<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration No. 33-54987
Prospectus Supplement (to Prospectus dated October 11, 1994)
PHILLIPS PETROLEUM COMPANY
$15,849,013
1995-1 PASS THROUGH TRUST
7.67% PASS THROUGH CERTIFICATES, SERIES 1995-1
The Pass Through Certificates offered hereby consist of Phillips Petroleum
Company 7.67% Pass Through Certificates, Series 1995-1, in the aggregate amount
of $15,849,013, which will represent fractional undivided interests in the
Phillips Petroleum Company Pass Through Trust, 1995-1, which will be formed
pursuant to a Pass Through Trust Agreement between Phillips Petroleum Company
(the "Company") and Shawmut Bank Connecticut, National Association, not in its
individual capacity but solely as the Pass Through Trustee under the Pass
Through Trust. The property of the Pass Through Trust will consist of equipment
notes (the "Equipment Notes") being issued as nonrecourse obligations by an
owner trust (the "Owner Trust") in connection with a leveraged lease
transaction. The proceeds of the Equipment Notes will be used (i) to finance up
to 80% of the acquisition cost of the rail cars described herein (the
"Equipment") which will be purchased by the Owner Trust and leased to the
Company and (ii) to pay certain costs and expenses incurred in connection with
the acquisition of the Equipment.
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(Continued on next page)
THE PASS THROUGH CERTIFICATES, SUBJECT TO CERTAIN EXCEPTIONS MORE FULLY
DESCRIBED UNDER "ERISA CONSIDERATIONS", MAY NOT BE PURCHASED BY, OR WITH THE
ASSETS OF, ANY EMPLOYEE BENEFIT PLAN SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR INDIVIDUAL RETIREMENT
ACCOUNT OR PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED. SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT.
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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>
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FINAL INITIAL PUBLIC
PASS THROUGH AGGREGATE APPLICABLE DISTRIBUTION OFFERING
CERTIFICATES AMOUNT INTEREST RATE DATE PRICE(1)(2)
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<S> <C> <C> <C> <C>
Series 1995-1 $15,849,013 7.67% July 2, 2015 100%
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</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from the date of
issuance of the Pass Through Certificates.
(2) All of the proceeds from the sale of the Pass Through Certificates will be
used to purchase the Equipment Notes issued by the Owner Trustee on behalf
of the Owner Trust. The underwriting fees are $110,943, which constitute
0.70% of the aggregate amount of the Pass Through Certificates. The
underwriting fees and certain other expenses relating to the offering,
estimated at $225,000, will be paid by the Owner Trustee on behalf of the
Owner Participant. The Company has agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
The Pass Through Certificates are offered by the Underwriter, subject to prior
sale, when, as and if issued and accepted by the Underwriter and subject to
certain other conditions. The Underwriter reserves the right to withdraw, cancel
or modify such offers and to reject orders in whole or in part. It is expected
that the delivery of the Pass Through Certificates will be made in book-entry
form through the facilities of The Depository Trust Company on or about August
22, 1995, against payment therefor in immediately available funds.
CHEMICAL SECURITIES INC.
The date of this Prospectus Supplement is August 17, 1995.
<PAGE> 2
Equipment Notes will be issued on behalf of the Owner Trust under the
Indenture as nonrecourse obligations of Wilmington Trust Company, acting not in
its individual capacity but solely as Owner Trustee of the Owner Trust, and will
be purchased from the Owner Trustee by the Pass Through Trustee. The aggregate
principal amount of the Equipment Notes issued under such Indenture will not
exceed 80% of the acquisition cost of the Equipment.
All of the Equipment Notes will have identical interest rates, equal to the
rate applicable to the Pass Through Certificates set forth on the cover page
hereof, and will have a maturity date on or before the final distribution date
for the Pass Through Trust. Interest paid on the Equipment Notes held in the
Pass Through Trust will be passed through to the Certificateholders on each
January 2 and July 2, commencing on January 2, 1996, at the applicable rate per
annum set forth on the cover page hereof until the final distribution date for
the Pass Through Trust. Principal paid on the Equipment Notes held in the Pass
Through Trust will be passed through to the Certificateholders in scheduled
amounts on January 2 or July 2, or both, of each specified year, commencing on
July 2, 1996, until the final distribution date for the Pass Through Trust.
Prior to the maturity thereof, the Equipment Notes may be purchased at the
direction of the Owner Participant and the Equipment Notes may be prepaid by the
Owner Trustee, under the circumstances and at the prices described in this
Prospectus Supplement under "Description of the Equipment Notes--Prepayment."
Any such purchase or prepayment would result in an early distribution of
principal paid in respect of the Pass Through Certificates. Certain other events
may also result in distributions to the Certificateholders being made prior to
the final distribution date, as described herein.
THE PASS THROUGH CERTIFICATES REPRESENT INTERESTS IN THE PASS THROUGH TRUST
ONLY AND ALL PAYMENTS AND DISTRIBUTIONS SHALL BE MADE ONLY FROM THE PROPERTY OF
SUCH PASS THROUGH TRUST. THE PASS THROUGH CERTIFICATES DO NOT REPRESENT AN
INTEREST IN, OBLIGATION OF, OR GUARANTEE BY THE COMPANY.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PASS THROUGH
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN ANY OVER-THE-COUNTER MARKET OR
OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 3
PROSPECTUS SUMMARY
The following is a summary of more detailed information contained elsewhere
in this Prospectus Supplement and the accompanying Prospectus and should be read
only in conjunction with this Prospectus Supplement and the Prospectus.
THE OFFERING
Glossary................... A glossary of certain of the significant defined
terms used in this Prospectus Supplement is
included as Appendix A to this Prospectus
Supplement.
Diagram of Payments........ A diagram of payments illustrating certain of the
payment flows in the Pass Through Trust structure
for Equipment being leased by the Company appears
on page S-10 of this Prospectus Supplement.
The Offering............... The Pass Through Certificates offered hereby
consist of Phillips Petroleum Company 7.67% Pass
Through Certificates, Series 1995-1 (the "Pass
Through Certificates"), in the aggregate amount
of $15,849,013. The Pass Through Certificates
will be issued by Phillips Petroleum Company Pass
Through Trust, 1995-1 (the "Pass Through Trust"),
to be formed pursuant to the Pass Through Trust
Agreement 1995-1 (the "Pass Through Agreement"),
between the Company and Shawmut Bank Connecticut,
National Association ("Shawmut Bank
Connecticut"), as pass through trustee under the
Pass Through Trust (the "Pass Through Trustee")
for the benefit of the registered holders (the
"Certificateholders") of the Pass Through
Certificates.
Certificates Offered;
Book-Entry
Registration............. Each Pass Through Certificate will represent a
fractional undivided interest in the Pass Through
Trust. The Pass Through Certificates will be
issued in fully registered form only. The Pass
Through Certificates will be represented by one
or more permanent global Pass Through
Certificates registered in the name of Cede & Co.
("Cede"), as the nominee of The Depository Trust
Company ("DTC"). No person acquiring an interest
in the Pass Through Certificates will be entitled
to receive a definitive certificate representing
such person's interest in the Pass Through Trust,
except in the event that definitive certificates
are issued under the limited circumstances
described herein. See "Description of the Pass
Through Certificates--Book-Entry Registration" in
the Prospectus.
Trust Property............. The property held in the Pass Through Trust (the
"Trust Property") will consist of equipment notes
(the "Equipment Notes") issued as nonrecourse
obligations by Wilmington Trust Company, not in
its individual capacity but solely as Owner
Trustee (the "Owner Trustee") under an owner
trust (the "Owner Trust") pursuant to a trust
indenture and security agreement (the
"Indenture") between the Owner Trustee and
Shawmut Bank Connecticut, as indenture trustee
(the "Indenture Trustee"). The proceeds of such
Equipment Notes will be used (i) to finance up to
80% of the acquisition cost of 308 covered
hoppers (the "Covered Hoppers") and 40 tank rail
cars (the "Tank Cars"; the Covered Hoppers and
the Tank Cars, collectively, the "Equipment"),
which will be leased to the Company in a lever-
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<PAGE> 4
aged lease transaction and (ii) to pay certain
costs and expenses incurred in connection with
the acquisition of the Equipment. The aggregate
acquisition cost of the Equipment is $20,694,176,
consisting of $18,237,912 for the Covered Hoppers
and $2,456,264 for the Tank Cars. The Equipment
will be owned by the Owner Trust, and the
Equipment Notes issued on behalf of the Owner
Trust will be payable only from the assets of the
Owner Trust. (See "Description of the Equipment
Notes--General" for a description of the
Equipment Notes which constitute the property of
the Pass Through Trust.) The Pass Through Trust
will include Equipment Notes with identical
interest rates, in each case equal to the rate
applicable to the Pass Through Certificates of
the Pass Through Trust as set forth on the cover
of this Prospectus Supplement, and will have
maturity dates on or before the final
distribution date for the Pass Through Trust. The
aggregate principal amount of the Equipment Notes
held in the Pass Through Trust will equal the
aggregate amount of the Pass Through
Certificates.
Denominations.............. The Pass Through Certificates will be issued in
registered form without coupons in minimum
denominations of $1,000 or any integral multiple
thereof, except that one Pass Through Certificate
may be in an amount that is not a multiple of
$1,000.
Distribution Dates......... January 2 and July 2, commencing on January 2,
1996.
Special Distribution
Dates.................... The 2nd day of any month.
Extraordinary Distribution
Date..................... The date that is 90 days after the date of issuance
of the Pass Through Certificates.
Record Dates............... The 15th day preceding a Distribution Date, a
Special Distribution Date or the Extraordinary
Distribution Date, as the case may be.
Distributions of
Scheduled Payments....... Payments of interest on the Equipment Notes held in
the Pass Through Trust are scheduled to be
received by the Pass Through Trustee on each
January 2 and July 2, commencing on January 2,
1996, and, subject to receipt, are to be
distributed to the Certificateholders on the
corresponding Distribution Dates. Interest on the
Equipment Notes will be calculated on the basis
of a 360-day year consisting of twelve 30-day
months. Payments of principal on such Equipment
Notes are scheduled to be received in specified
amounts on January 2 or July 2, or both, of each
specified year, commencing on July 2, 1996, and,
subject to receipt, are to be distributed to the
Certificateholders on the corresponding
Distribution Dates. Such scheduled payments of
principal of, and interest on, the Equipment
Notes are referred to herein as "Scheduled
Payments." See "Description of the Pass Through
Certificates--Payments and Distributions" in the
Prospectus.
Distributions of
Special Payments......... Any payments of principal, premium, if any, or
interest, other than Scheduled Payments, received
by the Pass Through Trustee on any of the
Equipment Notes held in the Pass Through Trust
will be distributed on a Special Distribution
Date after (i) not less than 20 days'
S-4
<PAGE> 5
notice in the case of a Special Payment on
account of a prepayment of any Equipment Note or
(ii) notice as soon as is practicable after
confirmation by the Pass Though Trustee of the
receipt of funds in the case of any other Special
Payment.
Method of
Distributions............ Under the terms of the Pass Through Agreement, the
Company and the Pass Through Trustee will treat
the persons in whose names the Pass Through
Certificates are registered as the owners of such
Pass Through Certificates for the purpose of
receiving payments of principal and interest on
such Pass Through Certificates and for all other
purposes whatsoever. Neither the Company, the
Pass Through Trustee nor any other agent of the
Company or the Pass Through Trustee will have any
responsibility or liability for the payment of
principal or interest on the Pass Through
Certificates. So long as the Pass Through
Certificates are registered in the name of Cede,
as nominee of DTC, distributions on the Pass
Through Certificates will be made in same-day
funds to DTC. See "Description of Pass Through
Certificates--Book-Entry Registration" in the
Prospectus. DTC will in turn make distributions
in same-day funds to those participants in DTC
who are credited with ownership of the Pass
Through Certificates ("DTC Participants") in
amounts proportionate to the principal amount of
each such DTC Participant's respective holdings
of beneficial interests in the Pass Through
Certificates. Corresponding payments by the DTC
Participants to beneficial owners of the Pass
Through Certificates will be the responsibility
of such DTC Participants and will be made in
accordance with customary industry practices. See
"Description of the Pass Through
Certificates--Book-Entry Registration" in the
Prospectus. At such time, if ever, as the Pass
Through Certificates are issued in definitive
form and not registered in the name of Cede, as
nominee for DTC, distribution by the Pass Through
Trustee to the holders of Pass Through
Certificates, other than the final distribution,
will be made by check mailed to each holder of
Pass Through Certificates of record on the
applicable record date at its address appearing
on the register or, upon application by such
Certificateholder to the Pass Through Trustee, by
wire transfer in immediately available funds to a
bank account of such Certificateholder. The final
distribution with respect to the Pass Through
Certificates will be made only upon presentation
and surrender thereof at the office or agency of
the Pass Through Trustee. See "Description of the
Pass Through Certificates--Book Entry
Registration" and "-- Payments and Distributions"
in the Prospectus.
Equipment Notes:
Security and
Payments................. The principal amount of the Equipment Notes issued
on behalf of the Owner Trust, premium, if any,
and interest thereon will be secured by a
security interest in the Equipment and by an
assignment to the Indenture Trustee of certain of
the Owner Trustee's rights under the Lease,
including the right to receive rental payments
payable by the Company thereunder. The Company
will be obligated to make rental payments on
account of the Equipment that will be at least
equal to all scheduled payments of principal of
and interest on the Equipment Notes when, and as
scheduled to be, due and payable. Unless and
until
S-5
<PAGE> 6
an Indenture Event of Default has occurred and is
continuing under the Indenture, the Indenture
Trustee generally may not exercise any of the
rights of the Owner Trustee under the Lease,
except the right to receive rental payments due
under the Lease. Even when an Indenture Event of
Default has occurred and is continuing, certain
rights under the Lease may be exercised by the
Owner Trustee and the Owner Participant. See
"Description of the Equipment Notes--Security" in
the Prospectus.
Equipment Notes:
Prepayment or Purchase
with Premium............. If all or any items of Equipment become obsolete,
surplus or operationally uneconomic to the
Company's requirements, the Company may, subject
to certain limitations, terminate the Lease with
respect to such item or items of Equipment, and
in connection with such voluntary termination,
the Equipment Notes will be prepaid in whole (in
the case of a termination with respect to all
items of Equipment) or in part (in the case of a
termination with respect to less than all items
of Equipment) at a prepayment price equal to the
product of (x) the aggregate principal amount of
such Equipment Notes and (y) a fraction, the
numerator of which shall be the acquisition cost
of such item(s) of Equipment and the denominator
of which shall be the aggregate acquisition cost
of all items of Equipment, plus accrued but
unpaid interest thereon and a premium thereon, if
any. Such premium, if any, with respect to each
Equipment Note will be in an amount sufficient,
when added to the principal repaid, to provide an
amount upon prepayment that, if invested in
United States Treasury securities with maturities
comparable to the remaining weighted average life
of such Equipment Note, would preserve the pretax
coupon yield of such Equipment Note. In addition,
the Equipment Notes will be subject to prepayment
or purchase at the direction of the Owner
Participant in whole, but not in part, prior to
the maturity thereof at a price equal to the
aggregate principal amount of such Equipment
Notes plus accrued but unpaid interest thereon
and premium, if any (calculated as described
above), if, subject to certain restrictions, one
or more Lease Events of Default under the Lease
has occurred and has continued. See "Description
of Equipment Notes -- Prepayment" in this
Prospectus Supplement for a more complete
description of the Owner Participant's purchase
rights, including a description of the
circumstances in which the Owner Participant's
purchase rights will and will not be subject to a
payment of premium on the Equipment Notes. In any
such case, such prepayment price shall include
all other amounts due the Indenture Trustee or
any holder of such Equipment Notes. See
"Description of the Equipment
Notes -- Prepayment" and "The Lease--Purchase
Options" in this Prospectus Supplement for a
discussion of prepayments with a premium in
connection with the Company's exercise of certain
options or elections relating to the purchase of
Equipment under certain circumstances.
Equipment Notes:
Prepayment or Purchase
Without Premium.......... If all or any items of Equipment suffer an Event of
Loss, the Equipment Notes will be prepaid in
whole (if all items of Equipment suffer such
event) or in part (if less than all items of
Equipment suffer such
S-6
<PAGE> 7
event). In any such case, such prepayment shall
be at a prepayment price equal to the product of
(x) the aggregate principal amount of such
Equipment Notes and (y) a fraction the numerator
of which shall be the acquisition cost of such
item(s) of Equipment and the denominator of which
shall be the aggregate acquisition cost of all
items of such Class of Equipment, plus accrued
but unpaid interest thereon to the prepayment
date but without premium. See "Description of the
Equipment Notes -- Prepayment" in this Prospectus
Supplement for a description of the Owner
Participant's Equipment Note purchase rights,
including a description of the circumstances in
which such purchase rights will and will not be
subject to the payment of premium on the
Equipment Notes.
Delayed Purchase of
Equipment Notes;
Extraordinary
Distribution............. It is possible that the purchase by the Pass
Through Trustee of the Equipment Notes might not
occur on the date of issuance of the Pass Through
Certificates. If the purchase of the Equipment
Notes does not occur on the date of issuance of
the Pass Through Certificates, then the proceeds
of the Pass Through Certificates shall be
invested in specified investments at the
Company's direction and risk and for the
Company's benefit. The Company has agreed to make
available for distribution to Certificateholders
an amount equal to the interest that would have
accrued on the Equipment Notes from the date of
the issuance of the Pass Through Certificates to
the date of purchase of the Equipment Notes. If
the purchase of the Equipment Notes does not
occur on or before the date that is 60 days after
the date of issuance of the Pass Through
Certificates, or if the Equipment Notes are
purchased on or before the date that is 60 days
after the date of issuance of the Pass Through
Certificates in an aggregate principal amount
that is less than the aggregate principal amount
of the Pass Through Certificates, then the
proceeds of the Pass Through Certificates that
have not been applied to the purchase of the
Equipment Notes will be returned to the
Certificateholders with interest, but without
premium, on the Extraordinary Distribution Date.
See "Description of the Pass Through
Certificates -- Delayed Purchase of Equipment
Notes; Extraordinary Distribution."
Assumption of
Equipment Notes.......... In connection with the exercise of its purchase
option with respect to any of the items of
Equipment and subject to certain limitations, the
Company may, on the date of purchase thereof,
elect to assume the obligations of the Owner
Trustee under a portion of the Equipment Notes in
lieu of prepaying the principal of, premium, if
any, and interest on such portion of the
Equipment Notes. If the Company elects to assume
the obligations of the Owner Trustee in respect
of such portion of the Equipment Notes, then the
Company will execute and deliver appropriate
documentation providing for the assumption of
such obligations on a full recourse basis by the
Company and maintaining a security interest in
such items of Equipment to secure such assumed
obligations. See "Description of the Equipment
Notes -- The Lease -- Purchase Options."
S-7
<PAGE> 8
The Pass Through Trustee;
The Indenture
Trustee.................. Shawmut Bank Connecticut will be the Pass Through
Trustee for the Pass Through Trust. See
"Description of the Pass Through
Certificates -- The Pass Through Trustee; the
Indenture Trustee" in the Prospectus. In
addition, Shawmut Bank Connecticut will be the
Paying Agent, Authenticating Agent and Registrar
for the Pass Through Certificates and the
Indenture Trustee under the Indenture pursuant to
which the Equipment Notes will be issued.
Federal Income Tax
Consequences............. The Pass Through Trust will not be classified as an
association taxable as a corporation, but,
rather, will be classified as a grantor trust
under Section 671 of the Internal Revenue Code of
1986, as amended (the "Code"), 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. Each Certificateholder
will be required to report on its federal income
tax return its pro rata share of the entire
income from each of the Equipment Notes and other
property held in the Pass Through Trust, in
accordance with such Certificateholder's method
of accounting. See "Federal Income Tax
Consequences" in the Prospectus.
ERISA Considerations....... The Pass Through Certificates may not be purchased
by, or with the assets of, any employee benefit
plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or individual retirement
account or plan subject to Section 4975 of the
Code (such plans and accounts are hereinafter
collectively referred to as "ERISA Plans") unless
such ERISA Plan, or the assets thereof, is
eligible for a prohibited transaction exemption
issued by the Department of Labor, which
exemption applies to the purchase and holding of
the Pass Through Certificates by such ERISA Plan
(such exemption, a "Prohibited Transaction
Exemption"). In addition, certain governmental
and non-electing church plans are not subject to
Title I of ERISA or Section 4975 of the Code and,
therefore, may invest in the Pass Through
Certificates. The purchase by any person of any
Pass Through Certificate constitutes a
representation by such person to the Company, the
Owner Participant, the Owner Trustee, the
Indenture Trustee and the Pass Through Trustee
that such person is not an ERISA Plan and that
such person is not acquiring, and has not
acquired, such Pass Through Certificate with
assets of an ERISA Plan, or, if such person is an
ERISA Plan or is acquiring or has acquired such
Pass Through Certificate with the assets of an
ERISA Plan, such purchase constitutes a
representation by such person to the Company, the
Owner Participant, the Owner Trustee, the
Indenture Trustee and the Pass Through Trustee
that a Prohibited Transaction Exemption applies
to such purchase and the holding of such Pass
Through Certificate.
S-8
<PAGE> 9
PHILLIPS PETROLEUM COMPANY
Phillips Petroleum Company, incorporated in Delaware in 1917, is a fully
integrated oil company engaged in petroleum exploration and production on a
worldwide basis, petroleum refining and marketing, and natural gas gathering and
processing, principally in the United States. Phillips also produces and
distributes chemicals worldwide. Its principal executive offices are located in
the Phillips Building, Bartlesville, Oklahoma 74004 (telephone (918) 661-6600).
The words "Company" and "Phillips" as used in this Prospectus Supplement
and the accompanying Prospectus refer to Phillips Petroleum Company or Phillips
Petroleum Company and its consolidated subsidiaries.
USE OF PROCEEDS
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. The Equipment Notes will be issued as nonrecourse obligations
of the owner trust (the "Owner Trust") by Wilmington Trust Company, not in its
individual capacity but solely as the owner trustee (the "Owner Trustee") under
a trust agreement (the "Trust Agreement") for the benefit of the owner
participant named therein (the "Owner Participant"), in connection with a
leveraged lease transaction. The proceeds of the Equipment Notes will be used
(i) to pay up to 80% of the acquisition cost of the Equipment which will be
purchased by the Owner Trust and leased to the Company pursuant to an equipment
lease agreement (the "Lease") and (ii) to pay certain costs and expenses
incurred in connection with the acquisition of the Equipment. The aggregate
acquisition cost of the Equipment is $20,694,176, consisting of $18,237,912 for
the Covered Hoppers and $2,456,264 for the Tank Cars.
The Equipment Notes to be sold to the Pass Through Trust will be issued by
the Owner Trust and authenticated by Shawmut Bank Connecticut, as indenture
trustee (the "Indenture Trustee"), under a trust indenture and security
agreement (the "Indenture") between the Owner Trustee and the Indenture Trustee.
The Owner Participant will provide from sources other than the proceeds of the
Equipment Notes, the portion of the acquisition cost of the Equipment that is
not financed with the proceeds of the Equipment Notes. The Owner Participant is
not personally liable for any amount payable under the Indenture or the
Equipment Notes.
The underwriting fees and certain other expenses relating to the offering
of the Pass Through Certificates will be paid on behalf of the Owner Participant
by the Owner Trustee. Such fees and expenses to be paid by the Owner Trustee on
behalf of the Owner Participant will be payable from sources other than the
proceeds of the sale of the Equipment Notes.
DIAGRAM OF PAYMENTS
The following diagram illustrates certain aspects of the payment flows in
the Pass Through Trust structure for the leveraged lease transaction among the
Company, the Owner Trustee, the Owner Participant, the Indenture Trustee, the
Pass Through Trustee and the Certificateholders.
The Company will lease the Equipment from the Owner Trustee under the Lease
and will be obligated to make scheduled rental payments for the Equipment under
the Lease. As a result of the assignment under the Indenture of certain rights
of the Owner Trustee under the Lease, the Company will make these payments
directly to the Indenture Trustee. From these rental payments the Indenture
Trustee will pay to the Pass Through Trustee for the Pass Through Trust the
interest or interest and principal due from the Owner Trustee on the Equipment
Notes issued under the Indenture and held in the Pass Through Trust. After such
payments have been made, the Indenture Trustee will pay the remaining balance,
if any, to the Owner Trustee for the benefit of the Owner Participant. The Pass
Through Trustee will distribute to the Certificateholders of the Pass Through
Trust payments received on the Equipment Notes held in the Pass Through Trust.
S-9
<PAGE> 10
[CHART]
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The following description of the particular terms of the Pass Through
Certificates offered hereby supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
Pass Through Certificates set forth in the Prospectus, reference to which is
hereby made.
The statements set forth under this caption are summaries and do not
purport to be complete. The summaries make use of terms defined in, and are
qualified in their entirety by reference to, the provisions of the Pass Through
Agreement, the form of which has been filed as an exhibit to the Registration
Statement of which the Prospectus is a part.
GENERAL
The Pass Through Certificates offered hereby will be issued by Phillips
Petroleum Company Pass Through Trust, 1995-1, to be formed pursuant to Pass
Through Agreement 1995-1, to be entered into between the Company and the Pass
Through Trustee on the date of issuance of the Pass Through Certificates.
The Pass Through Agreement, the Participation Agreement, the Equipment
Notes, the Indenture and the Lease will not contain any debt or other financial
covenants or any other provisions that would afford Certificateholders
protection in the event of a highly leveraged transaction involving the Company.
Each Pass Through Certificate will represent a fractional undivided
interest in the Pass Through Trust. The property of the Pass Through Trust (the
"Trust Property") will include the Equipment Notes, all monies at any time paid
thereon and all monies due and to become due thereunder and funds from time to
time deposited with the Pass Through Trustee in accounts relating to the Pass
Through Trust.
S-10
<PAGE> 11
BOOK-ENTRY FORM
The Pass Through Certificates will be issued in fully registered form only
and will be represented by one or more permanent global Pass Through
Certificates registered in the name of Cede & Co. ("Cede") as the nominee of The
Depository Trust Company ("DTC"). No person acquiring an interest in a global
Pass Through Certificate ("Certificate Owner") will be entitled to receive a
definitive certificate representing such person's interest in such global Pass
Through Certificates, except in the limited circumstances set forth in the
Prospectus under "Description of the Pass Through Certificates--Book-Entry
Registration." Unless and until definitive certificates are issued under the
limited circumstances described in the Prospectus, all references to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
those participants in DTC who are credited with ownership of the Pass Through
Certificates ("DTC Participants"), and all references herein to distributions,
notices, reports and statements to Certificateholders shall refer, as the case
may be, to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Pass Through Certificates, or to DTC Participants for
distribution to Certificate Owners in accordance with DTC procedures. See
"Description of the Pass Through Certificates--Book-Entry Registration" in the
Prospectus.
DTC will have no knowledge of the actual Certificate Owners. Certificate
Owners will not receive written confirmation from DTC of their purchase, but are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the DTC Participants
through which the Certificate Owners entered the transaction. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer interests in a permanent global Pass Through Certificate.
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
The Distribution Dates for the Pass Through Trust are January 2 and July 2.
Payments of interest on the Equipment Notes held in the Pass Through Trust are
scheduled to be received by the Pass Through Trustee on each January 2 and July
2, commencing on January 2, 1996, and, subject to receipt, are to be distributed
to the Certificateholders on the corresponding Distribution Dates. The record
date for any Distribution Date will be the 15th day preceding such Distribution
Date. The Equipment Notes held in the Pass Through Trust will accrue interest on
the unpaid principal amount thereof at the rate per annum set forth on the cover
of this Prospectus Supplement applicable to the Pass Through Certificates, which
is calculated on the basis of a 360-day year consisting of twelve 30-day months.
Payments of principal on the Equipment Notes held in the Pass Through Trust
are scheduled to be received in specified amounts on January 2 or July 2, or
both, of each specified year, commencing on July 2, 1996, and, subject to
receipt, are to be distributed to the Certificateholders on the corresponding
Distribution Dates. (See "Pool Factors" below).
The Special Distribution Dates will be the 2nd day of any month. The record
date for any Special Distribution Date will be the 15th day preceding such
Special Distribution Date.
If any Distribution Date or Special Distribution Date is not a Business
Day, distributions scheduled to be made on such Distribution Date or Special
Distribution Date may be made on the next succeeding Business Day without
additional interest. (Pass Through Agreement, Section 12.09)
So long as the Pass Through Certificates are registered in the name of
Cede, as nominee of DTC, distributions on the Pass Through Certificates will be
made in same-day funds to DTC. See "Description of Pass Through
Certificates--Book-Entry Registration" in the Prospectus. DTC will in turn make
distributions in same-day funds to DTC Participants in amounts proportionate to
the principal amount of each such DTC
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<PAGE> 12
Participant's respective holdings of beneficial interests in the Pass Through
Certificates. Corresponding payments by the DTC Participants to Certificate
Owners will be the responsibility of such DTC Participants and will be made in
accordance with customary industry practices. See "Description of the Pass
Through Certificates--Book-Entry Registration" in the Prospectus. At such time,
if any, as the Pass Through Certificates are issued in the form of definitive
certificates and not to Cede, as nominee for DTC, distributions by the Pass
Through Trustee will be made by check mailed to each Certificateholder of record
on the applicable record date at its address appearing on the register
maintained with respect to the Pass Through Trust or, upon application by such
Certificateholder to the Pass Through Trustee, by wire transfer in immediately
available funds to a bank account of such Certificateholder. The final
distribution for the Pass Through Trust, however, will be made only upon
presentation and surrender of the Pass Through Certificates at the office or
agency of the Pass Through Trustee specified in the notice given by the Pass
Through Trustee of such final distribution. The Pass Through Trustee will mail
such notice of the final distribution to the Certificateholders, specifying the
date set for such final distribution and the amount of such distribution.
DELAYED PURCHASE OF EQUIPMENT NOTES; EXTRAORDINARY DISTRIBUTION
It is possible that the purchase of the Equipment Notes might not occur on
the date of issuance of the Pass Through Certificates. In such event, (i) the
proceeds of the Pass Through Certificates will be deposited in an escrow account
held by the Pass Through Trustee and invested in specified investments at the
Company's direction and risk and for the Company's benefit and (ii) the Company
has agreed to pay an amount to the Pass Through Trustee for distribution to the
Certificateholders equal to the interest that would have accrued on the
Equipment Notes from the date of issuance of the Pass Through Certificates to
the date of purchase of the Equipment Notes. (Pass Through Agreement, Section
2.01)
To the extent that amounts equal to the full proceeds from the issuance of
the Pass Through Certificates are not utilized to purchase Equipment Notes on or
prior to the date that is 60 days after the date of issuance of the Pass Through
Certificates, an amount equal to the unused proceeds will be distributed to the
Certificateholders of record by the Pass Through Trustee upon not less than 15
days' prior notice on the Extraordinary Distribution Date (which will be the
date that is 90 days after the date of issuance of the Pass Through
Certificates), together with interest at the rate applicable to the Pass Through
Certificates, but without premium. On or prior to the Extraordinary Distribution
Date, the Company will pay to the Pass Through Trustee an amount equal to the
excess, if any, of the amount distributable by the Pass Through Trustee on the
Extraordinary Distribution Date over the balance in the escrow account on such
date. (Pass Through Agreement, Section 2.01)
THE PAYING AGENT, AUTHENTICATING AGENT AND REGISTRAR
Shawmut Bank Connecticut will be the Paying Agent, Authenticating Agent and
Registrar for the Pass Through Trust. Shawmut Bank Connecticut is also the
Indenture Trustee under the Indenture pursuant to which the Equipment Notes will
be issued.
POOL FACTORS
As of the date of issuance of the Pass Through Certificates by the Pass
Through Trustee, and assuming that all proceeds of the Pass Through Certificates
are used to purchase the Equipment Notes and that no prepayment or default in
respect of any Equipment Notes shall occur, the aggregate scheduled repayments
of principal on such Equipment Notes, and the resulting Pool Factors for the
Pass Through Trust after taking into account each repayment, are set forth
below:
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<PAGE> 13
<TABLE>
<CAPTION>
SCHEDULED
PRINCIPAL
PAYMENTS ON
DISTRIBUTION DATES EQUIPMENT NOTES POOL FACTOR
------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
July 2, 1996................................................. $ 5,089 0.9996789
January 2, 1997.............................................. 0 0.9996789
July 2, 1997................................................. 0 0.9996789
January 2, 1998.............................................. 220,719 0.9857526
July 2, 1998................................................. 0 0.9857526
January 2, 1999.............................................. 323,103 0.9653662
July 2, 1999................................................. 0 0.9653662
January 2, 2000.............................................. 348,874 0.9433539
July 2, 2000................................................. 0 0.9433539
January 2, 2001.............................................. 839,737 0.8903703
July 2, 2001................................................. 0 0.8903703
January 2, 2002.............................................. 426,661 0.8634500
July 2, 2002................................................. 477,706 0.8333089
January 2, 2003.............................................. 0 0.8333089
July 2, 2003................................................. 191,181 0.8212463
January 2, 2004.............................................. 20,752 0.8199369
July 2, 2004................................................. 0 0.8199369
January 2, 2005.............................................. 532,711 0.7863253
July 2, 2005................................................. 0 0.7863253
January 2, 2006.............................................. 375,517 0.7626319
July 2, 2006................................................. 0 0.7626319
January 2, 2007.............................................. 522,081 0.7296910
July 2, 2007................................................. 0 0.7296910
January 2, 2008.............................................. 995,499 0.6668796
July 2, 2008................................................. 0 0.6668796
January 2, 2009.............................................. 1,074,899 0.5990584
July 2, 2009................................................. 0 0.5990584
January 2, 2010.............................................. 1,160,631 0.5258279
July 2, 2010................................................. 0 0.5258279
January 2, 2011.............................................. 1,253,202 0.4467566
July 2, 2011................................................. 0 0.4467566
January 2, 2012.............................................. 1,353,156 0.3613787
July 2, 2012................................................. 0 0.3613787
January 2, 2013.............................................. 1,417,757 0.2719247
July 2, 2013................................................. 41,663 0.2692959
January 2, 2014.............................................. 1,473,726 0.1763106
July 2, 2014................................................. 99,778 0.1700151
January 2, 2015.............................................. 1,534,070 0.0732223
July 2, 2015................................................. 1,160,501 0.0000000
</TABLE>
DESCRIPTION OF THE EQUIPMENT NOTES
The following description of the particular terms of the Equipment Notes
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Equipment Notes set forth in the
Prospectus, reference to which is hereby made.
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in their
entirety by reference to, the provisions of the Indenture, the Equipment Notes,
the Lease, the Participation Agreement, the Trust Agreement and other related
documents to be used in connection with the transactions described herein, the
forms of which have been filed as exhibits to the Registration Statement of
which the accompanying Prospectus forms a part.
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<PAGE> 14
GENERAL
The Equipment Notes will be nonrecourse obligations of the Owner Trustee,
acting for the Owner Trust for the benefit of the Owner Participant, and will be
authenticated under the Indenture by the Indenture Trustee. The Equipment Notes
are not obligations of, or guaranteed by, the Company.
The Equipment Notes held in the Pass Through Trust will accrue interest on
the unpaid principal amount thereof at the rate per annum set forth on the cover
of this Prospectus Supplement applicable to the Pass Through Certificates, which
will be payable to the Pass Through Trustee on each January 2 and July 2,
commencing on January 2, 1996, until the final distribution date for the Pass
Through Trust. Interest on the Equipment Notes will be calculated on the basis
of a 360-day year consisting of twelve 30-day months. For any Equipment Notes,
any overdue payment of principal, interest or any other amount payable thereon
will accrue interest from the due date for such amount to the date such amount
is paid in full at a rate per annum equal to 2% plus the interest rate otherwise
applicable to such Equipment Note. (Indenture, Section 2.01)
The principal of the Equipment Notes will be payable in installments on
January 2 or July 2, or both, of each year, commencing on July 2, 1996,
according to the schedule of principal installment dates and amounts set forth
in the above table.
If any amount payable under any Equipment Notes or the Indenture falls due
on a day that is not a Business Day, then such amount may be paid on the next
succeeding Business Day without additional interest. (Indenture, Section 2.04)
SECURITY
The principal amount of the Equipment Notes, premium, if any, and interest
thereon will be secured by (i) an assignment by the Owner Trustee to the
Indenture Trustee of the Owner Trustee's rights (except for certain limited
rights described below) under the Lease, including the right to receive rent and
other payments thereunder and (ii) a security interest granted to the Indenture
Trustee in the items of Equipment, subject to the rights of the Company under
the Lease and to certain other permitted liens and encumbrances (Indenture,
Granting Clause). Unless and until an Indenture Event of Default under the
Indenture shall have occurred and be continuing, the Indenture Trustee may not
exercise any of the rights of the Owner Trustee under the Lease, except the
right to receive payments of rent thereunder and certain other rights. The
assignment by the Owner Trustee to the Indenture Trustee of its rights under the
Lease will exclude rights of the Owner Trustee and the Owner Participant
relating to (i) indemnification by the Company for certain matters, (ii)
proceeds of public liability insurance payable to the Owner Trustee and the
Indenture Trustee in their respective individual capacities and to the Owner
Participant under insurance maintained by the Company under the Lease, (iii)
proceeds of any insurance policies separately maintained by the Owner Trustee in
its individual capacity or by the Owner Participant and (iv) certain amounts
payable to the Owner Trustee or the Owner Participant for its own account other
than as lessor under the Lease.
PREPAYMENT
Prepayment with Premium. If all or any items of Equipment become obsolete,
surplus or operationally uneconomic to the Company's requirements, the Company
may, subject to certain limitations, terminate the Lease with respect to such
item or items of Equipment, and in connection with such voluntary termination,
the Equipment Notes will be prepaid in whole (in the case of a termination with
respect to all items of Equipment) or in part (in the case of a termination with
respect to less than all items of Equipment). (Lease, Section 10) Such
prepayment shall be at a prepayment price equal to the product of (x) the
aggregate principal amount of the Equipment Notes and (y) a fraction the
numerator of which shall be the acquisition cost of such item(s) of Equipment
and the denominator of which shall be the aggregate acquisition cost of all
items of Equipment, together with accrued but unpaid interest thereon to the
prepayment date, plus an additional amount, if any, which, when added to such
principal and interest would, if invested at such time in
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<PAGE> 15
United States Treasury securities with maturities comparable to the Remaining
Weighted Average Life (as defined below) of the Equipment Notes, yield the
holder thereof a pretax yield equivalent to the yield the holder would have
realized had such holder held such Equipment Note to its maturity date (the
"Make-Whole Premium"). Prepayment of the Equipment Notes with a premium also may
occur in connection with the Company's exercise of certain options or elections
relating to the purchase of any items of Equipment under certain circumstances.
See "The Lease--Purchase Options."
The Make-Whole Premium for any Equipment Note to be prepaid will be
calculated by an independent investment banking institution of national standing
appointed by the Company (an "Independent Investment Banker"). In calculating
the Make-Whole Premium, the Independent Investment Banker will first determine
the Treasury Rate (as defined below) applicable to such Equipment Note. The
Independent Investment Banker then will determine the sum of present values of
all remaining scheduled payments of principal and interest on such Equipment
Note discounted semi-annually on each January 2 and July 2 at a rate equal to
the Treasury Rate based on a 360-day year of twelve 30-day months. If the sum of
these present values exceeds the unpaid principal amount of the Equipment Note
to be prepaid plus any accrued but unpaid interest, the difference will be the
Make-Whole Premium payable upon prepayment. If the sum is equal to or less than
such amount of principal and accrued interest, there will be no Make-Whole
Premium payable upon prepayment of such Equipment Note. In addition to the
amounts described above, the aggregate prepayment price to be paid on such
prepayment date will include all other amounts due the Indenture Trustee or any
holder of the applicable Equipment Notes under the Indenture, Participation
Agreement and Lease.
For purposes of determining the Make-Whole Premium, "Treasury Rate" means
with respect to each Equipment Note, a per annum rate (expressed as a semiannual
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 semiannual 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 for United
States Treasury securities maturing on the Average Life Date of such Equipment
Note is reported in the most recent H.15(519), as published in H.15(519)).
H.15(519) means "Statistical Release H.15(519), Selected Interest Rates", or any
successor publication, published by the Board of Governors of the Federal
Reserve System. The most recent H.15(519) means the latest H.15(519) which is
published prior to the close of business on the third Business Day preceding the
scheduled prepayment date. "Average Life Date" means, for any Equipment Note,
the date which follows the prepayment date by a period equal to the Remaining
Weighted Average Life of such Equipment Note. "Remaining Weighted Average Life"
means, for any Equipment Note, as of any prepayment date, the number of days
equal to the quotient obtained by dividing (a) the sum of the products obtained
by multiplying (i) the amount of the remaining principal payments on such
Equipment Note by (ii) the number of days from and including such prepayment
date to but excluding the scheduled payment date of such principal payment by
(b) the unpaid principal amount of such Equipment Note.
If (i) one or more Lease Events of Default has occurred and has continued
for a period of six consecutive months or more during which time the Equipment
Notes could, but shall not, have been accelerated and the Indenture Trustee
could, but has not been, exercising remedies under the Lease or (ii) the
Equipment Notes have been accelerated, then the Equipment Notes will be subject
to purchase by the Owner Trustee, in whole but not in part, upon 30 days' prior
notice from the Owner Trustee to the Indenture Trustee at a purchase price equal
to the unpaid principal amount of the Equipment Notes, together with accrued
interest thereon, plus all other sums then due and payable to the holders of the
Equipment Notes, including, subject to the next sentence, any Make-Whole Premium
thereon. In connection with such purchase, Make-Whole Premium, if any, shall be
payable unless such purchase is made (x) after the acceleration of the Equipment
Notes or (y) pursuant to clause (i) of the preceding sentence after the
expiration of 120 days following the later of (A) the occurrence of one or more
Lease Events of Default continuing on the date notice of such purchase is given
or (B) the expiration of any period during which the Indenture Trustee is
required to refrain from exercising
S-15
<PAGE> 16
remedies under the Indenture and, in the case of this clause (y), the Indenture
Trust has not, prior to the receipt of such notice of purchase, commenced the
exercise of remedies under the Lease intended to dispossess the Company of its
interest in the Equipment and is not then stayed or otherwise prevented by
operation of law from doing so. (Indenture, Section 4.04)
Prepayment Without Premium. If all or any items of Equipment suffer an
Event of Loss and are not replaced in accordance with the Lease, the Equipment
Notes will be prepaid in whole (if all of the items of Equipment suffer such
event) or in part (if less than all of the items of Equipment suffer such
event). See "The Lease--Events of Loss" below. Any such prepayment shall be at a
prepayment price equal to the product of (x) the aggregate principal amount of
the Equipment Notes and (y) a fraction the numerator of which shall be the
acquisition cost of such item(s) of Equipment and the denominator of which shall
be the aggregate acquisition cost of all items of Equipment, together with
accrued but unpaid interest thereon to the prepayment date, but without
Make-Whole Premium. See the immediately preceding paragraph for a description of
the Owner Participant's Equipment Note purchase rights, including a description
of the circumstances in which such purchase rights will not be subject to the
payment of premium on the Equipment Notes. (Indenture, Section 4.04)
INVESTMENT OF FUNDS
Funds, if any, held from time to time by the Indenture Trustee pursuant to
the express terms of the Indenture or Lease and not required to be distributed
pursuant to the terms of the Indenture will be invested and reinvested in
Permitted Investments at the written direction and risk and expense of the
Company, except that in the absence of such direction and after a Lease Event of
Default shall have occurred and be continuing, such amounts shall be invested
and reinvested solely in obligations of, or obligations guaranteed by, the
United States of America or any of its agencies for the payment of which the
full faith and credit of the United States of America is pledged. (Indenture,
Section 6.04)
INDENTURE EVENTS OF DEFAULT, NOTICE AND WAIVER
Events of default under the Indenture (each, an "Indenture Event of
Default") include:
(a) any Lease Event of Default shall have occurred and be continuing
(other than a Lease Event of Default solely by reason of a failure by the
Company to pay any amounts which are not subject to the lien of the
Indenture unless the Owner Participant directs that such failure
constitutes an Indenture Event of Default) (see "The Lease--Lease Events of
Default" below);
(b) default by the Owner Trustee in making any payment when due of
principal of, premium, if any, or interest on the Equipment Notes and the
continuance of such default unremedied for 10 Business Days after the same
shall become due and payable;
(c) any failure by the Owner Trustee or the Owner Participant to
observe or perform any covenant or obligation in the Indenture or the
Equipment Notes (other than as set forth in clause (b)) or in the
Participation Agreement if, but only if, such failure is not remedied
within a period of 30 days after there has been given to the Owner Trustee,
the Owner Participant and the Company by the Indenture Trustee a written
notice specifying such failure and requiring it to be remedied; provided
that, if such failure is capable of being remedied, no such failure shall
constitute an Indenture Event of Default for a period of 360 days after
such notice so long as the Owner Trustee or the Owner Participant is
diligently proceeding to remedy such failure;
(d) any representation or warranty made by the Owner Trustee or the
Owner Participant under the Participation Agreement, or by the Owner
Trustee under the Indenture, or by any representative of the Owner Trustee
or the Owner Participant in any document or certificate furnished to the
Indenture Trustee or the Pass Through Trustee in connection therewith or
pursuant thereto, shall prove at any time to have been incorrect as of the
date made in any respect material to the interests of the holders of
Equipment Notes and such incorrectness shall remain material in such
respect and continue unremedied for a period of 30 days after there has
been given to the Owner Trustee and the Owner Participant by the
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<PAGE> 17
Indenture Trustee or the Pass Through Trustee a written notice specifying
such incorrectness, stating that such incorrectness is a default under such
Indenture and requiring it to be remedied; or
(e) the occurrence of certain events of bankruptcy, reorganization or
insolvency of the Owner Trustee (as Owner Trustee and not in its individual
capacity), the Owner Trust or the Owner Participant or similar events.
(Indenture, Section 4.01)
The Indenture provides that, unless and until an Indenture Event of Default
thereunder has occurred and is continuing, the Indenture Trustee generally may
not exercise any of the rights of the Owner Trustee under the Lease assigned to
the Indenture Trustee under the Indenture, except the right to receive rental
payments due under the Lease. Whether or not an Indenture Event of Default has
occurred and is continuing, the Owner Trustee and the Owner Participant may
exercise certain rights under the Lease.
If the Company shall fail to make any payment of Basic Rent under the Lease
within 10 Business Days after the same shall become due, and if such failure of
the Company to make such payment of Basic Rent shall not constitute the fourth
or subsequent consecutive or the seventh or subsequent cumulative such failure,
then as long as no other Indenture Event of Default shall have occurred and be
continuing the Owner Participant or the Owner Trustee may (but need not) pay to
the Indenture Trustee, at any time prior to the expiration of a period of 10
Business Days (a "Ten-Day Period") after written notice of such default is given
to the Owner Trustee by the Indenture Trustee or the Pass Through Trustee (prior
to the expiration of which Ten-Day Period the Indenture Trustee shall not
declare the Lease in default or exercise any of the rights, powers or remedies
pursuant thereto), an amount equal to the full amount of such payment of Basic
Rent, together with any interest due thereon on account of the delayed payment
thereof, and such payment by the Owner Participant or the Owner Trustee shall be
deemed to cure any such 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). (Indenture, Section 4.04(a))
If the Company shall fail to make any other payment (other than Basic Rent)
or to perform or observe any other covenant, condition or agreement to be
performed or observed by it under the Lease or certain other agreements related
to the Indenture and if (but only if) the performance or observance thereof can
be effected by the payment of money alone, then as long as no other Indenture
Event of Default shall have occurred and be continuing the Owner Participant or
the Owner Trustee may (but need not) pay to the Indenture Trustee (or to such
other person as may be entitled to receive the same), at any time prior to the
expiration of a Ten-Day Period after the later of (x) the expiration of the
grace period, if any, provided with respect to such failure on the part of the
Lessee in the Lease and (y) the date that written notice of such default is
given to the Owner Trustee by the Indenture Trustee or the Pass Through Trustee
(prior to the expiration of which Ten-Day Period the Indenture Trustee shall not
declare the Lease in default or exercise any of the rights, powers or remedies
pursuant thereto), all sums necessary to effect the payment of such defaulted
amount or the performance or observance of such covenant, condition or
agreement, together with any interest due thereon on account of the delayed
payment thereof, and such payment by the Owner Participant or the Owner Trustee
shall be deemed to cure any Indenture Event of Default which arose from such
failure of the Lessee (but such cure shall not relieve the Company of any of its
obligations); provided, however, that the Owner Trustee and the Owner
Participant shall not be entitled to effect cures described in this sentence in
amounts that, cumulatively, exceed $2,500,000 in the aggregate. (Indenture,
Section 4.04(a))
The Indenture provides that the Indenture Trustee must, after the
occurrence of any event that is a default under the Indenture and is actually
known to the Indenture Trustee, notify the Pass Through Trustee of such default.
(Indenture, Section 5.01)
The holders of not less than a majority in aggregate principal amount of
outstanding Equipment Notes may on behalf of all holders thereof waive any past
Indenture Event of Default and its consequences, except that consent from each
holder of Equipment Notes is required with respect to a waiver of such a default
in the payment of the principal of, Make-Whole Premium, if any, or interest on
the Equipment Notes or in respect of any covenant or provision of the Indenture
that, pursuant to the provisions of the Indenture, cannot be modified or amended
without the consent of each such holder. (Indenture, Section 4.06)
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<PAGE> 18
The Company is required under the Participation Agreement to furnish to the
Pass Through Trustee, the Owner Participant, the Owner Trustee and the Indenture
Trustee promptly upon any officer of the Company obtaining knowledge of any
condition or event that constitutes a Lease Event of Default, an officer's
certificate specifying the nature and period of existence of such event and what
action the Company has taken or is taking or proposes to take with respect
thereto. (Participation Agreement, Section 5)
REMEDIES
The Indenture provides that, subject to the Owner Trustee's right to cure
certain defaults and to purchase the Equipment Notes, if an Indenture Event of
Default has occurred and is continuing unremedied thereunder, the Indenture
Trustee may exercise certain specified rights or remedies available to it under
applicable law, including, if a Lease Event of Default has occurred, one or more
of the remedies with respect to the items of Equipment afforded to the Owner
Trustee by the Lease for Lease Events of Default thereunder. (See "The
Lease--Lease Events of Default" below.) Such remedies may be exercised by the
Indenture Trustee to the exclusion of the Owner Trustee and the Owner
Participant. Any items of Equipment sold in the exercise of such remedies will
be free and clear of any rights of those parties (other than, in certain cases,
rights of redemption provided by law and rights to certain proceeds as described
in the next paragraph), including the rights of the Company under the Lease. No
exercise of any remedies by the Indenture Trustee, however, may affect the
rights of the Company under the Lease unless a Lease Event of Default has
occurred and is continuing, and the Indenture Trustee may not sell any part of
the trust estate under the Indenture unless the Equipment Notes have been
accelerated. (Indenture, Article IV)
Notwithstanding the rights and powers of the Indenture Trustee described
above, the Indenture Trustee shall not foreclose the lien of the Indenture as a
result of an Indenture Event of Default that constitutes or occurs solely by
virtue of one or more Lease Events of Default under the Lease unless (i) the
Indenture Trustee shall have exercised, or, to the extent it is then entitled to
do so under the Indenture and the Lease, shall contemporaneously commence the
exercise of, one or more of the remedies provided for in the Lease intended to
dispossess the Company of its interest in the Equipment or (ii) the Indenture
Trustee is stayed or otherwise prevented by operation of law from exercising
such remedies under the Lease; provided, however, that in the event that the
Indenture Trustee is so stayed or otherwise prevented by operation of law from
exercising such remedies under the Lease, then it shall nevertheless refrain
from foreclosing the lien of the Indenture (A) if, and for so long as, the only
Lease Event of Default that has occurred and is continuing is a Lease Event of
Default resulting solely from a proceeding for reorganization of the Company
under Chapter 11 of the Bankruptcy Code and the Company has assumed or otherwise
agreed to continue to perform its obligations under the Lease or (B) until the
earlier of (1) the later of (x) the expiration of a period of 120 days during
which the Indenture Trustee was so stayed or otherwise prevented by operation of
law from exercising such remedies under the Lease and (y) if such stay or
operation of law is being contested by appropriate legal proceedings, the
expiration of the period during which such contest is being conducted (but in no
event longer than 60 days after the expiration of the 120-day period described
in clause (x) above) and (2) the date that the Indenture Trustee ceases to be so
stayed or otherwise prevented by operation of law from exercising such remedies
under the Lease and complies with clause (i) above; provided further, however,
that the Indenture Trustee shall not be required to refrain from foreclosing the
Lien of the Indenture if there shall have occurred and be continuing any
Indenture Event of Default other than a Lease Event of Default. (Indenture,
Section 4.04(c))
If an Indenture Event of Default occurs as a result of certain specified
events of bankruptcy, insolvency or reorganization of the Owner Trustee, the
Owner Trust, the Owner Participant or the Company, then the unpaid principal of
the Equipment Notes, together with interest accrued but unpaid thereon and all
other amounts due thereunder and under the Indenture, immediately and without
further act shall become due and payable. If any other Indenture Event of
Default occurs and is continuing, the Indenture Trustee, acting on its own or at
the direction of the holders of not less than a majority in aggregate principal
amount of outstanding Equipment Notes, may declare the principal of the
Equipment Notes due and payable, together with all accrued but unpaid interest
thereon and all other amounts due and payable thereunder and under the
Indenture, by giving 10 days' prior written notice to the Owner Trustee. The
holders of not less than a majority
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in aggregate principal amount of the outstanding Equipment Notes may rescind any
such declaration by written notice to the Owner Trustee, the Indenture Trustee
and the Company, at any time prior to the sale or disposition of the property
subject to the Lien of the Indenture if (i) there has been paid to or deposited
with the Indenture Trustee an amount sufficient to pay all overdue installments
of interest on the Equipment Notes and the principal of and premium on the
Equipment Notes that has become due otherwise than by such declaration, (ii) the
rescission would not conflict with any judgment or decree and (iii) all
Indenture defaults and Indenture Events of Default (other than the nonpayment of
principal and interest that has become due solely because of such declaration)
have been cured or waived. (Indenture, Section 4.02)
In the event of the bankruptcy of the Owner Participant or the Owner Trust,
the ability of the Indenture Trustee to exercise its remedies under the
Indenture against the bankrupt party might be limited and payments required to
be made under the Lease might be interrupted, although the Indenture Trustee
would retain its status as a secured creditor in respect of the Owner Trust's
interest in Lease and the Equipment. In addition, in the event of such
bankruptcy it is possible that the Lease might be rejected as an executory
contract or unexpired lease. Such a rejection, if successful, would leave the
Indenture Trustee as a secured creditor in respect of the Owner Trust's interest
in the Lease and the Equipment with a claim against the bankrupt estate in the
amount owing under the Equipment Notes.
The holders of not less than a majority in aggregate principal amount of
outstanding Equipment Notes may direct the Indenture Trustee to exercise or
refrain from exercising any trust or power conferred on the Indenture Trustee
upon the occurrence of an Indenture Event of Default. The Indenture Trustee
shall not be required to exercise or refrain from exercising any such trust or
power if it shall have reasonable grounds for believing that it is not
adequately indemnified with respect thereto. (Indenture, Section 5.03)
If an Indenture Event of Default occurs and continues, any sums held or
received by the Indenture Trustee under the Indenture may be applied to
reimburse the Indenture Trustee for any tax, expense, charge or other loss
incurred by it and to pay any other amounts due the Indenture Trustee prior to
any payments to holders of the Equipment Notes. (Indenture, Section 3.03)
It is impossible to predict the resale value for any item of Equipment to
be sold upon the exercise of the Indenture Trustee's remedies under the
Indenture, and there can be no assurance that the net proceeds realized from the
sale or other disposition of any Equipment in the exercise of such remedies will
be sufficient to satisfy in full amounts due and payable on the Equipment Notes.
MODIFICATION OF AGREEMENTS
Without the consent of not less than a majority in interest of the
aggregate principal amount of the outstanding Equipment Notes, the provisions of
the Indenture, the Lease, the Participation Agreement, and the Trust Agreement
may not be amended or modified, except to the extent indicated below.
(Indenture, Sections 9.01 and 9.05)
Certain provisions of the Indenture, the Lease (including provisions
relating to maintenance, insurance and possession of the Equipment), the
Participation Agreement and the Trust Agreement may be amended or modified
without the consent of the Indenture Trustee or any of the holders of the
Equipment Notes. Without the consent of each holder of an Equipment Note
affected thereby, no amendment or modification of the Indenture or the Lease or
Participation Agreement may (i) reduce the principal amount of or Make-Whole
Premium, if any, or interest payment payable on such Equipment Note or change
the date on which any such principal, Make-Whole Premium, if any, or any
interest payment is due and payable or otherwise affect the terms of payment of
such Equipment Note, (ii) to the extent payable to such holder, extend the time
of, or reduce the aggregate amount of, or release the Company from its
obligation to pay, rent, stipulated loss value or any other amounts payable
under, or as provided in, the Lease upon the occurrence of an Event of Loss or
termination value and any other amounts payable with respect to the applicable
Equipment, (iii) create any security interest with respect to the property
subject to the Lien of the Indenture ranking prior to or on a parity with the
security interest created by the Indenture or deprive the holder of any such
Equipment Note of the lien of the Indenture upon the property subject thereto,
or (iv) reduce the percentage of the aggregate principal amount of the Equipment
Notes necessary to modify or amend any provision of the Indenture or to
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waive compliance therewith. Subject to the preceding sentence, the Indenture
Trustee may, without the consent of any holder of Equipment Notes, consent to
any amendment or modification of the Indenture, Lease or Trust Agreement upon
receipt of an officer's certificate of the Company and, as to any matters of
law, an opinion of counsel (which counsel may be an employee of the Company)
stating that such amendment or modification does not materially adversely affect
the interests of the holders of the Equipment Notes. (Indenture, Sections 9.01
and 9.05)
THE LEASE
General. The Owner Trustee will lease the items of Equipment to the
Company on behalf of the Owner Trust, and the Company will take possession of
the items of Equipment subject to the terms of the Lease.
Terms and Rentals. Each item of Equipment will be leased by the Owner
Trustee to the Company for a term commencing on the Lease Commencement Date and
expiring on a date not earlier than the latest maturity date of the Equipment
Notes, unless previously terminated or extended, as permitted by the Lease. The
scheduled rental payments by the Company under the Lease are payable on each
January 2 and July 2, commencing on January 2, 1996, and have been assigned
under the Indenture by the Owner Trustee to the Indenture Trustee. (Lease,
Article 3; Indenture, Granting Clause)
The Company will be obligated to make rental payments under the Lease that
will be at least equal to all scheduled payments of principal of and interest on
the Equipment Notes when, and as scheduled to be, due and payable. The Company's
obligations to make rental payments and to cause other payments to be made under
the Lease are general obligations of the Company.
Net Lease. The Company's obligations in respect of the Equipment will be
those of a lessee under a "net lease." Accordingly, the Company is obligated to
pay all costs of operating the Equipment and, at its expense, to maintain,
inspect, service, repair, test and overhaul the Equipment so as to keep the
Equipment in good operating condition, ordinary wear and tear excepted, and in a
manner consistent with the Company's maintenance practices in respect of similar
equipment owned or leased by it.
Except as set forth below, the Company is obligated to replace or cause to
be replaced all parts that may from time to time be incorporated or installed in
or attached to any item of Equipment and that may become worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use. Any such replacement part becomes subject to the Lease and the
lien of the Indenture in lieu of the part replaced. (Lease, Section 9.3;
Indenture, Granting Clause) The Company must make all alterations, modifications
and additions to each item of Equipment necessary to meet the applicable
requirements of any governmental authority with jurisdiction over the Company's
operations and such item of Equipment. The Company may in good faith contest the
validity or application of any such requirement in any reasonable manner which,
among other things, does not impair the Lien of the Indenture or create any
material risk or danger of the sale of, loss of or interference with the use or
possession of any item of Equipment or interfere with the payment of rent under
the Lease. (Lease, Section 9.1)
The Company may make other alterations, modifications and improvements to
any item of Equipment, so long as such alteration, modification or improvement
does not materially diminish the value, utility or remaining economic useful
life below that immediately prior to such alteration, modification or
improvement, assuming that such item of Equipment was then in the condition
required by the Lease. (Lease, Section 9.2)
Subleasing. The Company is permitted to sublease any item of Equipment to
any business entity which is not subject to bankruptcy proceedings other than
Chapter 11 of the Bankruptcy Code (and in such case, only if all appropriate
court approvals are obtained to protect the interest of the Lessor in such item
of Equipment) so long as no Lease Default or Lease Event of Default shall have
occurred and be continuing at the time the Company enters into such sublease.
The term of any such sublease of any item of Equipment may not extend beyond the
expiration of the term of the Lease. Any such sublease of any item of Equipment
will be subject and subordinate to the Lease and the rights and interests of the
Lessor thereunder. (Lease, Section 8.3)
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Liens. Each item of Equipment is required to be maintained free of any
Liens, other than the respective rights of the Owner Participant, the Owner
Trustee, Indenture Trustee, the holders of the Equipment Notes, the Company and
any permitted sublessee arising under the Indenture, Lease, Participation
Agreement and Trust Agreement, and other than certain limited liens permitted
under the Lease including: (i) Liens for taxes either not yet due or being
contested in good faith by appropriate proceedings, so long as, among other
things, there exists no material risk of sale, forfeiture, loss or loss of or
interference with use or possession of such item of Equipment, the interference
with the payment of rent in respect thereof or the impairment of the lien of the
Indenture thereon; (ii) materialmen's, mechanics', supplier's, laborer's,
repairmen's, employees' or other like Liens arising against the Company or any
permitted sublessee in the ordinary course of business securing obligations the
payment of which is either not yet due or is being contested in good faith by
appropriate proceedings, so long as, among other things, there exists no
material risk of sale, forfeiture, loss or loss of or interference with use or
possession of such item of Equipment or the impairment of the lien of the
Indenture thereon or interference with the payment of rent in respect thereof;
(iii) Liens arising from judgments or awards against the Company or any
permitted sublessee with respect to which (x) at the time an appeal or
proceeding for review is being prosecuted in good faith and for the payment of
which adequate reserves have been provided as required by generally accepted
accounting principles or other appropriate provisions have been made and with
respect to which there shall have been secured a stay of execution pending such
appeal or proceeding for review and, among other things, there exists no
material risk of sale, forfeiture, loss or loss of or interference with use or
possession of such item of Equipment, interference with the payment of rent in
respect thereof or impairment of the lien of the Indenture thereon; (iv) Liens
bonded to the reasonable satisfaction of the Owner Participant; and (v) certain
Liens required to be removed by the Owner Trustee, Owner Participant, Indenture
Trustee or Pass Through Trustee. (Lease, Section 7)
Insurance. The Company will, at its own expense, cause to be carried and
maintained with insurance companies (which may be captive insurance companies
affiliated with the Company) (i) physical damage insurance in respect of all
Equipment and (ii) public liability insurance with respect to third-party
personal injury and property damage, in such amounts and against such risks
customarily insured against by the Company in respect of similar equipment and
subject to certain other limitations including such public liability insurance
being reasonably and economically available to the Company. There is no
assurance that the Company will carry any insurance in the future, or, if it is
carried, as to the amount of such insurance or as to the amount of the
deductible limits in respect of such insurance. (Lease, Section 12)
Use. The Company, any of its affiliates or any permitted sublessee shall
be entitled to use the Equipment only in the United States, Canada and Mexico
and only in the manner for which it was designed and intended and so as to
subject it only to ordinary wear and tear. (Lease, Section 8.2)
Termination. The Company may, subject to certain limitations set forth in
the Lease, on any scheduled rent payment date on at least 90 days' prior written
notice to the Owner Trustee and the Indenture Trustee (which notice may be
revoked by the Company not less than 30 days prior to the proposed termination
date) terminate the lease term with respect to any item of Equipment if the
Company determines in good faith that such item of Equipment has become
obsolete, surplus or operationally uneconomic to the Company's requirements. The
Company, as non-exclusive agent for the Owner Trustee, is then required to use
its reasonable best efforts to obtain bids for the cash purchase of such item of
Equipment on the proposed termination date. No bid may be submitted by the
Company (or any of its affiliates) or any agent or person acting on behalf of
the Company. (Lease, Section 10)
On the termination date, the Owner Trustee is required to sell such item of
Equipment to the party submitting the highest cash bid. The proceeds of such
sale, net of all expenses of the sale, will be paid to the Owner Trustee. If the
net proceeds received from such sale are less than the applicable termination
value, the Company is required to pay to the Owner Trustee an amount equal to
that deficiency, together with certain other amounts, which under any
circumstance will be sufficient to satisfy all amounts due to the holders of the
Equipment Notes under the Indenture and Participation Agreement. All funds to be
paid to the Lessor shall, so long as the Indenture shall not have been
discharged, be paid directly to the Indenture Trustee. Upon such payment, the
Equipment Notes will be prepaid in full (if all items of Equipment are
terminated) or in part (if
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less than all items of Equipment are terminated). (See "Description of the
Equipment Notes -- Prepayment.")
If, after receiving a termination notice from the Company, the Owner
Participant pays to the Indenture Trustee on behalf of the holders of the
Equipment Notes the aggregate principal amount of the Equipment Notes which is
due and payable together with any premium which is due and payable and accrued
but unpaid interest and any other sums due and payable to the Indenture Trustee
or the holders of the Equipment Notes under the Lease, the Indenture or
Participation Agreement on account thereof, the Owner Participant may retain
such item of Equipment with respect to which the Company has given a notice of
termination, provided that if the Owner Participant fails to make such payment
after giving notice of its intention to retain such item of Equipment, the Lease
shall not be terminated for such item of Equipment, although the Company, at its
option, may submit another notice of termination with respect to such item of
Equipment and the Owner Participant shall not be permitted to elect to retain
such Equipment. (Lease, Section 10)
Purchase Options. Subject to certain limitations set forth in the Lease,
the Company may elect to purchase any item of Equipment on the Early Buy Out
Date for such item of Equipment and terminate the Lease in respect of such item
of Equipment. In connection with any such purchase, the Company is required with
respect to the Equipment Notes either (x) to pay the principal of the Equipment
Notes in an amount described in the next sentence plus Make-Whole Premium, if
any, and interest payable thereon or (y) to assume the obligations of the Owner
Trustee under such portion of the Equipment Notes, the Indenture, the
Participation Agreement and certain agreements related thereto. The principal
amount of the Equipment Notes to be paid or assumed, as the case may be, in
connection with any such purchase shall be equal to the product of (x) the
aggregate principal amount of the Equipment Notes and (y) a fraction the
numerator of which shall be the acquisition cost of such item of Equipment and
the denominator of which shall be the aggregate acquisition cost of all items of
Equipment of which such item of Equipment is a part. If the Company elects to
purchase such item of Equipment and pay the amount described in clause (x)
above, then upon payment to the Owner Trustee of the full purchase price for
such item of Equipment determined in accordance with the Lease and all other
amounts owing to the parties to the Participation Agreement, the Owner Trustee
will transfer all of its right, title and interest in and to such item of
Equipment to the Company and the Lease and the Lien of the Indenture will
terminate with respect to such item of Equipment. If the Company elects to
purchase such item of Equipment and assume the obligations of the Owner Trustee
described in clause (y) above, then the Company will execute and deliver
appropriate documentation providing for the assumption of such obligations on a
full recourse basis by the Company, maintaining a security interest in such item
of Equipment to secure such assumed obligations, and upon payment to the Owner
Trustee of the full purchase price (or, if such purchase price is paid in
installments as described in the next sentence, the first installment of such
purchase price) for such item of Equipment determined in accordance with the
Lease and all other amounts owing to the parties in connection therewith, the
Owner Trustee will transfer all of its right, title and interest in and to such
item of Equipment to the Company and the Lease will terminate with respect to
such item of Equipment. In connection with any such assumption of Equipment
Notes described in the preceding sentence, the Company may elect to pay certain
amounts payable to the Owner Trustee for the benefit of the Owner Participant in
installments over a period not to exceed one year, in which case, the Owner
Trustee shall retain a security interest in the Equipment subject to such
purchase subordinate to the security interest maintained in such Equipment for
the benefit of the holders of the assumed Equipment Notes, and, in addition, the
Owner Trustee shall have such cure rights and other rights as are specified in
"Description of the Equipment Notes -- Indenture Events of Default, Notice and
Waiver" until all such installments of the purchase price have been paid in
full. (Lease, Section 22.6, Participation Agreement, Section 10.3, Indenture,
Article VII) See also "Federal Income Tax Consequences -- General" in the
Prospectus.
After any assumption of any Equipment Notes described in the preceding
paragraph, if less than all obligations under the Equipment Notes are assumed,
the obligations of the Company so assumed and the
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obligations under the Lease remaining assigned under the Indenture shall
constitute separate obligations of the Company and default under either thereof
shall not necessarily result in the occurrence of a default under the other.
There will be no crosscollateralization of the Equipment securing the
obligations assumed by the Company and the obligations remaining secured under
the Indenture. Consequently, the items of Equipment related to such assumption
will not constitute security for the obligations remaining secured under the
Indenture, nor will the Equipment remaining subject to the Indenture constitute
security for such assumed obligations. (Indenture, Article VII)
At the end of the term of the Lease, after the final maturity of the
Equipment Notes, the Company has certain options to renew the lease term for any
item of Equipment or purchase such item of Equipment. (Lease, Section 22)
Events of Loss. If an Event of Loss (as defined below) occurs with respect
to an item of Equipment, the Company shall give notice to the Lessor and the
Indenture Trustee within 90 days of the occurrence thereof and either (i) pay to
the Lessor within 240 days of such occurrence the applicable stipulated loss
value (which is an amount at least sufficient to pay in full the allocable
principal amount of the Equipment Notes plus accrued but unpaid interest
thereon) together with certain other amounts which under any circumstances will
be sufficient to satisfy all amounts due and payable to the holders of the
Equipment Notes on account of such Event of Loss under the Indenture and
Participation Agreement, and any other amounts owed by the Company to the Owner
Trustee or the Owner Participant under the Lease or Participation Agreement or
(ii) within 180 days of such occurrence and subject to certain other
limitations, replace such item of Equipment with an item of Equipment which has
a value, utility and remaining economic useful life at least equal to the item
of Equipment being replaced assuming it was in the condition required by the
Lease. (Lease, Section 11) See "Description of the Equipment Notes --
Prepayment."
An "Event of Loss" with respect to an item of Equipment includes any of the
following events:
(i) such item of Equipment suffers damage or contamination which, in
the Company's opinion, makes repair uneconomic or renders such item of
Equipment permanently unfit for normal use for any reason whatsoever other
than obsolescence;
(ii) such item of Equipment suffers an actual or constructive total
loss;
(iii) such item of Equipment is permanently returned to the
manufacturer pursuant to any patent indemnity provisions;
(iv) such item of Equipment suffers theft or disappearance, has title
thereto taken or appropriated by any governmental authority under the power
of eminent domain or otherwise; or is taken or requisitioned for use by any
governmental authority thereof under the power of eminent domain or
otherwise, and, in the case of any such theft, disappearance, taking,
appropriation or requisition, the period thereof exceeds 90 days;
(v) such item of Equipment suffers theft or disappearance, has title
thereto taken or appropriated by any governmental authority under the power
of eminent domain or otherwise;
(vi) any governmental authority with jurisdiction over the Company's
operations and such item of Equipment requires an alteration, modification
or addition to such equipment which would be economically impractical to
make; or
(vii) such item of Equipment is prohibited from being used in the
normal course of interstate rail commerce by any federal governmental
authority for a period in excess of six months. (Lease, Section 11.1)
Lease Events of Default. Events of default under the Lease (each, a "Lease
Event of Default") include, among other things:
(a) failure by the Company to make any scheduled rental payment or any
payment of applicable stipulated loss value or termination value under the
Lease within 10 Business Days after the same shall have become due and
payable;
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(b) failure by the Company to pay any supplemental rent under the
Lease or the Participation Agreement or certain other agreements entered
into by the Company within 15 Business Days after the Company has received
written demand therefor from the person entitled to receive such payment;
(c) any representation or warranty made by the Company in the Lease or
the Participation Agreement shall prove to be untrue or incorrect in any
material respect when made and such untruth or incorrectness shall continue
to be material and unremedied for a period of 30 days after receipt by the
Company of written notice thereof from the Lessor or the Indenture Trustee;
(d) the occurrence of certain events of bankruptcy, reorganization or
insolvency of the Company or similar events; or
(e) failure by the Company to perform or observe any other covenant,
condition or agreement to be performed or observed by it under the Lease or
Participation Agreement, and such failure shall continue unremedied for a
period of 60 days from the date the Company has received written notice of
such failure from the Owner Trustee, the Owner Participant or the Indenture
Trustee, provided that if such failure is capable of being remedied, no
such failure shall constitute a Lease Event of Default for a period of 360
days after receipt of such notice so long as the Company is diligently
proceeding to remedy such failure. (Lease, Section 14)
If a Lease Event of Default has occurred and is continuing, the Indenture
Trustee, as assignee of the Owner Trustee's rights under the Lease, may, subject
to certain rights of the Owner Trustee and the Owner Participant under the
Indenture, exercise one or more of the remedies provided in the Lease with
respect to any or all of the Equipment subject thereto. Those remedies include
the right to repossess the Equipment, to sell the Equipment free and clear of
the Company's rights, and to require the Company to pay as liquidated damages
any unpaid rent plus an amount equal to the excess of the stipulated loss value
for the Equipment specified in the Lease (which is an amount at least sufficient
to pay in full the aggregate unpaid principal amount of the outstanding
Equipment Notes plus accrued but unpaid interest thereon) over the actual fair
market value of the Equipment. (Lease, Section 15; Indenture, Article IV)
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") between the Company and Chemical Securities Inc.
(the "Underwriter") relating to the Pass Through Certificates, the Company has
agreed to cause the Pass Through Trust to sell to the Underwriter, and the
Underwriter has agreed to purchase, the aggregate amount of the Pass Through
Certificates. The Underwriter is committed to purchase all such Pass Through
Certificates if any are purchased.
The Underwriter proposes to offer the Pass Through Certificates to the
public at the initial public offering price set forth on the cover page of this
Prospectus Supplement and to certain dealers at such public offering price less
a concession not to exceed 0.45% of the public offering price of the Pass
Through Certificates. The Underwriter may allow, and such dealers may reallow, a
discount not in excess of 0.25% of any such public offering price to certain
other dealers.
The Pass Through Certificates are a new issue of securities with no
established trading market, and the Company does not intend to apply for the
listing of the Pass Through Certificates on a national securities exchange. The
Company has been advised by the Underwriter that the Underwriter intends to make
a market in the Pass Through Certificates but is not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Pass Through Certificates.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
The Underwriter is an affiliate of Chemical Bank which is a lender to the
Company. In addition, Chemical Bank and its affiliates participate on a regular
basis in various general financing and banking
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transactions for the Company and its affiliates. John L. Adams, a member of the
board of directors of Phillips Gas Company, a subsidiary of the Company, is a
vice chairman and a member of the board of directors of Texas Commerce
Bancshares, Inc. and a member of the board of directors of Texas Commerce Bank
National Association, each an affiliate of the Underwriter.
LEGAL MATTERS
The validity of the Pass Through Certificates offered hereby is being
passed upon for the Company by Dale J. Billam, Esq., Senior Counsel of the
Company, and Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New
York 10017, special counsel for the Company, and for the Underwriter by Cravath,
Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019.
Both Simpson Thacher & Bartlett and Cravath, Swaine & Moore may rely on the
opinion of Shipman & Goodwin, counsel for Shawmut Bank Connecticut, individually
and as Pass Through Trustee, as to the authorization, execution and delivery of
the Pass Through Agreement and the Pass Through Certificates by Shawmut Bank
Connecticut.
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APPENDIX A
GLOSSARY OF CERTAIN TERMS
The following is a glossary of certain terms used in this Prospectus
Supplement. To the extent the definitions of terms used in this glossary are
also used in the Pass Through Agreement, the Indenture or the Lease, such
definitions are qualified in their entirety by reference to the definitions of
such terms contained therein.
"Authenticating Agent" means Shawmut Bank Connecticut, National
Association.
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. et
seq.), as amended, or any successor provisions thereto.
"Business Day" means any day other than a Saturday, Sunday or a day on
which commercial banking institutions are authorized or required by law to be
closed in New York, New York, Bartlesville, Oklahoma, the city and state in
which the principal corporate trust office of the Owner Trustee is located, or
the city and state in which the principal corporate trust office of the
Indenture Trustee is located.
"Certificateholder" means the registered holder of any Pass Through
Certificate issued by the Pass Through Trust.
"Certificate Owner" means a person having a beneficial interest in a Pass
Through Certificate.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Company" means Phillips Petroleum Company, a Delaware corporation.
"Covered Hoppers" means the 308 covered hoppers to be sold by the Seller to
the Owner Trustee on the Lease Commencement Date and leased to the Company.
"Distribution Date" means each January 2 and July 2 of each year until
payment of all the Scheduled Payments to be made under the Equipment Notes has
been made, commencing January 2, 1996.
"Early Buy Out Date" means January 2, 2015.
"Equipment" means the Covered Hoppers and the Tank Cars.
"Equipment Notes" means the equipment notes issued by the Owner Trustee
pursuant to the Indenture and any equipment note issued in exchange therefor or
replacement thereof pursuant to the Indenture.
"Event of Loss" means each of the events designated as such in the Lease.
For a description of certain events constituting Events of Loss, see
"Description of the Equipment Notes--The Lease--Events of Loss."
"Extraordinary Distribution Date" means the date which is 90 days after the
date of issuance of the Pass Through Certificates.
"Indenture" means the trust indenture and security agreement between the
Owner Trustee and the Indenture Trustee, under which the Owner Trustee will
issue Equipment Notes.
"Indenture Event of Default" means each of the events designated as an
event of default in the Indenture. For a description of certain events
constituting Indenture Events of Default, see "Description of the Equipment
Notes--Indenture Events of Default, Notice and Waiver."
"Indenture Trustee" means Shawmut Bank Connecticut, National Association, a
national banking association, in its capacity as indenture trustee under the
Indenture, and any successor thereunder.
"Lease" means the lease agreement between the Owner Trustee and the Company
under which the Owner Trustee leases the Equipment to the Company.
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"Lease Commencement Date" means August 22, 1995.
"Lease Event of Default" means each of the events designated as an event of
default in the Lease. For a description of certain events constituting Lease
Events of Default, see "Description of the Equipment Notes--The Lease--Lease
Events of Default."
"Lessee" means the Company.
"Lessor" means the Owner Trustee.
"Lien" means any mortgage, pledge, security interest, lien, encumbrance, or
disposition of title.
"Owner Participant" means the owner participant for whose benefit the Owner
Trustee owns the Equipment, and its permitted successors and assigns.
"Owner Trust" means a trust created for the benefit of the Owner
Participant under which the Owner Trustee is acting as trustee.
"Owner Trustee" means Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity, but solely as Owner Trustee.
"Participation Agreement" means the participation agreement among the Owner
Trustee, the Company, the Indenture Trustee, the Owner Participant and the Pass
Through Trustee.
"Pass Through Agreement" means the Pass Through Trust Agreement between the
Company and the Pass Through Trustee, in accordance with which the Pass Through
Trust will be formed.
"Pass Through Certificates" means the Phillips Petroleum Company 7.67% Pass
Through Certificates, Series 1995-1, to be issued by the Pass Through Trustee
pursuant to the Pass Through Agreement and which represent fractional undivided
interests in the Pass Through Trust.
"Pass Through Trust" means Phillips Petroleum Company Pass Through Trust,
1995-1, to be formed pursuant to the Pass Through Agreement.
"Pass Through Trustee" means Shawmut Bank Connecticut, National
Association, a national banking association, in its capacity as pass through
trustee under the Pass Through Agreement and the Pass Through Trust, and its
successors and assigns thereunder.
"Paying Agent" means Shawmut Bank Connecticut, National Association.
"Permitted Investments" means (i) direct obligations of the United States
of America and agencies thereof for which the full faith and credit of the
United States is pledged, (ii) obligations fully guaranteed by the United States
of America, (iii) certificates of deposit issued by, or bankers acceptances of,
or time deposits with, any bank, trust company or national banking association
incorporated or doing business under the laws of the United States of America or
one of the States thereof having combined capital and surplus and retained
earnings of at least $500,000,000 (including the Indenture Trustee and the Owner
Trustee if such conditions are met) and having a rating assigned to the
long-term unsecured debt of such institutions by Standard & Poor's Ratings Group
and Moody's Investors Service, Inc. at least equal to AA and Aa2, respectively,
(iv) commercial paper of companies, banks, trust companies or national banking
associations incorporated or doing business under the laws of the United States
of America or one of the States thereof and in each case having a rating
assigned to such commercial paper by Standard & Poor's Corporation or Moody's
Investors Service, Inc. equal to the highest rating assigned by such
organization, and (v) a money market fund registered under the Investment
Company Act of 1940, as amended, the portfolio of which is limited to United
States government obligations and United States agency obligations; provided
that if all of the above investments are unavailable, the entire amount to be
invested may be used to purchase Federal Funds from an entity described in (iii)
above; and provided further that no investment shall be eligible as a "Permitted
Investment" unless the final maturity or date of return of such investment is 90
days or less from the date of purchase thereof.
A-2
<PAGE> 28
"Pool Balance" means, as of any date of determination, the aggregate unpaid
principal amount of the Equipment Notes on such date plus the amount of the
principal payments on the Equipment Notes held by the Pass Through Trustee and
not yet distributed plus any proceeds of the sale of the Pass Through
Certificates held in the Pass Through Trust and not yet used to purchase
Equipment Notes (other than earnings thereon and without giving effect to any
losses on investments thereof). The Pool Balance as of any Distribution Date or
Special Distribution Date shall be computed after giving effect to the payment
of principal, if any, on the Equipment Notes and the distribution thereof being
made on that date.
"Pool Factor" means, as of any date of determination, the quotient (rounded
to the seventh decimal place) computed by dividing (i) the Pool Balance by (ii)
the aggregate original amount of the Pass Through Certificates. The Pool Factor
as of any Distribution Date or Special Distribution Date shall be computed after
giving effect to the payment of principal, if any, on the Equipment Notes and
the distribution thereon being made on that date.
"Registrar" means Shawmut Bank Connecticut, National Association.
"Scheduled Payment" means any payment of interest on, or principal of and
interest on, the Equipment Notes, scheduled to be received by the Pass Through
Trustee on a Distribution Date, except any such payment that is received more
than five days after the applicable Distribution Date (which payment will be
treated as a Special Payment).
"Seller" means Union Tank Car Company, a Delaware corporation.
"Special Distribution Date" means the date on which a Special Payment is
scheduled to be distributed, which date will be the 2nd day of any month.
"Special Payment" means any payments of principal, Make-Whole Premium or
interest other than Scheduled Payments received by the Pass Through Trustee on
any of the Equipment Notes held in the Pass Through Trust and any proceeds from
the sale of any such Equipment Notes received by the Pass Through Trustee.
"Tank Cars" means the 40 tank cars to be sold by the Seller to the Owner
Trustee on the Lease Commencement Date and leased to the Company pursuant to the
Lease.
"Trust Property" means all money, instruments, including the Equipment
Notes, and other property held as the property of the Pass Through Trust,
including all distributions thereon and proceeds thereof.
A-3
<PAGE> 29
PROSPECTUS
PHILLIPS PETROLEUM COMPANY
PASS THROUGH CERTIFICATES
Up to $110,000,000 aggregate amount of Pass Through Certificates (the "Pass
Through Certificates") may be offered for sale from time to time pursuant to
this Prospectus and one or more Prospectus Supplements. The Pass Through
Certificates may be offered in one or more series (each, a "Series") in amounts,
at prices and on terms to be determined at the time of sale. For each Series of
Pass Through Certificates offered pursuant to this Prospectus and a Prospectus
Supplement, a separate Pass Through Trust (a "Pass Through Trust") will be
formed pursuant to a separate Pass Through Trust Agreement (a "Pass Through
Agreement") between Phillips Petroleum Company (the "Company") and Shawmut Bank
Connecticut, National Association, as the Pass Through Trustee under such Pass
Through Trust. Each Pass Through Certificate in a Series will evidence a
fractional undivided interest in the related Pass Through Trust and will have no
rights, benefits or interest in respect of any other Pass Through Trust or the
Trust Property held in any other such Pass Through Trust. The Trust Property of
each Pass Through Trust will consist of equipment notes (the "Equipment Notes")
issued as nonrecourse obligations by one or more Owner Trusts, in connection
with leveraged lease transactions. The Equipment Notes will be issued to
refinance or finance a portion of the payment made or to be made by each such
Owner Trust to the Company for the acquisition cost of specified items of
transportation equipment sold and leased back by the Company (the "Equipment").
The Prospectus Supplement relating to each offering will describe certain terms
of the Pass Through Certificates offered thereby, the respective Pass Through
Trusts, the Equipment Notes to be purchased by such Pass Through Trusts, the
leveraged lease transactions and the Equipment relating to such Equipment Notes.
With respect to one or more items of Equipment, the Owner Trustee may issue
one or more Equipment Notes, each of which may have a different interest rate
and final maturity date. For each Series of Pass Through Certificates, the Pass
Through Trustee will purchase one or more Equipment Notes issued with respect to
one or more items of Equipment such that all of the Equipment Notes held in the
related Pass Through Trust will have identical interest rates, in each case
equal to the rate applicable to the Pass Through Certificates issued by such
Pass Through Trust, and such that the latest maturity date for such Equipment
Notes will occur on or before the final distribution date for such Pass Through
Certificates. For any item of Equipment, the related Equipment Notes will be
secured by a security interest in the Lease relating thereto, including the
right to receive rent payable by the Company under such Lease and in the related
items of Equipment subject to such Lease (except that for certain vehicles
included in the Equipment the security interest in such vehicles may not be
perfected). None of the Equipment Notes held in the respective Pass Through
Trusts will be obligations of, or guaranteed by, the Company. The amounts
payable by the Company under the Leases from time to time will be at least equal
to the amounts of all principal, premium, if any, and interest payable on the
related Equipment Notes from time to time.
Interest paid on the Equipment Notes held in each Pass Through Trust will
be passed through to the registered holders of the Pass Through Certificates for
such Pass Through Trust (for each Pass Through Trust, the "Certificateholders")
on the dates and at the rate per annum set forth in the Prospectus Supplement
relating to such Pass Through Certificates until the final distribution date for
such Pass Through Trust. Principal paid on the Equipment Notes held in each Pass
Through Trust will be passed through to the Certificateholders in scheduled
amounts on the dates set forth in the Prospectus Supplement relating to such
Pass Through Certificates until the final distribution date for such Pass
Through Trust.
The Pass Through Certificates represent interests in the related Pass
Through Trust only, and all payments and distributions shall be made only from
the property of such Pass Through Trust. The Pass Through Certificates do not
represent an interest in or obligation of the Company.
The Pass Through Certificates may be sold to or through underwriters or
directly to other purchasers or through agents. The Prospectus Supplement
relating to each offering will set forth the names of any underwriters, dealers
or agents involved in the sale of the Pass Through Certificates in connection
with which this Prospectus is being delivered, the amounts, if any, to be
purchased by underwriters and the compensation, if any, of such underwriters or
agents.
Prior to their issuance, there will have been no market for the Pass
Through Certificates of any Series and there can be no assurance that one will
develop. Unless otherwise indicated in the applicable Prospectus Supplement, the
Company does not intend to apply for the listing of any Series of Pass Through
Certificates on a national securities exchange. See "Plan of Distribution."
This Prospectus may not be used to consummate sales of any Pass Through
Certificates unless accompanied by the Prospectus Supplement applicable to the
Pass Through Certificates being sold.
---------------------
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.
---------------------
The date of this Prospectus is October 11, 1994.
<PAGE> 30
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SECURITIES
OFFERED HEREBY OR OTHER SECURITIES OF THE COMPANY AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
---------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any underwriter, dealer or agent. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy Securities 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 any person to whom it
is unlawful to make such offer or solicitation in such jurisdiction.
---------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Offices of the Commission
at Room 1024 Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following Regional Offices of the Commission: Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7
World Trade Center, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at Room 1024
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, such material can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005, and the Pacific
Stock Exchange, Incorporated, 301 Pine Street, San Francisco, California 94104,
on which certain of the Company's securities are listed.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1993, as amended, and its Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1994, all of which have previously been filed by the
Company with the Commission, are incorporated by reference in this Prospectus.
All documents filed by the Company pursuant to Sections 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 Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in this Prospectus or
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 subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to Dale J. Billam,
Secretary, Phillips Petroleum Company, 1234 Adams Building, Bartlesville,
Oklahoma 74004 (telephone (918) 661-5638).
2
<PAGE> 31
PHILLIPS PETROLEUM COMPANY
Phillips Petroleum Company, incorporated in Delaware in 1917, is a fully
integrated oil company engaged in petroleum exploration and production on a
worldwide basis, petroleum refining and marketing, and natural gas gathering and
processing, principally in the United States. Phillips also produces and
distributes chemicals worldwide. Its principal executive offices are located in
the Phillips Building, Bartlesville, Oklahoma 74004 (telephone (918) 661-6600).
The words "Company" and "Phillips" as used in this Prospectus refer to
Phillips Petroleum Company or Phillips Petroleum Company and its consolidated
subsidiaries.
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
The following table sets forth the Company's ratio of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------- --------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges..................... 2.8 3.0 2.3 2.1 2.0 2.8 1.9
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes, extraordinary items and
cumulative effect of change in accounting principle, plus fixed charges
(excluding capitalized interest and the portion of the preferred dividend
requirements of a subsidiary to the extent not deducted in determining pretax
income, but including amortization of interest previously capitalized), less
equity in undistributed earnings of companies owned less than 50 percent. Fixed
charges consist of interest (including capitalized interest) on all
indebtedness, amortization of debt discount and expense, that portion of rental
expense that the Company believes to be representative of interest and the
amounts accrued to cover the preferred stock dividend requirements of a
subsidiary. A statement setting forth the computation of the unaudited ratios of
earnings to fixed charges is filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
OUTLINE OF PASS THROUGH TRUST STRUCTURE
For each Series of Pass Through Certificates (as such terms are defined
below) offered pursuant to this Prospectus and the related Prospectus
Supplement, a separate pass through trust (a "Pass Through Trust") will be
formed pursuant to a Pass Through Trust Agreement (a "Pass Through Agreement")
between the Company and Shawmut Bank Connecticut, National Association as pass
through trustee (the "Pass Through Trustee"), for the benefit of the registered
holders (the "Certificateholders") of the series (a "Series") of certificates
(the "Pass Through Certificates") evidencing fractional undivided interests in
such Pass Through Trust. The property held in each Pass Through Trust (the
"Trust Property") will consist of equipment notes issued in connection with one
or more leveraged lease transactions (the "Equipment Notes"), as specified in
the applicable Prospectus Supplement.
As more fully described below under "Use of Proceeds," in connection with
each leveraged lease transaction, one or more Equipment Notes may be issued,
each of which may have different interest rates and final maturity dates.
Concurrently with the execution and delivery of each Pass Through Agreement, the
Pass Through Trustee, on behalf of the related Pass Through Trust, will enter
into one or more participation agreements or a supplement thereto (each, a
"Participation Agreement") pursuant to which it will, among other things,
purchase one or more Equipment Notes, such that the Equipment Notes that
constitute the property of such Pass Through Trust will have identical interest
rates, in each case equal to the rate applicable to the Pass Through
Certificates issued by such Pass Through Trust, and such that the latest
maturity date for such Equipment Notes will occur on or before the final
distribution date applicable to such Pass Through Certificates. For each Pass
Through Trust, the aggregate amount of the related Series of Pass Through
Certificates will equal the aggregate principal amount of the Equipment Notes
constituting the Trust Property of such Pass Through Trust. The Pass Through
Trustee will distribute the amount of payments of principal, premium, if any,
and interest received by it as holder of the Equipment Notes to the
Certificateholders of the
3
<PAGE> 32
Pass Through Trust in which such Equipment Notes are held. See "Description of
the Pass Through Certificates" and "Description of the Equipment Notes."
USE OF PROCEEDS
Each Series of Pass Through Certificates offered pursuant to this
Prospectus and a related Prospectus Supplement will be issued to facilitate the
refinancing or financing of the debt portion of one or more leveraged sale-lease
back transactions entered into or to be entered into by the Company, as seller
and lessee, with respect to one or more of the items of transportation
equipment, comprised of covered hopper and tank railroad cars (the "Rail Cars"),
corporate aircraft (the "Aircraft") and mobile aircraft refueling vehicles (the
"Vehicles"); (the Rail Cars, Aircraft and Vehicles, collectively, the
"Equipment"), as specified in the applicable Prospectus Supplement. At the time
of issuance of the applicable Series of Pass Through Certificates, none of the
related items of Equipment will represent collateral for an outstanding
liability of the Company. Each Prospectus Supplement will provide further
descriptive and identifying information with respect to the Equipment. The
proceeds from the sale of such Pass Through Certificates will be used by the
Pass Through Trustee on behalf of the related Pass Through Trust to purchase
Equipment Notes. The Equipment Notes will be issued as nonrecourse obligations
of one or more owner trusts (each, an "Owner Trust" created pursuant to a "Trust
Agreement") by Wilmington Trust Company, not in its individual capacity but
solely as the owner trustee (the "Owner Trustee") for the benefit of the owner
participant named therein (each, an "Owner Participant"), in connection with one
or more leveraged lease transactions, in each case to refinance or finance a
portion of the Owner Trust's acquisition cost of one or more items of Equipment
that are leased by such Owner Trust to the Company pursuant to a separate lease
agreement (each, a "Lease"), as specified in the applicable Prospectus
Supplement.
The Equipment Notes to be sold to any Pass Through Trust will be issued by
the Owner Trust and authenticated by Shawmut Bank Connecticut, National
Association, as indenture trustee (the "Indenture Trustee") under a separate
trust indenture and security agreement (each, an "Indenture") between the Owner
Trustee and the Indenture Trustee. Each Owner Participant will have provided or
will be obligated to provide, from sources other than the proceeds of the
related Equipment Notes, the portion of the acquisition cost for the related
Equipment specified in the applicable Prospectus Supplement. No Owner
Participant, however, will be personally liable for any amount payable under the
related Indenture or the Equipment Notes issued thereunder.
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
In connection with each offering of a Series of Pass Through Certificates,
a separate Pass Through Trust will be formed pursuant to a separate Pass Through
Agreement to be entered into between the Company and the Pass Through Trustee.
The following summary relates to each of the Pass Through Agreements, the Pass
Through Trusts to be formed thereby and the Pass Through Certificates to be
issued by each Pass Through Trust, except as otherwise described in the
applicable Prospectus Supplement.
The discussion that follows is a summary and does not purport to be
complete. The summary includes descriptions of the material terms of the Pass
Through Agreements and the Indentures, the forms of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
forms of the related Participation Agreements, Leases and Trust Agreements have
also been filed as exhibits to the Registration Statement of which this
Prospectus forms a part. This summary makes use of terms defined in and is
qualified in its entirety by reference to the Pass Through Agreements.
GENERAL
Unless otherwise provided in the applicable Pass Through Agreement, the
Pass Through Certificates will be issued in fully registered, certificated form
only. Each Pass Through Certificate will represent a fractional undivided
interest in the separate Pass Through Trust formed by the Pass Through Agreement
pursuant to which such Pass Through Certificate is issued. The property of each
Pass Through Trust will consist of the Equipment Notes held in such Pass Through
Trust, all monies at any time paid thereon, all monies due and to
4
<PAGE> 33
become due thereunder and funds from time to time deposited with the Pass
Through Trustee in accounts relating to such Pass Through Trust. Each Pass
Through Certificate will represent a pro rata share of the outstanding principal
amount of the Equipment Notes and other property held in the related Pass
Through Trust and will be issued, unless otherwise specified in the applicable
Prospectus Supplement, in minimum denominations of $1,000 or any integral
multiple of $1,000, except that one Pass Through Certificate with respect to
each Pass Through Trust may be in a multiple of less than $1,000. (Pass Through
Agreement, Articles II and III)
Interest will be passed through to Certificateholders of each Pass Through
Trust at the rate per annum payable on the Equipment Notes held in such Pass
Through Trust, as set forth for such Pass Through Trust on the cover page of the
applicable Prospectus Supplement.
The Pass Through Certificates represent interests in the related Pass
Through Trust only, and all payments and distributions shall be made only from
the Trust Property of such Pass Through Trust. The Pass Through Certificates do
not represent an interest in or obligation of the Company, the Pass Through
Trustee, any related Owner Participant, the Owner Trustee in its individual
capacity or any affiliate of any of the foregoing. Each Certificateholder by its
acceptance of a Pass Through Certificate agrees to look solely to the income and
proceeds from the property held in the related Pass Through Trust as provided in
the applicable Pass Through Agreement (Pass Through Agreement, Section 3.08)
The Pass Through Agreements, except as otherwise described in the
applicable Prospectus Supplement, the Participation Agreements, the Equipment
Notes, the Indentures and the Leases, do not contain any debt or other financial
covenants or any other provisions that would afford Certificateholders
protection in the event of a highly leveraged transaction involving the Company.
BOOK-ENTRY REGISTRATION
If specified in the applicable Prospectus Supplement, the Pass Through
Certificates will be subject to the provisions described below. Upon issuance,
each Series of the Pass Through Certificates will be represented by one fully
registered global certificate. Each global certificate will be deposited with,
or on behalf of, The Depository Trust Company ("DTC"), and registered in the
name of Cede & Co. ("Cede"), its nominee. No Certificateholder will be entitled
to receive a certificated Pass Through Certificate, except as set forth below.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to Section
17A of the Exchange Act. DTC was created to hold securities for its participants
("DTC Participants") and to facilitate the clearance and settlement of
securities transactions among 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,
clearing corporations and certain other organizations. Access to DTC's
book-entry system is also 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.
Certificateholders that are not DTC 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. In addition,
Certificateholders will receive all distributions of principal and interest from
the Pass Through Trustee through the DTC Participants. Under the rules,
regulations and procedures creating and affecting DTC and its operation, DTC is
required to make book-entry transfers of Pass Through Certificates among DTC
Participants on whose behalf it acts and to receive and transmit distributions
of principal of, and premium, if any, and interest on, the Pass Through
Certificates. Under the book-entry system, Certificateholders may experience
some delay in their receipt of payments, since such payments will be forwarded
by the Pass Through Trustee to Cede, as nominee for DTC, and DTC in turn will
forward the payments to the appropriate DTC Participants. Distributions by DTC
Participants to Certificateholders will be the sole responsibility of such DTC
Participants and will be made in accordance with customary industry practices.
Accordingly, although Certificateholders will not have possession of the Pass
Through Certificates, the rules of
5
<PAGE> 34
DTC provide a mechanism by which DTC Participants will receive payments and will
be able to transfer their interests. Although the DTC Participants are expected
to convey the rights represented by their interests in any global security to
the related Certificateholders, because DTC can only act on behalf of DTC
Participants, the ability of Certificateholders to pledge Pass Through
Certificates to persons or entities that are not DTC Participants, or to
otherwise act with respect to such Pass Through Certificates, may be limited due
to the lack of physical certificates for such Pass Through Certificates.
Neither the Company, the Pass Through Trustee nor any other agent of the
Company or the Pass Through Trustee will have any responsibility or liability
for any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in the Pass Through Certificates or for
supervising or reviewing any records relating to such beneficial ownership
interests. Since the only "Holder" will be Cede, as nominee of DTC,
Certificateholders will not be recognized by the Pass Through Trustee as
Holders, as such term is used in the applicable Pass Through Agreement, and
Certificateholders will be permitted to exercise the rights of Holders only
indirectly through DTC and DTC Participants.
The Pass Through Certificates will be issued in fully registered,
certificated form to Certificateholders, or their nominees, rather than to DTC
or its nominee, only if (i) DTC advises the Pass Through Trustee in writing that
it is no longer willing or able or qualified to discharge properly its
responsibilities as depository with respect to the Pass Through Certificates,
and the Pass Through Trustee and the Company are unable to locate a qualified
successor, (ii) the Company, at its option, elects to terminate the book-entry
system through DTC or (iii) after the occurrence of an Event of Default,
Certificateholders holding a majority of the beneficial ownership interests in
the Pass Through Certificates advise the Pass Through Trustee and DTC through
DTC Participants in writing that continuation of a book-entry system through DTC
is no longer in the best interest of the Certificateholders. In such event, the
Pass Through Trustee will notify all Certificateholders through DTC Participants
of the availability of such certificated Pass Through Certificates. Upon
surrender by DTC of the registered global certificate representing the affected
Series of Pass Through Certificates and receipt of instructions for
re-registration, the Pass Through Trustee will reissue the Pass Through
Certificates in certificated form to Certificateholders or their nominees. Such
certificated Pass Through Certificates will be freely transferable and
exchangeable at the office of the Pass Through Trustee upon compliance with the
requirements set forth in the related Pass Through 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 will be required.
All payments made under any Lease or any Indenture in respect of the
Equipment Notes will be in immediately available funds. Such payments will be
passed through 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
Except under certain circumstances, after the Indenture Trustee has made
principal and interest payments to the Pass Through Trustee for each of the Pass
Through Trusts on the related Equipment Notes held in such Pass Through Trust,
the Indenture Trustee will pay the remaining balance, if any, of rental payments
received from the Company to the Owner Trustee for the benefit of the related
Owner Participant. The Pass Through Trustee for each such Pass Through Trust
will distribute to the Certificateholders of such Pass Through Trust payments
received on the Equipment Notes held in such Pass Through Trust as described
below.
Payments of principal of, and interest on the unpaid amount of, the
Equipment Notes held in each Pass Through Trust will be scheduled to be received
by the Pass Through Trustee on the dates specified in the applicable Prospectus
Supplement (such scheduled payments of principal of, and interest on, the
Equipment
6
<PAGE> 35
Notes are referred to herein as "Scheduled Payments," and the dates specified
for distributions of Scheduled Payments to the Pass Through Trustee in the
applicable Prospectus Supplement are referred to herein as "Regular Distribution
Dates"). For each Pass Through Trust, the Pass Through Trustee will distribute
on each Regular Distribution Date to the related Certificateholders any
Scheduled Payment timely received by the Pass Through Trustee. If a Scheduled
Payment is not received by the Pass Through Trustee on or before a Regular
Distribution Date but is received within five days thereafter, it will be
distributed on the date received to the Certificateholders. Each such
distribution of a Scheduled Payment will be made by the Pass Through Trustee to
the Certificateholders of record of such Pass Through Trust on the fifteenth day
prior to such Regular Distribution Date, subject to certain exceptions. Each
such Certificateholder will be entitled to receive a pro rata share of any such
distribution. (Pass Through Agreement, Sections 4.01 and 4.02) If a Scheduled
Payment is received more than five days after the applicable Regular
Distribution Date, it will be treated as a Special Payment and will be
distributed as described below.
After any prepayment of principal, any redemption or any default with
respect to some or all of the Equipment Notes held in any Pass Through Trust,
any Certificateholder of such Pass Through Trust should refer to the Pool
Balance and the Pool Factor (as such terms are defined below) for such Pass
Through Trust reported periodically by the Pass Through Trustee, in order to
calculate such Certificateholder's pro rata share of such Pass Through Trust.
See "Pool Factors" and "Statements to Certificateholders" below.
For any Pass Through Trust, any payments of principal, premium, if any, or
interest, other than Scheduled Payments, received by the Pass Through Trustee on
any of the Equipment Notes held in such Pass Through Trust, including payments
received (i) for the prepayment of such Equipment Notes in connection with
certain events specified in the applicable Prospectus Supplement, (ii) upon an
Indenture Event of Default in respect of such Equipment Notes or the exercise of
remedies under the related Indenture, and (iii) on account of the sale of such
Equipment Notes by the Pass Through Trustee (such payments are referred to
herein as "Special Payments"), will be distributed on the dates determined as
set forth in the applicable Prospectus Supplement (each, a "Special Distribution
Date" and, together with the Regular Distribution Dates, the "Distribution
Dates"). Prior to any Special Payment for any Pass Through Trust, the Pass
Through Trustee will notify the Certificateholders of record of such Pass
Through Trust of such Special Payment and the anticipated Special Distribution
Date therefor in accordance with the Pass Through Agreement. Each distribution
of a Special Payment, other than the final distribution, for any Pass Through
Trust will be made by the Pass Through Trustee to the Certificateholders of
record of such Pass Through Trust on the fifteenth day prior to such Special
Distribution Date, unless otherwise specified in the applicable Prospectus
Supplement. Each such Certificateholder will be entitled to receive a pro rata
share of any such distribution. (Pass Through Agreement, Section 4.02)
Each Pass Through Agreement requires that the Pass Through Trustee
establish and maintain, for the related Pass Through Trust and for the benefit
of the related Certificateholders, one or more non-interest bearing accounts
(each a "Certificate Account") for the deposit of Scheduled Payments on the
Equipment Notes held in such Pass Through Trust and one or more accounts which
will, except in connection with Permitted Investments as discussed below, be
non-interest bearing (each a "Special Payments Account") for the deposit of
Special Payments on such Equipment Notes. The Pass Through Trustee is required
to deposit any Scheduled Payments relating to a Pass Through Trust received by
it in the related Certificate Account and to deposit any Special Payments so
received by it in the related Special Payments Account pending distribution
thereof. (Pass Through Agreement, Section 4.01) Special Payments that are not
promptly distributed by the Pass Through Trustee will, to the extent
practicable, be invested by the Pass Through Trustee in Permitted Investments
pending the distribution of such funds on a Special Distribution Date, and the
income and earnings on such investments will be distributed with such Special
Payment. "Permitted Investments" are obligations of the United States of America
(for the payment of which its full faith and credit is pledged) maturing in not
more than 60 days or such lesser time as is necessary for the distribution of
any such funds on a Special Distribution Date. (Pass Through Agreement, Article
I and Section 4.04)
Distributions by the Pass Through Trust from the Certificate Account or the
Special Payments Account of any Pass Through Trust on any Distribution Date will
be paid to each Certificateholder of record of such Pass Through Trust on the
applicable record date at its address appearing on the register maintained for
such
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Pass Through Trust. (Pass Through Agreement, Section 4.02) The final
distribution for each Pass Through Trust, however, will be made only upon
presentation and surrender of the Pass Through Certificates for such Pass
Through Trust at the office or agency of the Pass Through Trustee specified in
the notice of such final distribution given by the Pass Through Trustee. The
Pass Through Trustee will mail such notice of the final distribution to the
Certificateholders of such Pass Through Trust, specifying the date set for such
final distribution and the amount of such distribution. (Pass Through Agreement,
Section 11.01) See "Termination of Pass Through Trusts" below.
If any Distribution Date is not a Business Day, distributions scheduled to
be made on such Distribution Date may be made on the next succeeding Business
Day without additional interest. (Pass Through Agreement, Section 12.09)
POOL FACTORS
Except as provided below, the Pool Factor (as defined below) for any Pass
Through Trust will decline in proportion to the scheduled repayments of
principal on the Equipment Notes held in such Pass Through Trust as described in
the applicable Prospectus Supplement. Where any Equipment Note held in a Pass
Through Trust has been prepaid, a scheduled repayment of principal thereon has
not been made or certain actions have been taken following a default thereon, as
discussed in the applicable Prospectus Supplement or below in "Events of Default
and Certain Rights Upon an Event of Default," the Pool Factor and the Pool
Balance (as defined below) of such Pass Through Trust will be recomputed after
giving effect thereto and notice thereof will be mailed to the
Certificateholders of such Pass Through Trust. Each Pass Through Trust will have
a separate Pool Factor.
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Balance" for each Pass Through Trust indicates, as of any date, the
aggregate unpaid principal amount of the Equipment Notes held in such Pass
Through Trust on such date plus any amounts in respect of principal on such
Equipment Notes held by the Pass Through Trustee and not yet distributed. The
Pool Balance for each Pass Through Trust as of any Distribution Date will be
computed after giving effect to the payment of principal, if any, on the
Equipment Notes held in such Pass Through Trust and the distribution thereof
being made on that date. (Pass Through Agreement, Article I)
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Factor" for each Pass Through Trust as of any Distribution 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 Pass Through
Certificates issued in respect of such Pass Through Trust. The Pool Factor for
each Pass Through Trust as of any 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 the distribution thereof being made on that date.
The Pool Factor for each Pass Through Trust will initially be 1.0000000;
thereafter, the Pool Factor for each Pass Through Trust will decline as
described above to reflect reductions in the Pool Balance of such Pass Through
Trust. For any Pass Through Trust, the amount of any Certificateholder's pro
rata share of the Pool Balance of such Pass Through Trust can be determined by
multiplying the original denomination of such Certificateholder's Pass Through
Certificate by the Pool Factor for such Pass Through Trust as of the applicable
Distribution Date. (Pass Through Agreement, Article I)
STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Pass Through Trustee will include with each
distribution of a Scheduled Payment or Special Payment to Certificateholders of
record of the related Pass Through Trust a statement, giving effect to such
distribution being made on such Distribution Date, setting forth the following
information (per $1,000 in aggregate amount of Pass Through Certificates for
such Pass Through Trust, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and
allocable to premium, if any;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor for such Pass Through
Trust.
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In addition, after the end of each calendar year, the Pass Through Trustee
will prepare for each person who at any time during the preceding calendar year
was a Certificateholder of record a report containing the sum of the amounts
determined pursuant to clauses (i) and (ii) above with respect to the related
Pass Through Trust for such calendar year or, in the event such person was a
Certificateholder during a portion of such calendar year, for the applicable
portion of such calendar year. (Pass Through Agreement, Section 4.03)
VOTING OF EQUIPMENT NOTES
The Pass Through Trustee, as holder of the Equipment Notes held in each
Pass Through Trust, has the right to vote and give consents and waivers in
respect of such Equipment Notes under the related Indentures. Each Pass Through
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 held in
such Pass Through Trust at its own discretion and the circumstances in which the
Pass Through Trustee shall seek instructions from the Certificateholders of such
Pass Through Trust. Prior to an Event of Default (as defined below) with respect
to any Pass Through Trust, the principal amount of the Equipment Notes held in
such Pass Through Trust directing any action or being voted for or against any
proposal will be in proportion to the principal amount of Pass Through
Certificates held by the Certificateholders of such Pass Through Trust taking
the corresponding position. (Pass Through Agreement, Article VI and Section
10.01)
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
Each Pass Through Agreement defines an event of default for the
corresponding Pass Through Trust (an "Event of Default") as the occurrence and
continuance of an event of default under one or more of the related Indentures
(an "Indenture Event of Default"). The Indenture Events of Default under the
Indentures will be described in the applicable Prospectus Supplement and will
include events of default under the related Leases ("Lease Events of Default").
Since the Equipment Notes outstanding under an Indenture may be held in more
than one Pass Through Trust, a continuing Indenture Event of Default under such
Indenture would result in an Event of Default with respect to each such Pass
Through Trust. All of the Equipment Notes issued under the same Indenture will
relate to the items of Equipment identified and described in a Prospectus
Supplement. There will be no cross-collateralization or cross-default provisions
in the Indentures; consequently, events resulting in an Indenture Event of
Default under any particular Indenture will not necessarily result in an
Indenture Event of Default occurring under any other Indenture. If an Indenture
Event of Default occurs in fewer than all of the Indentures related to a Pass
Through Trust, the Equipment Notes issued pursuant to the related Indentures
with respect to which an Indenture Event of Default has not occurred will
continue to be held in such Pass Through Trust and payments of principal of,
premium, if any, and interest on such Equipment Notes will continue to be
distributed to the Certificateholders of such Pass Through Trust as originally
scheduled.
Under each Indenture the Owner Trustee has the right under certain
circumstances to cure an Indenture Event of Default that results from the
occurrence of a Lease Event of Default under the related Lease. If the Owner
Trustee chooses to exercise such cure right, the Indenture Event of Default and
consequently the Event of Default under any Pass Through Trust holding the
related Equipment Notes will be deemed to be cured. See the applicable
Prospectus Supplement for a more detailed discussion of certain provisions
described in this paragraph.
Each Pass Through Agreement provides that if an Indenture Event of Default
under an Indenture relating to Equipment Notes held in the corresponding Pass
Through Trust shall have occurred and be continuing, the Pass Through Trustee
(i) may vote all of the Equipment Notes issued under such Indenture that are
held in such Pass Through Trust, and (ii) upon the direction of the
Certificateholders evidencing fractional undivided interests aggregating not
less than a majority in interest of the Pass Through Certificates at the time
outstanding in respect of such Pass Through Trust shall vote a corresponding
majority of such Equipment Notes, in each case 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
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thereon to be due and payable. Each Pass Through Agreement also provides that if
an Indenture Event of Default under an Indenture relating to Equipment Notes
held in the corresponding Pass Through Trust shall have occurred and be
continuing, the Pass Through Trustee may, and upon the direction of the
Certificateholders evidencing fractional undivided interests aggregating not
less than a majority in interest of the Pass Through Certificates at the time
outstanding in respect of such Pass Through Trust shall, vote Equipment Notes
issued under such Indenture that are held in such Pass Through Trust 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. (Pass Through Agreement, Sections 6.01 and 6.04)
If the Equipment Notes outstanding under an Indenture are held by more than
one Pass Through Trust, then the ability of the Certificateholders of any one
Pass Through Trust to cause the Indenture Trustee for any Equipment Notes held
in such Pass Through Trust to accelerate the payment on such Equipment Notes
under the related Indenture or to direct the exercise of remedies by such
Indenture Trustee under the related Indenture will depend, in part, upon the
proportion between the aggregate principal amount of the Equipment Notes
outstanding under such Indenture and held in such Pass Through Trust and the
aggregate principal amount of all Equipment Notes outstanding under such
Indenture. If the Equipment Notes outstanding under an Indenture are held by
more than one Pass Through Trust, then each such Pass Through Trust will hold
Equipment Notes with different terms from those of the Equipment Notes held in
any other Pass Through Trust and, therefore, the Certificateholders of a Pass
Through Trust may have divergent or conflicting interests from those of the
Certificateholders of the other Pass Through Trusts holding Equipment Notes
relating to the same Indenture. In addition, so long as the same institution or
an affiliate of such institution acts as Pass Through Trustee of each Pass
Through Trust, in the absence of instructions from the Certificateholders of any
such Pass Through Trust, the Pass Through Trustee for such Pass Through Trust
could for the same reason be faced with a potential conflict of interest upon an
Indenture Event of Default. In such event, the initial Pass Through Trustee has
indicated that it would resign as Pass Through Trustee of one or all of such
Pass Through Trusts, and a successor pass through trustee would be appointed in
accordance with the terms of the applicable Pass Through Agreement. See "The
Pass Through Trustee; the Indenture Trustee" below for a discussion of
resignation procedures.
As an additional remedy, if an Indenture Event of Default under an
Indenture has occurred and is continuing, each Pass Through Agreement provides
that the Pass Through Trustee of the corresponding Pass Through Trust holding
Equipment Notes issued under such Indenture may, and upon the direction of the
Certificateholders evidencing fractional undivided interests aggregating not
less than a majority in interest of the Pass Through Certificates at the time
outstanding in respect of such Pass Through Trust will, sell all or part of such
Equipment Notes for cash to any person at a price or prices that it may
reasonably deem advisable. Any proceeds received by such Pass Through Trust upon
any such sale will be deposited in the Special Payments Account for such Pass
Through Trust and will be distributed to the Certificateholders of such Pass
Through Trust on a Special Distribution Date. (Pass Through Agreement, Sections
6.01 and 6.02) 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.
Furthermore, so long as the same institution or any affiliate of such
institution acts as Pass Through Trustee of each Pass Through Trust, it may be
faced with a conflict in deciding from which Pass Through Trust to sell
Equipment Notes to available buyers. If the Pass Through Trustee sells any such
Equipment Notes with respect to which an Indenture Event of Default exists for
less than the outstanding principal amount thereof, the Certificateholders of
such Pass Through Trust will receive a smaller amount of principal distributions
than anticipated and will not have any claim for the shortfall against the Pass
Through Trustee, the Company, the Owner Trust, the Owner Trustee or any related
Owner Participant. Furthermore, neither the Pass Through Trustee nor the
Certificateholders of such Pass Through Trust could take any action with respect
to any remaining Equipment Notes held in such Pass Through Trust so long as no
Indenture Event of Default existed with respect thereto.
For any Pass Through Trust, any amount distributed to the Pass Through
Trustee by the Indenture Trustee under any Indenture on account of the Equipment
Notes held in such Pass Through Trust following an Indenture Event of Default
under such Indenture will be deposited in the Special Payments Account for
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such Pass Through Trust and will be distributed to the Certificateholders of
such Pass Through Trust on a Special Distribution Date. In addition, if,
following an Indenture Event of Default under any Indenture, the related Owner
Trustee exercises its option, if any, to prepay or purchase the outstanding
Equipment Notes issued under such Indenture as described in the related
Prospectus Supplement, the price paid by such Owner Trustee to the Pass Through
Trustee for such Equipment Notes held in such Pass Through Trust will be
deposited in the related Special Payments Account and will be distributed to the
Certificateholders of such Pass Through Trust on a Special Distribution Date.
Such price must be at least equal to the outstanding principal amount of such
Equipment Notes plus accrued and unpaid interest thereon. (Pass Through
Agreement, Sections 4.01 and 4.02)
Any funds representing payments received with respect to any Equipment
Notes held in a Pass Through Trust in default, or the proceeds from the sale by
the Pass Through Trustee of any such Equipment Notes, held by the Pass Through
Trustee in the Special Payments Account for such Pass Through Trust will, to the
extent practicable, be invested by the Pass Through Trustee in Permitted
Investments pending the distribution of such funds on a Special Distribution
Date. (Pass Through Agreement, Article I and Section 4.04)
Each Pass Through Agreement provides that the Pass Through Trustee will,
within 90 days after the occurrence of a default (as defined below) under the
corresponding Pass Through Trust, notify the Certificateholders of such Pass
Through Trust by mail of all uncured or unwaived defaults with respect to such
Pass Through Trust known to it. The Pass Through Trustee will be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interests of such Certificateholders, except in the case
of default in the payment of principal of, premium, if any, or interest on any
of the Equipment Notes held in such Pass Through Trust. The term "default," for
the purpose of the provision described in this paragraph only, means the
occurrence of any Event of Default with respect to a Pass Through Trust as
described above, except that in determining whether any such Event of Default
has occurred any grace period or notice in connection therewith shall be
disregarded. (Pass Through Agreement, Section 7.02)
Each Pass Through Agreement provides that for the corresponding Pass
Through Trust, subject to the duty of the Pass Through Trustee during a default
to act with the required standard of care, the Pass Through Trustee is entitled
to be indemnified by the Certificateholders of such Pass Through Trust before
proceeding to exercise any right or power under such Pass Through Trust at the
request of such Certificateholders. (Pass Through Agreement, Section 7.03)
In certain cases, the Certificateholders of a Pass Through Trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of the Pass Through Certificates at the time outstanding in respect of such Pass
Through Trust may on behalf of all the Certificateholders of such Pass Through
Trust waive any past default or Event of Default with respect to such Pass
Through Trust and thereby annul any direction given by such Certificateholders
to the Pass Through Trustee or the related Indenture Trustee with respect
thereto, except (i) a default in the deposit or distribution of any Scheduled
Payment or Special Payment, (ii) a default in payment of the principal of,
premium, if any, or interest on any of the Equipment Notes held in such Pass
Through Trust and (iii) a default in respect of any covenant or provision of the
corresponding Pass Through Agreement that cannot be modified or amended without
the consent of each Certificateholder of such Pass Through Trust affected
thereby. Any such waiver, however, will be effective to waive any such past
default or Event of Default if, but only if, the correlative Indenture Event of
Default has been waived under the related Indenture by the requisite holders of
the Equipment Notes outstanding thereunder. (Pass Through Agreement, Section
6.05)
Each Indenture provides that, with certain exceptions, the holders of a
majority in aggregate unpaid principal amount of the Equipment Notes issued
thereunder may on behalf of all such holders waive any past default or Indenture
Event of Default thereunder. If, as described above, the Certificateholders of a
Pass Through Trust elect to waive a past default or Event of Default with
respect to such Pass Through Trust, the principal amount of the Equipment Notes
issued under the related Indenture and held in such Pass Through Trust will be
counted in favor of the waiver of the corresponding past default or Indenture
Event of Default under the related Indenture when the Indenture Trustee
determines whether such past default or Indenture Event of Default has been
waived by the requisite majority in aggregate unpaid principal amount of
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Equipment Notes under such Indenture. If, for example, the Equipment Notes
issued under an Indenture held in a Pass Through Trust constitute only 45% in
aggregate unpaid principal amount of the Equipment Notes issued and unpaid under
such Indenture, even if all the Certificateholders of such Pass Through Trust
were to instruct the Pass Through Trustee not to waive a past default or Event
of Default with respect to such Pass Through Trust and, consequently, to vote
such Equipment Notes against the waiver of the corresponding past default or
Indenture Event of Default under such Indenture, the Equipment Notes so voted by
the Pass Through Trustee on behalf of such Pass Through Trust would not alone be
sufficient under the terms of such Indenture to compel the Indenture Trustee to
refrain from giving such waiver. Moreover, there would be no assurance that the
Certificateholders of any other Pass Through Trust holding Equipment Notes
issued under such Indenture would at such time vote such Equipment Notes against
such waiver. Therefore, if the Certificateholders of a Pass Through Trust or
Pass Through Trusts waive a past default or Event of Default such that the
principal amount of the Equipment Notes held either individually in such Pass
Through Trust or in the aggregate in such Pass Through Trusts constitutes the
required majority in aggregate unpaid principal amount under the applicable
Indenture, such past default or Indenture Event of Default under such Indenture
will be waived whether or not the Certificateholders of any other Pass Through
Trust holding Equipment Notes issued under such Indenture waive such past
default or Event of Default with respect to such other Pass Through Trust.
MODIFICATIONS OF THE AGREEMENTS
Each Pass Through Agreement contains provisions permitting the Company and
the Pass Through Trustee to enter into an agreement supplemental to the
corresponding Pass Through Trust, without the consent of the Certificateholders
of such Pass Through Trust, to (i) evidence the succession of another
corporation to the Company and the assumption by such corporation of the
Company's obligations under such Pass Through Agreement, (ii) add to the
covenants of the Company for the protection of the related Certificateholders,
(iii) surrender any right or power conferred upon the Company in such Pass
Through Agreement, (iv) cure any ambiguity or correct or supplement any
defective or inconsistent provision of such Pass Through Agreement, or make any
other provisions in regard to matters or questions arising thereunder, provided
that such action will not adversely affect the interests of the related
Certificateholders, (v) correct or amplify the description of property that
constitutes Trust Property or the conveyance of such property to the Pass
Through Trustee, (vi) evidence and provide for a successor Pass Through Trustee
for such Pass Through Trust, (vii) modify, eliminate or add to the provisions of
such Pass Through Agreement to the extent necessary to qualify such Pass Through
Agreement under the Trust Indenture Act or any similar federal statute enacted
thereafter, or (viii) add, eliminate or change any provision under such Pass
Through Agreement that will not adversely affect the interests of the
Certificateholders, provided that in each case such modification does not cause
the corresponding Pass Through Trust to become taxable as an "association,"
within the meaning of Treasury Regulation Section 301.7701-4 (Pass Through
Agreement, Section 9.01).
Each Pass Through Agreement also provides that 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 Certificates at the time outstanding in respect of the
corresponding Pass Through Trust, may execute supplemental agreements adding any
provisions to or changing or eliminating any of the provisions of such Pass
Through Agreement or modifying the rights of such Certificateholders. No such
supplemental agreement may, however, without the consent of each such
Certificateholder 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 held in such Pass Through Trust, or distributions in respect of
any Pass Through Certificate of such Pass Through Trust, or change any date of
payment on any such Pass Through Certificate or change the place of payment
where, or the coin or currency in which, such Pass Through Certificates are
payable, or impair the right of any such Certificateholder to institute suit for
the enforcement of any payment when due, (b) except as provided in such Pass
Through Agreement, permit the disposition of any Equipment Note held in such
Pass Through Trust, or permit the creation of any lien on the Trust Property or
otherwise deprive any Certificateholder of the benefit of the ownership of the
Equipment Notes held in such Pass Through Trust or the lien of the related
Indenture, (c) reduce the percentage of the aggregate fractional undivided
interests of such Pass Through Trust that is required to approve any
supplemental agreement or any
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waiver provided for in such Pass Through Agreement or (d) cause the Pass Through
Trust to become taxable as an "association," within the meaning of Treasury
Regulation Section 301.7701-4. (Pass Through Agreement, Section 9.02)
MODIFICATIONS, CONSENTS AND WAIVERS UNDER THE INDENTURES AND RELATED AGREEMENTS
If the Pass Through Trustee, as the holder of any Equipment Notes held in a
Pass Through Trust, receives a request for its consent to any amendment,
modification, waiver or supplement under the Indenture or other document
relating to such Equipment Notes (including any Lease), the Pass Through Trustee
will mail a notice of such proposed amendment, modification, waiver or
supplement to each Certificateholder of such Pass Through Trust as of the date
of such notice. The Pass Through Trustee will request instructions from such
Certificateholders as to whether or not to consent to such amendment,
modification, waiver or supplement. The Pass Through Trustee will vote or
consent with respect to such Equipment Notes in the same proportion as the Pass
Through Certificates of such Pass Through Trust are actually voted by such
Certificateholders by a certain date specified in such notice to
Certificateholders. If an Event of Default relating to such Indenture has
occurred and is continuing under such Pass Through Trust, the Pass Through
Trustee may, in the absence of instructions from Certificateholders holding a
majority in interest of the Pass Through Certificates at the time outstanding in
respect of such Pass Through Trust, in its own discretion consent to such
amendment, modification, waiver or supplement, and may so notify the related
Indenture Trustee. (Pass Through Agreement, Section 10.01)
TERMINATION OF PASS THROUGH TRUSTS
The obligations of the Company and the Pass Through Trustee with respect to
a Pass Through Trust will terminate upon the distribution to the
Certificateholders of such Pass Through Trust of all amounts required to be
distributed to them pursuant to the corresponding Pass Through Agreement and the
disposition of all property held in such Pass Through Trust. The Pass Through
Trustee will notify each Certificateholder of record of such Pass Through Trust
by mail of, among other things, the termination of such Pass Through Trust, the
amount of the proposed final payment and the proposed date for the distribution
of such final payment for such Pass Through Trust. The final distribution for
each Certificateholder of such Pass Through Trust will be made only upon
surrender of such Certificateholder's Pass Through Certificates at the office or
agency of the Pass Through Trustee specified in such termination notice. (Pass
Through Agreement, Section 11.01)
THE PASS THROUGH TRUSTEE; THE INDENTURE TRUSTEE
Shawmut Bank Connecticut, National Association will be the initial Pass
Through Trustee for each of the Pass Through Trusts. The Pass Through Trustee
and any of its affiliates may hold Pass Through Certificates in their own names.
(Pass Through Agreement, Section 7.05)
Unless otherwise specified in the related Prospectus Supplement, Shawmut
Bank Connecticut, National Association may also be the Indenture Trustee under
the Indentures under which the Equipment Notes have been or will be issued.
Shawmut Bank Connecticut, National Association may act as trustee under other
indentures with respect to other indebtedness of the Company. The Company from
time to time may borrow from, and maintain deposit accounts with, Shawmut Bank
Connecticut, National Association and its affiliates.
The Pass Through Trustee may resign under any or all of the Pass Through
Trusts at any time. The Pass Through Trustee is required to resign with respect
to a Pass Through Trust if it obtains knowledge of an Avoidable Tax (generally,
a state or local tax on such Pass Through Trust or its Certificateholders that
would be avoided if the Pass Through Trustee were located in another state)
unless the Company or the Owner Trustee pays such tax. If the Pass Through
Trustee fails to comply with Section 310 of the Trust Indenture Act or ceases to
be eligible to continue as Pass Through Trustee with respect to a Pass Through
Trust and, in either such case, fails to so comply or to resign after written
request by any Certificateholder that has been a bona fide Certificateholder of
the applicable Pass Through Trust for at least six months or if the Pass Through
Trustee becomes incapable of acting as Pass Through Trustee or becomes
insolvent, then the Company may
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remove such Pass Through Trustee, or any Certificateholder of such Pass Through
Trust for at least six months may, 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. In addition,
the Pass Through Trustee of any Pass Through Trust may be removed without cause
by the Certificateholders holding more than 50% in aggregate amount of the
related Pass Through Certificates. In the case of the resignation or removal of
the Pass Through Trustee, the Company will appoint a successor, subject to the
right of the Certificateholders holding more than 50% in aggregate amount of the
related Pass Through Certificates to appoint a different successor within one
year thereafter. If no successor Pass Through Trustee is appointed and accepts
its appointment, then any Certificateholder that has been a bona fide
Certificateholder of the relevant Pass Through Trust for at least six months
may, or the resigning Pass Through Trustee may, petition a court for the
appointment of a successor. The resignation or removal of the Pass Through
Trustee for any Pass Through Trust and the appointment of the successor trustee
for such Pass Through Trust does not become effective until acceptance of the
appointment by the successor trustee. (Pass Through Agreement, Section 7.09)
Pursuant to such resignation and successor trustee provisions, it is possible
that a different trustee could be appointed to act as the successor trustee with
respect to each Pass Through Trust. All references in this Prospectus to the
Pass Through Trustee are to the respective trustees acting in such capacity
under each of the Pass Through Trusts and should be read to take into account
the possibility that each of the Pass Through Trusts could have a different
successor trustee in the event of such a resignation or removal.
Each Pass Through Agreement provides that the Company will pay the Pass
Through Trustee's fees and expenses. Each Pass Through Agreement further
provides that the Pass Through Trustee in its individual capacity will be
entitled to indemnification by the Company for, and will be held harmless
against, any loss, liability or expense and any tax (other than taxes
attributable to the Pass Through Trustee's compensation) incurred by the Pass
Through Trustee in its individual capacity in connection with the acceptance or
administration of the corresponding Pass Through Trust to the extent provided in
the applicable Participation Agreement (see "Description of the Equipment
Notes -- The Participation Agreements"). In certain circumstances, the Pass
Through Trustee will be entitled to be reimbursed from, and will have a lien
prior to the Pass Through Certificates upon, the applicable Pass Through Trust
for any tax (other than income or similar taxes) incurred in its trust capacity
in connection with the acceptance or administration of such Pass Through Trust.
(Pass Through Agreement, Section 7.07)
DESCRIPTION OF THE EQUIPMENT NOTES
The discussion that follows is a summary that does not purport to be
complete and is qualified in its entirety by the detailed information appearing
in the applicable Prospectus Supplement. The following summary includes
descriptions of the material terms of the Equipment Notes and the Indentures.
Except as otherwise indicated below or as described in the applicable Prospectus
Supplement, the following summary applies to the Equipment Notes, the
Indentures, the Leases and the Participation Agreements related to the
Equipment. Additional provisions with respect to the Equipment Notes, the
Indentures, the Leases and the Participation Agreements relating to any
particular offering of Pass Through Certificates will be described in the
applicable Prospectus Supplement. To the extent that any provision in any
Prospectus Supplement is inconsistent with any provision of this summary, the
provision of such Prospectus Supplement will control.
GENERAL
The Equipment Notes will be issued as nonrecourse obligations of the
applicable Owner Trust, in each case by the Owner Trustee under such Owner Trust
for the benefit of the Owner Participant under such Owner Trust, and will be
authenticated under an Indenture by the Indenture Trustee. All of the Equipment
Notes issued under the same Indenture will relate to, and will be secured by,
one or more items of Equipment identified and described in the relevant
Prospectus Supplement which are or will be leased to the Company pursuant to a
Lease between the Owner Trustee under the applicable Owner Trust and the
Company. The Equipment subject to each Lease and the Equipment Notes issued
under the related Indenture will be identified and described in the applicable
Prospectus Supplement. Under each Lease of Equipment, the Company will be
obligated to make rental payments that will be at least equal to the scheduled
payments of
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principal of and interest on the related Equipment Notes when, and as scheduled
to be, due and payable. The Equipment Notes will not, however, be obligations
of, or guaranteed by, the Company. The Company's obligations to pay rent and to
cause other payments to be made under each Lease will be general obligations of
the Company.
PRINCIPAL AND INTEREST PAYMENTS
Interest received by the Pass Through Trustee on the Equipment Notes
constituting Trust Property of each Pass Through Trust will be passed through to
the Certificateholders of such Pass Through Trust on a pro rata basis on the
dates and at the rate per annum set forth in the applicable Prospectus
Supplement. Interest on the Equipment Notes will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
Each Pass Through Trust will hold Equipment Notes on which principal is
payable in scheduled amounts and on specified dates as set forth in the
applicable Prospectus Supplement. Principal received by the Pass Through Trustee
on such Equipment Notes will be passed through to the Certificateholders of such
Pass Through Trust on a pro rata basis as set forth in the applicable Prospectus
Supplement.
PREPAYMENT
The applicable Prospectus Supplement will describe the circumstances,
whether voluntary or involuntary, under which the related Equipment Notes may or
must be prepaid prior to the stated maturity date thereof, in whole or in part,
the premium, if any, applicable upon certain prepayments and other terms
applying to the prepayment of such Equipment Notes.
SECURITY
The Equipment Notes issued under each of the Indentures will be secured by
(i) an assignment by the related Owner Trust to the Indenture Trustee of such
Owner Trust's rights (except for certain limited rights described below) under
the Lease or Leases to which it is a party covering the related item or items of
Equipment including the right to receive rent and other payments thereunder,
(ii) a security interest granted to the Indenture Trustee in such related
Equipment, subject to the rights of the Company under such Lease or Leases and
to certain other permitted liens and encumbrances. The assignment by the Owner
Trust to the Indenture Trustee of its rights under each Lease will exclude
rights of the Owner Trustee and the related Owner Participant relating to (i)
indemnification by the Company for certain matters, (ii) proceeds of public
liability insurance payable to the Owner Trustee and the Indenture Trustee in
their respective individual capacities and to the Owner Participant under
insurance maintained by the Company under such Lease and (iii) proceeds of any
insurance policies separately maintained by such Owner Trustee in its individual
capacity or by such Owner Participant. The right of the Indenture Trustee,
however, to exercise any of the rights of the Owner Trustee under the related
Lease, except the right to receive payments of rent due thereunder, will be
subject to certain limitations as described in the applicable Prospectus
Supplement.
There will be no cross-collateralization provisions in the Indentures and
consequently the Equipment Notes issued by an Owner Trust will not be secured by
any items of Equipment held by any other Owner Trust or the Leases relating
thereto. There will be no cross-default provisions in the Indentures and
consequently events resulting in an Indenture Event of Default under any
particular Indenture may not result in an Indenture Event of Default occurring
under any other Indenture.
PAYMENTS AND LIMITATIONS OF LIABILITY
All payments of principal, of premium, if any, and interest on any
Equipment Notes will be made only from the assets subject to the lien of the
related Indenture or the income and proceeds received by the Indenture Trustee
therefrom, including rent payable by the Company under the related Lease. The
Equipment Notes will not be direct obligations of, or guaranteed by, the
Company. The Company's obligations to pay rent and to cause other payments to be
made under each Lease will be general obligations of the Company.
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<PAGE> 44
Neither the Owner Trustee nor the Indenture Trustee (in their individual
capacities) nor any Owner Participant will be liable to any Certificateholder
or, in the case of the Owner Trustee, in its individual capacity, to the Company
or the Indenture Trustee for any amounts payable under the Equipment Notes or
the Indentures or, except as provided in the Indentures and the Participation
Agreements and except for the gross negligence or willful misconduct of the
Owner Trustee, for any liability thereunder.
INDENTURE EVENTS OF DEFAULT AND REMEDIES
For any Pass Through Trust, the applicable Prospectus Supplement will
describe the Indenture Events of Default under the Indentures related to the
Equipment Notes to be held by such Pass Through Trust, the remedies that the
related Indenture Trustee may exercise with respect to the related Equipment,
either at their own initiative or upon instructions from holders of the related
Equipment Notes, and other provisions relating to the occurrence of an Indenture
Event of Default the exercise of remedies and any limitations or restrictions
thereon. There will be 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.
THE LEASES
The following terms are applicable to each Lease:
Terms and Rentals. Each item of Equipment is or will be leased by an
Owner Trust to the Company for a term commencing on the date of the Owner
Trustee's acceptance thereof pursuant to the related Participation
Agreement and expiring on a date not earlier than the latest maturity date
of the related Equipment Notes, unless previously terminated or extended,
as permitted by the related Lease. The scheduled rental payments by the
Company under each Lease will be payable on the dates specified in the
applicable Prospectus Supplement. Such rental payments will be assigned
under the related Indenture by the Owner Trust to the Indenture Trustee to
provide the funds necessary to make payments of principal and interest due
from such Owner Trust on the Equipment Notes issued under such Indenture.
Any Prospectus Supplement may provide that, under certain circumstances,
the scheduled rental payments under any applicable Lease may be adjusted;
in that case, however, each such Lease will provide that under no
circumstances will the adjusted rental payments that the Company will be
unconditionally obligated to make or cause to be made under such Lease and
any other Lease to which the same Owner Trust is a party, after such
adjustment be less than the scheduled payments of principal and interest on
the Equipment Notes issued under the Indenture relating to such Lease or
Leases. See "Description of the Equipment Notes -- Payments and Limitations
of Liability." Scheduled payments of principal and interest on the
Equipment Notes will be made on the dates specified in the applicable
Prospectus Supplement.
Net Lease. The Company's obligations under each Lease in respect of
the Equipment leased thereunder will be those of a lessee under a "net
lease." Accordingly, the Company will be obligated to pay all costs of
operating the Equipment and its expenses, to maintain, service, repair and
overhaul the Equipment so as to keep the Equipment in good condition,
ordinary wear and tear excepted, and in a manner consistent with the
Company's maintenance practices in respect of similar equipment owned or
leased by it. In the case of a Lease of an Aircraft, the Company will be
obligated to maintain the airworthiness certification of such Aircraft in
good standing at all times under the Federal Aviation Act. Generally, the
Company will be obligated to replace or cause to be replaced all parts that
may from time to time be incorporated or installed in or attached to any
item of Equipment and that may become worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently rendered unfit
for use. The Company will be obligated to make all modifications to the
Equipment which are required by law and will have the right to make other
alterations, modifications and additions to the Equipment so long as such
alterations, modifications or additions do not materially decrease the
value, utility or remaining economic useful life of such Equipment. See the
applicable Prospectus Supplement for a description of certain limitations,
if any, applicable to provisions described in this paragraph.
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<PAGE> 45
Insurance. Unless otherwise indicated in the applicable Prospectus
Supplement the Company will, at its own expense, cause to be carried and
maintained with insurance companies (which may be captive insurance
companies affiliated with the Company) (i) physical damage insurance in
respect of all Equipment and (ii) public liability insurance with respect
to third-party personal injury and property damage, in such amounts and
against such risks at least equal to those customarily insured against by
the Company in respect of equipment owned or leased by it similar in type
to the Equipment. There is no assurance that any insurance will be carried
in the future, or, if it is carried, as to the amount of such insurance or
as to the amount of the deductible limits in respect of such insurance. See
the applicable Prospectus Supplement for a description of any insurance
obligations of the Company not described in this paragraph or any
limitations applicable to provisions described in this paragraph.
Lease Events of Default; Remedies. The applicable Prospectus
Supplement will describe the Lease Events of Default under the related
Leases, the remedies that the Owner Trustee may exercise with respect to
the related Equipment, and other provisions relating to the occurrence of a
Lease Event of Default and the exercise of remedies.
THE PARTICIPATION AGREEMENTS
In each Participation Agreement the Company makes certain representations
relating to itself and the related Equipment. Each Participation Agreement
provides that the Company will indemnify each Indenture Trustee, each Owner
Participant, the Owner Trustee and the Pass Through Trustee, and certain parties
affiliated with the foregoing (but not including holders of the Equipment Notes
or the Certificateholders), for certain liabilities, losses, fees and expenses
and for certain other matters arising out of the transactions described herein
or relating to the applicable Equipment or the use thereof. In addition, under
certain circumstances the Company will be required to indemnify such persons
against certain taxes, levies and duties and for certain other matters relating
to such transactions or the applicable Equipment. Subject to certain
restrictions, each Participation Agreement permits the related Owner Participant
to convey all of its right, title and interest in the related Owner Trust.
Moreover, if so provided in the applicable Prospectus Supplement, a
Participation Agreement may provide that, in certain circumstances the Company
may assume the related Owner Trust's obligation under the related Equipment
Notes on a full recourse basis upon a purchase of the related Equipment by the
Company.
Each Participation Agreement also provides that the Company will be
prohibited from consolidating with or merging into any other corporation under
circumstances in which the Company is not the surviving corporation, or from
conveying, transferring or leasing all or substantially all of its assets as an
entirety to any person, unless among other things, (i) the successor or
transferee corporation expressly assumes all the obligations of the Company
contained in such Participation Agreement, the related Lease and certain other
related agreements and (ii) immediately before and after giving effect to such
transaction, no Lease Event of Default under the related Lease shall be in
existence.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Simpson Thacher & Bartlett, tax counsel to the Company,
the following discussion accurately describes the principal United States
federal income tax consequences of ownership and disposition of the Pass Through
Certificates, and should be read in conjunction with any additional discussion
of federal income tax consequences included in the applicable Prospectus
Supplement. This opinion is based on laws, regulations, rulings and decisions in
effect as of the date hereof. Changes to existing law, which could have
retroactive effect, may alter the consequences described below. This opinion
does not purport to address federal income tax consequences applicable to
particular categories of investors, some of which (for example, insurance
companies and foreign investors) may be subject to special rules. This summary
discusses only Pass Through Certificates held as capital assets for federal
income tax purposes. Persons considering purchasing interests in Pass Through
Certificates should consult their own tax advisors with regard to the
application of the United States federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state,
local or foreign jurisdiction. The Pass Through Trusts are not indemnified for
any
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<PAGE> 46
federal income taxes that may be imposed upon them, and the imposition of any
such taxes on a Pass Through Trust would result in a reduction in the amounts
available for distribution to the Certificateholders of such Pass Through Trust.
GENERAL
The Pass Through Trusts will not be classified as associations taxable as
corporations, but rather, will be classified as grantor trusts under Section 671
of the Internal Revenue Code of 1986, as amended (the "Code"), 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 related Pass
Through Trust.
Each Certificateholder will be required to report on its federal income tax
return its pro rata share of the entire income from each of the Equipment Notes
and any other property held in the related Pass Through Trust in accordance with
such Certificateholder's method of accounting. A Certificateholder using the
cash method of accounting must take into account its pro rata share of income as
and when such income is considered to have been received by the Pass Through
Trustee. A Certificateholder using an accrual method of accounting must take
into account its pro rata share of income as it accrues or is received by the
Pass Through Trustee, whichever is earlier. Each Certificateholder will
generally be entitled to deduct its share of the Pass Through Trustee's fees and
expenses incurred in connection with its administration of the related Pass
Through Trust. However, a noncorporate Certificateholder's allocable share of
the Pass Through Trustee's fees and expenses may be a "miscellaneous itemized
deduction" as defined in Section 67 of the Code. Under that Section,
"miscellaneous itemized deductions" will be deductible by a noncorporate
Certificateholder only to the extent that the aggregate of such deductions
(including those arising from transactions unrelated to holding the Pass Through
Certificates) exceed 2% of such Certificateholder's adjusted gross income.
A purchaser of an interest in a Pass Through Certificate will be treated as
purchasing an interest in each Equipment Note and any other property in the
related Pass Through Trust at a price determined by allocating the purchase
price paid for the Pass Through Certificate among such Equipment Notes and other
property in proportion to their relative fair market values at the time of
purchase of the Pass Through Certificate. Unless otherwise indicated in a
Prospectus Supplement, the Company anticipates that when all the Equipment Notes
have been acquired by the related Pass Through Trust, the purchase price paid
for a Pass Through Certificate of such Pass Through Trust by an original
purchaser of such Pass Through Certificate should be allocated among the
Equipment Notes held in such Pass Through Trust in proportion to their
respective principal amounts.
If an Equipment Note held by a Pass Through Trust is prepaid, a
Certificateholder will be considered to have sold his pro rata share of that
Equipment Note, and will recognize gain or loss equal to the difference between
its aggregate adjusted basis in the Equipment Note and the amount realized on
the sale (except to the extent attributable to accrued interest, which would be
taxable as interest income if not previously included in income). Subject to the
market discount provisions of the Code (described below), any such gain or loss
will be long-term capital gain or loss if the Equipment Note is considered to
have been held for more than one year. Net capital gains of individuals are,
under certain circumstances, taxed at lower rates than items of ordinary income.
With respect to the Equipment Notes, although the matter is not entirely free
from doubt, an Owner Participant's conveyance of its interest in an Owner Trust
will not constitute a taxable event to the holders of interests in the related
Equipment Notes. If the Company were to assume an Owner Trust's obligations
under the related Equipment Notes upon a purchase of the related Equipment by
the Company, such assumption would be treated as a taxable exchange of the
respective Equipment Notes resulting in the recognition of taxable gain or loss
under the rules discussed above. For this purpose the amount realized will be
equal to the fair market value of the Certificateholder's pro rata share of the
respective Equipment Notes at such time. However, under proposed Treasury
regulations not currently in effect, the Company's assumption of the Owner
Trust's obligations under the circumstances described above would not be treated
as a taxable exchange of the Equipment Notes. It is impossible to predict
whether, or in what form, final or temporary regulations might be promulgated
and what the substance or effective date of such regulations might be.
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SALES OR EXCHANGES OF PASS THROUGH CERTIFICATES
A Certificateholder that sells or exchanges a Pass Through Certificate will
be considered to have sold his pro rata portion of the property held by the Pass
Through Trust, and will recognize gain or loss on the basis discussed in the
preceding paragraph.
MARKET DISCOUNT
A purchaser of a Pass Through Certificate generally will be considered to
have acquired an interest in an Equipment Note at a "market discount" to the
extent the remaining principal amount of such Equipment Note allocable to the
Pass Through Certificate exceeds the Certificateholder's tax basis allocable to
such Equipment Note, unless the excess does not exceed a prescribed de minimis
amount. In the event such excess exceeds the de minimis amount, the
Certificateholder will be subject to the market discount rules of Sections 1276
through 1278 of the Code with regard to its interest in such Equipment Note.
In the case of a sale or certain other disposition of indebtedness subject
to the market discount rules, Section 1276 of the Code requires that gain, if
any, from such sale or disposition be treated as ordinary income to the extent
such gain represents a market discount that has accrued during the period such
indebtedness was held. If such indebtedness is disposed of in a nontaxable
transaction (other than a nonrecognition transaction described in Code Section
1276(d)), accrued market discount will be includable as ordinary income as if
the Certificateholder had sold the Equipment Note at its then market value.
In the case of a partial principal payment on indebtedness subject to the
market discount rules, Section 1276 of the Code requires that such payment be
included in gross income as ordinary income to the extent such payment does not
exceed the market discount that has accrued during the period such indebtedness
was held. The amount of any accrued market discount later required to be
included in income upon a disposition or subsequent partial principal payment
will be reduced by the amount of accrued market discount previously included in
income.
Generally, market discount accrues under a straight line method or, at the
election of the taxpayer, a constant interest method. However, in the case of
installment obligations (such as the Equipment Notes), the manner in which the
market discount is to be accrued has been left to Treasury regulations not yet
promulgated. Until such Treasury regulations are issued, the explanatory
Conference Report to the Tax Reform Act of 1986 (the "Conference Report")
indicates that holders of installment obligations with a market discount (which
do not have original issue discount) may elect to accrue the market discount
either on the basis of a constant interest rate or as follows: the amount of the
market discount that is deemed to accrue is the amount of the market discount
that bears the same ratio to the total amount of the remaining market discount
that the amount of stated interest paid in the accrual period bears to the total
amount of stated interest remaining to be paid on the installment obligation as
of the beginning of such period.
Under Section 1277 of the Code, if in any taxable year interest paid or
accrued on indebtedness incurred or continued to purchase or carry indebtedness
subject to the market discount rules exceeds the interest currently includable
in income with respect to such indebtedness, deduction of the excess interest
must be deferred to the extent of the market discount allocable to the taxable
year. The deferred portion of any interest expense will generally be deductible
when such market discount is included in income upon the sale or other
disposition (including repayment) of the indebtedness.
Section 1278 of the Code allows a taxpayer to make an election to include
market discount in his gross income currently. If such election is made, the
rules of Sections 1276 and 1277 (described above) will not apply to the
taxpayer.
PREMIUM
A Certificateholder will be considered to have acquired an interest in an
Equipment Note at a premium to the extent such Certificateholder's tax basis
allocable to such Equipment Note exceeds the remaining principal amount of such
Equipment Note allocable to such Certificateholder's Pass Through Certificate.
In that event, a Certificateholder that holds such Pass Through Certificate as a
capital asset may elect (in
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<PAGE> 48
accordance with applicable Code provisions) to amortize such premium as an
offset to interest income under Section 171 of the Code with corresponding
reductions in the Certificateholder's tax basis in such Equipment Note.
Generally, such amortization is on a constant yield basis. In the case of
installment obligations (such as the Equipment Notes), however, the Conference
Report indicates a Congressional intent that amortization will be in accordance
with the same rules that will apply to the accrual of market discount on
installment obligations. See "Market Discount."
Since the Equipment Notes may be called at a premium prior to maturity,
amortizable premium may be determined by reference to an early call date. Due to
the complexities of the amortizable premium rules, particularly where there is
more than one possible call date and the amount of any premium is uncertain,
Certificateholders are urged to consult their tax advisors as to the amount of
any such amortizable premium.
If a Certificateholder acquires an interest in an Equipment Note at a
premium and elects to amortize such premium, and the Internal Revenue Service
successfully challenges the amount of amortization claimed for a particular
period, then such Certificate Owner would be precluded from offsetting interest
income on the Equipment Note for such period with the amount of the disallowed
amortization, and the basis of such Equipment Note would be increased
accordingly.
ORIGINAL ISSUE DISCOUNT
Under a reasonable interpretation of applicable Treasury regulations on
original issue discount, it is not anticipated that the Equipment Notes (and,
consequently, the Pass Through Certificates) will be issued with original issue
discount.
BACKUP WITHHOLDING
Payments made on the Pass Through Certificates, and proceeds from the sale
or exchange of the Pass Through Certificates to or through certain brokers, may
be subject to a "backup" withholding tax of 31% unless the Certificateholder
complies with certain reporting procedures or is an exempt recipient under the
Code. Any such withholding amounts will be allowed as a credit against the
Certificateholder's federal income tax and may entitle such Certificateholder to
a refund, provided that the required information is furnished to the Internal
Revenue Service.
CERTAIN STATE TAXES
The Pass Through Trustee is a national banking association with its
corporate trust office in Hartford, Connecticut. Shipman & Goodwin, special
counsel for the Pass Through Trustee, has advised the Company that, in its
opinion, under currently applicable law, assuming that each Pass Through Trust
will not be classified as an association taxable as a corporation for federal
income tax purposes, but rather will be classified as a grantor trust under
Section 671 of the Code, and assuming that each Pass Through Trust does not
otherwise engage in business in Connecticut, (i) the Pass Through Trusts will
not be subject to any tax (including, without limitation, net or gross income,
tangible or intangible property, net worth, capital, franchise or doing business
tax), fee or other governmental charge under the laws of the State of
Connecticut or any political subdivision thereof and (ii) Certificateholders
that are not residents of or otherwise subject to tax in Connecticut will not be
subject to any tax (including, without limitation, net or gross income, tangible
or intangible property, net worth, capital, franchise or doing business tax),
fee or other governmental charge under the laws of the State of Connecticut or
any political subdivision thereof as a result of purchasing, owning (including
receiving payments with respect to) or selling a Pass Through Certificate.
Neither the Pass Through Trusts nor the Certificateholders will be
indemnified for any state or local taxes imposed on them, and the imposition of
any such taxes on a Pass Through Trust would result in a reduction in the
amounts available for distribution to the Certificateholders of such Pass
Through Trust. In general, should a Certificateholder or a Pass Through Trust be
subject to any State or local tax which would not be imposed if the Trustee were
located in a different jurisdiction in the United States, the Trustee will
resign and a new Trustee in such other jurisdiction will be appointed.
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<PAGE> 49
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, Pass
Through Certificates may not be purchased by, or with the assets of, any
employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or individual retirement account or
plan subject to Section 4975 of the Code unless such assets are subject to a
prohibited transaction exemption issued by the Department of Labor which
exemption applies to the purchase and holding of the Pass Through Certificates
by the applicable plan or account. In addition, certain governmental plans and
non-electing church plans are not subject to Title I of ERISA or Section 4975 of
the Code and, therefore, may purchase the Pass Through Certificates.
PLAN OF DISTRIBUTION
The Pass Through Certificates may be sold to or through underwriters,
directly to other purchasers or through agents.
The distribution of the Pass Through Certificates may be effected from time
to time in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices.
In connection with the sale of Pass Through Certificates, underwriters or
agents may receive compensation from the Company or from purchasers of Pass
Through Certificates for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters may sell Pass Through Certificates to
or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from
the purchasers for whom they may act as agents. Underwriters, dealers and agents
that participate in the distribution of Pass Through Certificates may be deemed
to be underwriters, and any discounts or commissions received by them from the
Company and any profit on the resale of Pass Through Certificates by them may be
deemed to be underwriting discounts and commissions, under the Securities Act.
Any such underwriter or agent will be identified, and any such compensation
received from the Company will be described, in the applicable Prospectus
Supplement.
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of Pass Through Certificates may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company does not intend to apply for the listing of any Series of Pass Through
Certificates on a national securities exchange. If the Pass Through Certificates
of any Series are sold to or through underwriters, the underwriters may make a
market in such Pass Through Certificates, as permitted by applicable laws and
regulations. No underwriter would be obligated, however, to make a market in
such Pass Through Certificates, and any such market-making could 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 of any Series.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with, and perform services for, the Company in the
ordinary course of business.
LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of the Pass Through Certificates offered hereby will be passed upon for
the Company by special counsel to the Company, Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York 10017, and for the underwriters and certain
other purchasers by Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue,
New York, New York 10019. Unless otherwise indicated in the applicable
Prospectus Supplement, both Simpson Thacher & Bartlett and Cravath, Swaine &
Moore may rely on the opinion of Shipman & Goodwin, counsel for Shawmut Bank
Connecticut, National Association, individually and as Pass Through Trustee, as
to matters relating to the
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<PAGE> 50
authorization, execution and delivery of the Pass Through Agreement and of each
Series of Pass Through Certificates by the Pass Through Trustee.
EXPERTS
The consolidated financial statements and schedules of the Company
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, as amended, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
schedules are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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<PAGE> 51
NO DEALER, SALESPERSON, OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Summary S-3
The Offering S-3
Phillips Petroleum Company S-9
Use of Proceeds S-9
Diagram of Payments S-9
Description of the Pass Through
Certificates S-10
Description of the Equipment Notes S-13
Underwriting S-24
Legal Matters S-25
Glossary of Certain Terms A-1
PROSPECTUS
Available Information 2
Incorporation of Certain Documents by Reference 2
Phillips Petroleum Company 3
Ratio of Earnings to Fixed Charges 3
Outline of Pass Through Trust Structure 3
Use of Proceeds 4
Description of the Pass Through
Certificates 4
Description of the Equipment Notes 14
Federal Income Tax Consequences 17
Certain State Taxes 20
ERISA Considerations 21
Plan of Distribution 21
Legal Matters 21
Experts 22
</TABLE>
Prospectus Supplement
PHILLIPS PETROLEUM
COMPANY
$15,849,013
7.67% PASS THROUGH CERTIFICATES,
SERIES 1995-1
CHEMICAL SECURITIES INC.
Dated August 17, 1995
