052 0 140,681,975 0.8874882 22,348,206
05/20/06................ 769,144 117,564,625 0.7416531 0 140,681,975 0.8874882 23,117,350
06/20/06................ 542,791 117,021,834 0.7382289 0 140,681,975 0.8874882 23,660,140
07/20/06................ 774,818 116,247,017 0.7333410 165,791 140,516,183 0.8864424 24,269,167
08/20/06................ 779,943 115,467,074 0.7284208 804,578 139,711,605 0.8813667 24,244,531
09/20/06................ 123,933 115,343,141 0.7276389 808,742 138,902,864 0.8762648 23,559,723
10/20/06................ 629,155 114,713,986 0.7236699 798,994 138,103,870 0.8712243 23,389,884
11/20/06................ 639,499 114,074,487 0.7196357 803,129 137,300,741 0.8661578 23,226,254
12/20/06................ 0 114,074,487 0.7196357 807,285 136,493,456 0.8610651 22,418,969
01/20/07................ 484,954 113,589,532 0.7165763 811,463 135,681,993 0.8559460 22,092,461
02/20/07................ 645,318 112,944,215 0.7125054 404,615 135,277,378 0.8533935 22,333,163
03/20/07................ 648,657 112,295,557 0.7084133 406,709 134,870,669 0.8508278 22,575,112
04/20/07................ 0 112,295,557 0.7084133 408,814 134,461,856 0.8482488 22,166,298
05/20/07................ 597,789 111,697,769 0.7046422 410,929 134,050,927 0.8456565 22,353,158
06/20/07................ 0 111,697,769 0.7046422 413,056 133,637,871 0.8430507 21,940,102
07/20/07................ 603,996 111,093,773 0.7008319 541,023 133,096,848 0.8396377 22,003,075
08/20/07................ 658,233 110,435,539 0.6966795 829,040 132,267,808 0.8344077 21,832,268
09/20/07................ 157,033 110,278,536 0.6956890 676,394 131,591,414 0.8301407 21,312,878
10/20/07................ 610,268 109,668,268 0.6918392 395,804 131,195,610 0.8276438 21,527,342
11/20/07................ 650,167 109,018,101 0.6877376 397,852 130,797,758 0.8251339 21,779,657
12/20/07................ 194,007 108,824,094 0.6865137 399,911 130,397,847 0.8226111 21,573,752
01/20/08................ 611,471 108,212,623 0.6826563 802,697 129,595,149 0.8175473 21,382,526
02/20/08................ 657,700 107,554,923 0.6785072 610,742 128,984,407 0.8136945 21,429,484
03/20/08................ 661,103 106,893,820 0.6743366 810,012 128,174,395 0.8085845 21,280,575
04/20/08................ 198,054 106,695,766 0.6730872 814,204 127,360,191 0.8034482 20,664,425
05/20/08................ 543,461 106,152,305 0.6696588 818,417 126,541,774 0.7982852 20,389,469
06/20/08................ 200,109 105,952,196 0.6683964 822,653 125,719,121 0.7930955 19,766,925
07/20/08................ 572,924 105,379,272 0.6647821 826,910 124,892,211 0.7878790 19,512,939
08/20/08................ 672,362 104,706,909 0.6605406 831,189 124,061,022 0.7826354 19,354,113
09/20/08................ 338,230 104,368,679 0.6584069 835,491 123,225,532 0.7773648 18,856,852
10/20/08................ 803,295 103,565,384 0.6533393 743,829 122,481,703 0.7726723 18,916,318
11/20/08................ 887,724 102,677,660 0.6477391 623,502 121,858,201 0.7687390 19,180,541
12/20/08................ 474,969 102,202,691 0.6447428 599,551 121,258,649 0.7649567 19,055,958
01/20/09................ 894,776 101,307,915 0.6390981 754,008 120,504,641 0.7602001 19,196,727
02/20/09................ 899,407 100,408,508 0.6334242 757,910 119,746,732 0.7554189 19,338,224
03/20/09................ 904,061 99,504,447 0.6277210 761,832 118,984,900 0.7506129 19,480,453
04/20/09................ 456,961 99,047,486 0.6248383 651,131 118,333,769 0.7465052 19,286,283
05/20/09................ 887,349 98,160,137 0.6192404 769,144 117,564,625 0.7416531 19,404,488
06/20/09................ 461,703 97,698,434 0.6163278 542,791 117,021,834 0.7382289 19,323,401
07/20/09................ 896,561 96,801,873 0.6106719 774,818 116,247,017 0.7333410 19,445,144
08/20/09................ 922,725 95,879,148 0.6048509 779,943 115,467,074 0.7284208 19,587,926
09/20/09................ 468,908 95,410,240 0.6018928 123,933 115,343,141 0.7276389 19,932,901
10/20/09................ 939,324 94,470,916 0.5959671 629,155 114,713,986 0.7236699 20,243,070
11/20/09................ 945,924 93,524,992 0.5899998 639,499 114,074,487 0.7196357 20,549,495
12/20/09................ 347,344 93,177,648 0.5878086 0 114,074,487 0.7196357 20,896,839
01/20/10................ 967,773 92,209,875 0.5817034 484,954 113,589,532 0.7165763 21,379,657
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED AMORTIZATION RATED AMORTIZATION CUMULATIVE
-------------------------------- --------------------------------- EXCESS OF
PRINCIPAL PRINCIPAL POOL PRINCIPAL PRINCIPAL POOL SCHEDULED
DATE PAYMENT BALANCE FACTOR PAYMENT BALANCE FACTOR OVER RATED
---- ---------- ----------- --------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
02/20/10................ $ 972,781 $91,237,094 0.5755666 $ 645,318 $112,944,215 0.7125054 $21,707,121
03/20/10................ 977,815 90,259,279 0.5693981 648,657 112,295,557 0.7084133 22,036,278
04/20/10................ 498,980 89,760,299 0.5662503 0 112,295,557 0.7084133 22,535,258
05/20/10................ 971,944 88,788,355 0.5601188 597,789 111,697,769 0.7046422 22,909,414
06/20/10................ 504,158 88,284,197 0.5569384 0 111,697,769 0.7046422 23,413,572
07/20/10................ 982,034 87,302,163 0.5507432 603,996 111,093,773 0.7008319 23,791,610
08/20/10................ 998,179 86,303,985 0.5444462 658,233 110,435,539 0.6966795 24,131,555
09/20/10................ 853,807 85,450,178 0.5390600 157,003 110,278,536 0.6956890 24,828,359
10/20/10................ 992,266 84,457,912 0.5328003 610,268 109,668,268 0.6918392 25,210,356
11/20/10................ 997,401 83,460,511 0.5265083 650,167 109,018,101 0.6877376 25,557,590
12/20/10................ 131,998 83,328,513 0.5256756 194,007 108,824,094 0.6865137 25,495,581
01/20/11................ 1,003,245 82,325,268 0.5193466 611,471 108,212,623 0.6826563 25,887,355
02/20/11................ 1,008,437 81,316,831 0.5129849 657,700 107,554,923 0.6785072 26,238,092
03/20/11................ 1,013,656 80,303,175 0.5065903 661,103 106,893,820 0.6743366 26,590,645
04/20/11................ 1,018,901 79,284,274 0.5001626 198,054 106,695,766 0.6730872 27,411,492
05/20/11................ 1,024,174 78,260,099 0.4937016 543,461 106,152,305 0.6696588 27,892,206
06/20/11................ 1,029,474 77,230,625 0.4872072 200,109 105,952,196 0.6683964 28,721,571
07/20/11................ 1,034,802 76,195,823 0.4806792 572,924 105,379,272 0.6647821 29,183,449
08/20/11................ 1,040,157 75,155,666 0.4741174 672,362 104,706,909 0.6605406 29,551,243
09/20/11................ 1,045,540 74,110,126 0.4675216 338,230 104,368,679 0.6584069 30,258,553
10/20/11................ 1,047,149 73,062,977 0.4609157 803,295 103,565,384 0.6533393 30,502,407
11/20/11................ 1,052,568 72,010,409 0.4542756 887,724 102,677,660 0.6477391 30,667,251
12/20/11................ 338,326 71,672,083 0.4521413 474,969 102,202,691 0.6447428 30,530,608
01/20/12................ 1,059,766 70,612,317 0.4454558 894,776 101,307,915 0.6390981 30,695,598
02/20/12................ 1,065,250 69,547,067 0.4387357 899,407 100,408,508 0.6334242 30,861,441
03/20/12................ 1,070,763 68,476,304 0.4319808 904,061 99,504,447 0.6277210 31,028,143
04/20/12................ 1,076,304 67,399,999 0.4251910 456,961 99,047,486 0.6248383 31,647,487
05/20/12................ 1,081,874 66,318,125 0.4183660 887,349 98,160,137 0.6192404 31,842,011
06/20/12................ 1,087,473 65,230,652 0.4115057 461,703 97,698,434 0.6163278 32,467,781
07/20/12................ 1,093,101 64,137,552 0.4046099 896,561 96,801,873 0.6106719 32,664,321
08/20/12................ 1,098,757 63,038,795 0.3976784 922,725 95,879,148 0.6048509 32,840,353
09/20/12................ 1,104,443 61,934,351 0.3907111 468,908 95,410,240 0.6018928 33,475,889
10/20/12................ 1,110,127 60,824,224 0.3837079 939,324 94,470,916 0.5959671 33,646,692
11/20/12................ 1,115,872 59,708,352 0.3766684 945,924 93,524,992 0.5899998 33,816,640
12/20/12................ 736,128 58,972,224 0.3720246 347,344 93,177,648 0.5878086 34,205,424
01/20/13................ 1,125,456 57,846,767 0.3649247 967,773 92,209,875 0.5817034 34,363,108
02/20/13................ 1,131,280 56,715,487 0.3577880 972,781 91,237,094 0.5755666 34,521,607
03/20/13................ 1,137,135 55,578,352 0.3506145 977,815 90,259,279 0.5693981 34,680,927
04/20/13................ 1,143,019 54,435,333 0.3434038 498,980 89,760,299 0.5662503 35,324,966
05/20/13................ 1,148,935 53,286,398 0.3361557 971,944 88,788,355 0.5601188 35,501,957
06/20/13................ 1,075,774 52,210,624 0.3293692 504,158 88,284,197 0.5569384 36,073,573
07/20/13................ 805,402 51,405,221 0.3242884 982,034 87,302,163 0.5507432 35,896,942
08/20/13................ 809,570 50,595,651 0.3191812 998,179 86,303,985 0.5444462 35,708,334
09/20/13................ 575,039 50,020,612 0.3155536 853,807 85,450,178 0.5390600 35,429,565
10/20/13................ 554,686 49,465,926 0.3120544 992,266 84,457,912 0.5328003 34,991,986
11/20/13................ 557,557 48,908,370 0.3085371 997,401 83,460,511 0.5265083 34,552,141
12/20/13................ 560,442 48,347,928 0.3050015 131,998 83,328,513 0.5256756 34,980,586
01/20/14................ 386,326 47,961,602 0.3025644 1,003,245 82,325,268 0.5193466 34,363,666
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED AMORTIZATION RATED AMORTIZATION CUMULATIVE
-------------------------------- -------------------------------- EXCESS OF
PRINCIPAL PRINCIPAL POOL PRINCIPAL PRINCIPAL POOL SCHEDULED
DATE PAYMENT BALANCE FACTOR PAYMENT BALANCE FACTOR OVER RATED
---- ---------- ----------- --------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
02/20/14................ $ 565,341 $47,396,261 0.2989980 $1,008,437 $81,316,831 0.5129849 $33,920,570
03/20/14................ 909,312 46,486,949 0.2932616 1,013,656 80,303,175 0.5065903 33,816,226
04/20/14................ 1,080,475 45,406,474 0.2864455 1,018,901 79,284,274 0.5001626 33,877,799
05/20/14................ 1,148,975 44,257,499 0.2791972 1,024,174 78,260,099 0.4937016 34,002,600
06/20/14................ 1,154,921 43,102,578 0.2719114 1,029,474 77,230,625 0.4872072 34,128,047
07/20/14................ 1,160,898 41,941,680 0.2645879 1.034,802 76,195,823 0.4806792 34,254,143
08/20/14................ 1,166,905 40,774,775 0.2572265 1,040,157 75,155,666 0.4741174 34,380,891
09/20/14................ 1,172,944 39,601,831 0.2498270 1,045,540 74,110,126 0.4675216 34,508,296
10/20/14................ 1,099,783 38,502,048 0.2428891 1,047,149 73,062,977 0.4609157 34,560,929
11/20/14................ 1,105,474 37,396,574 0.2359152 1,052,568 72,010,409 0.4542756 34,613,835
12/20/14................ 1,111,195 36,285,378 0.2289053 338,326 71,672,083 0.4521413 35,386,705
01/20/15................ 1,116,946 35,168,433 0.2218591 1,059,766 70,612,317 0.4454558 35,443,884
02/20/15................ 1,122,726 34,045,707 0.2147764 1,065,250 69,547,067 0.4387357 35,501,360
03/20/15................ 1,128,536 32,917,171 0.2076570 1,070,763 68,476,304 0.4319808 35,559,132
04/20/15................ 1,134,376 31,782,795 0.2005009 1,076,304 67,399,999 0.4251910 35,617,204
05/20/15................ 1,140,246 30,642,549 0.1933077 1,081,874 66,318,125 0.4183660 35,675,576
06/20/15................ 1,146,147 29,496,402 0.1860772 1,087,473 65,230,652 0.4115057 35,734,251
07/20/15................ 1,152,079 28,344,323 0.1788094 1,093,101 64,137,552 0.4046099 35,793,229
08/20/15................ 1,158,041 27,186,283 0.1715039 1,098,757 63,038,795 0.3976784 35,852,512
09/20/15................ 1,164,033 26,022,249 0.1641606 1,104,443 61,934,351 0.3907111 35,912,102
10/20/15................ 1,065,149 24,957,100 0.1574412 1,110,127 60,824,224 0.3837079 35,867,124
11/20/15................ 1,070,661 23,886,439 0.1506869 1,115,872 59,708,352 0.3766684 35,821,913
12/20/15................ 1,076,202 22,810,237 0.1438977 736,128 58,972,224 0.3720246 36,161,987
01/20/16................ 1,081,771 21,728,466 0.1370734 1,125,456 57,846,767 0.3649247 36,118,302
02/20/16................ 1,087,369 20,641,096 0.1302138 1,131,280 56,715,487 0.3577880 36,074,391
03/20/16................ 1,092,997 19,548,099 0.1233186 1,137,135 55,578,352 0.3506145 36,030,253
04/20/16................ 1,098,653 18,449,447 0.1163878 1,143,019 54,435,333 0.3434038 35,985,886
05/20/16................ 1,104,338 17,345,108 0.1094211 1,148,935 53,286,398 0.3361557 35,941,290
06/20/16................ 1,110,053 16,235,055 0.1024184 1,075,774 52,210,624 0.3293692 35,975,569
07/20/16................ 1,115,798 15,119,257 0.0953794 805,402 51,405,221 0.3242884 36,285,964
08/20/16................ 1,121,572 13,997,685 0.0883040 809,570 50,595,651 0.3191812 36,597,966
09/20/16................ 1,127,376 12,870,308 0.0811920 575,039 50,020,612 0.3155536 37,150,304
10/20/16................ 1,042,340 11,827,968 0.0746164 554,686 49,465,926 0.3120544 37,637,958
11/20/16................ 1,047,734 10,780,234 0.0680068 557,557 48,908,370 0.3085371 38,128,136
12/20/16................ 1,053,156 9,727,077 0.0613630 560,442 48,347,928 0.3050015 38,620,850
01/20/17................ 1,058,607 8,668,471 0.0546848 386,326 47,961,602 0.3025644 39,293,131
02/20/17................ 1,064,085 7,604,386 0.0479721 565,341 47,396,261 0.2989980 39,791,875
03/20/17................ 1,069,591 6,534,794 0.0412246 909,312 46,486,949 0.2932616 39,952,155
04/20/17................ 1,075,127 5,459,668 0.0344422 1,080,475 45,406,474 0.2864455 39,946,807
05/20/17................ 1,080,690 4,378,977 0.0276247 1,148,975 44,257,499 0.2791972 39,878,522
06/20/17................ 1,086,283 3,292,694 0.0207719 1,154,921 43,102,578 0.2719114 39,809,884
07/20/17................ 1,091,904 2,200,790 0.0138836 1,160,898 41,941,680 0.2645879 39,740,890
08/20/17................ 1,097,555 1,103,235 0.0069597 1,166,905 40,774,775 0.2572265 39,671,540
09/20/17................ 1,103,235 0 0.0000000 1,172,944 39,601,831 0.2498270 39,601,831
10/20/17................ 0 0 0.0000000 1,099,783 38,502,048 0.2428891 38,502,048
11/20/17................ 0 0 0.0000000 1,105,474 37,396,574 0.2359152 37,396,574
12/20/17................ 0 0 0.0000000 1,111,195 36,285,378 0.2289053 36,285,378
01/20/18................ 0 0 0.0000000 1,116,946 35,168,433 0.2218591 35,168,433
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED AMORTIZATION RATED AMORTIZATION CUMULATIVE
----------------------------- -------------------------------- EXCESS OF
PRINCIPAL PRINCIPAL POOL PRINCIPAL PRINCIPAL POOL SCHEDULED
DATE PAYMENT BALANCE FACTOR PAYMENT BALANCE FACTOR OVER RATED
---- --------- --------- --------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
02/20/18................ $ 0 $ 0 0.0000000 $1,122,726 $34,045,707 0.2147764 $34,045,707
03/20/18................ 0 0 0.0000000 1,128,536 32,917,171 0.2076570 32,917,171
04/20/18................ 0 0 0.0000000 1,134,376 31,782,795 0.2005009 31,782,795
05/20/18................ 0 0 0.0000000 1,140,246 30,642,549 0.1933077 30,642,549
06/20/18................ 0 0 0.0000000 1,146,147 29,496,402 0.1860772 29,496,402
07/20/18................ 0 0 0.0000000 1,152,079 28,344,323 0.1788094 28,344,323
08/20/18................ 0 0 0.0000000 1,158,041 27,186,283 0.1715039 27,186,283
09/20/18................ 0 0 0.0000000 1,164,033 26,022,249 0.1641606 26,022,249
10/20/18................ 0 0 0.0000000 1,065,149 24,957,100 0.1574412 24,957,100
11/20/18................ 0 0 0.0000000 1,070,661 23,886,439 0.1506869 23,886,439
12/20/18................ 0 0 0.0000000 1,076,202 22,810,237 0.1438977 22,810,237
01/20/19................ 0 0 0.0000000 1,081,771 21,728,466 0.1370734 21,728,466
02/20/19................ 0 0 0.0000000 1,087,369 20,641,096 0.1302138 20,641,096
03/20/19................ 0 0 0.0000000 1,092,997 19,548,099 0.1233186 19,548,099
04/20/19................ 0 0 0.0000000 1,098,653 18,449,447 0.1163878 18,449,447
05/20/19................ 0 0 0.0000000 1,104,338 17,345,108 0.1094211 17,345,108
06/20/19................ 0 0 0.0000000 1,110,053 16,235,055 0.1024184 16,235,055
07/20/19................ 0 0 0.0000000 1,115,798 15,119,257 0.0953794 15,119,257
08/20/19................ 0 0 0.0000000 1,121,572 13,997,685 0.0883040 13,997,685
09/20/19................ 0 0 0.0000000 1,127,376 12,870,308 0.0811920 12,870,308
10/20/19................ 0 0 0.0000000 1,042,340 11,827,968 0.0746164 11,827,968
11/20/19................ 0 0 0.0000000 1,047,734 10,780,234 0.0680068 10,780,234
12/20/19................ 0 0 0.0000000 1,053,156 9,727,077 0.0613630 9,727,077
01/20/20................ 0 0 0.0000000 1,058,607 8,668,471 0.0546848 8,668,471
02/20/20................ 0 0 0.0000000 1,064,085 7,604,386 0.0479721 7,604,386
03/20/20................ 0 0 0.0000000 1,069,591 6,534,794 0.0412246 6,534,794
04/20/20................ 0 0 0.0000000 1,075,127 5,459,668 0.0344422 5,459,668
05/20/20................ 0 0 0.0000000 1,080,690 4,378,977 0.0276247 4,378,977
06/20/20................ 0 0 0.0000000 1,086,283 3,292,694 0.0207719 3,292,694
07/20/20................ 0 0 0.0000000 1,091,904 2,200,790 0.0138836 2,200,790
08/20/20................ 0 0 0.0000000 1,097,555 1,103,235 0.0069597 1,103,235
09/20/20................ 0 0 0.0000000 1,103,235 0 0.0000000 0
</TABLE>
B-6
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS 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 CRE-
ATE 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 SOLICI-
TATION 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> <C>
Available Information...................................................... ii
Reports to Certificateholders by The Trustee............................... ii
Prospectus Summary......................................................... 1
Risk Factors............................................................... 16
Use of Proceeds............................................................ 24
The Company................................................................ 24
The Equipment.............................................................. 25
Railcar Leasing Industry................................................... 27
The Subleases.............................................................. 30
The Sublessees............................................................. 37
The Manager................................................................ 40
The Management Agreement................................................... 43
The Intercreditor Agreement................................................ 47
Collection And Application Of the Company's Cash Flows..................... 49
The Leases................................................................. 59
The Participation Agreements............................................... 65
The Insurance Agreement.................................................... 66
Formation of The Pass Through Trust........................................ 67
Description of The Pass Through Certificates............................... 68
Maturity, Payment And Yield Considerations................................. 77
Structuring Assumptions.................................................... 77
The Owner Trusts........................................................... 81
Description of The Equipment Notes......................................... 81
Federal Income Tax Considerations.......................................... 92
Certain Illinois Taxes..................................................... 94
ERISA Considerations....................................................... 95
Underwriting............................................................... 97
Legal Matters.............................................................. 98
Ratings.................................................................... 98
Appendix A--Glossary of Certain Terms...................................... A-1
Appendix B--Schedule of Monthly Amortization Rates and Pool Factors........ B-1
</TABLE>
------------
UNTIL DECEMBER 24, 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 PROSPEC-
TUS. 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$158,517,000
GENERAL AMERICAN RAILCAR
CORPORATION II
1998-1 PASS THROUGH TRUST
6.21% PASS THROUGH CERTIFICATES,
SERIES 1998-1
--------
PROSPECTUS
SEPTEMBER 25, 1998
--------
SALOMON SMITH BARNEY
MORGAN STANLEY DEAN WITTER
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