<PAGE> 1
Filed Pursuant to Rule 424(B)(2)
Registration No. 33-64670
PROSPECTUS SUPPLEMENT
(To Prospectus dated August 10, 1993)
$29,738,000
Consolidated Rail Corporation
1994-A Pass Through Trust
PASS THROUGH CERTIFICATES, SERIES 1994-A
------------------------
Each Pass Through Certificate, Series 1994-A (the "Certificates"), offered
hereby will represent
a fractional undivided interest in the Consolidated Rail Corporation 1994-A Pass
Through Trust (the "Trust") to be formed pursuant to a trust agreement and a
trust supplement between Consolidated Rail Corporation ("Conrail" or the
"Company") and Wilmington Trust Company (the "Trustee"), as trustee of the
Trust. The property of the Trust will consist of equipment notes (the "Equipment
Notes") issued on a nonrecourse basis by the trustee of an owner trust (the
"Owner Trustee") pursuant to a leveraged lease transaction to finance not more
than 80% of the equipment cost of 795 new steel open top quad hopper cars and 57
rebuilt 60-foot equipped boxcars (collectively, the "Equipment").
The Trust will purchase the Equipment Notes, which will have an interest
rate corresponding to the interest rate applicable to the Trust. The maturity
date of the Equipment Notes will occur on or before the final distribution date
for the Certificates. The Equipment Notes will be secured by a security interest
in the Equipment and by the Lease, including the right to receive rentals
payable in respect of such Equipment by Conrail. Although neither the
Certificates nor the Equipment Notes are direct obligations of, or guaranteed
by, Conrail, the amounts unconditionally payable by Conrail for lease of the
Equipment will be in an amount sufficient to pay in full when due all payments
of principal of, premium, if any, and interest on the Equipment Notes held in
the Trust.
Interest paid on the Equipment Notes will be passed through to the
Certificateholders on January 2 and July 2 of each year, commencing July 2,
1995, at the rate per annum set forth below and continuing until the final
distribution date set forth below. Principal paid on the Equipment Notes will be
passed through to the Certificateholders in scheduled amounts on January 2 or
July 2, or both, of each year, commencing July 2, 1996. See "Description of the
Equipment Notes -- Principal Payments." Under certain circumstances,
distributions to the Certificateholders may be made prior to the final
distribution date, as described herein.
------------------------
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
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL
PASS SCHEDULED FINAL
THROUGH PRINCIPAL INTEREST PRINCIPAL DISTRIBUTION PRICE TO
CERTIFICATES AMOUNT RATE DISTRIBUTION DATE DATE PUBLIC(1)(2)
- ----------- -------------- -------- ------------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
1994-A $29,738,000 8.45% July 2, 1996 July 2, 2014 100%
</TABLE>
- ------------
(1) Plus accrued interest, if any, from December 22, 1994.
(2) The underwriting commission of $193,297 constitutes .65% of the
principal amount of the Certificates. The underwriting commission and
certain other expenses, estimated at $325,000, will be paid by the Owner
Participant (other than certain expenses to be paid directly by
Conrail).
------------------------
The Certificates are offered by the Underwriter, subject to prior sale,
when, as and if accepted by the Underwriter and subject to approval of certain
legal matters by Shearman & Sterling, counsel for the Underwriter. It is
expected that delivery of the Certificates in book-entry form will be made on or
about December 22, 1994 through the facilities of The Depository Trust Company,
against payment therefor in immediately available funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
December 15, 1994
<PAGE> 2
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CONRAIL OR
BY THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF CONRAIL SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary................................................... S-3
The Company..................................................................... S-7
Ratio of Earnings to Fixed Charges.............................................. S-7
Use of Proceeds................................................................. S-7
Description of Payment Flows.................................................... S-8
Description of the Certificates................................................. S-9
Description of the Equipment Notes.............................................. S-11
Federal Income Tax Consequences................................................. S-20
ERISA Considerations............................................................ S-21
Underwriting.................................................................... S-21
Legal Matters................................................................... S-22
Experts......................................................................... S-22
PROSPECTUS
Available Information........................................................... 2
Incorporation of Certain Documents by Reference................................. 2
The Company..................................................................... 3
Recent Developments............................................................. 3
Formation of the Trusts......................................................... 3
Use of Proceeds................................................................. 4
Ratio of Earnings to Fixed Charges.............................................. 4
Description of the Certificates................................................. 5
Description of the Equipment Notes.............................................. 15
Federal Income Tax Consequences................................................. 18
Certain Delaware Taxes.......................................................... 20
ERISA Considerations............................................................ 21
Plan of Distribution............................................................ 21
Legal Matters................................................................... 22
Experts......................................................................... 22
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by reference to the detailed information appearing elsewhere in
this Prospectus Supplement and in the accompanying Prospectus.
THE COMPANY
Conrail, the principal subsidiary of Conrail Inc., is a rail carrier
providing freight transportation services within the northeast and midwest
United States. Conrail interchanges freight with other United States and
Canadian railroads for transport to destinations within and outside Conrail's
service region. Conrail's principal executive office is located at 2001 Market
Street, P.O. Box 41417, Philadelphia, Pennsylvania 19101-1417 (telephone number
215-209-4000).
THE OFFERING
Trust...................... The 1994-A Pass Through Trust (the "Trust") is to
be formed pursuant to the Pass Through Trust
Supplement (the "Trust Supplement") to be entered
into pursuant to the Pass Through Trust
Agreement, dated as of December 22, 1994 (the
"Basic Agreement"), between Consolidated Rail
Corporation ("Conrail") and Wilmington Trust
Company, as trustee (the "Trustee").
Trust Property............. The property of the Trust will consist of Equipment
Notes (the "Equipment Notes") issued on a
nonrecourse basis by the owner trustee (the
"Owner Trustee") in a leveraged lease transaction
to finance not more than 80% of the equipment
cost to the Owner Trustee of 795 new steel open
top quad hopper cars built by Conrail and 57
60-foot equipped boxcars rebuilt by Conrail
(collectively, the "Equipment" or the "Items of
Equipment") which will be acquired by the Owner
Trustee from Conrail. The Pass Through Trust will
acquire the Equipment Notes, which will mature no
later than the Pass Through Certificates, Series
1994-A (the "Certificates"), issued by the Trust.
The Certificates will bear interest at the same
rate as the Equipment Notes. The aggregate
principal amount of the Equipment Notes held in
the Trust will be the same as the aggregate
principal amount of the Certificates issued by
the Trust.
Pass Through Certificates
Offered; Book-Entry
Registration............. The Certificates will be issued in fully registered
form and will be registered in the name of Cede &
Co. as the nominee of The Depository Trust
Company. No person acquiring an interest in the
Certificates will be entitled to receive a
definitive certificate representing such person's
interest in the Trust unless definitive
certificates are issued, which will only occur
under limited circumstances. See "Description of
the Certificates -- Payments and Distributions"
in this Prospectus Supplement and "Description of
the Certificates -- Book-Entry Registration" in
the accompanying Prospectus.
Regular Distribution
Dates...................... January 2 and July 2 of each year.
Special Distribution
Dates...................... Any Business Day on which a Special Payment is to
be distributed.
Record Dates............... The fifteenth day preceding a Regular or Special
Distribution Date.
S-3
<PAGE> 4
Initial Average Life
Date....................... The initial average life date for the Certificates
is April 8, 2008.
Distributions.............. All payments of principal, premium, if any, and
interest received by the Trustee on the Equipment
Notes will be distributed by the Trustee to the
Certificateholders on the dates referred to below
except in certain cases where such Equipment
Notes are in default. Payments of principal and
interest on the Equipment Notes are scheduled to
be received by the Trustee on January 2 and July
2, commencing July 2, 1995, with respect to the
payment of interest, and on January 2 or July 2,
or both, commencing July 2, 1996, with respect to
the payment of principal, and will be distributed
to the Certificateholders when received on the
corresponding Regular Distribution Date. Payments
of principal of, premium, if any, and interest on
the Equipment Notes resulting from the early
redemption thereof, if any, will be distributed
on the date of such redemption, which will be a
Special Distribution Date. The Trustee will
provide not less than 20 days' notice of such
distribution to the Certificateholders. For a
discussion of distributions upon an Event of
Default, see "Description of the Certificates --
Events of Default" and "Description of the
Certificates -- Certain Rights Upon an Event of
Default" in the accompanying Prospectus.
Equipment Notes:
Principal.................. The Trust will hold Equipment Notes whose principal
is payable in scheduled amounts on January 2 or
July 2, or both, of each year, commencing July 2,
1996, in accordance with the principal repayment
schedule set forth below under "Description of
the Equipment Notes -- Principal Payments".
Equipment Notes:
Interest................... Interest will be payable on the Equipment Notes on
the unpaid principal amount thereof on January 2
and July 2 of each year, commencing July 2, 1995.
Equipment Notes:
Redemptions at a
Premium.................. The Equipment Notes are redeemable at the option of
Conrail:
(i) in whole or in part, on or after July 2,
2000, upon a termination of the Lease as
applicable to any Item or Items of Equipment for
obsolescence or surplus; and
(ii) in whole, upon a refinancing of the
obligations represented by the Equipment Notes;
in each case at a redemption price equal to the
unpaid principal amount thereof, plus accrued
interest, plus, if redeemed prior to April 8,
2008 (the "Premium Termination Date"), a
Make-Whole Premium, if any.
The Equipment Notes are also redeemable at the
option of the Owner Trustee, in whole, upon the
occurrence and continuance of an Event of Default
under the Lease for 90 days or more but less than
one year, without acceleration, at a redemption
price for each Equipment Note to be redeemed
equal to the unpaid principal amount thereof,
plus accrued interest, plus, if redeemed prior to
the Premium Termination Date, a Make-Whole
Premium, if any.
S-4
<PAGE> 5
See "Description of the Equipment
Notes -- Redemption" in this Prospectus Supplement
for a description of the manner of computing the
Make-Whole Premium.
Equipment Notes:
Redemptions at Par....... The Equipment Notes are redeemable prior to
maturity at a redemption price equal to the
unpaid principal amount thereof, plus accrued
interest, but without premium:
(i) in whole, at the option of the Owner
Trustee, upon the occurrence and continuation of
an Event of Default under the Lease for one year
or more, without acceleration, or upon
acceleration;
(ii) in whole or in part, upon an Event of
Loss with respect to any Item of Equipment;
(iii) in whole or in part, if applicable law
requires modifications to any Item of Equipment
determined by Conrail to be economically
impracticable; and
(iv) in part, on January 2, 2008 with
respect to Category II Equipment and January 2,
2014 with respect of Category I Equipment, in the
event Conrail exercises its option to purchase
any or all of the Items of Equipment pursuant to
the Lease.
See "Description of the Equipment
Notes -- Redemption".
Equipment Notes:
Security................. The principal amount of Equipment Notes, premium,
if any, and interest thereon will be secured by
the Items of Equipment and an assignment of
certain of the Owner Trustee's rights under the
Lease, including the right to receive rentals
and, with certain exceptions, other amounts
payable thereunder.
Although the Equipment Notes are not obligations
of, or guaranteed by, Conrail, the amounts
unconditionally payable by Conrail for lease of
the Items of Equipment will be sufficient to pay
in full when due all payments required to be made
on the Equipment Notes. See "Description of the
Equipment Notes -- General" in this Prospectus
Supplement and "Description of the Equipment
Notes -- General" in the accompanying Prospectus.
Federal Income Tax
Consequences............. The Trust should be classified as a grantor trust
for federal income tax purposes, and each person
acquiring an interest in a Certificate (a
"Certificate Owner") issued by the Trust should
be treated as the owner of a pro rata undivided
interest in each of the Equipment Notes and any
other property held in the Trust and should
report on its federal income tax return its pro
rata share of income from such Equipment Notes
and such other property in accordance with such
Certificate Owner's method of accounting. See
"Federal Income Tax Consequences" in this
Prospectus Supplement and "Federal Income Tax
Consequences" in the accompanying Prospectus.
ERISA Considerations....... The Pass Through Certificates are eligible for
purchase by employee benefit plans, with certain
exceptions. See "ERISA Considerations" in this
Prospectus Supplement.
S-5
<PAGE> 6
Section 1168 of the
Federal Bankruptcy Code.... Conrail has been advised by Bruce B. Wilson, Esq.,
its Senior Vice President -- Law, that the Owner
Trustee, as lessor under the Lease, and the
Indenture Trustee, as assignee of the Owner
Trustee's rights under the Lease, are entitled to
the benefits of Section 1168 of the Bankruptcy
Code ("Section 1168") with respect to the
Equipment delivered under the Lease and subjected
to the lien of the Indenture.
S-6
<PAGE> 7
THE COMPANY
Conrail, the principal subsidiary of Conrail Inc., is a rail carrier
providing freight transportation services within the northeast and midwest
United States. Conrail interchanges freight with other United States and
Canadian railroads for transport to destinations within and outside Conrail's
service region. Conrail operates no significant line of business other than the
freight railroad business and does not provide common carrier passenger or
commuter train service.
Conrail is a Pennsylvania corporation incorporated on February 10, 1976,
and the common stock of its parent, Conrail Inc., is listed on the New York and
Philadelphia Stock Exchanges. Conrail's principal offices are located at Two
Commerce Square, Philadelphia, Pennsylvania 19101-1417, telephone number (215)
209-4000.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
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......................... 4.13x 2.13x 3.00x 3.33x -- 3.12x 3.29x
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
represent income before income taxes plus fixed charges, less equity in
undistributed earnings of 20% to 50% owned companies. Fixed charges represent
interest expense together with interest capitalized and a portion of rent under
long-term operating leases representative of an interest factor. After the
special charge of $719 million, earnings were insufficient by $343 million to
cover fixed charges for the year ended December 31, 1991.
USE OF PROCEEDS
The Certificates are being issued to finance not more than 80% of the
purchase price of the Items of Equipment, which are to be sold by Conrail to the
Owner Trustee pursuant to the Railcar Purchase Agreement. The Owner Participant
will pay the remainder of the purchase price of the Items of Equipment. An
affiliate of the Owner Participant provides general financial services to
Conrail. The total purchase price of the Items of Equipment is $41,800,500.
The net proceeds received by the Trustee upon the consummation of the
transactions described herein will be held in trust by the Trustee pending
delivery of the Items of Equipment and the issuance of the Equipment Notes,
which is expected to be completed concurrently with the Offering.
S-7
<PAGE> 8
DESCRIPTION OF PAYMENT FLOWS
The following diagram illustrates certain aspects of the payment flows in
this transaction among the Company, the Owner Trustee, the Owner Participant,
the Indenture Trustee, the Trustee and the Certificateholders.
The Company will have the sole responsibility and obligation to make all
payments under the Lease, including any and all payments of Rent. Rent is
payable under the Lease by the Company to the Owner Trustee. However, as a
result of the assignment of the Lease to the Indenture Trustee, the Company will
make rental payments directly to the Indenture Trustee. From these rental
payments the Indenture Trustee will first, on behalf of the Owner Trustee, make
payments to the Trustee as required to meet obligations under the Equipment
Notes and will pay the balance to the Owner Trustee. The Trustee will distribute
payments received in respect of the Equipment Notes to the holders of the
Certificates, as required under the terms of the Certificates. Wilmington Trust
Company will act as Trustee of the Trust and also as Indenture Trustee under the
Indenture.
[CHART]
S-8
<PAGE> 9
DESCRIPTION OF THE CERTIFICATES
The Certificates offered hereby will be issued pursuant to the Trust
Supplement to be entered into between Conrail and the Trustee pursuant to the
terms of the Basic Agreement. The following summary of the particular terms of
the Certificates offered hereby supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
Certificates set forth in the accompanying Prospectus under the caption
"Description of the Certificates". The statements under this caption are a
summary and do not purport to be complete. The summary makes use of terms
defined in and is qualified in its entirety by reference to all of the
provisions of the Basic Agreement, a form of which has been filed as an exhibit
to the Registration Statement of which this Prospectus Supplement is a part, and
to all of the provisions of the Trust Supplement which, together with the
Participation Agreement, the Indenture, the Lease and the Trust Agreement, will
be filed by Conrail with the Commission as exhibits to a Current Report on Form
8-K. Except as otherwise indicated, the following summaries relate to the Basic
Agreement, the Trust Supplement and the Trust formed thereby and the
Certificates issued by the Trust.
PAYMENTS AND DISTRIBUTIONS
The Certificates will be issued in fully registered form and will be
registered in the name of Cede & Co., as the nominee of The Depository Trust
Company. No person acquiring an interest in the Certificates will be entitled to
receive a definitive certificate representing such person's interest in the
Trust unless definitive certificates are issued under the limited circumstances
described in the accompanying Prospectus under the caption "Description of the
Certificates -- Book-Entry Registration".
Payments of principal, premium, if any, and interest with respect to the
Equipment Notes held in the Trust will be distributed by the Trustee to
Certificateholders on the date receipt of such payment is confirmed by the
Trustee, except in certain cases when some or all of such Equipment Notes are in
default. See "Description of the Certificates -- Events of Default and Certain
Rights Upon an Event of Default" in the accompanying Prospectus. Interest paid
on the Equipment Notes held in the Trust will be passed through to the
Certificateholders on January 2 and July 2 of each year, commencing July 2,
1995, at 8.45% per annum until the final distribution date for the Trust.
Payments of principal on the Equipment Notes are scheduled to be received by the
Trustee on January 2 or July 2, or both, of each year, commencing July 2, 1996
(such scheduled payments of principal and interest on the Equipment Notes are
herein referred to as "Scheduled Payments," and January 2 and July 2 of each
year are herein referred to as "Regular Distribution Dates"). Scheduled Payments
of principal on the Equipment Notes are set forth below under "Description of
the Equipment Notes -- Principal Payments". The Trustee will distribute on each
Regular Distribution Date to the Certificateholders all Scheduled Payments the
receipt of which is confirmed by the Trustee on such Regular Distribution Date.
Each Certificateholder will be entitled to receive a pro rata share of any
distribution in respect of Scheduled Payments of principal and interest made on
the Equipment Notes held in the Trust. Each such distribution in respect of
Scheduled Payments will be made by the Trustee to the holders of record of the
Certificates on the fifteenth day preceding such Regular Distribution Date,
subject to certain exceptions. If a Scheduled Payment is not received by the
Trustee on a Regular Distribution Date but is received within five days
thereafter, it will be distributed on the date received to such holders of
record. If it is received after such five-day period, it will be treated as a
Special Payment (as defined below) and distributed as described below.
Payments of principal, premium, if any, and interest received by the
Trustee on account of the early redemption, if any, of the Equipment Notes, and
payments received by the Trustee following a default in respect of the Equipment
Notes (including payments received by the Trustee on account of the purchase by
the Owner Trustee of such Equipment Notes or payments received on account of the
sale of such Equipment Notes by the Trustee) ("Special Payments") will be
distributed on, in the case of an early redemption or a purchase, the date of
such early redemption or purchase, which shall be a Business Day, and otherwise,
except as described in the next paragraph, 25 days after the Trustee has
confirmed receipt of the funds for such Special Payment (or the next Business
Day after such 25th day if such date is not a Business Day) (each, a "Special
Distribution Date"). The Trustee will mail notice to the Certificateholders not
less than 20 days prior to the Special Distribution Date on which any Special
Payment is scheduled to be distributed by the Trustee
S-9
<PAGE> 10
stating such anticipated Special Distribution Date. Each distribution of a
Special Payment, other than a final distribution, on a Special Distribution Date
for the Trust will be made by the Trustee to the Certificateholders of record on
the fifteenth day next preceding such Special Distribution Date. See
"Description of the Equipment Notes -- Redemption" in this Prospectus Supplement
and "Description of the Certificates -- Events of Default and Certain Rights
Upon an Event of Default" in the accompanying Prospectus.
POOL FACTORS
As of the date of sale by the Trustee of the Certificates and assuming that
no early redemption, default or purchase of any Equipment Notes shall occur, the
aggregate scheduled repayment of principal on the Equipment Notes and the
resulting Pool Factor for the Trust after taking into account each repayment are
set forth below:
<TABLE>
<CAPTION>
EQUIPMENT
NOTES
REGULAR SCHEDULED
DISTRIBUTION PAYMENTS OF POOL
DATE PRINCIPAL FACTOR
------------------------------------------------ ----------- ---------
<S> <C> <C>
July 2, 1996.................................... $ 604,919 0.9796584
July 2, 1997.................................... 656,033 0.9575980
July 2, 1998.................................... 711,467 0.9336734
July 2, 1999.................................... 771,586 0.9077273
July 2, 2000.................................... 836,785 0.8795887
July 2, 2001.................................... 907,493 0.8490725
July 2, 2002.................................... 974,024 0.8163190
July 2, 2003.................................... 649,159 0.7944897
July 2, 2004.................................... 678,183 0.7716844
January 2, 2005................................. 1,235,456 0.7301397
July 2, 2005.................................... 67,312 0.7278762
January 2, 2006................................. 1,150,463 0.6891896
July 2, 2006.................................... 74,926 0.6866701
January 2, 2007................................. 1,209,307 0.6460047
July 2, 2007.................................... 116,166 0.6420984
January 2, 2008................................. 1,883,873 0.5787493
July 2, 2008.................................... 144,523 0.5738895
January 2, 2009................................. 1,798,861 0.5133992
July 2, 2009.................................... 157,273 0.5081105
January 2, 2010................................. 2,474,526 0.4248996
July 2, 2010.................................... 49,859 0.4232230
January 2, 2011................................. 2,692,847 0.3326706
January 2, 2012................................. 2,930,431 0.2341290
January 2, 2013................................. 3,348,508 0.1215287
January 2, 2014................................. 3,337,191 0.0093089
July 2, 2014.................................... 276,829 0.0000000
</TABLE>
S-10
<PAGE> 11
DESCRIPTION OF THE EQUIPMENT NOTES
The following summary of the particular terms and provisions of the
Equipment Notes supplements, and to the extent inconsistent therewith replaces,
the description of the general terms and provisions of the Equipment Notes set
forth in the accompanying Prospectus under the heading "Description of the
Equipment Notes". The statements under this caption are 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 all of the provisions of the
Equipment Notes, the Indenture, the Lease, the Participation Agreement and the
Trust Agreement. The summaries should be read in conjunction with the statements
under the heading "Description of the Equipment Notes" in the accompanying
Prospectus.
GENERAL
The Equipment Notes will be issued under an Indenture between Meridian
Trust Company, as Owner Trustee of a trust for the benefit of the Owner
Participant who is the beneficial owner of the Items of Equipment, and
Wilmington Trust Company, as Indenture Trustee.
The Owner Trustee will lease the Equipment to Conrail pursuant to a Lease
between such Owner Trustee and Conrail. Conrail is obligated to make or cause to
be made rental and other payments to the Indenture Trustee on behalf of the
Owner Trustee in amounts that will be at least sufficient to pay in full when
due all payments required to be made on the Equipment Notes. The Equipment Notes
are not, however, direct obligations of, or guaranteed by, Conrail. Conrail's
rental obligations under the Lease are general obligations of Conrail.
PRINCIPAL PAYMENTS
The aggregate principal amount of the Equipment Notes to be held in the
Trust is $29,738,000.
Interest will be payable on each Equipment Note on the unpaid principal
amount thereof on January 2 and July 2 in each year, commencing July 2, 1995.
Such interest will be computed on the basis of a 360-day year of twelve 30-day
months.
S-11
<PAGE> 12
The principal of each Equipment Note purchased by the Trust will be payable
as set forth below:
<TABLE>
<CAPTION>
EQUIPMENT EQUIPMENT
PAYMENT DATES CATEGORY I CATEGORY II TOTAL
- ----------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
July 2, 1996......................................... $ 566,596 $ 38,323 $ 604,919
July 2, 1997......................................... 614,472 41,561 656,033
July 2, 1998......................................... 666,394 45,073 711,467
July 2, 1999......................................... 722,705 48,881 771,586
July 2, 2000......................................... 783,773 53,012 836,785
July 2, 2001......................................... 850,002 57,491 907,493
July 2, 2002......................................... 921,827 52,197 974,024
July 2, 2003......................................... 609,936 39,223 649,159
July 2, 2004......................................... 637,160 41,023 678,183
January 2, 2005...................................... 1,235,456 0 1,235,456
July 2, 2005......................................... 0 67,312 67,312
January 2, 2006...................................... 1,150,463 0 1,150,463
July 2, 2006......................................... 0 74,926 74,926
January 2, 2007...................................... 1,209,307 0 1,209,307
July 2, 2007......................................... 0 116,166 116,166
January 2, 2008...................................... 1,736,716 147,157 1,883,873
July 2, 2008......................................... 0 144,523 144,523
January 2, 2009...................................... 1,798,861 0 1,798,861
July 2, 2009......................................... 0 157,273 157,273
January 2, 2010...................................... 2,474,526 0 2,474,526
July 2, 2010......................................... 0 49,859 49,859
January 2, 2011...................................... 2,692,847 0 2,692,847
January 2, 2012...................................... 2,930,431 0 2,930,431
January 2, 2013...................................... 3,348,508 0 3,348,508
January 2, 2014...................................... 3,337,191 0 3,337,191
July 2, 2014......................................... 276,829 0 276,829
----------- ----------- -----------
Total................................................ $28,564,000 $ 1,174,000 $29,738,000
========== ========= ==========
</TABLE>
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the Equipment Notes is not a Business Day, such payment
will be made on the next succeeding Business Day without any additional
interest. (Indenture, Section 2.03)
REDEMPTION
Under certain circumstances, the Equipment Notes are subject to redemption,
without the consent of the holders, on not less than 30 nor more than 60 days'
notice (a) at the option of Conrail:
(1) in whole or in part, on or after July 2, 2000, in the event that
the Lease as applicable to any Item or Items of Equipment is terminated for
obsolescence or surplus; and
(2) in whole, in the event of a refinancing of the obligations
represented by the Equipment Notes;
and (b) at the option of the Owner Trustee, in whole, upon the occurrence and
continuation of an Event of Default under the Lease for 90 days or more but less
than one year, without acceleration. (Indenture, Section 4.02 and Definitional
Appendix; Lease, Section 9; Participation Agreement, Section 19)
The redemption price in respect of redemptions made under the foregoing
circumstances will equal 100% of the principal amount of Equipment Notes to be
redeemed together with interest to the Redemption Date plus, if redeemed prior
to the Premium Termination Date, a Make-Whole Premium, if any. The Make-Whole
Premium, if any, on the Equipment Notes will be determined by an independent
investment banking institution of national standing (the "Investment Banker")
selected by Conrail. Any such Make-Whole Premium shall not be payable with
respect to any prepayment which occurs after the Premium Termination Date.
S-12
<PAGE> 13
The Investment Banker will first determine the Treasury Rate with respect
to any prepayment of Equipment Notes. The Treasury Rate means, with respect to
each Equipment Note to be prepaid or purchased, 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 of 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
prior to the scheduled prepayment date. The Average Life Date for any Equipment
Note to be prepaid or purchased shall be the date which follows the prepayment
date or purchase date, as the case may be, by a period equal to the Remaining
Weighted Average Life of such Equipment Note. The Remaining Weighted Average
Life of such Equipment Note, with respect to the prepayment or purchase of such
Equipment Note, is the number of days equal to the quotient obtained by dividing
(A) the sum of the products obtained by multiplying (1) the amount of each
remaining principal payment on such Equipment Note by (2) the number of days
from and including the prepayment date or purchase date, as the case may be, to
but excluding the scheduled payment date of such principal payment by (B) the
unpaid principal amount of such Equipment Note.
To determine the Make-Whole Premium for any Equipment Note, the Investment
Banker then will determine, as of the third business day prior to the prepayment
date or purchase date, as the case may be, the sum of the present values of all
of the remaining scheduled payments of principal and interest to maturity on
such Equipment Note computed on a semiannual basis by discounting such payments
(assuming a 360-day year consisting of twelve 30-day months) using such Treasury
Rate. If the sum of these present values of the remaining payments as computed
above exceeds the aggregate unpaid principal amount of the Equipment Note to be
prepaid or purchased plus any accrued but unpaid interest thereon, the
difference will be payable as a premium upon prepayment or purchase of such
Equipment Note. If the sum is equal to or less than such principal amount plus
accrued interest, there will be no premium payable with respect to such
Equipment Note. (Indenture, Section 4.02 and Definitional Appendix)
In addition, the Equipment Notes are subject to redemption, without the
consent of the Holders, on not less than 30 nor more than 60 days' notice:
(1) in whole, at the option of the Owner Trustee after the occurrence
and continuation of an Event of Default under the Lease for a period of one
year or more, during which no acceleration has occurred, or upon
acceleration;
(2) in whole or in part, after the occurrence of an Event of Loss of
an Item or Items of Equipment;
(3) in whole or in part, if applicable law requires modifications to
any Item or Items of Equipment determined by Conrail to be economically
impracticable; and
(4) in part, on January 2, 2014, with respect to Category I Equipment,
and on January 2, 2008, with respect to Category II Equipment, in
connection with Conrail's option to purchase any or all of the Items of
Equipment pursuant to the Lease. (Indenture, Section 4.02 and Definitional
Appendix)
The redemption price in respect of redemptions under the foregoing
circumstances will equal 100% of the principal amount to be redeemed together
with interest to the Redemption Date, but shall not include any premium.
(Indenture, Section 4.02)
All partial redemptions of the Equipment Notes shall be made on a pro rata
basis. (Indenture, Section 4.06)
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<PAGE> 14
ITEMS OF EQUIPMENT
The Items of Equipment consist of 795 new steel open top quad hopper cars
built by Conrail and 57 60-foot equipped boxcars rebuilt by Conrail so as to
qualify for rebuilt status under Rule 88 of the Association of American
Railroads. The Items of Equipment are grouped into two Categories of Equipment,
listed below, for purposes of the Lease. The total purchase price for the Items
of Equipment is $41,800,500.
The following table sets forth information with respect to the Items of
Equipment expected to be delivered:
<TABLE>
<CAPTION>
AGGREGATE FINAL PAYMENT DATE BASIC LEASE
ITEMS OF EQUIPMENT LESSOR'S COST OF RELATED DEBT TERMINATION DATE
----------------------- ------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Category I 795 new steel open top
quad hopper cars $ 40,147,500 July 2, 2014 July 2, 2017
Category II 57 rebuilt 60-foot
equipped boxcars 1,653,000 July 2, 2010 July 2, 2013
-------------
Total $ 41,800,500
==========
</TABLE>
On each Final Payment Date, so long as no Event of Acceleration shall have
occurred and be continuing, the lien of the Indenture with respect to the Items
of Equipment in the applicable Category of Equipment shall be released, and such
Items of Equipment will no longer serve as security for the Equipment Notes.
SECURITY
The Equipment Notes are secured by (i) the Items of Equipment, subject to
the rights of Conrail under the Lease, and (ii) 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 payments of Rent, Stipulated Loss Value and Termination Value. The
Equipment Notes will cease to be secured by an Item of Equipment when the debt
related to such Item of Equipment shall have been paid in full. Unless and until
an Event of Acceleration under the Indenture has occurred and is continuing,
however, the Indenture Trustee may not exercise any of the rights of the Owner
Trustee as the lessor under the Lease. The assignment by the Owner Trustee to
the Indenture Trustee of its rights under the Lease excludes certain rights of
the Owner Trustee and the Owner Participant, including rights relating to
indemnification by Conrail for certain matters, insurance proceeds payable to
such Owner Trustee and to the Owner Participant under liability insurance
maintained by Conrail under the Lease, fees payable to the Owner Trustee
pursuant to the Participation Agreement and proceeds of any insurance separately
maintained by the Owner Trustee or by the Owner Participant. (Indenture,
Granting Clause and Definitional Appendix).
Conrail will file the Indenture and the Lease or a memorandum of lease
under the Interstate Commerce Act, as amended (the "Act"), and will deposit the
Indenture and the Lease with the Registrar General of Canada. The filing of the
Indenture and the Lease or a memorandum of lease under the Act will give the
Indenture Trustee a first priority perfected security interest in each Item of
Equipment whenever it is located in the United States or any of its territories
and possessions; the deposit of the Indenture and the Lease with the Registrar
General of Canada will protect the Indenture Trustee's rights in Canada.
(Participation Agreement, Sections 6(h), 6(i) and 11(a))
Each Item of Equipment may be operated by Conrail or under sublease or
interchange arrangements in the United States and Canada and, under certain
circumstances, in Mexico. (Lease, Sections 7(b) and 7(c)) The extent to which
the Indenture Trustee's security interest would be recognized in an Item of
Equipment located in countries other than the United States and Canada is
uncertain.
So long as there is no Event of Acceleration under the Indenture, funds
held by the Indenture Trustee, including funds held as the result of an Event of
Loss, will generally be invested and reinvested by the Indenture Trustee, at the
direction of Conrail, in certain investments specified in the Indenture.
(Indenture, Section 7.04 and Definitional Appendix)
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<PAGE> 15
PAYMENTS AND LIMITATION OF LIABILITY
Conrail will be obligated to make rental payments in respect of the Items
of Equipment that will be sufficient to pay the principal of, premium, if any,
and accrued interest on, the Equipment Notes when and as due and payable.
Conrail's rental obligations under the Lease will be general obligations of
Conrail. (Lease, Section 3)
The Equipment Notes are neither direct obligations of, nor guaranteed by,
Conrail. None of the Owner Trustee, the Owner Participant or the Indenture
Trustee shall be personally liable to any Holder of an Equipment Note for any
amounts payable under the Equipment Notes or, except as provided in the
Indenture in the case of the Owner Trustee and the Indenture Trustee, for any
liability under the Indenture. All amounts payable under the Equipment Notes or
the Indenture will be payable only from the assets subject to the lien created
under the Indenture or the income and proceeds received by the Indenture Trustee
therefrom (including rent payable by Conrail under the Lease). (Indenture,
Section 2.02)
EVENTS OF ACCELERATION, NOTICE AND WAIVER
Events of Acceleration under the Indenture include: (a) failure by the
Owner Trustee to pay any interest, premium or principal payment when due,
continued for more than ten days, (b) an Event of Default under the Lease, (c)
failure by the Owner Trustee, in its individual capacity or as Owner Trustee, or
the Owner Participant to perform certain covenants pursuant to the Indenture,
the Participation Agreement or, to the extent that the interest of the Indenture
Trustee and the Holders of Equipment Notes is materially and adversely affected
by such failure, the Trust Agreement, continued for a period of 30 days after
notice by the Indenture Trustee or by Holders of at least 25% in principal
amount of outstanding Equipment Notes; provided that if such incorrectness is
capable of being remedied, no such failure shall constitute an Event of
Acceleration so long as the Owner Trustee or the Owner Participant is diligently
proceeding to remedy such incorrectness, subject to a maximum period of 180
days, (d) any material representation or warranty made by the Owner Trustee, in
its individual capacity or as Owner Trustee, or by the Owner Participant in the
Indenture or the Participation Agreement or in any document or certificate
furnished to the Indenture Trustee pursuant to the Participation Agreement or
Indenture being incorrect in any material respect at the time made and, not
having been corrected, continues to be unremedied for a period of 30 days after
notice by the Indenture Trustee or by the Holders of at least 25% in principal
amount of outstanding Equipment Notes; provided that if such incorrectness is
capable of being remedied, no such failure shall constitute an Event of
Acceleration so long as the Owner Trustee or the Owner Participant is diligently
proceeding to remedy such incorrectness, subject to a maximum period of 180
days, (e) either the Indenture Estate or the Owner Trustee with respect thereto
or the Owner Participant shall file a petition in bankruptcy or seek similar
relief or (f) a court of competent jurisdiction shall enter an order appointing,
without consent by the Indenture Estate or the Owner Trustee with respect
thereto or the Owner Participant, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief or
approving a petition for relief, and any such order or petition is not dismissed
or stayed within 90 days thereof. The Owner Trustee or the Owner Participant
shall have certain cure rights with respect to the failures specified in clauses
(a) and (b) above. (Indenture, Sections 5.01 and 6.01)
The Holders of at least a majority in principal amount of outstanding
Equipment Notes by notice to the Indenture Trustee may on behalf of the Holders
of all the Equipment Notes waive any past default and its consequences except a
default in the payment of the principal of, premium, if any, or interest on, the
Equipment Notes or a default in respect of any covenant or provision of the
Indenture that cannot be modified or amended without the consent of each Holder
affected thereby. (Indenture, Section 9.05)
REMEDIES
If an Event of Acceleration under the Indenture shall occur and be
continuing, the Indenture Trustee or the Holders of not less than 25% in
principal amount of outstanding Equipment Notes may declare the principal of all
the Equipment Notes immediately due and payable. The Holders of a majority in
principal amount of all outstanding Equipment Notes may annul any such
declaration by the Indenture Trustee or by
S-15
<PAGE> 16
such Holders at any time prior to the sale of any of the Items of Equipment if
(i) there has been paid to or deposited with the Indenture Trustee an amount
sufficient to pay all overdue installments of principal of, premium, if any, and
interest on, the Equipment Notes that have become due otherwise than by such
declaration of acceleration, any interest on overdue installments of interest
and certain expenses, (ii) such annulment would not conflict with any judgment
or decree and (iii) all other events of acceleration and defaults have been
cured or waived. (Indenture, Section 5.02)
In the event Conrail fails to make any semiannual basis rental payment when
due under the Lease, and as long as no unrelated Event of Acceleration under the
Indenture shall have occurred and be continuing, within ten business days of the
date such failure becomes an Event of Default under the Lease the Owner
Participant or the Owner Trustee may, unless such failure is the fourth or
subsequent consecutive or seventh or subsequent cumulative failure to make such
rental payments, furnish to the Indenture Trustee the amount of such rental
payment, together with any interest thereon on account of the delayed payment
thereof, in which event the Indenture Trustee and the Holders of outstanding
Equipment Notes may not exercise any remedies otherwise available under the
Indenture or the Lease as the result of such failure to make such rental
payments. The Owner Participant or the Owner Trustee may also cure any other
default by Conrail in the performance of its obligations under the Lease that
can be cured by the payment of money alone by effecting such cure within 30 days
after the expiration of the applicable grace period. (Lease, Section 15;
Indenture, Section 5.04)
The Indenture provides that if an Event of Acceleration under the Indenture
has occurred and is continuing, the Indenture Trustee may exercise certain
rights or remedies available to it under applicable law, including (if an Event
of Default under the Lease has occurred) one or more of the remedies with
respect to any Item of Equipment to which such Event of Default relates,
afforded to the Owner Trustee by the Lease for Events of Default thereunder.
However, the Indenture Trustee shall not be entitled to exercise any remedy
under the Indenture as a result of an Event of Acceleration thereunder occurring
solely as a result of an Event of Default under the Lease unless the Indenture
Trustee shall have exercised or concurrently be exercising one or more remedies
under the Lease or the Indenture Trustee shall have been involuntarily stayed or
prohibited by applicable law or court order from exercising any remedies under
the Lease for a period in excess of 60 days. Such remedies may be exercised by
the Indenture Trustee to the exclusion of the Owner Trustee except that the
Owner Trustee retains the right to give certain waivers, consents and approvals
and to provide insurance for Conrail. Any Item of Equipment sold in the exercise
of such remedies will be free and clear of any rights of those parties,
including the rights of Conrail under the Lease; provided, however, that no
exercise of any remedies by the Indenture Trustee may affect the rights of
Conrail under the Lease unless an Event of Default under the Lease has occurred
and is continuing. (Indenture, Section 5.04(b) and (c) and 5.05)
With respect to railroads, Section 1168 of the Bankruptcy Code provides
that the right of lessors, conditional vendors and holders of security interests
with respect to rolling stock equipment or accessories used on such equipment to
take possession of such equipment, in compliance with the provisions of the
lease, conditional sale contract or security agreement, as the case may be, is
not affected by (a) the automatic stay provision of the Bankruptcy Codes, which
provision enjoins repossessions by creditors for the duration of the
reorganization period, (b) the provision of the Bankruptcy Code allowing the
trustee in reorganization to use property of the debtor during the
reorganization period and (c) any power of the bankruptcy court to enjoin a
repossession. Section 1168 of the Bankruptcy Code provides, however, that the
right of a lessor, conditional vendor or holder of a security interest to take
possession of such equipment in the event of a default may not be exercised for
60 days following the date of commencement of the reorganization proceedings and
may not be exercised at all if, within such 60-day period, the trustee in
reorganization cures all existing defaults (other than defaults resulting solely
from the financial condition, bankruptcy, insolvency or reorganization of the
debtor) and agrees to perform the debtor's obligations as they become due after
such date.
Conrail has been advised by its counsel that the Owner Trustee, as lessor
under the Lease, and the Indenture Trustee, as assignee of such Owner Trustee's
rights under the Lease, are entitled to the benefits of Section 1168 of the
Bankruptcy Code with respect to the Items of Equipment delivered under the Lease
and subjected to the lien of the Indenture.
S-16
<PAGE> 17
The Holders of a majority in principal amount of outstanding Equipment
Notes may direct the time, method and place of conducting any proceeding for any
remedy available to the Indenture Trustee or exercising any trust or power
conferred on the Indenture Trustee, but in such event the Indenture Trustee
shall be entitled to be indemnified by the Holders of Equipment Notes before
proceeding so to act and the Indenture Trustee may not be held liable for any
such action taken in good faith. (Indenture, Sections 5.09 and 5.10)
The right of any Holder of Equipment Notes to institute action for any
remedy under the Indenture (except his right to enforce payment on his Equipment
Notes when due) is subject to certain conditions precedent, including a request
to the Indenture Trustee by the Holders of not less than 25% in principal amount
of outstanding Equipment Notes to take action, and an offer to the Indenture
Trustee of satisfactory indemnification against liabilities incurred by it in so
doing. (Indenture, Sections 5.10 and 5.11)
If an Event of Acceleration occurs and is continuing, any sums held or
received by the Indenture Trustee thereunder may be applied to reimburse the
Indenture Trustee for any tax, expense or other loss incurred by it and to pay
any other amounts due the Indenture Trustee prior to any payments to Holders of
Equipment Notes. (Indenture, Section 3.04)
MODIFICATION OF AGREEMENTS
Without the consent of Holders of a majority in principal amount of
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. (Sections 9.01(b) and 9.05)
Certain provisions of the Indenture, the Lease, the Participation Agreement
and the Trust Agreement may be modified by the parties thereto without the
consent of any Holders of outstanding Equipment Notes. In the case of the Lease,
such provisions include, among others, provisions relating to (i) maintenance,
subleasing, control and use of the Items of Equipment, (ii) rental payments and
other payments, except to the extent indicated in clause (a) of the next
succeeding paragraph, and (iii) the return to the Owner Trustee thereunder of
the Items of Equipment at the end of the term of the Lease. (Indenture, Sections
9.01(a) and 9.05)
Without the consent of the Holder of each outstanding Equipment Note, no
amendment or modification of the Indenture may (a) reduce the principal amount
of, premium, if any, or interest payment payable on, any Equipment Note or
impair the right to institute suit for the enforcement of any such payment or
change the date on which any principal, premium, if any, or interest payment is
due and payable or otherwise affect the terms of payment of any Equipment Note,
or reduce the amounts of rent payable under the Indenture, (b) 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 any Holder of an Equipment Note of the benefit of the
lien of the Indenture upon the property subject thereto, (c) reduce the
percentage in principal amount of outstanding Equipment Notes necessary to
modify or amend any provision of the Indenture or waive compliance therewith or
(d) modify any of the provisions relating to the rights of Holders in respect of
defaults in the payment of principal, premium, if any, and interest. (Indenture,
Section 9.01(b))
ASSUMPTION OF OBLIGATIONS BY CONRAIL
Upon a determination by Conrail that required modifications to the Items of
Equipment then subject to the Lease are economically impracticable, or upon the
exercise by Conrail of its option, with respect to Category I Equipment, to
purchase on January 2, 2014 all Items of Equipment then subject to the Lease,
Conrail may assume on a full recourse basis all of the obligations of the Owner
Trustee under the Indenture. In such event, certain relevant provisions of the
Lease, including (among others) provisions relating to maintenance, possession
and use of the Items of Equipment, Liens, insurance and Events of Default will
be incorporated into the Indenture, and the Equipment Notes issued under the
Indenture will not be redeemed and will continue to be secured by such Items of
Equipment. It is a condition to such assumption that an opinion of counsel be
delivered at the time of such assumption substantially to the effect that the
Indenture Trustee under the Indenture is, immediately following such assumption,
entitled to the benefits of Section
S-17
<PAGE> 18
1168 of the Bankruptcy Code with respect to such Items of Equipment. (Indenture,
Article 10; Participation Agreement, Section 20; Lease, Sections 8(a) and 20(a))
THE LEASE
The Owner Trustee will lease the Items of Equipment from the Indenture
Trustee under the Indenture, and will in turn lease each Item of Equipment to
Conrail under the Lease.
Term and Rentals. The Items of Equipment will be leased to Conrail for a
term expiring on July 2, 2017 with respect to Category I Equipment or July 2,
2013 with respect to Category II Equipment. The basic rental payments by Conrail
under the Lease will be payable on January 2 and July 2 of each year. (Lease,
Sections 3(a) and 3(b)) Rental payments that Conrail is obligated to make or
cause to be made under the Lease will not be less than the amounts necessary to
pay when due the payments of principal of, premium, if any, and interest on, the
Equipment Notes. In certain cases, the semiannual basic rental payments under
the Lease may be adjusted, but under no circumstances will such rental payments,
together with all other amounts required to be paid by Conrail under the Lease,
be less than scheduled payments of principal of, premium, if any, and interest
on, the Equipment Notes. The balance of any such basic rental payments under the
Lease, after payment of scheduled principal of and interest on the Equipment
Notes, will be paid over to or for the account of the Owner Trustee pursuant to
the Indenture. (Lease, Section 3; Indenture, Section 3.03) Conrail's obligation
to pay rent and to cause other payments to be made under the Lease will be a
general obligation of Conrail. (Lease, Section 3)
Net Lease. Conrail's obligations in respect of the Items of Equipment will
be those of a lessee under a "net lease." Accordingly, Conrail will be
obligated, at its expense, to pay all costs of operating the Items of Equipment
and to maintain, service and repair the Items of Equipment so as to keep them in
such operating condition in compliance with Applicable Law and suitable for
interchange service. (Lease, Sections 7 and 18) Conrail will, at its expense,
comply with Applicable Law, including the interchange rules of the Association
of American Railroads, if applicable, to the extent Applicable Law requires any
alteration, replacement, addition or modification or disposal, removal and
dismantlement of the Items of Equipment. (Lease, Section 8)
Operation, Possession, Sublease and Transfer. Conrail will use the Items
of Equipment predominantly in the United States and Canada. So long as no Event
of Default shall have occurred and be continuing, Conrail may sublease any Item
of Equipment to any entity incorporated in the United States (or any State
thereof or the District of Columbia) or Canada, for use upon lines of railroad
owned or operated by Conrail or such user or by a railroad company incorporated
in the United States or Canada or over which Conrail, such user, or such
railroad company has trackage rights or other rights of operation, and upon the
lines of railroad of connecting and other carriers in the usual interchange of
traffic; provided, however, that any such sublease shall not extend for a term
beyond the Term of the Lease. If an Item of Equipment is subleased, such
sublease is to remain subject and subordinate to the Lease and to the lien of
the Indenture and Conrail shall remain liable under the Lease. (Lease, Sections
7(b) and 7(c))
Liens. The Items of Equipment will be maintained by Conrail free of any
liens, other than the rights of the Owner Participant, the Owner Trustee, the
Indenture Trustee and Conrail arising under the Trust Agreement, the Lease, the
Indenture or the Participation Agreement, and other than certain limited liens
permitted under the Lease and the Indenture, including: liens for taxes either
not yet due and payable or being contested in good faith; suppliers',
mechanics', and other similar liens arising in the ordinary course of business
and either not yet due and payable or being contested in good faith; judgment
liens that are being appealed in good faith; and liens attributable to the Owner
Participant, Owner Trustee or Indenture Trustee arising from claims, actions or
taxes not directly related to their participation in the transactions described
herein. (Lease, Section 6)
Insurance. Conrail will at all times prior to the return of all Items of
Equipment to the Owner Trustee, as part of an insurance program including
appropriate risk retention and self-insurance, and at its own expense, maintain
insurance in respect of the Items of Equipment in amounts and against such risks
as are customarily insured against by Conrail in respect of similar equipment
owned or leased by it. All policies with respect to such insurance shall name
the Owner Trustee (both in its individual and trust capacities), the Owner
Participant,
S-18
<PAGE> 19
the Indenture Trustee (both in its individual and trust capacities) and the
Trustee (both in its individual and trust capacities) as additional insureds or
loss payees, as their interests may appear. In addition, the Owner Trustee, the
Owner Participant, the Indenture Trustee and the Trustee shall each have the
right to carry insurance on the Items of Equipment for their own benefit;
provided that such insurance is carried at the expense of any Person other than
Conrail. (Lease, Section 11)
Termination. Conrail may, on or after July 2, 2000, upon at least 90 days'
prior written notice (which notice shall become irrevocable on the 30th day
before the specified Termination Date) to the Owner Trustee and the Indenture
Trustee, terminate the Lease with respect to any Item or Items of Equipment
determined to be obsolete or surplus to Conrail's requirements; provided that if
less than all Items of Equipment are selected by Conrail, then Conrail's
selection of Items of Equipment shall be on a random basis. Upon any such
termination, an aggregate principal amount of Equipment Notes relating to such
Items of Equipment will be redeemed at the principal amount thereof, plus
interest, and, if redeemed prior to the Premium Termination Date, a Make-Whole
Premium, if any. In each such case, the lien of the Indenture and the Lease
shall terminate with respect to such Items of Equipment and the obligation of
Conrail thereafter to make scheduled rental payments with respect thereto shall
cease. (Lease, Section 9)
Renewal and Purchase Options. Conrail shall have the option, upon at least
30 days' prior irrevocable written notice, on July 2, 2014 with respect to
Category I Equipment or July 2, 2008 with respect to Category II Equipment, to
purchase any or all of the Items of Equipment in such Category then subject to
the Lease; provided that if less than all Items of Equipment are selected by
Conrail, then Conrail's selection of Items of Equipment shall be on a random
basis. In addition, at the end of the term of the Lease, Conrail will have
certain options to renew the Lease with respect to, or to purchase, all of the
Items of Equipment. (Lease, Sections 19 and 20)
Events of Loss. If an Event of Loss occurs with respect to an Item of
Equipment, Conrail shall pay to the Owner Trustee the Stipulated Loss Value of
such Item of Equipment, together with certain additional amounts, which in all
circumstances will be at least sufficient to pay in full as of the date of
payment thereof the aggregate unpaid principal balance of the outstanding
Equipment Notes relating to such Item of Equipment, together with all accrued
and unpaid interest thereon. In such a case, the lien of the Indenture and the
Lease shall terminate with respect to such Item of Equipment, title thereto
shall be transferred to Conrail and the obligation of Conrail thereafter to make
scheduled rental payments with respect thereto shall cease. (Lease, Section 10)
An Event of Loss with respect to any Item of Equipment means any of the
following events: such Item of Equipment (a) shall be or become lost, stolen, or
otherwise disappear for a period exceeding 30 days, (b) suffers an actual or
constructive total loss, (c) in the good faith opinion of Conrail becomes worn
out or suffers destruction or damage beyond economic repair or is rendered
permanently unfit for commercial use by Conrail and for the purpose for which it
was designed, as evidenced by an officer's certificate, (d) is taken, condemned
or requisitioned for title or use for a period exceeding 180 days (or, if
shorter, the remainder of the Basic Lease Term) by any governmental authority or
(e) with respect to the rebuilt railcars, such Item of Equipment is required to
be taken out of service as a result of a lack of certification as to rebuilt
status. (Lease, Section 10 and Definitional Appendix)
Events of Default. Events of Default under the Lease include, among other
things: (a) failure by Conrail to make any payment of Basic Rent, other amounts
of rent intended to cover principal of, premium, if any, and interest on, the
Equipment Notes, Stipulated Loss Value and Termination Value within ten days
after the same shall have become due; (b) failure by Conrail to, within 30 days
after its receipt of written notice from the Owner Trustee of any breach or
violation of any other material covenant, condition or agreement to be performed
or observed by Conrail under the Lease or any other Operative Document (other
than the Tax Indemnity Agreement), or in any other document or certificate
furnished by Conrail, (i) cure any such breach or violation which can be cured
by the payment of money or (ii) diligently proceed to cure any other such breach
or violation and effect such cure within 180 days after receipt of such notice;
(c) any material representation or warranty made by Conrail in the Lease or any
other Operative Document (other than the Tax Indemnity Agreement) shall prove to
have been incorrect in any material respect at the time
S-19
<PAGE> 20
made and shall remain material and unremedied 30 days after notice to Conrail;
provided that the 30-day period will be extended for an additional 30 days if
Conrail is diligently seeking to cure such inaccuracy and reasonably expects
such cure to be effected within such additional period; and (d) the occurrence
of certain events of bankruptcy, reorganization or insolvency of Conrail.
(Lease, Section 14)
If an Event of Default under the Lease has occurred and is continuing, and
the Lease has been declared to be in default, the Indenture Trustee may exercise
one or more of the remedies provided in the Lease. These remedies include the
right to repossess and use or operate the Items of Equipment, to sell or relet
the Items of Equipment free and clear of Conrail's rights and retain the
proceeds and to require Conrail to pay as liquidated damages any unpaid rent
plus (i) an amount equal to the excess of the net present value of the aggregate
Basic Rent for such Item of Equipment for the remainder of the Term applicable
thereto over the fair market rental value thereof of (ii) an amount equal to the
excess of the Stipulated Loss Value of such Item of Equipment over (x) the fair
market sales value thereof or (y) if such Item of Equipment has been sold, the
net sales proceeds. (Lease, Section 15; Indenture, Section 5.03)
If an Event of Default under the Lease shall occur and continue for 90 days
or more during which no acceleration of the Equipment Notes has occurred, or if
the Equipment Notes have been accelerated, the Owner Trustee may, at its option,
pursuant to notice given to the Indenture Trustee while such Event of Default is
continuing, deposit with the Indenture Trustee an amount sufficient to redeem,
and the Indenture Trustee shall thereupon redeem, all outstanding Equipment
Notes at the principal amount thereof plus accrued interest to the Redemption
Date plus, if the Equipment Notes have not been accelerated and the Event of
Default has not continued for one year or more, a Make-Whole Premium, if any.
(Indenture, Sections 4.02 and 5.04) See also "-- Remedies".
THE PARTICIPATION AGREEMENT
Conrail is required to indemnify Owner Participant, the Owner Trustee (both
in its individual and trust capacities), the Indenture Trustee (both in its
individual and trust capacities) and the Holders of the Equipment Notes for
certain losses, fees and expense and for certain other matters. (Participation
Agreement, Sections 15 and 16) The Participation Agreement permits Conrail, so
long as the Lease is then in full force and effect and no Event of Default under
the Lease shall have occurred and be continuing, to refinance the debt
represented by the then outstanding Equipment Notes on any Rent Payment Date,
subject to certain terms and conditions specified in the Indenture. In the event
of such a refinancing, outstanding Equipment Notes will be redeemed at a
redemption price equal to the unpaid principal amount thereof, plus accrued
interest, plus, if redeemed prior to the Premium Termination Date, a Make-Whole
Premium, if any. See "-- Redemption". (Participation Agreement, Section 19;
Indenture, Section 4.02) Any transfers by the Owner Participant of its interest
in the Items of Equipment are restricted to, among other things, transferees
having a tangible net worth of at least $75 million or to transferees whose
obligations are guaranteed by an entity having such tangible net worth.
(Participation Agreement, Section 14)
FEDERAL INCOME TAX CONSEQUENCES
Prospective investors should consult the section entitled "Federal Income
Tax Consequences" in the accompanying Prospectus together with the discussion of
certain subsequent developments below, for a discussion of the anticipated
material federal income tax consequences of the purchase, ownership and
disposition of Certificates.
FINAL REGULATIONS
On January 27, 1994, the Internal Revenue Service issued final regulations
regarding original issue discount (the "OID Regulations"). The OID Regulations
apply to debt instruments issued on or after April 4, 1994. The Equipment Notes
will not be issued with original issue discount. Certificate Owners are urged to
consult their own tax advisors regarding accrual elections with respect to debt
instruments available to taxpayers under the OID Regulations.
S-20
<PAGE> 21
ERISA CONSIDERATIONS
The Certificates may be purchased by an employee benefit plan (a "Plan")
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). A fiduciary of a Plan must determine that the purchase of a
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a non- exempt prohibited transaction as defined in Section 406 of
ERISA or Section 4975 of the Code. Employee benefit plans which are
governmental plans (as defined in Section 3(32) of ERISA) and certain church
plans (as defined in Section 3(33) of ERISA) are not subject to the fiduciary
responsibility provisions of ERISA. Any Plan that purchases a Certificate must
be an "accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities Act.
The United States Department of Labor (the "DOL") has granted to Morgan
Stanley & Co. Incorporated an administrative exemption (Prohibited Transaction
Exemption 90-24 et al., Exemption Application No. D-8019 et al., 55 Fed. Reg.
20,548 (1990), (the "Exemption") from certain of the prohibited transaction
rules of ERISA and the Code with respect to the initial purchase, the holding,
and the subsequent resale by a Plan (including an individual retirement account
or other plan subject to Section 4975 of the Code) of certificates in certain
pass through trusts, the assets of which pass through trust consist of
obligations that bear interest or are purchased at a discount and which are
secured by commercial real property (including obligations secured by leasehold
interests on commercial real property). The limited relief provided by DOL in
the Exemption from certain provisions of ERISA and the Code is subject to
several other conditions, including a requirement that Certificates acquired by
a Plan under the Exemption have received a rating at the time of acquisition by
the Plan that is in one of the three highest rating categories from either
Standard & Poor's Ratings Group, Moody's Investors Service, Inc., Fitch
Investors Service, Inc. or Duff & Phelps Inc. The Exemption also requires that
the acquisition of Certificates by a Plan be on terms (including the price for
the Certificates) that are at least as favorable to a Plan as they would be in
an arm's-length transaction with an unrelated party.
Each fiduciary of a Plan should independently determine if the purchase or
holding of a Certificate will require an exemption, and if so, whether the
Exemption applies to such purchase or holding, or whether any other prohibited
transaction exemption is available. A fiduciary should also consider that under
the regulations promulgated by the DOL, 29 C.F.R. Section 2510.3-101 (the
"Regulation"), if a Plan acquires a Certificate, then the Plan's assets may
include both the Certificate it acquires and an undivided interest in the
underlying assets of the Trust (because the Trust is deemed to hold assets of
the Plan) unless the actual level of investment by employee benefit plans (and
certain entities in which employee benefit plans invest) in the Certificates is
not "significant" within the meaning of the Regulation.
Under the terms of the Regulation, if the Trust were deemed to hold assets
of an employee benefit plan by reason of a Plan's investment in a Certificate,
such plan assets would include an undivided interest in the Trust, the Equipment
Notes and other assets held by the Trust. In such an event, the persons
providing services with respect to the assets of the Trust, including the
Equipment Notes, may be subject to the fiduciary responsibility provisions of
Title I of ERISA and be subject to the prohibited transaction provisions of
ERISA and the Code with respect to transactions involving such assets unless
such transactions are subject to a statutory or administrative exemption. The
Exemption may provide prohibited transaction relief under these circumstances.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Any fiduciary of a Plan considering the purchase of Certificates
should consult its legal advisors regarding the consequences of such purchase
under ERISA and the Code (and, particularly in the case of non-ERISA plans,
concerning any state law considerations).
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between Conrail and Morgan Stanley & Co.
Incorporated (the "Underwriter"), the Underwriter has agreed to purchase from
the Trustee all of the Certificates.
S-21
<PAGE> 22
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Certificates is subject to, among other
things, the approval of certain legal matters by its counsel and certain other
conditions. The Underwriter is obligated to take and pay for all of the
Certificates to be purchased by it if any are taken.
The Underwriter proposes to offer all or part of the Certificates directly
to the public at the public offering price set forth on the cover page of this
Prospectus Supplement and may offer a portion of the Certificates to dealers at
a price which represents a concession not in excess of .40% of the principal
amount of the Certificates. The Underwriter may allow, and some dealers may
reallow, a concession not in excess of .25% of the principal amount of the
Certificates to certain other dealers. After the initial public offering, the
public offering price and other selling terms may be varied by the Underwriter.
The Underwriting Agreement provides that Conrail will reimburse the
Underwriter for certain expenses and indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
and will contribute to payments the Underwriter may be required to make in
respect thereof.
Conrail does not intend to apply for listing of the Certificates on a
national securities exchange, but has been advised by the Underwriter that the
Underwriter presently intends to make a market in the Certificates, as permitted
by applicable laws and regulations. The Underwriter is not obligated, however,
to make a market in the Certificates and any such market making may be
discontinued at any time at the sole discretion of the Underwriter. Accordingly,
no assurance can be given as to the liquidity of, or trading markets for, the
Certificates.
LEGAL MATTERS
The validity of the Certificates is being passed upon for Conrail by Bruce
B. Wilson, Esq., Senior Vice President -- Law of Conrail and for the Underwriter
by Shearman & Sterling, New York, New York. Mr. Wilson owns and has options to
acquire shares of common stock of Conrail Inc. Mr. Wilson will rely on the
opinion of Shearman & Sterling as to matters governed by New York law. Both
Bruce B. Wilson, Esq. and Shearman & Sterling will rely on the opinion of Potter
Anderson & Corroon, Wilmington, Delaware, counsel for Wilmington Trust Company,
individually and as Trustee, as to matters relating to the authorization,
execution and delivery of the Certificates under the Basic Agreement and the
Trust Supplement.
EXPERTS
With respect to the unaudited condensed consolidated financial information
of Conrail for the three-, six-and nine-month periods ended March 31, June 30,
and September 30, 1994, respectively, incorporated by reference in this
Prospectus Supplement, Price Waterhouse LLP reported that they have applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate reports dated April 20, July 20 and
October 19, 1994 incorporated by reference herein state that they did not audit
and they do not express an opinion on that unaudited condensed consolidated
financial information. Price Waterhouse LLP has not carried out any significant
or additional audit tests beyond those which would have been necessary if their
reports had not been included. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
of the review procedures applied. Price Waterhouse LLP is not subject to the
liability provisions of section 11 of the Securities Act for their report on the
unaudited consolidated financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by
Price Waterhouse LLP within the meaning of sections 7 and 11 of the Securities
Act.
S-22
<PAGE> 23
$500,000,000
CONSOLIDATED RAIL CORPORATION
PASS THROUGH CERTIFICATES
------------------------
Up to $500,000,000 aggregate principal amount of Pass Through Certificates
(the "Certificates") (or such greater amount if Certificates are issued at an
original issue discount, as shall result in aggregate proceeds of $500,000,000)
may be offered for sale from time to time pursuant to this Prospectus and
related Prospectus Supplements (as defined below). Certificates may be issued in
one or more series in amounts, at prices and on terms to be determined at the
time of the offering. In respect of each offering of Certificates, a separate
Conrail Pass Through Trust for each series of Certificates being offered (each,
a "Trust") will be formed pursuant to the Pass Through Trust Agreement (the
"Basic Agreement") and the supplement thereto (a "Trust Supplement") relating to
such Trust between Consolidated Rail Corporation ("Conrail") and Wilmington
Trust Company (the "Trustee"), as trustee under each Trust. Each Certificate in
a series will represent a fractional undivided interest in the related Trust and
will have no rights, benefits or interests in respect of any other Trust. The
property of the Trusts will consist of equipment notes issued (a) on a
nonrecourse basis by one or more owner trustees pursuant to separate leveraged
lease transactions (the "Leased Equipment Notes") to finance or refinance a
portion of the equipment cost of rolling stock (each, a "Leased Equipment Group"
and collectively, the "Leased Equipment Groups") that has been or will be leased
to Conrail, or (b) with recourse to Conrail (the "Owned Equipment Notes" and,
together with any Leased Equipment Notes, the "Equipment Notes") to finance all
or a portion of the equipment cost of, or to purchase all or a portion of the
outstanding debt with respect to, rolling stock (each, an "Owned Equipment
Group" and collectively, the "Owned Equipment Groups" and, together with the
Leased Equipment Groups, the "Equipment Groups") that has been or will be
purchased and owned by Conrail.
Certain specific terms of the particular Certificates in respect of which
this Prospectus is being delivered are set forth in the accompanying Prospectus
Supplement (the "Prospectus Supplement") including, where applicable, the
specific designation, form, aggregate principal amount, initial public offering
price and distribution dates relating to such Certificates, the Trust or Trusts
relating to such Certificates, the Equipment Notes to be purchased by such Trust
or Trusts, the Equipment Group or Groups relating to such Equipment Notes, the
leveraged lease transactions or financing arrangements, as the case may be,
relating to such Equipment Notes and other special terms relating to such
Certificates and the net proceeds from the offering of such Certificates. The
Certificates shall be issued in registered form only and may, if so specified in
the applicable Prospectus Supplement, be issued in accordance with a book-entry
system.
Equipment Notes may be issued in respect of an Equipment Group in one or
more series, each series having its own interest rate and final maturity date. A
separate Trust will purchase all of the series of Equipment Notes relating to
the respective Equipment Group and having an interest rate equal to the interest
rate applicable to the Certificates issued by such Trust and maturity dates
occurring on or before the final distribution date applicable to such
Certificates. Interest paid on the Equipment Notes held in each Trust will be
passed through to the holders of the Certificates relating to such Trust on the
dates and at the rate per annum set forth in the Prospectus Supplement relating
to such Certificates until the final distribution date for such Trust. Principal
paid on the Equipment Notes held in each Trust will be passed through to the
holders of the Certificates relating to such Trust in scheduled amounts on the
dates set forth in the Prospectus Supplement relating to such Certificates until
the final distribution date for such Trust.
The Equipment Notes issued with respect to each Equipment Group will be
secured by a security interest in such Equipment Group and, in the case of the
Leased Equipment Groups, by a security interest in the lease relating thereto,
including the right to receive rentals payable in respect of the related Leased
Equipment Group by Conrail. Although neither the Certificates nor the Leased
Equipment Notes will be direct obligations of, or guaranteed by, Conrail, the
amounts unconditionally payable by Conrail for the lease of Leased Equipment
Groups will be sufficient to pay in full when due all payments required to be
made on the corresponding Leased Equipment Notes.
------------------------
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 Certificates may be sold to or through underwriters, through dealers or
agents or directly to purchasers. See "Plan of Distribution." The accompanying
Prospectus Supplement sets forth the names of any underwriters, dealers or
agents involved in the sale of the Certificates in respect of which this
Prospectus is being delivered and any applicable fee, commission or discount
arrangements with them.
This Prospectus may not be used to consummate sales of Certificates unless
accompanied by a Prospectus Supplement.
------------------------
The date of this Prospectus is August 10, 1993.
<PAGE> 24
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
Conrail is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy and information statements and
other information filed by Conrail with the Commission can be inspected and
copied at the Commission's public reference facilities at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained from the Commission's Public
Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
Conrail and its holding company, Conrail, Inc., have filed a registration
statement on Form S-3 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement and the exhibits filed as a part thereof.
Statements contained herein concerning any document filed as an exhibit are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission pursuant to the
Exchange Act and are incorporated into this Prospectus by reference and made a
part hereof:
1. Conrail's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
2. Conrail's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1993 and June 30, 1993.
3. Proxy Statement, dated April 16, 1993, for Conrail's 1993 annual
meeting of shareholders.
4. Conrail's Current Report on Form 8-K, dated July 1, 1993.
All documents filed by Conrail pursuant to section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Certificates offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference, or contained in this Prospectus, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Conrail will provide without charge to each person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any or
all documents incorporated herein by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such
2
<PAGE> 25
documents). Requests for such copies should be directed to Consolidated Rail
Corporation, Corporate Secretary, Two Commerce Square, P.O. Box 41417,
Philadelphia, Pennsylvania 19101-1417, telephone number (215) 209-4054.
THE COMPANY
Conrail, the principal subsidiary of Conrail Inc., is a rail carrier
providing freight transportation services within the northeast and midwest
United States. Conrail interchanges freight with other United States and
Canadian railroads for transport to destinations within and outside Conrail's
service region. Conrail operates no significant line of business other than the
freight railroad business and does not provide common carrier passenger or
commuter train service.
Conrail was incorporated in Pennsylvania on February 10, 1976. Conrail's
principal executive offices are located at Two Commerce Square, Philadelphia,
Pennsylvania 19101-1417, telephone number (215) 209-4000.
RECENT DEVELOPMENTS
Effective July 1, 1993 (the "Effective Time"), each share of Conrail common
stock and Conrail preferred stock at the time outstanding was converted into an
identical share of Conrail Inc. common stock and Conrail Inc. preferred stock,
respectively, Conrail became a wholly owned subsidiary of Conrail Inc. and each
holder of Conrail common stock immediately before the Effective Time became,
immediately after the Effective Time, the holder of the same number of shares of
Conrail Inc. Common Stock as such holder held of Conrail common stock
immediately before the Effective Time. The Conrail Inc. Common Stock has all of
the same rights, characteristics and terms as the Conrail common stock. Conrail
Inc. replaced Conrail as the publicly held corporation. Conrail Inc. has the
same directors and the same consolidated assets, liabilities and shareholders'
equity as Conrail had immediately prior to the Effective Time. The
implementation of the holding company structure did not result in any change in
Conrail's operation of its business as a freight rail carrier, and Conrail will
continue to operate under the name "Consolidated Rail Corporation." Conrail Inc.
Common Stock is listed on the New York Stock Exchange and the Philadelphia Stock
Exchange and trades under the same symbol as Conrail previously had ("CRR"). All
of Conrail's debt obligations outstanding as of the Effective Time continue to
be the obligations of Conrail. See "Proposal to Approve the Agreement and Plan
of Merger" in Conrail's Proxy Statement for its 1993 annual meeting of
shareholders, incorporated by reference herein, for more information regarding
the holding company structure.
FORMATION OF THE TRUSTS
In respect of each offering of Certificates, one or more Trusts will be
formed, and the related Certificates issued, pursuant to separate Trust
Supplements to be entered into between the Trustee and Conrail in accordance
with the terms of the Basic Agreement. Concurrently with the execution and
delivery of each Trust Supplement, the Trustee, on behalf of the Trust formed
thereby, will enter into a separate financing, refinancing or purchase agreement
(each such financing, refinancing or purchase agreement being herein referred to
as a "Note Purchase Agreement") relating to one or more of the Equipment Groups
described in the applicable Prospectus Supplement. Pursuant to the applicable
Note Purchase Agreement or Note Purchase Agreements, the Trustee, on behalf of
each Trust, will purchase all of the series of Equipment Notes relating to the
respective Equipment Groups and having an interest rate equal to the interest
rate payable by such Trust. The maturity dates of the Equipment Notes acquired
by each Trust will occur on or before the final distribution date applicable to
the Certificates that will be issued by such Trust. The 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 Trust in
which such Equipment Notes are held. See "Description of the Certificates" and
"Description of the Equipment Notes."
3
<PAGE> 26
USE OF PROCEEDS
The Certificates offered pursuant to any Prospectus Supplement will be
issued in order to facilitate (a) the financing or refinancing of the debt
portion and, in certain cases, the refinancing of some of the equity portion of
one or more separate leveraged lease transactions entered into by Conrail, as
lessee, with respect to the Leased Equipment Groups as described in the
applicable Prospectus Supplement, and (b) the financing of the aggregate
principal amount of debt to be issued, or the purchase of the aggregate
principal amount of the debt previously issued, by Conrail in respect of the
Owned Equipment Groups as described in the applicable Prospectus Supplement. The
proceeds from the sale of the Certificates offered pursuant to any Prospectus
Supplement will be used by the Trustee on behalf of the applicable Trust or
Trusts to purchase either (a) Leased Equipment Notes issued by the respective
Loan Trustee or Loan Trustees to finance or refinance a portion (as specified in
the applicable Prospectus Supplement) of the equipment cost of the related
Leased Equipment Group, and/or (b) Owned Equipment Notes issued by Conrail to
finance all or a portion (as specified in the applicable Prospectus Supplement)
of the equipment cost of the related Owned Equipment Groups. Any portion of the
proceeds from the sale of Certificates not used by the Trustee to purchase
Equipment Notes on or prior to the date specified therefor in the applicable
Prospectus Supplement will be distributed on a Special Distribution Date (as
hereinafter defined) to the applicable Certificateholders, together with
interest, but without premium. See "Description of Certificates -- Special
Distribution Upon Unavailability of Equipment Group."
The Leased Equipment Notes will be issued under separate Equipment Trust
Agreements (the "Leased Equipment Group Indentures") between Wilmington Trust
Company, as trustee thereunder (in such capacity, herein referred to as the
"Loan Trustee"), and an institution specified in the related Prospectus
Supplement acting, not in its individual capacity, but solely as owner trustee
(an "Owner Trustee") of a separate trust for the benefit of one or more
institutional investors (each, an "Owner Participant"). With respect to each
Leased Equipment Group, the related Owner Participant will have provided or will
provide from sources other than the Leased Equipment Notes a portion (as
specified in the applicable Prospectus Supplement) of the equipment cost of the
related Leased Equipment Group. No Owner Participant, however, will be
personally liable for any amount payable under the related Leased Equipment
Group Indenture or the Leased Equipment Notes issued thereunder. Simultaneously
with the acquisition of each Leased Equipment Group, the related Owner Trustee
leased or will lease such Equipment Group to Conrail pursuant to a separate
lease agreement (each such lease agreement being herein referred to as a
"Lease"). The Owned Equipment Notes will be issued under separate Equipment
Trust Agreements (the "Owned Equipment Group Indentures" and collectively, with
any Leased Equipment Group Indentures, the "Indentures") between the applicable
Loan Trustee and Conrail.
The specific use of proceeds of any series of Certificates will be more
particularly described in the applicable Prospectus Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
Conrail for the periods indicated. Earnings represent income before income taxes
plus fixed charges, less equity in undistributed earnings (losses) of 20% to 50%
owned companies. Fixed charges represent interest expense together with interest
capitalized and a portion of rent under long-term operating leases
representative of an interest factor. After the special charge of $719 million
recognized in the fourth quarter of 1991, earnings were insufficient by $343
million to cover fixed charges for the year ended December 31, 1991.
<TABLE>
<CAPTION>
QUARTER
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ----------------------------------------
1993 1992 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges..... 2.25x 2.29x 3.33x -- 3.12x 3.29x 5.95x
</TABLE>
4
<PAGE> 27
DESCRIPTION OF THE CERTIFICATES
In connection with each offering of Certificates, one or more separate
trusts will be formed and one or more series of Certificates will be issued
pursuant to the Basic Agreement and one or more separate Trust Supplements to be
entered into between Conrail and the Trustee. The statements made under this
caption are summaries and do not purport to be complete. The summaries relate to
the Basic Agreement and each of the Trust Supplements, the Trusts to be formed
thereby and the Certificates to be issued by each Trust except to the extent, if
any, described in the applicable Prospectus Supplement. The summaries include
descriptions of the material terms and are qualified in their entirety by
reference to all of the provisions of the Basic Agreement, a form of which has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The Prospectus Supplement that accompanies this Prospectus contains a
glossary of the material terms used with respect to the specific series of
Certificates being offered thereby. The Trust Supplement relating to each series
of Certificates and the forms of the related Note Purchase Agreement and
Indenture and, if the Certificates relate to Leased Equipment Groups, the
related Lease and Participation Agreement will be filed as exhibits to a Current
Report on Form 8-K, Quarterly Report on Form 10-Q or Annual Report on Form 10-K,
to be filed by Conrail with the Commission following the issuance of such series
of Certificates. Citations to the relevant sections of the Basic Agreement
appear below in parentheses unless otherwise indicated.
The Certificates offered pursuant to this Prospectus will be limited to
$500,000,000 aggregate principal amount (or such greater amount if Certificates
are issued at an original issue discount, as shall result in aggregate proceeds
of $500,000,000).
GENERAL
Each Certificate will represent a fractional undivided interest in the
Trust created by the Trust Supplement pursuant to which such Certificate was
issued and all payments and distributions shall be made only from the related
Trust Property (as defined below). The property of each Trust (the "Trust
Property") will include the Equipment Notes held in such Trust, all monies at
any time paid thereon and all monies due and to become due thereunder and funds
from time to time deposited with the Trustee in accounts relating to such Trust.
Each Certificate will represent a pro rata share of the outstanding principal
amount of the Equipment Notes held in the related Trust and, unless otherwise
specified in the applicable Prospectus Supplement, will be issued in minimum
denominations of $1,000 or any integral multiple thereof. (Sections 2.01 and
3.01) The Certificates do not represent an interest in or obligation of Conrail,
the Trustee, any of the Loan Trustees or Owner Trustees in their individual
capacities, any Owner Participant, or any affiliate of any thereof.
Reference is made to the Prospectus Supplement that accompanies this
Prospectus for a description of the specific series of Certificates being
offered thereby, including: (1) the specific designation and title of such
Certificates; (2) the Regular Distribution Dates (as hereinafter defined) and
Special Distribution Dates (as hereinafter defined) applicable to such
Certificates; (3) the specific form of such Certificates, including whether such
Certificates are to be issued in accordance with a book-entry system; (4) a
description of the Equipment Notes to be purchased by such Trust, including the
period or periods within which, the price or prices at which, and the terms and
conditions upon which such Certificates may or must be redeemed in whole or in
part, by Conrail or, with respect to Leased Equipment Notes, the Loan Trustee;
(5) a description of the related Equipment Groups, including whether the
Equipment Group is a Leased Equipment Group or an Owned Equipment Group; (6) a
description of the related Note Purchase Agreement and Indenture, including a
description of the events of default under the related Indentures, the remedies
exercisable upon the occurrence of such events of default and any limitations on
the exercise of such remedies with respect to such Equipment Notes; (7) if such
Certificates relate to a Leased Equipment Group, a description of the related
Lease and Participation Agreement, including (a) the names of the related Owner
Trustees, (b) a description of the events of default under the related Leases,
the remedies exercisable upon the occurrence of such events of default and any
limitations on the exercise of such remedies with respect to such Leased
Equipment Notes, and (c) the rights of the related Owner Trustee, if any, and/or
Owner Participant, if any, to cure failures of Conrail to pay rent under the
related Lease; (8) the extent, if any, to which the provisions of the operative
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documents applicable to such Equipment Notes may be amended by the parties
thereto without the consent of the holders of, or only upon the consent of the
holders of a specified percentage of aggregate principal amount of, such
Equipment Notes; and (9) any other special terms pertaining to such
Certificates. (Section 2.01)
The general provisions of the Indentures do not afford holders of the
Certificates protection in the event of a highly leveraged transaction involving
Conrail. Any covenants or other provisions included in a supplement or amendment
to any Indenture for the benefit of the holders of any particular series of
Certificates will be described in the applicable Prospectus Supplement.
BOOK-ENTRY RECORDS
The Certificates of each Trust will be issued in fully registered form only
and may be issued pursuant to a book-entry system. In the event that the
Certificates of any series are issued pursuant to a book-entry system, such
Certificates will be registered in the name of Cede & Co. ("Cede") as the
nominee of The Depository Trust Company ("DTC"). No person acquiring an interest
in such Certificates ("Certificate Owner") will be entitled to receive a
certificate representing such person's interest in such Certificates, except as
set forth below under "Definitive Certificates." Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references to actions by Certificateholders shall refer to actions taken by DTC
upon instructions from DTC Participants (as defined below), and all references
herein to distributions, notices, reports and statements to Certificateholders
shall refer, as the case may be, to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of such Certificates, or to
DTC Participants for distribution to Certificate Owners in accordance with DTC
procedures. (Section 3.09)
Conrail has been advised 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 between DTC Participants through electronic book-
entries, thereby eliminating the need for physical transfer of certificates. DTC
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a DTC Participant either directly or
indirectly ("Indirect Participants").
Certificate Owners that are not DTC Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Certificates may do so only through DTC Participants and
Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest from the Trustee through DTC
Participants or Indirect Participants, as the case may be. Under a book-entry
format, Certificate Owners may experience some delay in their receipt of
payments, since such payments will be forwarded by the Trustee to Cede, as
nominee for DTC. DTC will forward such payments in same-day funds to DTC
Participants who are credited with ownership of the Certificates in amounts
proportionate to the principal amount of each such DTC Participant's respective
holdings of beneficial interests in the Certificates. DTC Participants will
thereafter forward payments to Indirect Participants or Certificate Owners, as
the case may be, in accordance with customary industry practices. The forwarding
of such distributions to the Certificate Owners will be the responsibility of
such DTC Participants. Unless and until the Definitive Certificates are issued
under the limited circumstances described herein, the only "Certificateholder"
will be Cede, as nominee of DTC. Certificate Owners will not be recognized by
the Trustee as Certificateholders, as such term is used in the Basic Agreement,
and Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and DTC Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Certificates among DTC Participants on whose behalf it acts with respect to
the Certificates and to receive and transmit distributions of principal,
premium, if any, and interest with respect to the Certificates. DTC Participants
and Indirect Participants with which Certificate Owners have accounts with
respect to the Certificates similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective customers.
Accordingly, although Certificate
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Owners will not possess the Certificates, the Rules provide a mechanism by which
Certificate Owners will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants, the ability of a Certificate Owner to pledge
the Certificates to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Certificates, may be limited
due to the lack of a physical certificate for such Certificates.
DTC has advised Conrail that it will take any action permitted to be taken
by a Certificateholder under the Basic Agreement only at the direction of one or
more DTC Participants to whose accounts with DTC the Certificates are credited.
Additionally, DTC has advised Conrail that in the event any action requires
approval by Certificateholders of a certain percentage of beneficial interest in
each Trust, DTC will take such action only at the direction of and on behalf of
DTC Participants whose holders include undivided interests that satisfy any such
percentage. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of DTC
Participants whose holders include such undivided interests.
Neither Conrail nor the Trustee will have any liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Certificates held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DEFINITIVE CERTIFICATES
Certificates will be issued in certificated form ("Definitive
Certificates") to Certificate Owners or their nominees, rather than to DTC or
its nominee, only if (i) Conrail advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Certificates and Conrail is unable to locate a qualified
successor, (ii) Conrail, at its option, elects to terminate the book-entry
system through DTC or (iii) after the occurrence of an Event of Default (as
hereinafter defined), Certificate Owners with fractional undivided interests
aggregating not less than a majority in interest in such Trust advise the
Trustee, Conrail and DTC through DTC Participants in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the Certificate Owners' best interest. (Section 3.09)
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Certificate Owners through
DTC Participants of the availability of Definitive Certificates. Upon surrender
by DTC of the certificates representing the Certificates and receipt of
instructions for re-registration, the Trustee will reissue the Certificates as
Definitive Certificates to Certificate Owners. (Section 3.09)
Distributions of principal, premium, if any, and interest with respect to
Certificates will thereafter be made by the Trustee directly in accordance with
the procedures set forth in the Basic Agreement and the applicable Trust
Supplements, to holders in whose names the Definitive Certificates were
registered at the close of business on the applicable record date. Such
distributions will be made by check mailed to the address of such holder as it
appears on the register maintained by the Trustee. The final payment on any
Certificate, however, will be made only upon presentation and surrender of such
Certificate at the office or agency specified in the notice of final
distribution to Certificateholders. (Sections 4.02 and 11.01)
Definitive Certificates will be freely transferable and exchangeable for
other Certificates of the same series at the office of the Trustee upon
compliance with the requirements set forth in the Basic Agreement and the
applicable Trust Supplements. No service charge will be imposed for any
registration of transfer or exchange, but payment of a sum sufficient to cover
any tax or other governmental charge shall be required. (Section 3.04)
SAME-DAY SETTLEMENT AND PAYMENT
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, all payments made by Conrail to the Loan Trustee under any Lease or any
Owned Equipment Group Indentures will be in
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immediately available funds. Such payments, including the final distribution of
principal with respect to the Certificates of any Trust, 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 clearing-house or next-day funds. In contrast, secondary
trading in pass through certificates is generally settled in immediately
available or same-day funds. Any Certificates registered in the name of Cede, as
nominee for DTC, will trade in DTC's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the 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 same-day funds
on trading activity in the Certificates.
PAYMENTS AND DISTRIBUTIONS
Payments of principal, premium, if any, and interest with respect to the
Equipment Notes held in each Trust will be distributed by the Trustee to
Certificateholders of such Trust on the dates specified in the applicable
Prospectus Supplement, except in certain cases when some or all of such
Equipment Notes are in default. See "Events of Default and Certain Rights Upon
an Event of Default." Payments of principal of, and interest on, the unpaid
principal amount of the Equipment Notes held in each Trust will be scheduled to
be received by the Trustee on the dates specified in the applicable Prospectus
Supplement (such scheduled payments of interest and principal on the Equipment
Notes are herein referred to as "Scheduled Payments," and the dates specified in
the applicable Prospectus Supplement are herein referred to as "Regular
Distribution Dates"). See "Description of the Equipment Notes -- General." Each
Certificateholder of each Trust will be entitled to receive a pro rata share of
any distribution in respect of Scheduled Payments of principal and interest made
on the Equipment Notes held in the Trust.
Payments of principal, premium, if any, and interest received by the
Trustee on account of the early redemption, if any, of the Equipment Notes
relating to one or more Equipment Groups held in a Trust, and payments, other
than Scheduled Payments received on a Regular Distribution Date, received by the
Trustee following a default in respect of Equipment Notes held in a Trust
relating to one or more Equipment Groups ("Special Payments") will be
distributed on the date determined pursuant to the applicable Prospectus
Supplement (a "Special Distribution Date"). The Trustee will mail notice to the
Certificateholders of record of the applicable Trust not less than 20 days prior
to the Special Distribution Date on which any Special Payment is scheduled to be
distributed by the Trustee stating such anticipated Special Distribution Date.
(Section 4.02)
POOL FACTORS
Unless there has been an early redemption, a purchase of an issue of
Equipment Notes by the related Owner Trustee after an Indenture Default (as
defined below) or a default in the payment of principal or interest, in respect
of one or more issues of the Equipment Notes held in a Trust, as described in
the applicable Prospectus Supplement or below in "Events of Default and Certain
Rights Upon an Event of Default," the Pool Factor (as defined below) for the
Trusts will decline in proportion to the scheduled repayments of principal on
the Equipment Notes held in such Trust as described in the applicable Prospectus
Supplement. In the event of such redemption, purchase or default, the Pool
Factor and the Pool Balance (as defined below) of each Trust so affected will be
recomputed after giving effect thereto and notice thereof will be mailed to the
Certificateholders of such Trust. Each Trust will have a separate Pool Factor.
The "Pool Balance" for each Trust indicates, as of any date, the aggregate
unpaid principal amount of the Equipment Notes held in such Trust on such date
plus any amounts in respect of principal on such Equipment Notes held by the
Trustee and not yet distributed. The Pool Balance for each Trust as of any
Regular Distribution Date or Special Distribution Date shall be computed after
giving effect to the payment of principal, if any, on the Equipment Notes held
in such Trust and distribution thereof to be made on that date.
The "Pool Factor" for each Trust as of any Regular Distribution Date or
Special Distribution Date is the quotient (rounded to the seventh decimal place)
computed by dividing (i) the Pool Balance by (ii) the aggregate original
principal amount of the Equipment Notes held in such Trust. The Pool Factor for
each
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Trust as of any Regular Distribution Date or Special Distribution Date shall be
computed after giving effect to the payment of principal, if any, on the
Equipment Notes held in such Trust and distribution thereof to be made on that
date. The Pool Factor for each Trust will initially be 1.0000000; thereafter,
the Pool Factor for each Trust will decline as described above to reflect
reductions in the Pool Balance of such Trust. The amount of a
Certificateholder's pro rata share of the Pool Balance of a Trust can be
determined by multiplying the original denomination of the holder's Certificate
of such Trust by the Pool Factor for such Trust as of the applicable Regular
Distribution Date or Special Distribution Date.
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, the
Trustee will include with each distribution of a Scheduled Payment or Special
Payment to Certificateholders of the related Trust a statement, giving effect to
such distribution to be made on such Regular Distribution Date or Special
Distribution Date, setting forth the following information (per $1,000 aggregate
principal amount of Certificate for such Trust, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and the
amount allocable to premium, if any;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor for such Trust. (Section
4.03(a))
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, on the record date prior to each Regular Distribution Date and Special
Distribution Date, the Trustee will request from DTC a Securities Position
Listing setting forth the names of all DTC Participants reflected on DTC's books
as holding interests in the Certificates on such record date. On each Regular
Distribution Date and Special Distribution Date, the Trustee will mail to each
such DTC Participant the statement described above and will make available
additional copies as requested by such DTC Participant for forwarding to
Certificate Owners.
In addition, after the end of each calendar year, the Trustee will prepare
for each Certificateholder of each Trust at any time during the preceding
calendar year a report containing the sum of the amounts determined pursuant to
clauses (i) and (ii) above with respect to the Trust for such calendar year or,
in the event such person was a Certificateholder during only a portion of such
calendar year, for the applicable portion of such calendar year, and such other
items as are readily available to the Trustee and which a Certificateholder
shall reasonably request as necessary for the purpose of such
Certificateholder's preparation of its federal income tax returns. (Section
4.03(b)) Such report and such other items shall be prepared on the basis of
information supplied to the Trustee by the DTC Participants and shall be
delivered by the Trustee to such DTC Participants to be available for forwarding
by such DTC Participants to Certificate Owners in the manner described above.
At such time, if any, as the Certificates are issued in the form of
Definitive Certificates, the Trustee will prepare and deliver the information
described above to each Certificateholder of record of each Trust as the name
and period of beneficial ownership of such Certificateholder appears on the
records of the registrar of the Certificates.
VOTING OF EQUIPMENT NOTES
The Trustee, as holder of the Equipment Notes held in each Trust, has the
right to vote and give consents and waivers with respect to such Equipment Notes
under the related Indentures. The Basic Agreement sets forth the circumstances
in which the Trustee shall direct any action or cast any vote as the holder of
the Equipment Notes held in the applicable Trust at its own discretion and the
circumstances in which the Trustee shall seek instructions from the
Certificateholders of such Trust. Prior to an Event of Default (as defined
below) with respect to any Trust, the principal amount of the Equipment Notes
held in such Trust directing any action or being voted for or against any
proposal shall be in proportion to the principal amount of Certificates held by
the Certificateholders of such Trust taking the corresponding position.
(Sections 6.01 and 10.01)
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EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
An event of default under the Basic Agreement (an "Event of Default") is
defined as the occurrence and continuance of an event of default under one or
more of the Indentures (an "Indenture Default"). The Indenture Defaults under an
Indenture will be described in the applicable Prospectus Supplement and, with
respect to the Leased Equipment Groups, will include an event of default under
the related Lease (a "Lease Event of Default"). Since the Equipment Notes issued
under an Indenture may be held in more than one Trust, a continuing Indenture
Default under such Indenture would result in an Event of Default under each such
Trust. There will be, however, no cross-default provisions in the Indentures,
and events resulting in an Indenture Default under any particular Indenture will
not necessarily result in an Indenture Default occurring under any other
Indenture. If an Indenture Default occurs in fewer than all of the Indentures,
notwithstanding the treatment of Equipment Notes issued under any Indenture
under which an Indenture Default has occurred, payments of principal and
interest on the Equipment Notes issued pursuant to Indentures with respect to
which an Indenture Default has not occurred will continue to be distributed to
the holders of the Certificates as originally scheduled.
With respect to each Leased Equipment Group, the applicable Owner Trustee
and Owner Participant will, under the related Indenture, have the right under
certain circumstances to cure Indenture Defaults that result from the occurrence
of a Lease Event of Default under the related Lease. If the Owner Trustee or the
Owner Participant exercises such cure right, the Indenture Default and
consequently the Event of Default with respect to the related Trust or Trusts
will be deemed to have been cured.
The Basic Agreement provides that, as long as an Indenture Default under
any Indenture relating to the Equipment Notes held in a Trust shall have
occurred and be continuing, the Trustee of such Trust may vote all of the
Equipment Notes issued under such Indenture in such Trust and, upon the
direction of the holders of Certificates evidencing fractional undivided
interests aggregating not less than a majority in interest of such Trust, shall
vote a corresponding majority of such Equipment Notes in favor of directing the
Loan Trustee to declare the unpaid principal amount of all Equipment Notes
issued under such Indenture and any accrued and unpaid interest thereon to be
due and payable. The Basic Agreement also provides that, if an Indenture Default
under any Indenture relating to the Equipment Notes held in a Trust shall have
occurred and be continuing, the Trustee of such Trust may, and upon the
direction of the holders of Certificates evidencing fractional undivided
interests aggregating not less than a majority in interest of such Trust shall,
vote all of the Equipment Notes issued under such Indenture that are held in
such Trust in favor of directing the Loan Trustee as to the time, method and
place of conducting any proceeding for any remedy available to the Loan Trustee
or of exercising any trust or power conferred on the Loan Trustee under such
Indenture. (Sections 6.01 and 6.04)
The ability of the holders of the Certificates issued with respect to any
one Trust to cause the Loan Trustee with respect to any Equipment Notes held in
such Trust to accelerate the Equipment Notes under the related Indenture or to
direct the exercise of remedies by the Loan 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 Trust
and the aggregate principal amount of all Equipment Notes outstanding under such
Indenture. Each Trust will hold Equipment Notes with different terms from the
Equipment Notes held in the other Trusts and therefore the Certificateholders of
a Trust may have divergent or conflicting interests from those of the
Certificateholders of the other Trusts holding Equipment Notes relating to the
same Equipment Group. In addition, so long as the same institution acts as
Trustee of each Trust, in the absence of instructions from the
Certificateholders of any such Trust, the Trustee for such Trust could for the
same reason be faced with a potential conflict of interest upon an Indenture
Default. In such event, the Trustee has indicated that it would resign as
trustee of one or all such Trusts, and a successor trustee would be appointed in
accordance with the terms of the applicable Basic Agreement.
As an additional remedy, if an Indenture Default shall have occurred and be
continuing, the Basic Agreement provides that the Trustee of the Trust holding
Equipment Notes issued under such Indenture may, and upon the direction of the
holders of the Certificates evidencing fractional undivided interests
aggregating not less than a majority in interest of such Trust shall, sell for
cash to any person all or part of such Equipment
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<PAGE> 33
Notes. (Sections 6.01 and 6.02) Any proceeds received by the Trustee upon any
such sale shall be deposited in an account established by the Trustee for the
benefit of the Certificateholders of such Trust for the deposit of such Special
Payments (the "Special Payments Account") and shall be distributed to the
Certificateholders of such Trust on a Special Distribution Date. (Sections 4.01
and 4.02) The market for Equipment Notes in default may be very limited, and
there can be no assurance that they could be sold for a reasonable price.
Furthermore, so long as the same institution acts as Trustee of multiple Trusts,
it may be faced with a conflict in deciding from which Trust to sell Equipment
Notes to available buyers. If the Trustee sells any such Equipment Notes with
respect to which an Indenture Default exists for less than their outstanding
principal amount, the Certificateholders of such Trust will receive a smaller
amount of principal distributions than anticipated and will not have any claim
for the shortfall against Conrail, any Owner Trustee or the Trustee.
Furthermore, neither the Trustee nor the Certificateholders of such Trust could
take any action with respect to any remaining Equipment Notes held in such Trust
so long as no Indenture Defaults exist with respect thereto.
Any amount, other than Scheduled Payments received on a Regular
Distribution Date, distributed to the Trustee of any Trust by the Loan Trustee
under any Indenture on account of the Equipment Notes held in such Trust
following an Indenture Default under such Indenture shall be deposited in the
Special Payments Account for such Trust and shall be distributed to the
Certificateholders of such Trust on a Special Distribution Date. In addition,
if, following an Indenture Default under any Indenture relating to a Leased
Equipment Group, the applicable Owner Trustee exercises its option to redeem 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 Trustee of any Trust for the Equipment Notes issued under such
Indenture and held in such Trust shall be deposited in the Special Payments
Account for such Trust and shall be distributed to the Certificateholders of
such Trust on a Special Distribution Date. (Sections 4.01, 4.02 and 6.02)
Any funds representing payments received with respect to any Equipment
Notes held in a Trust in default, or the proceeds from the sale by the Trustee
of any such Equipment Notes, held by the Trustee in the Special Payments Account
for such Trust shall, to the extent practicable, be invested and reinvested by
the Trustee in Permitted Investments pending the distribution of such funds on a
Special Distribution Date. Permitted Investments are defined as obligations of
the United States or agencies or instrumentalities thereof the payment of which
is backed by the full faith and credit of the United States and which mature in
not more than 60 days or such lesser time as is required for the distribution of
any such funds on a Special Distribution Date. (Sections 1.01 and 4.04)
The Basic Agreement provides that the Trustee of each Trust shall, within
90 days after the occurrence of a default in respect of such Trust, give to the
Certificateholders of such Trust notice, transmitted by mail, of all uncured or
unwaived defaults with respect to such Trust known to it, provided that, except
in the case of default in the payment of principal, premium, if any, or interest
on any of the Equipment Notes held in such Trust, the Trustee shall 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. (Section 7.01)
The Basic Agreement contains a provision entitling the Trustee of each
Trust, subject to the duty of the Trustee during a default to act with the
required standard of care, to be offered reasonable security or indemnity by the
holders of the Certificates of such Trust before proceeding to exercise any
right or power under the Basic Agreement at the request of such
Certificateholders. (Section 7.02)
In certain cases, the holders of the Certificates of a Trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of such Trust may on behalf of the holders of all the Certificates of such Trust
waive, or may instruct the Loan Trustee to waive, any past default or Event of
Default with respect to such Trust and thereby annul any direction given by such
holders to the applicable Loan Trustee with respect thereto, except (i) a
default in the deposit of any Scheduled Payment or Special Payment or in the
distribution thereof, (ii) a default in payment of the principal, premium, if
any, or interest with respect to any of the Equipment Notes held in such Trust
and (iii) a default in respect of any covenant or provision of the Basic
Agreement or the related Trust Supplement that cannot be modified or amended
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<PAGE> 34
without the consent of each Certificateholder of such Trust affected thereby.
(Section 6.05) Each Indenture will provide 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 Default thereunder. In the event of a waiver with respect to a
Trust as described above, the principal amount of the Equipment Notes issued
under the related Indenture held in such Trust shall be counted as waived in the
determination of the majority in aggregate unpaid principal amount of Equipment
Notes required to waive a default or an Indenture Default. Therefore, if the
Certificateholders of a Trust or Trusts waive a past default or Event of Default
such that the principal amount of the Equipment Notes held either individually
in such Trust or in the aggregate in such Trusts constitutes the required
majority in aggregate unpaid principal amount under the applicable Indenture,
such past default or Indenture Default shall be waived.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Conrail will be prohibited from consolidating with or merging into any
other corporation or conveying, transferring or leasing substantially all of its
assets as an entirety to any Person unless, in the case of a merger or
consolidation where Conrail is not the surviving corporation or in the case of a
transfer of substantially all of Conrail's assets, the surviving successor or
transferee corporation shall, as a result of such merger or consolidation, be a
corporation organized and existing under the laws of the United States of
America or any State or the District of Columbia, and such corporation shall
expressly assume all the covenants and conditions applicable to Conrail
contained in the Basic Agreement; and, in a merger or consolidation where
Conrail is not the surviving corporation, Conrail may deliver to the Trustee an
officer's certificate and an opinion of counsel as conclusive evidence that such
consolidation, merger, sale, lease or conveyance is in compliance with the Basic
Agreement. (Section 5.02)
The Basic Agreement does not and, except as otherwise described in the
applicable Prospectus Supplement, the Indentures will not contain any covenants
or provisions which may afford the Trustee or Certificateholders protection in
the event of a highly leveraged transaction, including transactions effected by
management or affiliates, which may or may not result in a change in control of
Conrail.
MODIFICATIONS OF THE BASIC AGREEMENT
The Basic Agreement contains provisions permitting Conrail and the Trustee
of each Trust to enter into a supplemental trust agreement, without the consent
of the holders of any of the Certificates of such Trust, (i) to provide for the
formation of such Trust and the issuance of a series of Certificates, (ii) to
evidence the succession of another corporation to Conrail and the assumption by
such corporation of Conrail's obligations under the Basic Agreement and the
applicable Trust Supplement, (iii) to add to the covenants of Conrail for the
benefit of holders of such Certificates or to surrender any right or power in
the Basic Agreement conferred upon Conrail, (iv) to correct or supplement any
defective or inconsistent provision of the Basic Agreement or the applicable
Trust Supplement or to make any other provisions with respect to matters or
questions arising thereunder, provided such action shall not adversely affect
the interests of the holders of such Certificates or to cure any ambiguity or
correct any mistake, (v) to modify, eliminate or add to the provisions of the
Basic Agreement to the extent as shall be necessary to continue the
qualification of the Basic Agreement (including any supplemental agreement)
under the Trust Indenture Act and to add to the Basic Agreement such other
provisions as may be expressly permitted by the Trust Indenture Act, (vi) to
provide for a successor Trustee or to add to or change any provision of the
Basic Agreement as shall be necessary to facilitate the administration of the
Trusts thereunder by more than one Trustee, and (vii) to make any other
amendments or modifications to the Basic Agreement, provided such amendments or
modification shall only apply to Certificates issued thereafter. (Section 9.01)
The Basic Agreement also contains provisions permitting Conrail and the
Trustee of each Trust, with the consent of the holders of the Certificates of
such Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust, and, with respect to any Leased Equipment
Group, with the consent of the applicable Owner Trustee (such consent not to be
unreasonably withheld), to execute supplemental trust agreements adding any
provisions to or changing or eliminating any of the provisions of the Basic
Agreement, to the extent relating to such Trust, and the applicable Trust
Supplement, or modifying the
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rights of the Certificateholders, except that no such supplemental trust
agreement may, without the consent of the holder of each Certificate so affected
thereby, (a) reduce in any manner the amount of, or delay the timing of, any
receipt by the Trustee of payments on the Equipment Notes held in such Trust or
distributions in respect of any Certificate related to such Trust, or change the
date or place of any payment in respect of any Certificate, or make
distributions payable in coin or currency other than that provided for in such
Certificates, or impair the right of any Certificateholder of such Trust to
institute suit for the enforcement of any such payment when due, (b) permit the
disposition of any Equipment Note held in such Trust, except as provided in the
Basic Agreement or the applicable Trust Supplement, or otherwise deprive any
Certificateholder of the benefit of the ownership of the applicable Equipment
Notes, (c) reduce the percentage of the aggregate fractional undivided interests
of the Trust provided for in the Basic Agreement or the applicable Trust
Supplement, the consent of the holders of which is required for any such
supplemental trust agreement or for any waiver provided for in the Basic
Agreement or such Trust Supplement, (d) modify any of the provisions relating to
the rights of the Certificateholders in respect of the waiver of events of
default or receipt of payment or (e) add to, change or eliminate any provision
affecting Certificates not yet issued. (Section 9.02)
MODIFICATION OF INDENTURE AND RELATED AGREEMENTS
In the event that the Trustee, as the holder of any Equipment Notes held in
a Trust, receives a request for its consent to any amendment, modification or
waiver under the Indenture or other documents relating to such Equipment Notes
(including any Lease with respect to Leased Equipment Notes), the Trustee shall
send a notice of such proposed amendment, modification or waiver to each
Certificateholder of such Trust of record as of the date of such notice. The
Trustee shall request instructions from the Certificateholders of such Trust as
to whether or not to consent to such amendment, modification or waiver. The
Trustee shall vote or consent with respect to such Equipment Notes in such Trust
in the same proportion as the Certificates of such Trust were actually voted by
the holders thereof by a certain date. Notwithstanding the foregoing, if an
Event of Default in respect of such Trust shall have occurred and be continuing,
the Trustee may, in the absence of instructions from Certificateholders holding
a majority in interest of such Trust, in its own discretion consent to such
amendment, modification or waiver and may so notify the relevant Loan Trustee.
(Section 10.01)
TERMINATION OF THE TRUSTS
The obligations of Conrail and the Trustee with respect to a Trust will
terminate upon the distribution to Certificateholders of such Trust of all
amounts required to be distributed to them pursuant to the Basic Agreement and
the applicable Trust Supplement and the disposition of all property held in such
Trust. The Trustee will send to each Certificateholder of record of such Trust
notice of the termination of such Trust, the amount of the proposed final
payment and the proposed date for the distribution of such final payment for
such Trust. The final distribution to any Certificateholder of such Trust will
be made only upon surrender of such Certificateholder's Certificates at the
office or agency of the Trustee specified in such notice of termination.
(Section 11.01)
DELAYED PURCHASE
In the event that, on the delivery date of any Certificates, all of the
proceeds from the sale of such Certificates are not used to purchase the
Equipment Notes contemplated to be held in the related Trust, such Equipment
Notes may be purchased by the Trustee at any time on or prior to the date
specified in the applicable Prospectus Supplement. In such event, the Trustee
will hold the proceeds from the sale of such Certificates not used to purchase
Equipment Notes in an escrow account pending the purchase of the Equipment Notes
not so purchased. Such proceeds will be invested at the direction and risk of,
and for the account of, Conrail in certain specified investments, which may
include: (i) direct obligations of the United States of America and agencies
thereof for which the full faith and credit of the United States of America is
pledged, (ii) obligations fully guaranteed by the United States of America,
(iii) certificates of deposit issued by, or bankers' acceptances of, or time
deposits (including overnight 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
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(including any Loan Trustee or Owner Trustee if such conditions are met) and
(iv) repurchase agreements with any financial institution described in clause
(iii) above having a combined capital and surplus of at least $750,000,000 fully
collateralized by obligations of the type described in clauses (i) through (iii)
above; provided that if all of the above investments are unavailable, the entire
amounts to be invested may be used to purchase Federal Funds from an entity
described in clause (iii) above; and provided further that no investment shall
be eligible as a "Specified Investment" unless the final maturity or date of
return of such investment is on or before the Special Distribution Date next
following the Cut-off Date for such Trust by more than 20 days. Earnings on such
investments in the escrow account for each trust will be paid to Conrail
periodically, and Conrail will be responsible for any losses. (Section 2.02(b))
On the next Regular Distribution Date specified in the applicable
Prospectus Supplement, Conrail will pay to the Trustee an amount equal to the
interest that would have accrued on any Equipment Notes purchased after the date
of the issuance of such Certificates from the date of the issuance of such
Certificates to, but excluding, the date of the purchase of such Equipment Notes
by the Trustee. (Section 2.02(b))
SPECIAL DISTRIBUTION UPON UNAVAILABILITY OF EQUIPMENT GROUP
To the extent, as a result of a casualty to, or other event causing the
unavailability of, one or more Equipment Groups, that the full amount of the
proceeds from the sale of any Certificates held in the escrow account referred
to above is not used to purchase Equipment Notes on or prior to the date
specified in the applicable Prospectus Supplement, an amount equal to the unused
proceeds will be distributed by the Trustee to the holders of record of such
Certificates on a pro rata basis upon not less than 20 days' prior notice to
them as a Special Distribution Date together with interest thereon at a rate
equal to the rate applicable to such Certificates, but without premium, and
Conrail will pay to the Trustee on such date an amount equal to such interest.
(Section 2.02(b))
THE TRUSTEE
Wilmington Trust Company will be the Trustee for each series of
Certificates and will be the Loan Trustee for each of the Indentures under which
the Equipment Notes are issued. In addition, Wilmington Trust Company serves as
indenture trustee in other rolling stock financing transactions involving
Conrail.
With certain exceptions, the Trustee makes no representations as to the
validity or sufficiency of the Basic Agreement, the Trust Supplements, the
Certificates, the Equipment Notes, the Indentures, the Leases or other related
documents. The Trustee shall not be liable with respect to any series of
Certificates, for any action taken or omitted to be taken by it in good faith in
accordance with the direction of the holders of a majority in principal amount
of outstanding Certificates of such series issued under the Basic Agreement.
Subject to such provisions, the Trustee shall be under no obligation to exercise
any of its rights or powers under the Basic Agreement at the request of any
holders of Certificates issued thereunder unless they shall have offered to the
Trustee indemnity satisfactory to it. The Basic Agreement provides that the
Indenture Trustee in its individual or any other capacity may acquire and hold
Certificates issued thereunder and, subject to conditions, may otherwise deal
with Conrail and, with respect to the Leased Equipment Groups, with any Owner
Trustee with the same rights it would have if it were not the Trustee. (Sections
7.02, 7.03 and 7.04)
The Trustee may resign with respect to any or all of the Trusts at any
time, in which event Conrail will be obligated to appoint a successor trustee.
If the Trustee ceases to be eligible to continue as Trustee with respect to a
Trust or becomes incapable of acting as Trustee or becomes insolvent, Conrail
may remove such Trustee, or any holder of the Certificates of such Trust for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of such Trustee and
the appointment of a successor trustee. Any resignation or removal of the
Trustee with respect to a Trust and appointment of a successor trustee for such
Trust does not become effective until acceptance of the appointment by the
successor trustee. (Section 7.08) Pursuant to such resignation and successor
trustee provisions, it is possible that a different trustee could be appointed
to act as the successor trustee with respect to each Trust. All references in
this Prospectus to the Trustee should be read to take into account the
possibility that the Trusts could have different successor trustees in the event
of such a resignation or removal.
The Basic Agreement provides that Conrail will pay the Trustee's fees and
expenses. (Section 7.06)
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DESCRIPTION OF THE EQUIPMENT NOTES
The statements made under this caption are summaries and do not purport to
be complete. Such statements are qualified in their entirety by the detailed
information appearing in the applicable Prospectus Supplement and should be read
only in conjunction with the entire Prospectus and the applicable Prospectus
Supplement. Where no distinction is made between the Leased Equipment Notes and
the Owned Equipment Notes or between their respective Indentures, such
statements refer to any Equipment Notes and any Indenture.
GENERAL
Each Equipment Note issued under the same Indenture will relate to a single
Equipment Group. The Equipment Notes with respect to each Equipment Group will
be issued under a separate Indenture either (a) between the related Owner
Trustee of a trust for the benefit of the Owner Participant who is the
beneficial owner of such Equipment Group and the related Loan Trustee, or (b)
between Conrail and the related Loan Trustee.
With respect to each Leased Equipment Group, the related Owner Trustee has
acquired or will acquire such Equipment Group from Conrail or the manufacturer
of such Equipment Group, as the case may be, has granted or will grant a
security interest in such Equipment Group to the related Loan Trustee as
security for the payments of the related Equipment Notes, and has leased or will
lease such Equipment Group to Conrail pursuant to the related Lease which has
been or will be assigned to the related Loan Trustee. Pursuant to each such
Lease, Conrail will be obligated to make or cause to be made rental and other
payments to the related Loan Trustee on behalf of the related Owner Trustee in
amounts that will be sufficient to make payments of the principal, interest and
premium, if any, required to be made in respect of such Leased Equipment Notes
when and as due and payable.
The rental obligations of Conrail under each Lease and the obligations of
Conrail under each Owned Equipment Group Indenture and under the Owned Equipment
Notes will be general obligations of Conrail. Except in certain circumstances
involving Conrail's purchase of a Leased Equipment Group and the assumption of
the Leased Equipment Notes related thereto, the Equipment Notes are not
obligations of, or guaranteed by, Conrail.
PRINCIPAL AND INTEREST PAYMENTS
Interest paid on the Equipment Notes held in each Trust will be passed
through to the Certificateholders of such Trust on the dates and at the rate per
annum set forth in the applicable Prospectus Supplement until the final
distribution for such Trust. Principal paid on the Equipment Notes held in each
Trust will be passed through to the Certificateholders of such Trust in
scheduled amounts on the dates set forth in the applicable Prospectus Supplement
until the final distribution date for such Trust.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the Equipment Notes is not a Business Day, such payment
will be made on the next succeeding Business Day without any additional
interest.
SECURITY
The Leased Equipment Notes will be secured by (i) the Items of Equipment in
the related Equipment Group, subject to the rights of Conrail under the related
Lease, (ii) an assignment by the related Owner Trustee to the related Loan
Trustee of such Owner Trustee's rights (except for certain rights, including
those described below) under the Lease with respect to such Equipment Group,
including the right to receive payments of rent thereunder and (iii) an
assignment to such Loan Trustee of certain of such Owner Trustee's rights with
respect to such Equipment Group under the purchase agreement, if any, between
Conrail and the related manufacturer. Under the terms of each Lease, Conrail's
obligations in respect of each Leased Equipment Group will be those of a lessee
under a "net lease." Accordingly, Conrail will be obligated, among other things
and at its expense, to file each Indenture, each Indenture Supplement and each
Lease with
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respect to each Item of Equipment in such Leased Equipment Group with the
Interstate Commerce Commission under the Interstate Commerce Act and with the
Registrar General of Canada under the Railway Act of Canada, to pay all costs of
operating such Equipment Group and to maintain, service, repair and overhaul (or
cause to be maintained, serviced, repaired and overhauled) each Item of
Equipment in such Equipment Group.
The Owned Equipment Notes will be secured by a mortgage granted to the
related Loan Trustee of all of Conrail's right, title and interest in and to
such Owned Equipment Group and, where applicable, an assignment to such Loan
Trustee of certain of Conrail's rights with respect to such Equipment Group
under the purchase agreement, if any, between Conrail and the related
manufacturer. Under the terms of each Owned Equipment Group Indenture, Conrail
will be obligated, among other things and at its expense, to file each Indenture
and each Indenture Supplement with respect to each Item of Equipment in such
Owned Equipment Group with the Interstate Commerce Commission under the
Interstate Commerce Act and with the Registrar General of Canada under the
Railway Act of Canada, to pay all costs of operating such Equipment Group and to
maintain, service, repair and overhaul (or cause to be maintained, serviced,
repaired and overhauled) each Item of Equipment in such Equipment Group.
The Equipment Notes are not cross-collateralized and consequently the
Equipment Notes issued in respect of any one Equipment Group will not be secured
by any other Equipment Group or, in the case of Leased Equipment Notes, the
Lease related thereto. Unless and until an Indenture Default with respect to a
Leased Equipment Group has occurred and is continuing, the related Loan Trustee
may not exercise any of the rights of the related Owner Trustee under the
related Lease. With respect to the Leased Equipment Groups, the assignment by
the related Owner Trustee to the related Loan Trustee of its rights under the
related Lease will exclude, among other things, rights of such Owner Trustee and
the related Owner Participant relating to indemnification by Conrail for certain
matters, insurance proceeds payable to such Owner Trustee in its individual
capacity and to such Owner Participant under liability insurance maintained by
Conrail pursuant to such Lease or by such Owner Trustee or such Owner
Participant, insurance proceeds payable to such Owner Trustee in its individual
capacity or to such Owner Participant under certain casualty insurance
maintained by such Owner Trustee or such Owner Participant pursuant to such
Lease and any rights of such Owner Participant or such Owner Trustee to enforce
payment of the foregoing amounts and their respective rights to the proceeds of
the foregoing.
Unless otherwise specified in the applicable Prospectus Supplement, Conrail
will at all times prior to the return of all Items of Equipment in an Equipment
Group to the Owner Trustee, as part of an insurance program including
appropriate risk retention and self-insurance, and at its own expense, maintain
insurance in respect of the Items of Equipment in such Equipment Group in
amounts and against such risks as are customarily insured against by Conrail in
respect of similar equipment owned or leased by it. All policies with respect to
such insurance shall name the related Owner Trustee and the related Owner
Participant (in the case of Leased Equipment Groups) and the Indenture Trustee
as additional insureds or loss payees, as their interests may appear. In
addition, the Owner Trustees and the Owner Participants (in the case of Leased
Equipment Groups) and the Indenture Trustee shall each have the right to carry
insurance on an Equipment Group for their own benefit; provided that such
insurance is carried at the expense of any Person other than Conrail.
Funds, if any, held from time to time by the Loan Trustee with respect to
any Equipment Group, prior to the distribution thereof, will be invested and
reinvested by such Loan Trustee. Such investment and reinvestment will be at the
direction of Conrail (except, with respect to a Leased Equipment Group, in the
case of a Lease Event of Default under the applicable Lease or, with respect to
an Owned Equipment Group, in the case of an Indenture Default under the
applicable Indenture), in certain investments described in the related
Indenture. The net amount of any loss resulting from any such investments will
be paid by Conrail.
With respect to railroads, Section 1168 of the Bankruptcy Code provides
that the right of lessors, conditional vendors and holders of purchase money
equipment security interests with respect to rolling stock equipment or
accessories used on such equipment to take possession of such equipment, in
compliance with the provisions of the lease, conditional sale contract or
purchase money equipment security agreement, as the
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case may be, is not affected by (a) the automatic stay provision of the
Bankruptcy Code, which provision enjoins repossessions by creditors for the
duration of the reorganization period, (b) the provision of the Bankruptcy Code
allowing the trustee in reorganization to use property of the debtor during the
reorganization period and (c) any power of the bankruptcy court to enjoin a
repossession. Section 1168 of the Bankruptcy Code provides, however, that the
right of a lessor, conditional vendor or holder of a purchase money equipment
security interest to take possession of such equipment in the event of a default
may not be exercised for 60 days following the date of commencement of the
reorganization proceedings and may not be exercised at all if, within such
60-day period, the trustee in reorganization cures all existing defaults (other
than defaults resulting solely from the financial condition, bankruptcy,
insolvency or reorganization of the debtor) and agrees to perform the debtor's
obligations as they become due after such date.
In connection with any issuance of Certificates under this Prospectus and
the applicable Prospectus Supplement, Conrail shall have received an opinion
from its counsel as to the applicability of Section 1168 of the Bankruptcy Code
(i) with respect to any Owned Equipment Group, to the related Loan Trustee under
the related Indenture with respect to the Equipment Group subjected to the
related Indenture or (ii) with respect to any Leased Equipment Group, to the
related Owner Trustee, as lessor under the related Lease, and the related Loan
Trustee, as assignee of such Owner Trustee's rights under such Lease pursuant to
the related Indenture, with respect to the Equipment Group delivered under such
Lease and subjected to the related Indenture.
PAYMENTS AND LIMITATION OF LIABILITY
Unless otherwise specified in the applicable Prospectus Supplement, each
Leased Equipment Group will be leased separately by the related Owner Trustee to
Conrail for a term commencing on the delivery date thereof to such Owner Trustee
and expiring on a date not earlier than the latest maturity date of the Leased
Equipment Notes, unless previously terminated as permitted by the terms of the
related Lease. The basic rent and other payments under each such Lease will be
payable by Conrail in accordance with the terms specified in the applicable
Prospectus Supplement, and will be assigned by the related Owner Trustee under
the related Indenture to provide the funds necessary to pay principal of,
premium, if any, and interest due from such Owner Trustee on the Leased
Equipment Notes issued under such Indenture. In certain cases, the basic rent
payments under a Lease may be adjusted, but each Lease will provide that under
no circumstances will rent payments by Conrail be less than the scheduled
payments on the related Leased Equipment Notes. The balance of any basic rent
payment under each Lease, after payment of amounts due on the Leased Equipment
Notes issued under the Indenture corresponding to such Lease, will be paid over
to the applicable Owner Participant. Conrail's obligation to pay rent and to
cause other payments to be made under each Lease will be general obligations of
Conrail.
With respect to the Leased Equipment Notes, except in certain circumstances
involving Conrail's purchase of certain Items of Equipment and the assumption of
the Equipment Notes related thereto, the Leased Equipment Notes will not be
obligations of, or guaranteed by, Conrail. With respect to the Leased Equipment
Notes, none of the Owner Trustees, the Owner Participants or the Loan Trustees
shall be personally liable to any holder of such Leased Equipment Notes for
amounts payable under such Leased Equipment Notes, or, except as provided in the
Indentures relating thereto in the case of the Owner Trustees and the Indenture
Trustees, for any liability under such Indentures. Except in the circumstances
referred to above, all amounts payable under any Leased Equipment Notes (other
than payments made in connection with an optional redemption or purchase by the
related Owner Trustee or the related Owner Participant) will be made only from
the assets subject to the lien of the related Indenture with respect to such
Equipment Group or the income and proceeds received by the related Loan Trustee
therefrom (including rent payable by Conrail under the related Lease).
With respect to the Leased Equipment Notes, except as otherwise provided in
the related Indentures, no Owner Trustee shall be liable for any amount payable
or for any statements, representations, warranties, agreements or obligations
under such Indentures or under such Leased Equipment Notes except for its own
willful misconduct or gross negligence. None of the Owner Participants shall
have any duty or responsibility
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under the Leased Equipment Group Indentures or under such Leased Equipment Notes
to the related Loan Trustee or to any holder of any such Leased Equipment Note.
Conrail's obligations under each Owned Equipment Group Indenture and under
the Owned Equipment Notes will be general obligations of Conrail.
ASSUMPTION OF OBLIGATION BY CONRAIL
Unless otherwise specified in the applicable Prospectus Supplement with
respect to Leased Equipment Groups, upon the exercise by Conrail of any purchase
options it may have under the related Lease prior to the end of the term of such
Lease, Conrail may assume on a full recourse basis all of the obligations of the
Owner Trustee (other than its obligations in its individual capacity) under the
Indenture with respect to such Equipment Group, including the obligations to
make payments in respect of the related Leased Equipment Notes. In such event,
certain relevant provisions of the related Lease, including (among others)
provisions relating to maintenance, possession and use of the related Equipment
Group, liens, insurance and events of default, will be incorporated into such
Indenture, and the Leased Equipment Notes issued under such Indenture will not
be redeemed and will continue to be secured by such Equipment Group. It is a
condition to such assumption that an opinion of counsel be delivered at the time
of such assumption substantially to the effect that the related Loan Trustee
under such Indenture is, immediately following such assumption, entitled to the
benefits of Section 1168 of the Bankruptcy Code with respect to such Equipment
Group.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material United
States federal income tax consequences of the purchase, ownership and
disposition of the Certificates and should be read in conjunction with any
additional discussion of federal income tax consequences included in the
applicable Prospectus Supplement. The discussion is based on laws, regulations,
rulings and decisions, all as in effect on the date of this Prospectus and all
of which are subject to change or different interpretations possibly with
retroactive effect. The discussion below provides general information only and
does not purport to address all of the federal income tax consequences that may
be applicable to particular categories of investors, some of which (for example,
insurance companies and foreign investors, individual retirement and other
tax-deferred accounts, tax exempt organizations, financial institutions and
broker-dealers) may be subject to special rules. The statements of law and legal
conclusions set forth herein are based upon the opinion of Harkins Cunningham,
counsel to Conrail. Investors should consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Certificates, including the
advisability of making any election discussed below. The Trusts are not
indemnified for any federal income taxes that may be imposed upon them, and the
imposition of any such taxes could result in a reduction in the amounts
available for distribution to the Certificate Owners of the affected Trust.
GENERAL
Based upon an interpretation of analogous authorities under currently
applicable law, the Trusts should not be classified as associations taxable as
corporations, but, rather, each should be classified as a grantor trust under
subpart E, Part I of Subchapter J of the Internal Revenue Code of 1986, as
amended (the "Code"), and each Certificate Owner of each Trust should be treated
as the owner of a pro rata undivided interest in each of the Equipment Notes and
any other property held by such Trust.
Each Certificate Owner should be required to report on its federal income
tax return its pro rata share of the entire income from the Equipment Notes and
any other property held by the related Trust, in accordance with such
Certificate Owner's method of accounting. Subject to the discussion below under
"Original Issue Discount" and "Market Discount," a Certificate Owner using the
cash method of accounting must take into account its pro rata share of income as
and when received (or deemed received) by the Trustee, and a Certificate Owner
using an accrual method of accounting must take into account its pro rata share
of income as it accrues or is received by the Trustee, whichever is earlier.
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A purchaser of a Certificate should be treated as purchasing an interest in
each Equipment Note and any other property in the related Trust at a price
determined by allocating the purchase price paid for the Certificate among such
Equipment Notes and other property in proportion to their fair market values at
the time of purchase of the Certificate. Unless otherwise indicated in a
Prospectus Supplement, it is believed that when all the Equipment Notes have
been acquired by the related Trust the purchase price paid for a Certificate by
an original purchaser of a Certificate should be allocated among the Equipment
Notes in the related Trust in proportion to their respective principal amounts.
SALES OF CERTIFICATES
A Certificate Owner that sells a Certificate should recognize gain or loss
(in the aggregate) equal to the difference between its adjusted tax basis in the
Certificate and the amount realized on the sale (except to the extent
attributable to accrued interest, which should be taxable as ordinary income).
Subject to the market discount provisions of the Code (described below), any
such gain or loss will be capital gain or loss if the Certificate was held as a
capital asset and will be long-term capital gain or loss if the Certificate was
held for more than one year. Net capital gain (the excess of the net long-term
capital gain over net short-term capital loss) of individuals is, under certain
circumstances, taxed at lower rates than items of ordinary income. Any capital
losses realized will be subject to limitations on deductibility.
ORIGINAL ISSUE DISCOUNT
The Equipment Notes may be issued with original issue discount ("OID"),
which may require Certificate Owners to include such OID in gross income in
advance of the receipt or accrual of the stated interest on such Equipment
Notes. The Prospectus Supplement will state whether any Equipment Notes to be
held by the related Trust will be issued with OID. Generally, a holder of a debt
instrument issued with original issue discount that is not de minimis must
include such original issue discount in income for federal income tax purposes
as it accrues, in advance of the receipt of the cash attributable to such
income, under a method that takes into account the compounding of interest.
MARKET DISCOUNT
Generally, the term "market discount" means the excess of the remaining
principal amount of a Certificate over the holder's tax basis in such
Certificate immediately after its acquisition, subject to a de minimis
exception.
A holder who acquires a Certificate at a market discount will be required
to treat any gain realized on the disposition of such Certificate, except in
certain nonrecognition transactions, as ordinary income to the extent of the
market discount that accrued during the period that such holder held such
Certificate. Further, a disposition of a Certificate by gift (and in certain
other circumstances) could result in the recognition of market discount income,
computed as if such Certificate had been sold for its fair 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.
Until Treasury regulations are issued, the explanatory Conference Committee
Report to the Tax Reform Act of 1986 (the "Conference Report") indicates that
holders of installment obligations (such as the Equipment Notes) with market
discount may elect to accrue market discount either on the basis of a constant
interest rate or as follows: the amount of market discount that is deemed to
accrue is the amount of market discount that bears the same ratio to the total
amount of 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.
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Under Section 1277 of the Code, if in any taxable year interest paid or
accrued on indebtedness incurred or continued to purchase or carry indebtedness
subject to the market discount rules exceeds the interest currently includible
in income with respect to such indebtedness, deduction of the excess interest
must be deferred to the extent of the market discount allocable to the taxable
year. The deferred portion of any interest expense will generally be deductible
when such market discount is included in income upon the sale or other
disposition (including repayment) of the indebtedness.
A holder of a Certificate acquired at a market discount may elect under
Section 1278 of the Code, in the manner provided by Revenue Procedure 92-67,
1992-34 I.R.B.6, to include such discount in income as it accrues. The current
inclusion election applies to all market discount obligations acquired on or
after the first day to which the election applies, and may not be revoked
without the consent of the Internal Revenue Service (the "IRS"). If a holder of
a Certificate elects to include market discount in income as it accrues, the
foregoing rules of Section 1276 and 1277 of the Code with respect to the
recognition of ordinary income on a sale or other disposition of such
Certificate and the deferral of interest deductions on indebtedness related to
such Certificate would not apply.
The IRS is authorized to issue regulations to implement the market discount
provisions of the Code. No such regulations have been issued or proposed. It is
impossible to anticipate what effect, if any, such regulations could have on the
Certificateholders.
AMORTIZABLE BOND PREMIUM
A Certificateholder should generally be considered to have acquired an
interest in an Equipment Note at a premium to the extent the purchaser's tax
basis allocable to such interest exceeds the remaining principal amount of the
Equipment Note allocable to such interest. In that event, a Certificateholder
who holds a Certificate as a capital asset may elect to amortize that premium as
an offset to interest income under Section 171 of the Code with corresponding
reductions in the Certificateholder's tax basis in its Certificate. In the case
of installment obligations (such as the Equipment Notes), 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 discussion above).
Under certain circumstances, amortizable bond premium may be determined by
reference to an early call date. It is unclear how the amortizable bond premium
rules apply where, as in the case with the Equipment Notes, the amount of
redemption premium payable on an early call date is unknown. In addition, the
treatment of any unamortized bond premium remaining at the time of an early call
is unclear. The Certificateholders are urged to consult their own tax advisors
as to the treatment of any amortizable bond premiums.
BACKUP WITHHOLDING
Payments made on the Certificates, and proceeds from the sale of the
Certificates to or through certain brokers, may be subject to a "backup"
withholding tax of 31% unless the Certificate Owner complies with certain
reporting procedures or is exempt from such requirements under section 3406 of
the Code. Any such withheld amounts are allowed as a credit against the
Certificate Owner's federal income tax.
INFORMATION REPORTING
Information reports will be made by the Trustee to the Internal Revenue
Service, and to Certificate Owners that are not exempt from the reporting
requirements, annually or as otherwise required with respect to interest paid
(or OID accrued, if any) on the Certificates.
CERTAIN DELAWARE TAXES
The Trustee is a Delaware banking corporation with its corporate trust
office in Delaware. Potter Anderson & Corroon, counsel to the Trustee, has
advised Conrail that, in its opinion, under currently applicable law, assuming
that the Trusts will not be taxable as corporations, but, rather, will be
classified as
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grantor trusts under subpart E, Part I of Subchapter J of the Code, (i) the
Trusts will not be subject to any tax (including, without limitation, net or
gross income, tangible or intangible property, net worth, capital, franchise or
doing business tax), fee or other governmental charge under the laws of the
State of Delaware or any political subdivision thereof and (ii) Certificate
Owners that are not residents of or otherwise subject to tax in Delaware 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 Delaware
or any political subdivision thereof as a result of purchasing, holding
(including receiving payments with respect to) or selling a Certificate. Neither
the Trusts nor the Certificate Owners will be indemnified for any state or local
taxes imposed on them, and the imposition of any such taxes on a Trust could
result in a reduction in the amounts available for distribution to the
Certificate Owners of such Trust. In general, should a Certificate Owner or a
Trust be subject to any state or local tax which would not be 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.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Certificates may, subject to certain legal restrictions, be purchased and held
by an employee benefit plan (a "Plan") subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or an individual
retirement account or an employee benefit plan subject to section 4975 of the
Code. A fiduciary of a Plan must determine that the purchase and holding of a
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a non-exempt prohibited transaction as defined in section 406 of ERISA
or section 4975 of the Code. Employee benefit plans that are governmental plans
(as defined in section 3(32) of ERISA) and certain church plans (as defined in
section 3(33) of ERISA) are not subject to Title I of ERISA or section 4975 of
the Code. The Certificates may, subject to certain legal restrictions, be
purchased and held by such plans.
PLAN OF DISTRIBUTION
The Certificates being offered hereby may be sold in any one or more of the
following ways from time to time: (i) through agents; (ii) to or through
underwriters; (iii) through dealers; and (iv) directly to other purchasers.
The distribution of the Certificates may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Offers to purchase the Certificates may be solicited by agents designated
by Conrail from time to time. Any such agent involved in the offer or sale of
the Certificates in respect of which this Prospectus is delivered will be named,
and any commissions payable by Conrail to such agent will be set forth, in the
applicable Prospectus Supplement. Unless otherwise indicated in such Prospectus
Supplement, any such agent will be acting on a best efforts basis for the period
of its appointment. Any such agent may be deemed to be an underwriter, as that
term is defined in the Securities Act, of the Certificates so offered and sold.
If the Certificates are sold by means of an underwritten offering, Conrail
will execute an underwriting agreement with an underwriter or underwriters at
the time an agreement for such sale is reached, and the names of the specific
managing underwriter or underwriters, as well as any other underwriters, and the
terms of the transaction, including commissions, discounts and any other
compensations of the underwriters and dealers, if any, will be set forth in the
Prospectus Supplement which will be used by the underwriters to make offers and
sales of the Certificates in respect of which this Prospectus is delivered to
the public. If underwriters are utilized in the sale of the Certificates in
respect of which this Prospectus is delivered, the Certificates will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at fixed public
offering prices or at varying prices determined by the underwriters at the time
of sale. The Certificates may be offered to the public either through
underwriting syndicates represented by managing underwriters or directly by the
managing underwriters. If
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any underwriter or underwriters are utilized in the sale of the Certificates,
unless otherwise indicated in the Prospectus Supplement, the underwriting
agreement will provide that the obligations of the underwriters are subject to
certain conditions precedent and that the underwriters with respect to a sale of
the Certificates will be obligated to purchase all such Certificates if any are
purchased. Conrail does not intend to apply for listing of the Certificates on a
national securities exchange. If the Certificates are sold by means of an
underwritten offering, the underwriters may make a market in the Certificates as
permitted by applicable laws and regulations. No underwriter would be obligated,
however, to make a market in the Certificates and any such market making could
be discontinued at any time at the sole discretion of such underwriter.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Certificates.
If a dealer is utilized in the sale of the Certificates in respect of which
this Prospectus is delivered, such Certificates will be sold to the dealer as
principal. The dealer may then resell such Certificates to the public at varying
prices to be determined by such dealer at the time of resale. Any such dealer
may be deemed to be an underwriter, as such term is defined in the Securities
Act, of the Certificates so offered and sold. The name of the dealer and the
terms of the transaction will be set forth in the Prospectus Supplement relating
thereto.
Offers to purchase the Certificates may be solicited directly and the sale
thereof may be made directly to institutional investors or others, who may be
deemed to be underwriters within the meaning of the Securities Act with respect
to any resale thereof. The terms of any such sales will be described in the
Prospectus Supplement relating thereto.
Agents, underwriters and dealers may be entitled under relevant agreements
to indemnifications or contribution by Conrail against certain liabilities,
including liabilities under the Securities Act.
Agents, underwriters and dealers may engage in transactions with, or
perform services for, Conrail in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, agents,
underwriters or dealers may be authorized to solicit offers by certain
institutions to purchase the Certificates at the public offering prices set
forth in the applicable Prospectus Supplement pursuant to delayed delivery
contracts ("Contracts") providing for payment and delivery on specific date or
dates. A commission indicated in the applicable Prospectus Supplement will be
paid to agents, underwriters and dealers soliciting purchases of the
Certificates pursuant to Contracts accepted by Conrail.
LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of the Certificates offered hereby will be passed upon for Conrail by
Harkins Cunningham, 1800 One Commerce Square, 2005 Market Street, Philadelphia,
Pennsylvania 19103, and for any agents or underwriters by Shearman & Sterling,
599 Lexington Avenue, New York, New York 10022. Unless otherwise indicated in
the applicable Prospectus Supplement, both Harkins Cunningham and Shearman &
Sterling will rely on the opinion of Potter Anderson & Corroon, counsel for
Wilmington Trust Company, individually and as Trustee for the Certificates of
each Trust, as to certain matters relating to the authorization, execution and
delivery of such Certificates by, and the valid and binding effect thereof on,
such Trustee.
EXPERTS
The consolidated financial statements and related financial statement
schedules as listed in Item 14(a) of Conrail's Annual Report on Form 10-K for
the year ended December 31, 1992, incorporated by reference in this Prospectus,
have been incorporated in reliance on the report of Coopers & Lybrand,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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