10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

Commission file number 000-20557

THE ANDERSONS, INC.

(Exact name of registrant as specified in its charter)

OHIO
(State or other jurisdiction of
incorporation or organization) 34-1562374
(I.R.S. Employer
Identification No.)

480 W. Dussel Drive, Maumee, Ohio
(Address of principal executive offices) 43537
(Zip Code)

Registrant’s telephone number, including area code (419) 893-5050

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Shares

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [   ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [   ]

     The aggregate market value of the registrant’s voting stock which may be voted by persons other than affiliates of the registrant was $70.4 million on June 30, 2003, computed by reference to the last sales price for such stock on that date as reported on the Nasdaq National Market.

     The registrant had 7.25 million Common shares outstanding, no par value, at February 27, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2004, are incorporated by reference into Part III (Items 10, 11 and 12) of this Annual Report on Form 10-K. The Proxy Statement will be filed with the Commission on or about March 15, 2004.

TABLE OF CONTENTS

PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 4a. Executive Officers of the Registrant
PART II
	Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7a. Quantitative and Qualitative Disclosures about Market Risk
	Item 8. Financial Statements and Supplementary Data
		Consolidated Statements of Income
		Consolidated Balance Sheets
		Consolidated Statements of Cash Flows
		Consolidated Statements of Shareholders’ Equity
		Notes to Consolidated Financial Statements
	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accountant Fees and Services
PART IV
	Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-10.9 NARCAT LLC Indenture
EX-10.10 NARCAT Management Agreement
EX-10.11 Servicing Agreement
EX-21 Subsidiaries
EX-23 Consent
EX-31.1 Cert
EX-31.2 Cert
EX-31.3 Cert
EX-32.1 Certs

PART I

Item 1. Business

(a) General development of business

The Andersons, Inc. (the “Company”) is a diversified corporation that began operations as a partnership in 1947. The Company is organized into four operating groups. The Agriculture Group purchases and merchandises grain, operates grain elevator facilities located in Ohio, Michigan, Indiana and Illinois, manufactures and sells dry and liquid agricultural nutrients, distributes agricultural inputs (nutrients, chemicals, seed and supplies) to dealers and farmers and formulates anti-icers for road and runway use. The Rail Group sells, repairs, reconfigures, manages and leases railcars and locomotives. The Processing Group manufactures turf and ornamental plant fertilizer and control products for lawn and garden use, professional golf and landscaping industries and corncob-based products for use in various industries. The Retail Group operates six large retail stores, and a distribution center in Ohio.

(b) Financial information about industry segments

See Note 13 to the consolidated financial statements in Item 8 for information regarding business segments.

(c) Narrative description of business

Agriculture Group

The Agriculture Group operates grain elevators, plant nutrient formulation and distribution facilities, and farm centers.

The Company’s grain operations involve merchandising grain and operating terminal grain elevator facilities. This includes purchasing, handling, processing and conditioning grain, storing grain purchased by the Company as well as grain owned by others, and selling grain. The principal grains sold by the Company are yellow corn, yellow soybeans and soft red and white wheat. The Company’s grain storage practical capacity was approximately 81.8 million bushels at December 31, 2003.

Grain merchandised by the Company is grown in the Midwestern portion of the United States (the eastern corn belt) and is acquired from country elevators (grain elevators located in a rural area, served primarily by trucks (inbound and outbound) and possibly rail (outbound)), dealers and producers. The Company makes grain purchases at prices referenced to Chicago Board of Trade (“CBOT”) quotations. The Company competes for the purchase of grain with grain processors, regional cooperatives and animal feed operations, as well as with other grain merchandisers. Because the Company generally buys in smaller lots, its competition is generally local or regional in scope, although there

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are some large, national and international companies that maintain regional grain purchase and storage facilities. Some of these competitors are significantly larger than the Company.

In 1998, the Company signed a five-year lease agreement (“Lease Agreement”) and a five-year marketing agreement (“Marketing Agreement”) with Cargill, Incorporated (“Cargill”) for Cargill’s Maumee and Toledo, Ohio grain handling and storage facilities. As part of the agreement, Cargill was given the marketing rights to grain in the Cargill-owned facilities as well as the adjacent Company-owned facilities in Maumee and Toledo. These agreements cover 39%, or approximately 32.2 million bushels, of the Company’s total storage space and became effective on June 1, 1998. These contracts were renewed with amendments in 2003 for an additional five years. Grain sales to Cargill totaled $197 million in 2003, and include grain covered by the Marketing Agreement as well as grain sold to Cargill via normal forward sales from locations not covered by the Marketing Agreement. If the Marketing Agreement were not in place for the Maumee and Toledo locations, Cargill would still purchase grain from us at these locations either for consumption in their processing facilities or to market to other end users. There were no sales to any other customer in excess of 10% of consolidated net sales. The 2003 Lease Agreement and Marketing Agreement have been filed as Exhibits 10.6 and 10.7.

Approximately 72% of the grain bushels sold by the Company in 2003 were purchased by U.S. grain processors and feeders, and approximately 28% were exported. Exporters purchased most of the exported grain for shipment to foreign markets, while some grain is shipped directly to foreign countries, mainly Canada. Almost all grain shipments are by rail or boat. Rail shipments are made primarily to grain processors and feeders, with some rail shipments made to exporters on the Gulf of Mexico or east coast. Boat shipments are from the Port of Toledo. Grain sales are made on a negotiated basis by the Company’s merchandising staff, except for grain sales subject to the marketing agreement with Cargill which are made on a negotiated basis with Cargill’s merchandising staff.

The Company’s grain business may be adversely affected by the grain supply (both crop quality and quantity) in its principal growing area, government regulations and policies, conditions in the shipping and rail industries and commodity price levels. See “Government Regulation” on page 9. The grain business is seasonal, coinciding with the harvest of the principal grains purchased and sold by the Company.

Fixed price purchase and sale commitments for grain and grain held in inventory expose the Company to risks related to adverse changes in price. The Company attempts to manage these risks by hedging fixed price purchase and sale contracts and inventory through the use of futures and option contracts with the CBOT. The CBOT is a regulated commodity futures exchange that maintains futures markets for the grains merchandised by the Company. Futures prices are determined by worldwide supply and demand.

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The Company’s hedging program is designed to reduce the risk of changing commodity prices. In that regard, hedging transactions also limit potential gains from further changes in market prices. The Grain division’s profitability is primarily derived from margins on grain sold, and revenues generated from other merchandising activities with its customers (including storage income), not from hedging transactions. The Company has policies that specify the key controls over its hedging program. These policies include description of the hedging programs, mandatory review of positions by key management outside of the trading function on a biweekly basis, daily position limits, daily review and reconciliation, modeling of positions for changes in market conditions and other internal controls.

Purchases of grain can be made the day the grain is delivered to a terminal or via a forward contract made prior to actual delivery. Sales of grain generally are made by contract for delivery in a future period. When the Company purchases grain at a fixed price, the purchase is hedged with the sale of a futures contract on the CBOT. Similarly, when the Company sells grain at a fixed price, the sale is hedged with the purchase of a futures contract on the CBOT. At the close of business each day, the open inventory ownership positions as well as open futures and option positions are marked-to-market. Gains and losses in the value of the Company’s inventory positions due to changing market prices are netted with and generally offset by losses and gains in the value of the Company’s futures positions.

When a futures contract is entered into, an initial margin deposit must be sent to the CBOT. The amount of the margin deposit is set by the CBOT and varies by commodity. If the market price of a futures contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required by the CBOT. Subsequent price changes could require additional maintenance margins or result in the return of maintenance margins by the CBOT. Significant increases in market prices, such as those that occur when weather conditions are unfavorable for extended periods, can have an effect on the Company’s liquidity and, as a result, require it to maintain appropriate short-term lines of credit. The Company may utilize CBOT option contracts to limit its exposure to potential required margin deposits in the event of a rapidly rising market.

The Company’s grain operations rely on forward purchase contracts with producers, dealers and country elevators to ensure an adequate supply of grain to the Company’s facilities throughout the year. Bushels contracted for future delivery at January 31, 2004 approximated 57.0 million, the majority of which is scheduled to be delivered to the Company for the 2003 and 2004 crop years (i.e., through September 2005). The Company relies heavily on its hedging program as the method for minimizing price risk in its grain inventories and contracts. The Company monitors current market conditions and may expand or reduce the purchasing program in response to changes in those conditions. In addition, the Company reviews its purchase contracts and the parties to those contracts on a regular basis for credit worthiness, defaults and non-delivery. The

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Company’s loan agreements also require it to be substantially hedged in its grain transactions.

The Company has also developed the Crop Revenue Profiler® software program to assist producers in making complex risk management decisions. This software program integrates the variables of crop insurance and government programs with our grain marketing philosophy to help producers achieve a more predictable result, reducing the impact of volatile crop prices. By helping producers achieve more stable earnings, the Company helps to ensure a consistent supply of grain to its facilities.

In January 2003, the Company became a minority investor in Lansing Grain Company LLC, which was formed in late 2002 with the contribution of substantially all the assets of Lansing Grain Company, a 73-year old grain trading business with offices in Michigan, Minnesota and Kansas. This investment provides the Company a further opportunity to expand outside of its traditional geographic regions. The Company holds an option to increase its investment in each of the next five years with the potential of becoming the majority holder in 2008. In February 2004, the Company made an additional investment to increase its ownership from 15.1% to 22.1%.

In October 2003, the Company began leasing and managing a grain elevator in Oakville, Indiana with a capacity of 3.5 million bushels. In January 2004, the Company completed the purchase of the inventories and grain contracts and subsequently, the purchase of the facility was completed in late January.

The Company competes in the sale of grain with other grain merchants, other elevator operators and farmer cooperatives that operate elevator facilities. Competition is based primarily on price, service and reliability. Some of the Company’s competitors are also its customers and many of its competitors have substantially greater financial resources than the Company.

Grain sales make up 70-80% of the total sales in the Agriculture Group. Approximately 50% of grain bushels purchased are done so using forward contracts. On the sell-side, approximately 90% of grain bushels sold are done so under forward contracts.

The Company’s plant nutrient operations involve purchasing, storing, formulating and selling dry and liquid fertilizer to dealers and farmers; providing warehousing and services to manufacturers and customers; formulation of liquid anti-icers and deicers for use on roads and runways; and the distribution of seeds and various farm supplies. Finally, the division has developed several other products for use in industrial applications within the coal and paper industries. The major fertilizer ingredients sold by the Company are nitrogen, phosphate and potash, all of which are readily available.

The Company’s market area for its plant nutrient wholesale business includes major agricultural states in the Midwest, North Atlantic and South. States with the highest

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concentration of sales are also the states where the Company’s facilities are located - Illinois, Indiana, Michigan and Ohio. Customers for the Company’s fertilizer products are principally retail dealers. Sales of agricultural fertilizer products are heaviest in the spring and fall. The Plant Nutrient division’s nine farm centers, located throughout Michigan, Indiana and Ohio, are located within the same regions as the Company’s other agricultural facilities. These farm centers offer agricultural fertilizer, custom application of fertilizer, and chemicals, seeds and supplies to the farmer.

Storage capacity at the Company’s fertilizer facilities, including its nine farm centers, was approximately 13.6 million cubic feet for dry fertilizers and approximately 35.9 million gallons for liquid fertilizers at December 31, 2003. The Company reserves 6.1 million cubic feet of its dry storage capacity for various fertilizer manufacturers and customers and 12.0 million gallons of its liquid fertilizer capacity is reserved for manufacturers and customers. The agreements for reserved space provide the Company storage and handling fees and are generally for an initial term of one year, renewable at the end of each term. The Company also leases 0.8 million gallons of liquid fertilizer capacity under arrangements with various fertilizer dealers and warehouses in locations where the Company does not have facilities.

In its plant nutrient businesses, the Company competes with regional and local cooperatives, fertilizer manufacturers, multi-state retail/wholesale chain store organizations and other independent wholesalers of agricultural products. Many of these competitors have considerably larger resources than the Company. Competition in the agricultural products business of the Company is based principally on price, location and service.

Sales of grain (corn, soybeans, wheat and oats) totaled $681.0 million, $554.1 million and $434.7 million in 2003, 2002 and 2001, respectively. Sales of dry and liquid fertilizers (primarily potash, nitrogen and phosphate) to dealers totaled $153.7 million, $135.1 million and $134.0 million in 2003, 2002 and 2001, respectively. Sales of fertilizer, chemicals, seeds and supplies to farmers totaled $34.2 million, $36.7 million and $42.4 million in 2003, 2002 and 2001, respectively.

Rail Group

The Company’s Rail Group buys, sells, leases, rebuilds and repairs various types of used railcars and rail equipment. The Group also provides fleet management services to fleet owners and operates a custom steel fabrication business. A significant portion of the railcar fleet is leased from financial lessors and sub-leased to end-users, generally under operating leases which do not appear on the balance sheet. In addition, the Company also arranges non-recourse lease transactions under which it sells railcars or locomotives to a financial intermediary and assigns the related operating lease to the financial intermediary on a non-recourse basis. In such transactions, the Company generally provides ongoing

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railcar maintenance and management services for the financial intermediary, receiving a fee for these services. The Company generally holds purchase options on most railcars owned by financial intermediaries.

Of the 6,291 railcars that the Company managed at December 31, 2003, 2,668, or 42%, were included on the balance sheet, primarily as long-lived assets. The remaining 3,623 railcars and 74 locomotives are either in off-balance sheet operating leases or non-recourse arrangements. The Company also managed 1,264 railcars for a third party customer at December 31, 2003.

The risk management philosophy of the Company includes match-funding of lease commitments and detailed review of lessee credit quality. Match-funding (in relation to rail lease transactions) means matching the terms between the lease with the customer and the funding arrangement with the financial intermediary. Generally, the Company completes non-recourse transactions whenever possible to minimize credit risk. The Company strives to be the Total Rail Solutions^SM provider for its railcar customers. This service mark depicts our willingness to serve the customers’ total railcar needs - including maintenance, car management, repairs, leasing, and all other railcar needs.

Competition for railcar marketing and fleet maintenance services is based primarily on service ability, and access to both used rail equipment and third party financing. Repair and fabrication shop competition is based primarily on price, quality and location.

Although the Company first managed a fleet of covered hopper cars used in the grain industry, it has diversified into other car types (boxcars, gondolas, open top hoppers and tank cars) and the markets in which they serve. In 2000, the Company added locomotives to the managed fleet. The Company plans to continue to diversify its fleet both in car types and industries.

The Company announced on February 12, 2004 that it completed the acquisition of certain railroad rolling stock and leasing assets from Railcar Ltd. and Progress Rail Services Corporation, both of which are part of Progress Energy, Inc. These assets consist of 6,700 railcars, 48 locomotives and contracts to manage an additional 2,600 railcars for third party investors, all of which will be managed by the Company’s Rail Group. The assets will be owned primarily by several subsidiaries of TOP CAT Holding Co, a newly formed Limited Liability Company (LLC) which is a wholly-owned subsidiary of the Company. Financing for the acquisition was provided by $86.4 million in non-recourse notes.

Processing Group

The Processing Group produces and markets turf and ornamental plant fertilizer and control products. It also produces and distributes corncob-based products to the chemical carrier, pet and industrial markets.

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The Company sells consumer fertilizer and control products, for “do-it-yourself” application, to mass merchandisers, small independent retailers and other lawn fertilizer manufacturers. The Company also performs contract manufacturing of fertilizer and control products in its industrial line of business. In an industrial arrangement, the Company is not responsible for direct marketing support of the mass merchandiser. Margins on industrial tons are, therefore, lower than margins on consumer tons. Professional lawn products are sold both directly and through distributors to golf courses under the Andersons Golf Products^TM label and lawn service applicators.

The turf products industry is highly seasonal, with the majority of sales occurring from early spring to early summer. During the off-season, the Company sells ice melt products to many of the same customers that purchase consumer turf products. Since the acquisition in 2000 of the U.S. ProTurf® product line from The Scotts Company, Inc., the Company holds a significant share of the golf course market in the United States. Principal raw materials for the turf care products are nitrogen, phosphate and potash, which are purchased primarily from the Company’s Plant Nutrient division. Competition is based principally on merchandising ability, logistics, service and quality. The Company attempts to minimize the amount of finished goods inventory it must maintain for customers, however, because demand is highly seasonal and influenced by local weather conditions, it may be required to carry inventory that it has produced into the next season. Also, because a majority of the consumer and industrial businesses use private label packaging, the Company closely manages production to anticipated orders by product and customer. This is consistent with industry practices.

Sales of turf and ornamental plant fertilizer and control products totaled $123.3 million, $103.3 million and $102.2 million in 2003, 2002 and 2001, respectively.

The Company is one of a limited number of processors of corncob-based products in the United States. These products serve the chemical and feed ingredient carrier, animal litter and industrial markets, and are distributed throughout the United States and Canada and into Europe and Asia. The principal sources for the corncobs are seed corn producers.

Retail Group

The Company’s Retail Group consists of six stores operated as “The Andersons”, which are located in the Columbus, Lima and Toledo, Ohio markets and serve urban, suburban and rural customers. The retail concept is “MORE FOR YOUR HOME”® and includes a full line of home center products plus a wide array of other items not available at the more traditional home center stores. In addition to hardware, home remodeling and lawn and garden products, The Andersons stores offer housewares, automotive products, sporting goods, pet products, bath soft goods and food (bakery, deli, produce, wine and specialty groceries). Each store carries more than 80,000 different items, has 100,000 square feet or more of in-store display space plus 40,000 or more square feet of outdoor

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garden center space, and features do-it-yourself clinics, special promotions and varying merchandise displays. The majority of the Company’s non-perishable merchandise is received at a distribution center located in Maumee, Ohio.

The retail merchandising business is highly competitive. The Company competes with a variety of retail merchandisers, including home centers, department and hardware stores. Many of these competitors have substantially greater financial resources than the Company. The principal competitive factors are location, quality of product, price, service, reputation and breadth of selection. The Company’s retail business is affected by seasonal factors with significant sales occurring in the spring and during the Christmas season.

The Company also operates a sales and service facility for outdoor power equipment near one of its conventional retail stores.

Sales of retail merchandise totaled $178.6 million, $181.2 million and $177.9 million in 2003, 2002 and 2001, respectively.

Research and Development

The Company’s research and development program is mainly involved with the development of improved products and processes, primarily for the Processing and Agriculture Groups. The Company expended approximately $649,000, $517,000, and $430,000 on research and development activities during 2003, 2002 and 2001, respectively.

Employees

At December 31, 2003, the Company had 1,227 full-time and 1,661 part-time or seasonal employees. The Company believes its relations with its employees are good.

Government Regulation

Grain sold by the Company must conform to official grade standards imposed under a federal system of grain grading and inspection administered by the United States Department of Agriculture (“USDA”).

The production levels, markets and prices of the grains that the Company merchandises are materially affected by United States government programs, which include acreage control and price support programs of the USDA. Also, under federal law, the President may prohibit the export of any product, the scarcity of which is deemed detrimental to the domestic economy, or under circumstances relating to national security. Because a portion of the Company’s grain sales is to exporters, the imposition of such restrictions could have an adverse effect upon the Company’s operations.

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The Company, like other companies engaged in similar businesses, is subject to a multitude of federal, state and local environmental protection laws and regulations including, but not limited to, laws and regulations relating to air quality, water quality, pesticides and hazardous materials. The provisions of these various regulations could require modifications of certain of the Company’s existing plant and processing facilities and could restrict the expansion of future facilities or significantly increase the cost of their operations. The Company made capital expenditures of approximately $1,440,000, $690,000 and $880,000 in order to comply with these regulations in 2003, 2002 and 2001, respectively.

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Item 2. Properties

The Company’s principal agriculture, retail and other properties are described below. Except as otherwise indicated, the Company owns all properties.

Agriculture Facilities

			Agricultural Fertilizer
(in thousands)	Grain Storage		Dry Storage		Liquid Storage
Location	(bushels)		(cubic feet)		(gallons)
Maumee, OH (3)		20,510		4,500		2,878
Toledo, OH Port (4)		11,660		1,800		5,623
Metamora, OH		6,980		—		—
Toledo, OH (1)		980		—		—
Lyons, OH (2)		380		53		284
Lordstown, OH		—		530		—
Gibsonburg, OH (2)		—		37		349
Fremont, OH (2)		—		40		271
Fostoria, OH (2)		—		40		210
Champaign, IL		12,730		833		—
Dunkirk, IN		7,800		833		—
Delphi, IN		7,060		923		—
Clymers, IN		4,720		—		—
Oakville, IN (5)		3,450		—		—
Walton, IN (2)		—		435		8,690
Poneto, IN		—		10		5,284
Logansport, IN		—		83		3,652
Waterloo, IN (2)		—		970		1,656
Seymour, IN		—		720		943
North Manchester, IN (2)		—		—		211
Albion, MI		2,780		—		—
White Pigeon, MI		2,700		—		—
Webberville, MI		—		1,747		5,060
Litchfield, MI (2)		—		30		438
Munson, MI (2)		—		33		312
		81,750		13,617		35,861

(1)	Facility leased.
(2)	Facility is or includes a farm center.
(3)	Includes leased facilities with a 3,300-bushel capacity.
(4)	Includes leased facilities with a 5,500-bushel capacity.
(5)	Facility leased at December 31, 2003 and subsequently purchased in January 2004.

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The grain facilities are mostly concrete and steel tanks, with some flat storage, which is primarily cover-on-first temporary storage. The Company also owns grain inspection buildings and dryers, maintenance buildings and truck scales and dumps.

The Plant Nutrient Division’s wholesale fertilizer and farm center properties consist mainly of fertilizer warehouse and distribution facilities for dry and liquid fertilizers. The Maumee, Ohio; Seymour, Indiana; and Walton, Indiana locations have fertilizer mixing, bagging and bag storage facilities. The Maumee, Ohio; Webberville, Michigan; Logansport, Indiana; Walton, Indiana and Poneto, Indiana locations also include liquid manufacturing facilities.

Retail Store Properties

Name	Location	Square Feet
Maumee Store	Maumee, OH		131,000
Toledo Store	Toledo, OH		130,000
Woodville Store (1)	Northwood, OH		100,000
Lima Store (1)	Lima, OH		117,000
Sawmill Store	Columbus, OH		134,000
Brice Store	Columbus, OH		128,000
Distribution Center (1)	Maumee, OH		245,000

(1) Leased

The leases for the two stores and the distribution center are long-term operating leases with several renewal options and provide for minimum aggregate annual lease payments approximating $1.1 million. The two store leases provide for contingent lease payments based on achieved sales volume. One store had sales triggering payments of contingent rental each of the last three years. In addition, the Company owns a service and sales facility for outdoor power equipment adjacent to its Maumee, Ohio retail store.

Other Properties

In its railcar business, the Company owns, leases or manages for financial institutions 74 locomotives and 6,291 railcars (primarily covered or open hoppers with some boxcars, tank cars and gondolas). Future minimum lease payments for the leased railcars and locomotives are $24.1 million with future minimum contractual lease and service income of approximately $53.1 million. Lease terms range from one to nine years. The Company also operates railcar repair facilities in Maumee, Ohio and Spartanburg, South Carolina, a steel fabrication facility in Maumee, Ohio, and owns or leases a number of switch engines, mobile repair units, cranes and other equipment. As discussed in Item 1, the Rail Group expanded its fleet by 6,700 railcars and 48 locomotives in a transaction that closed in February 2004. This transaction also included contracts to manage approximately 2,600 railcars for third party investors.

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The Company owns lawn fertilizer production facilities in Maumee, Ohio; Bowling Green, Ohio; and Montgomery, Alabama. It also owns corncob processing and storage facilities in Maumee, Ohio and Delphi, Indiana. The Company leases lawn fertilizer warehouse facilities in Toledo, Ohio and Montgomery, Alabama and lawn fertilizer production and warehouse facilities in Pottstown, Pennsylvania.

The Company also owns an auto service center that is leased to its former venture partner. The Company’s administrative office building is leased under a net lease expiring in 2005. The lease includes an option to purchase by the Company at termination. The Company owns approximately 1,076 acres of land on which the above properties and facilities are located and approximately 366 acres of farmland and land held for sale or future use.

Real properties, machinery and equipment of the Company were subject to aggregate encumbrances of approximately $50 million at December 31, 2003. Additions to property, including intangible assets but excluding railcar assets, for the years ended December 31, 2003, 2002 and 2001 amounted to $11.7 million, $9.8 million and $9.2 million, respectively. Additions to the Company’s railcar assets totaled $20.5 million, $8.2 million and $21.8 million for the years ended December 31, 2003, 2002 and 2001, respectively. These additions were offset by sales of railcars of $16.7 million, $16.0 million and $15.4 million for the same periods. See Note 10 to the Company’s consolidated financial statements in Item 8 for information as to the Company’s leases.

The Company believes that its properties, including its machinery, equipment and vehicles, are adequate for its business, well maintained and utilized, suitable for their intended uses and adequately insured.

Item 3. Legal Proceedings

The Company has been named as a defendant in various lawsuits arising in the ordinary course of business. It is not possible at the present time to estimate the ultimate outcome of these actions; however, management believes that the resultant liability, if any, will not be material based on previous experience with lawsuits of these types.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were voted upon during the fourth quarter of fiscal 2003.

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Item 4a. Executive Officers of the Registrant

The information under this Item 4A is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K. The executive officers of The Andersons, Inc., their positions and age (as of February 27, 2004) are presented below.

Name	Position	Age		Year Assumed
Dennis J. Addis	President, Plant Nutrient Division, Agriculture Group		51		2000
	Vice President and General Manager, Plant Nutrient Division,    Agriculture Group				1999
Daniel T. Anderson	President, Retail Group		48		1996
Michael J. Anderson	President and Chief Executive Officer		52		1999
	President and Chief Operating Officer				1996
Richard M. Anderson	President, Processing Group		47		1999
Richard P. Anderson	Chairman of the Board Chairman of the Board and Chief Executive Officer		74		1999 1996
Dale W. Fallat	Vice President, Corporate Services		59		1992
Philip C. Fox	Vice President, Corporate Planning		61		1996
Charles E. Gallagher	Vice President, Human Resources		62		1996
Richard R. George	Vice President, Controller and CIO		54		2002
	Vice President and Controller				1996
Beverly J. McBride	Vice President, General Counsel and Secretary		62		1996
Harold M. Reed	President, Grain Division		47		2000
	Vice President and General Manager, Grain Division, Agriculture    Group				1999
Rasesh H. Shah	President, Rail Group		49		1999
Gary L. Smith	Vice President, Finance and Treasurer		58		1996

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PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

The Common Shares of The Andersons, Inc. trade on the Nasdaq National Market under the symbol “ANDE.” On February 27, 2004, the closing price for the Company’s Common Shares was $19.49 per share. The following table sets forth the high and low bid prices for the Company’s Common Shares for its four quarters in each of 2003 and 2002.

	2003				2002
	High		Low		High		Low
Quarter Ended
March 31	$	13.00	$	12.25	$	10.40	$	9.35
June 30		13.40		11.52		13.75		10.12
September 30		15.35		12.25		13.60		11.76
December 31		17.70		14.80		13.00		11.38

The Company’s transfer agent and registrar is Computershare Investor Services, LLC, 2 North LaSalle Street, Chicago, IL 60602. Telephone 312-588-4991.

Shareholders

At February 27, 2004, there were 7.25 million common shares outstanding: 670 shareholders of record and approximately 2,500 shareholders for whom security firms acted as nominees.

Dividends

The Company has declared and paid 29 consecutive quarterly dividends since the end of 1996, its first year of trading. The Company paid $0.065 per common share in 2002 and $0.07 per common share in 2003. On December 15, 2003, the Company announced a dividend of $0.075 per common share to be paid on January 22, 2004 to shareholders of record on January 2, 2004.

Item 6. Selected Financial Data

The following table sets forth selected consolidated financial data of the Company. The data for each of the five years in the period ended December 31, 2003 are derived from the consolidated financial statements of the Company. The data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and notes thereto included in Item 8.

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(in thousands, except for per share and ratios	For the years ended December 31
and other data)	2003			2002			2001			2000			1999
Operating results
Grain sales and revenues	$	704,574		$	583,947		$	475,953		$	488,204		$	507,024
Fertilizer, retail & other sales		542,390			492,580			504,408			470,301			494,780
Total sales & revenues		1,246,964			1,076,527			980,361			958,505			1,001,804
Gross profit – grain		41,783			47,348			52,029			46,789			41,586
Gross profit – fertilizer, retail & other		122,311			115,753			108,722			111,393			109,452
Total gross profit		164,094			163,101			160,751			158,182			151,038
Other income / gains (a)		5,048			3,741			3,841			7,069			4,195
Pretax income		17,965			16,002			11,931			14,364			11,959
Income before cumulative effect of change in accounting principle		11,701			10,764			9,042			10,078			8,379
Cumulative effect of change in accounting principle (net of tax)		—			3,480			(185	)		—			—
Net income		11,701			14,244			8,857			10,078			8,379
Financial position
Total assets		492,619			469,218			458,324			442,965			379,663
Working capital		89,532			81,755			75,228			55,260			67,939
Long-term debt (b)		82,127			84,272			91,316			80,159			74,127
Shareholders’ equity		115,791			105,765			94,934			89,836			84,805
Cash flows / liquidity
Cash flows from operations		44,093			23,249			(6,108	)		(18,303	)		11,679
Depreciation and amortization		15,139			14,314			14,264			13,119			11,282
Cash invested in acquisitions / investments in affiliates		1,182			—			—			16,311			—
Investments in property, plant & equipment		11,749			9,834			9,155			16,189			17,963
Net investment in (sale of) railcars (c)		3,788			(7,782	)		6,414			12,424			214
EBITDA (e)		41,152			40,128			37,765			39,312			32,758
Per share data:
Net income – basic		1.64			1.96			1.22			1.34			1.05
Net income – diluted		1.59			1.92			1.21			1.34			1.03
Dividends paid		0.28			0.26			0.26			0.24			0.20
Year-end market value		15.97			12.70			10.00			8.62			8.25
Ratios and other data
Pretax return on beginning equity		17.0	%		16.9	%		13.3	%		16.9	%		14.5	%
Net income return on beginning equity		11.1	%		15.0	%		9.9	%		11.9	%		10.1	%
Funded long-term debt to equity ratio (d)		0.7-to-1			0.8-to-1			1.0-to-1			0.9-to-1			0.9-to-1
Weighted average shares outstanding (000’s)		7,141			7,283			7,281			7,507			7,996
Effective tax rate		34.9	%		32.7	%		24.2	%		29.8	%		29.9	%

Note: Prior years have been revised to conform to the 2003 presentation; these changes did not impact net income.

(a)	Includes gains of $0.3 million in each of 2002 and 2001, and $2.1 million in 2000 for insurance settlements received. Also in 2000, a $1.0 million gain was recognized on the sale of a business.
(b)	Excludes current portion of long-term debt.
(c)	Represents the net of purchases of railcars offset by proceeds on sales of railcars. In 2002, proceeds exceeded purchases.
(d)	Calculated by dividing long-term debt by total year-end equity as stated under “Financial Position.”

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(e)

Earnings before interest, taxes, depreciation and amortization, or EBITDA, is a non-GAAP measure. We believe that EBITDA provides additional information for investors and others in determining our ability to meet debt service obligations. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations as determined by generally accepted accounting principles, and EBITDA does not necessarily indicate whether cash flow will be sufficient to meet cash requirements. Because EBITDA, as determined by us, excludes some, but not all, items that affect net income, it may not be comparable to EBITDA or similarly titled measures used by other companies.

The following table sets forth (1) our calculation of EBITDA and (2) a reconciliation of EBITDA to our cash flow provided by operating activities.

		For the years ended December 31
(in thousands)		2003			2002			2001			2000			1999
Income before cumulative effect of change in accounting principle		$	11,701		$	10,764		$	9,042		$	10,078		$	8,379
Add:
	Provision for income taxes		6,264			5,238			2,889			4,286			3,580
	Interest expense		8,048			9,812			11,570			11,829			9,517
	Depreciation and amortization		15,139			14,314			14,264			13,119			11,282
EBITDA			41,152			40,128			37,765			39,312			32,758
Add/(subtract):
	Provision for income taxes		(6,264	)		(5,238	)		(2,889	)		(4,286	)		(3,580	)
	Interest expense		(8,048	)		(9,812	)		(11,570	)		(11,829	)		(9,517	)
	Provision for losses on accounts and notes receiveable		356			353			224			911			1,180
	Gain on insurance settlements		—			(302	)		(338	)		(2,088	)		—
	Gain on sale of property, plant & equipment and business		(273	)		(406	)		(336	)		(1,027	)		(459	)
	Realized & unrealized gains (losses) on railcars & related leases		(2,146	)		(179	)		1,172			(110	)		(1,573	)
	Changes in working capital & other assets & liabilities		19,316			(1,295	)		(30,136	)		(39,186	)		(7,130	)
	Net cash provided by / (used in) operations	$	44,093		$	23,249		$	(6,108	)	$	(18,303	)	$	11,679

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The following Management’s Discussion and Analysis contains various “forward-looking statements” which reflect the Company’s current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including but not limited to those identified below, which could cause actual results to differ materially from historical results or those anticipated. The words “believe,” “expect,” “anticipate,” “will” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new

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information, future events or otherwise. The following factors could cause actual results to differ materially from historical results or those anticipated: weather; supply and demand of commodities including grains, fertilizer and other basic raw materials; market prices for grains and the potential for increased margin requirements; environmental and governmental policies; competition; economic conditions; risks associated with acquisitions; interest rates; and income taxes.

Critical Accounting Policies and Estimates

The process of preparing financial statements requires management to make estimates and judgments that affect the carrying values of the Company’s assets and liabilities as well as the recognition of revenues and expenses. These estimates and judgments are based on the Company’s historical experience and management’s knowledge and understanding of current facts and circumstances. Certain of the Company’s accounting policies are considered critical, as these policies are important to the depiction of the Company’s financial statements and/or require significant or complex judgment by management. Note 2 of the consolidated financial statements more fully describes all of our significant accounting policies, however, following are those accounting policies that management considers most critical to the Company’s financial statements.

Grain Inventories The Company marks to market all grain inventory, forward purchase and sale contracts for grain, and exchange-traded futures and options contracts. The grain inventories are freely traded, have quoted market prices, and may be sold without significant additional processing. Management estimates market value based on exchange-quoted prices, adjusted for differences in local markets. Changes in market value are recorded as merchandising revenues in the statement of income. If management used different methods or factors to estimate market value, amounts reported as inventories and merchandising revenues could differ. Additionally, if market conditions change subsequent to year-end, amounts reported in future periods as inventories and merchandising revenues could differ.

Because the Company marks inventories and sales commitments to the market, gross profit on a grain sale transaction is recognized when a contract for sale of the grain is executed. The related revenue is recognized upon shipment of the grain, at which time title transfers and customer acceptance occurs.

Grain inventories contain valuation reserves established to recognize the difference in quality and value between contractual grades and actual quality grades of inventory held by the Company. These quality reserves also require management to exercise judgment.

Marketing Agreement The Company has negotiated a marketing agreement that covers certain of its grain facilities (certain of which are leased from Cargill). Under this five year amended and restated agreement (ending in May 2008), the Company sells grain from these facilities to Cargill at market prices. Income earned from operating the

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facilities (including buying, storing and selling grain and providing grain marketing services to its producer customers) over a specified threshold is shared 50/50 with Cargill. Measurement of this threshold is made on a cumulative basis and cash is paid to Cargill (if required) at each contract year end. The Company recognizes its share of income to date at each month-end and accrues for any payment to Cargill in accordance with Emerging Issues Task Force Topic D-96, “Accounting for Management Fees Based on a Formula.” The adoption of this standard, effective for periods beginning after January 1, 2002, resulted in a cumulative effect adjustment increase of $3.5 million after tax in 2002.

Derivatives – Commodity Contracts The Company utilizes regulated commodity futures and options contracts to hedge its market price exposure on the grain it owns and related forward purchase and sale contracts. These contracts are included in the balance sheet in inventory at their current market value. Realized and unrealized gains and losses in the market value of these futures and option contracts are included in the income statement as a component of sales and merchandising revenues. While the Company considers all of its commodity contracts to be effective economic hedges, the Company does not designate its commodity futures and options contracts as hedges. Therefore, the Company does not defer gains and losses on these same contracts as would occur for designated hedges under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Both the underlying inventory and forward purchase and sale contracts and the related futures and options contracts are marked to market on a daily basis.

Impairment of Long-Lived Assets The Company’s various business segments are each highly capital intensive and require significant investment in facilities and / or rolling stock. In addition, the Company has a limited amount of intangible assets and goodwill (described more fully in Note 2 to the Company’s consolidated financial statements in Item 8) that it acquired in various business combinations. Whenever changing conditions warrant, we review the fair value of the tangible and intangible assets that may be impacted. We also annually review the balance of goodwill for impairment in the fourth quarter. These reviews for impairment take into account estimates of future undiscounted cash flows. Our estimates of future cash flows are based upon a number of assumptions including lease rates, lease term, operating costs, life of the assets, potential disposition proceeds, budgets and long-range plans. While we believe the assumptions we use to estimate future cash flows are reasonable, there can be no assurance that the expected future cash flows will be realized. If management used different estimates and assumptions in its evaluation of these cash flows, the Company could recognize different amounts of expense in future periods.

Employee Benefit Plans The Company provides substantially all full-time employees with pension benefits and postretirement health care benefits. In order to measure the expense and funded status of these employee benefit plans, management makes several estimates and assumptions, including interest rates used to discount certain liabilities,

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rates of return on assets set aside to fund these plans, rates of compensation increases, employee turnover rates, anticipated mortality rates and anticipated future healthcare cost trends. These estimates and assumptions are based on the Company’s historical experience combined with management’s knowledge and understanding of current facts and circumstances. The Company uses third-party specialists to assist management in measuring the expense and funded status of these employee benefit plans. If management used different estimates and assumptions regarding these plans, the funded status of the plans could vary significantly and then the Company could recognize different amounts of expense over future periods.

Certain accounting guidance, including the guidance applicable to pensions and postretirement benefits does not require immediate recognition of the effects of a deviation between actual and assumed experience or the revision of an estimate. This approach allows the favorable and unfavorable effects that fall within an acceptable range to be netted. Although this netting occurs outside the basic financial statements, the net amount is disclosed as an unrecognized gain or loss in Note 11 to the Company’s consolidated financial statements in Item 8. At December 31, 2003, we had an unrecognized loss related to our pension plans of $14.6 million compared to an unrecognized loss of $14.7 million at December 31, 2002. For the postretirement benefit plans, our December 31, 2003 unrecognized loss was $16.8 million as compared to an unrecognized loss of $16.1 million at December 31, 2002. A portion of the December 31, 2003 unrecognized loss for both pension and postretirement benefits will be amortized into earnings in 2004. The effect on years after 2004 will depend in large part on the actual experience of the plans in 2004 and beyond. In 2003, benefits expense included $1.0 million of amortization and $0.9 million of the unrecognized loss existing at December 31, 2002 for the pension and postretirement plans, respectively.

Revenue Recognition The Company recognizes revenue for the sales of its products at the time of shipment. Gross profit on sales of grain is recognized when sales contracts are entered into as the Company marks its contracts to the market on a daily basis. Revenues from other merchandising activities are recognized as open grain contracts are marked-to-market or as related services are provided. Rental revenues on operating leases are recognized on a straight-line basis over the term of the lease. Sales returns and allowances, if required, are provided for at the time sales are recorded. Shipping and handling costs are included in cost of sales.

The Company sells railcars to financial intermediaries and other customers. Proceeds from railcar sales, including railcars sold in non-recourse transactions, are recognized as revenue at the time of sale if there is no leaseback or the operating lease is assigned to the buyer, non-recourse to the Company. Revenue on operating leases (where the Company is the lessor) and on servicing and maintenance contracts in non-recourse transactions is recognized over the term of the lease or service contract.

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Leasing activities The Company accounts for its leasing activity in accordance with FASB Statement No. 13, as amended, and related pronouncements. The Company’s Rail segment leases and manages railcars for third parties and leases railcars for internal use. Most leases to Rail segment customers are structured as operating leases. Railcars leased by the Company to its customers are either owned by the Company, leased from financial intermediaries under operating leases or leased from financial intermediaries under capital leases. The leases from financial intermediaries are generally structured as sale-leaseback transactions. Lease income and lease expense are recognized on a straight-line basis over the term of the lease.

The Company has financed some of its railcars through a capital lease with a financial intermediary. The terms of this lease required the Company to capitalize the assets and record the net present value of the lease obligation on its balance sheet as a long-term borrowing. There was no gain or loss on this financing transaction. This obligation is included with the Company’s long-term debt as described in Note 7 to the consolidated annual financial statements. The railcars under this lease are being depreciated to their residual value over the term of the lease.

The Company also arranges non-recourse lease transactions under which it sells railcars or locomotives to financial intermediaries and assigns the related operating lease on a non-recourse basis. The Company generally provides ongoing railcar maintenance and management services for the financial intermediaries, and receives a fee for such services when earned. On the date of sale, the Company recognizes the proceeds from sales of railcars in non-recourse lease transactions as revenue. Management and service fees are recognized as revenue as the underlying services are provided, which is generally spread evenly over the lease term.

Taxes Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may not succeed. We adjust these reserves in light of changing facts and circumstances, such as the progress of a tax audit. An estimated effective tax rate for a year is applied to our quarterly operating results. In the event there is a significant or unusual item recognized in our quarterly operating results, the tax attributable to that item is separately calculated and recorded at the same time as that item.

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Operating Results

The following discussion focuses on the operating results as shown in the consolidated statements of income. Following are tables (in thousands) highlighting sales and merchandising revenues, gross profit and operating income by segment. Additional segment information is included in Note 13 to the Company’s consolidated financial statements in Item 8.

Sales and merchandising revenues	2003		2002		2001
Agriculture	$	899,174	$	762,268	$	658,524
Rail		35,200		18,747		31,061
Processing		134,017		114,315		112,827
Retail		178,573		181,197		177,949
Total	$	1,246,964	$	1,076,527	$	980,361

Gross profit	2003		2002		2001
Agriculture	$	76,706	$	80,632	$	85,392
Rail		13,626		8,718		7,267
Processing		23,367		22,876		20,337
Retail		50,395		50,875		47,755
Total	$	164,094	$	163,101	$	160,751

Operating income (loss)	2003			2002			2001
Agriculture	$	13,868		$	15,154		$	19,765
Rail		4,062			1,563			(349	)
Processing		1,022			(1,322	)		(7,654	)
Retail		3,413			4,003			1,868
Other		(4,400	)		(3,396	)		(1,699	)
Total	$	17,965		$	16,002		$	11,931

Comparison of 2003 with 2002

Sales and merchandising revenues for 2003 totaled $1.2 billion, an increase of $170.4 million, or 16%, from 2002. Sales in the Agriculture Group were up $143.1 million, or 20%. Increased grain sales of $126.9 million included both a 4% volume increase and an 18% increase in the average price of bushels sold. All grains, except oats, showed price per bushel increases and bushel volume was up for all grains except wheat. In both 2003 and 2002, grain expected to ship in the following calendar year was shipped in the fourth quarter. This occurred because of increased demand and / or market prices favoring sales rather than storage of grain. Fertilizer sales were up $16.2 million, or 9%, due to a 9% increase in the average price per ton sold on a less than one percent increase in volume. A portion of the price increase relates to increases in natural gas prices, a basic raw material in the manufacture of nitrogen and urea which are key products used by the Plant Nutrient division. Generally, this increase can be passed through to customers although a

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price increase may also reduce consumer demand at the producer level. Revenues in both grain and fertilizer businesses are significantly impacted by the market price of the commodities being sold.

Merchandising revenues in the Agriculture Group were down $6.2 million, or 21%, due to decreases in space income (before interest charges) in the Grain division. Space income is income earned on grain held for our account or for our customers and includes storage fees earned and appreciation or depreciation in the value of grain owned. Grain on hand at December 31, 2003 was 56.1 million bushels, of which 17.3 million bushels were stored for others. Total grain bushels on hand throughout 2003 averaged approximately 46.0 million bushels due to the reduced harvest in 2002. This compares to 56.3 million bushels on hand at December 31, 2002, of which 13.4 million bushels were stored for others.

The results of the 2003 harvest were strong in the Company’s market area. Due to the strong demand, however, bushels shipped nearly matched the bushels received and resulted in no net increase in bushels. Because of this, the Company anticipates another period of low space income in the first six months of 2004. Wheat acres planted in 2003 for harvest in 2004 are down slightly from last year due to the wet and delayed 2003 harvest. Corn acres are expected to increase in 2004 due to the current higher corn prices. This increase will come at the expense of bean acres. The higher grain prices may favorably impact the fertilizer demand for the same period. However, poor weather during the spring planting season may unfavorably impact the amount of corn and soybean acreage planted during that time.

The Rail Group had a $16.5 million, or 88% increase in sales. Sales of railcars and related leases made up $15.4 million of this increase and the remainder of the increase resulted from a $0.9 million increase in revenue generated by the leased fleet and a $0.2 million increase from increased activity in the repair and fabrication shops. There were no significant sales of railcars in 2002. Railcars under management at December 31, 2003 were 6,291 compared to 5,699 under management at December 31, 2002. Locomotives under management were 74 at December 31, 2003 and 51 at December 31, 2002. The railcar utilization (railcars in lease service) rate increased from 85% at December 31, 2002 to 92% at the end of December 2003.

The Processing Group had a $19.7 million, or 17%, increase in sales and merchandising revenues resulting primarily from an overall 13% increase in volume plus a 6% increase in the average price per ton sold. In the professional lawn business, serving the golf course and lawn care operator markets, volume was up 15% and sales up 16%, primarily due to increased market share. In the consumer and industrial lawn businesses, where we serve as contract manufacturer for several large “brand” companies, a manufacturer of private label products and also manufacture our own brands, volume was up 13% and sales up 22%. A portion of this increase relates to a new line of products that we began manufacturing for a major marketer in late 2002. The cob business, a much smaller

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component of the Processing Group, had a 7% increase in sales primarily due to a 6% increase in volume.

The Retail Group had a 1.4% decrease in same-store sales and revenues in 2003 as compared to 2002. Individual store results were mixed, however, the Columbus markets showed increases for the third straight year. As expected, sales in the Toledo market were down due to significant new competition as well as disruption in one of the three Toledo-area stores created when the store was completely redesigned. Four of the six stores now have a fresh meat counter. This business is managed by a third party and the Company earns commissions on sales of fresh meat; these commissions have been included in merchandising revenues. Expectations for 2004 remain cautiously optimistic given increases seen in January business, however, this business continues to be faced with competition from new stores built and planned for in its primary markets by competitors of significant size.

Gross profit for 2003 totaled $164.1 million, an increase of $1.0 million, or less than 1%, from 2002. The Agriculture Group had a $3.9 million, or 5%, decrease in gross profit, in spite of the significant increase in revenues mentioned previously. Gross profit in the Grain division totaled $41.8 million, a decrease of $5.5 million, or 12%, resulting primarily from the $6.2 million decrease in merchandising revenues mentioned previously, partially offset by a $0.7 million increase in gross profit on grain sales. The Plant Nutrient division recognized an increase in gross profit of $1.6 million, primarily due to the 3% increase in volume and a 3% increase in gross profit per ton.

Gross profit in the Rail Group increased $4.9 million, or 56%. A portion of this increase, $2.1 million, was gross profit related to the sale of cars and lease receivables. The railcar and fabrication shops had increased gross profit of $2.9 million related to the manufacture and / or installation of railcar components. The lease fleet income was down $0.1 million in spite of the increased fleet size and utilization percentage. Railcars that are coming off long-term leases are renewing at market rates which may be lower than the previous lease rates. The multi-year low lease rate environment has continued in the rail industry, although certain car types have seen improvements in 2003. In 2002, the Company recorded an impairment charge of $0.3 million on railcars assets leased to others. There was no impairment charge in 2003.

Gross profit for the Processing Group in 2003 increased $0.5 million, or 2%, when compared to 2002. In spite of a 13% increase in volume, increased costs reduced the gross profit per ton by 9%. The consumer and industrial lawn businesses had increased gross profit, but the professional lawn business and cob business both realized decreases. A portion of this increased cost represents the increasing cost of nitrogen and other raw materials that aren’t easily passed on to customers during an annual program.

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Gross profit in the Retail Group decreased $0.5 million, or 1%, from 2002. This was due to the decrease in sales discussed previously, partially offset by a modest increase in margins, as a result of changes in the mix of products sold.

The Company recorded a gain of $0.3 million in 2002 related to an insurance recovery.

Operating, administrative and general expenses for 2003 totaled $143.1 million, a $2.1 million increase from 2002. Full-time employees were approximately equal to 2002, however, labor expense increased $1.0 million, or 1%. Benefit costs rose 3% due to the increased cost of providing pension and health care benefits to current and former employees. Other significant increases were realized in utilities, reflecting the high cost of natural gas and the need to dry a wet 2003 corn crop and professional and contract services, reflecting additional expense relating to external legal fees, accounting and audit services and corporate governance expenses. Some of the professional and contract services increase was related to acquisition activity. With the recently announced 2004 growth in our Agriculture and Rail Groups, we expect incremental increases in the cost to manage these additional assets.

Interest expense for 2003 was $8.0 million, a $1.8 million, or 18%, decrease from 2002. Average daily short-term borrowings for 2003 were up 1% when compared to 2002 while the average short-term interest rate decreased from 3.2% for 2002 to 2.1% for 2003. Long-term interest expense decreased 11% for the same period.

As a result of the above, pretax income of $18.0 million for 2003 was 12% higher than the pretax income of $16.0 million in 2002. Income tax expense of $6.3 million was recorded in 2003 at an effective rate of 34.9%. In 2002, income tax expense of $5.2 million was recorded at an effective rate of 32.7%. The increase in effective tax rates between 2002 and 2003 resulted primarily from an increase in state income taxes. In future years, we anticipate potential increases in state effective tax rates resulting from state tax reform initiatives.

In fiscal 2003, the World Trade Organization determined that the Extraterritorial Income Regime, or ETI, as provided for in the U.S. Internal Revenue Code, is an illegal export subsidy. Accordingly, the Company anticipates that the United States will repeal the ETI during fiscal 2004. Various proposals before the U.S. Congress may replace the ETI, but even if adopted, would likely not result in the same level of income tax benefit to the Company as the ETI. Therefore, it is possible that the Company’s tax rate will increase in fiscal 2004 and beyond, pending the outcome of these potential changes in the law. The ETI benefit reduced the Company’s 2003 tax rate by 4.2 percentage points. The Company is presently unable to determine the effect of the potential tax law changes and there can be no assurance that such changes will not adversely affect its results of operations in future years.

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In 2002, the Company recorded a cumulative effect adjustment upon the adoption of EITF Topic D-96 ($3.5 million after tax). This cumulative effect adjustment reversed the December 31, 2001 balance of $5.4 million of deferred income that, under EITF Topic D-96, the Company earned as of January 1, 2002.

The 2003 net income of $11.7 million was $2.5 million lower than the 2002 net income of $14.2 million. Basic earnings per share of $1.64 decreased $0.32 from 2002 and diluted earnings per share of $1.59 decreased $0.33 from 2002.

Comparison of 2002 with 2001

Sales and merchandising revenues for 2002 totaled $1.08 billion, an increase of $96.2 million, or 10%, from 2001. Sales in the Agriculture Group were up $114.7 million, or 19%. Increased grain sales of $119.4 million included both a 9% volume increase and a 16% increase in the average price of bushels sold. All grains showed price per bushel increases and bushel volume was up for corn and wheat. Fertilizer sales were down $4.6 million, or 3%, due to a 9% decrease in the average price per ton sold, partially offset by a 7% increase in tons sold. Revenues in both grain and fertilizer businesses are significantly impacted by the market price of the commodities being sold.

Merchandising revenues in the Agriculture Group were down $11.0 million, or 23%, due to decreases in space income (before interest charges) in the Grain division. Space income is income earned on grain held for our account or for our customers and includes storage fees earned and appreciation or depreciation in the value of grain owned. Grain on hand at December 31, 2002 was 56.3 million bushels, of which 13.4 million bushels were stored for others. This compares to 65.4 million bushels on hand at December 31, 2001, of which 10.4 million bushels were stored for others.

The Rail Group had a $12.3 million, or 40%, decrease in sales. While lease revenue was up $1.8 million, or 14%, in 2002, sales of railcars were down $15.2 million. Sales in the fabrication and rail repair shops were up $1.1 million. Railcars under management at December 31, 2002 were 5,699 compared to 5,432 under management at December 31, 2001. Locomotives under management were 51 for both 2001 and 2002. The railcar utilization (railcars in lease service) rate increased from 75% at December 31, 2001 to 85% at the end of December 2002.

The Processing Group had a $1.5 million, or 1%, increase in sales and merchandising revenues resulting primarily from an overall 3% increase in lawn division tons sold, partially offset by a 3% decrease in the average price per lawn division ton sold. The industrial lawn business (where the Group is responsible only for the contract manufacturing of product and does no marketing) continues to grow in relative size, due, in part, to the movement of a large consumer customer to an industrial relationship. The Company receives less margin for industrial tons, as compared to consumer tons, because it is acting primarily as a contract manufacturer and not incurring certain sales and

26

marketing costs. Further, the Company is no longer required to accept returns from the customer. The reduction of returns and elimination of marketing costs contributed to the sales increase. Sales and merchandising revenues were positively impacted by these reversals in 2002 by $1.4 million. The professional lawn business continues to be impacted by general softness in the golf course market and a reduction in the number of rounds played.

The Retail Group had a 1.8% increase in same-store sales and revenues in 2002 as compared to 2001. Individual store results were mixed, however both the Toledo and Columbus markets showed increases. In addition, three of the six stores have added a fresh meat counter since the third quarter of 2001. This business is managed by a third party and the Company earns commissions on sales of fresh meat; these commissions have been included in merchandising revenues.

Gross profit for 2002 totaled $163.1 million, an increase of $2.3 million, or 1%, from 2001. The Agriculture Group had a $4.8 million, or 6%, decrease in gross profit, in spite of the significant increase in revenues mentioned previously. Gross profit in the Grain division totaled $47.3 million, a decrease of $4.7 million, or 9%. The fertilizer businesses of the Agriculture Group recognized a decrease in gross profit of $0.1 million, primarily due to a decrease in gross profit per ton, nearly offset by increased volume of fertilizer sold.

Gross profit in the Rail Group increased $1.5 million, or 20%. Of this increase, $0.4 million was due to the improved performance of the lease fleet primarily related to the increase in railcars in service. In addition, the Group took a $0.3 million non-cash charge to recognize a permanent impairment in the value of certain railcars in 2002; the Group took a comparable charge of $1.5 million in 2001.

Gross profit for the Processing Group in 2002 increased $2.5 million, or 12%, when compared to 2001. Overall gross profit per ton for the Processing Group was up 11%. Although there was a 3% decrease in average price per lawn ton sold, there was also a 5% decrease in the average cost of a lawn ton. Coupled with the volume increase in the Lawn division and the gross profit impact of the reduction in returns and marketing costs mentioned previously, lawn division gross profit was up $2.8 million, or 16%. The cob-based businesses experienced a decrease of $0.3 million, or 8%, in gross profit, resulting in the overall $2.5 million increase for the Group.

Gross profit in the Retail Group increased $3.0 million, or 6%, from 2001. This was due to both the increase in sales discussed previously and a percentage point increase in margins. This margin increase results primarily from changes in product mix and better management of promotional programs and markdowns.

The Company recorded gains of $0.3 million in each of 2002 and 2001 related to insurance recoveries.

27

Operating, administrative and general expenses for 2002 totaled $141.0 million, a $0.1 million decrease from 2001. Full-time employees increased 2% from 2001, however, labor expense decreased $1.0 million, or 1%. The majority of the decrease relates to severance costs of $1.3 million in 2001 compared to $0.4 million in 2002. Benefit costs, however, rose 11% due to the increased cost of providing pension and health care benefits to current and former employees. In addition, the Company’s performance incentive expense increased $1.3 million, which reflects the improved 2002 results when compared to 2001. Significant expense reductions were realized in rent, advertising and professional services. In addition to the benefit and performance incentive expense increases mentioned previously, increases were also realized in insurance expense and maintenance expense.

Interest expense for 2002 was $9.8 million, a $1.8 million, or 15%, decrease from 2001. Average daily short-term borrowings for 2002 were up 2% when compared to 2001 while the average short-term interest rate decreased from 5.1% for 2001 to 3.2% for 2002. Long-term interest expense decreased slightly for the same period.

As a result of the above, pretax income of $16.0 million for 2002 was 34% higher than the pretax income of $11.9 million in 2001. Income tax expense of $5.2 million was recorded in 2002 at an effective rate of 32.7%. In 2001, income tax expense of $2.9 million was recorded at an effective rate of 24.2%. The significant change in the effective tax rates between 2001 and 2002 resulted primarily from a much higher benefit from our foreign sales corporation in 2001 relative to the pretax income.

The Company also recorded a cumulative effect adjustment upon the adoption of EITF Topic D-96 ($3.5 million after tax). This cumulative effect adjustment reversed the December 31, 2001 balance of $5.4 million of deferred income that, under EITF Topic D-96, the Company earned as of January 1, 2002. As a result of the above, the 2002 net income of $14.2 million was $5.3 million better than the 2001 net income of $8.9 million. Basic earnings per share increased $0.74 from 2001 and diluted earnings per share increased $0.71 from 2001.

Liquidity and Capital Resources

The Company’s operations provided cash of $44.1 million in 2003, an increase of $20.8 million from 2002. Net working capital at December 31, 2003 was $89.5 million, an increase of $7.8 million from December 31, 2002.

The Company has significant short-term lines of credit available to finance working capital, primarily inventories and accounts receivable. In November 2002, the Company entered into a borrowing arrangement with a syndicate of banks which provides the Company with $150 million in short-term lines of credit and an additional $50 million in a three-year line of credit. Prior to the syndication agreement, the Company managed several separate short-term lines of credit. The Company had drawn $48.0 million on its short-term line of credit at December 31, 2003. Peak short-term borrowing during 2003

28

was $127.2 million on February 27, 2003. In most years, the Company’s highest borrowing occurs in the spring due to seasonal inventory requirements in the fertilizer and retail businesses, credit sales of fertilizer and a customary reduction in grain payables due to the cash needs and market strategies of grain customers. Currently, the Company is reviewing its projected cash borrowing needs and may expand its short-term lines of credit.

The Company utilizes interest rate contracts to manage a portion of its interest rate risk on both its short and long-term debt and lease commitments. At December 31, 2003, the fair value of these derivative financial instruments recorded in the balance sheet (primarily interest rate swaps and interest rate caps) was a net asset of less than $0.1 million.

Quarterly cash dividends of $0.07 and $0.065 per common share were paid in 2003 and 2002, respectively. A cash dividend of $0.075 per common share was paid on January 22, 2004. The Company made income tax payments of $5.2 million in 2003. During 2003, the Company issued approximately 129 thousand shares to employees and directors under its share compensation plans.

Total capital spending for 2003 on property, plant and equipment was $11.7 million and included $2.8 million for investments in facilities and expansion in the Agriculture Group, $0.3 million in manufacturing improvements in the Rail Group, $0.4 million in administrative offices and buildings and $0.3 million for retail store improvements and additions. The remaining amount of $7.9 million was spent on numerous assets and projects with no single project costing more than $0.3 million. The Company also spent $20.5 million in 2003 for the purchase of railcars and capitalized modifications on railcars that may then be sold, financed off-balance sheet or owned by the Company for lease to customers. The Company sold or financed $16.7 million of railcars during 2003.

In January 2003, the Company invested $1.2 million in Lansing Grain Company, LLC for a 15.1% interest. Lansing Grain Company LLC (“LGC”) was formed in late 2002 and includes the majority of the assets of the Lansing Grain Company. The Company also holds an option to increase its investment in each of the next five years with the potential of attaining majority ownership in 2008. In February 2004, the Company acquired an additional 7% of the equity of LGC for a total ownership of 22.1%.

In February 2004, the Company formed a number of special purpose entities under TOP CAT Holding Company, also a special purpose entity, with the Company as its sole equity investor to finance the purchase of railroad rolling stock and leasing assets from Rail Car Ltd. and Progress Rail, both of which are part of Progress Energy, Inc. The purchase price of $82.4 million includes approximately 6,700 railcars, 48 locomotives and contracts to manage an additional 2,600 railcars for third-party investors. Financing for the acquisition was provided by $86.4 million in non-recourse notes.

29

Certain of the Company’s long-term borrowings include provisions that impose minimum levels of working capital and equity, impose limitations on additional debt and require that grain inventory positions be substantially hedged. The Company was in compliance with all of these provisions at December 31, 2003. In addition, certain of the Company’s long-term borrowings are secured by first mortgages on various facilities or are collateralized by railcar assets.

Because the Company is a significant consumer of short-term debt in peak seasons and the majority of this is variable rate debt, increases in interest rates could have a significant impact on the profitability of the Company. In addition, periods of high grain prices and / or unfavorable market conditions could require the Company to make additional margin deposits on its CBOT futures contracts. The marketability of the Company’s grain inventories and the availability of short-term lines of credit enhance the Company’s liquidity. In the opinion of management, the Company’s liquidity is adequate to meet short-term and long-term needs.

Contractual Obligations

Future payments due under contractual obligations at December 31, 2003 are as follows:

			Payments Due by Period
Contractual Obligations
(in thousands)	Less than 1 year		1-3 years		3-5 years		After 5 years		Total
Long-term debt	$	5,113	$	18,444	$	24,579	$	35,880	$	84,016
Capital lease obligations		339		3,224				—		3,563
Operating leases		9,056		11,245		6,628		11,288		38,217
Purchase commitments (a)		149,275		14,692		85		—		164,052
Expected pension plan funding (b)		2,721		—		—		—		2,721
Other contractual obligations		200		400		200		—		800
Total contractual cash obligations	$	166,704	$	48,005	$	31,492	$	47,168	$	293,369

(a)	Includes the value of purchase obligations in the Company’s operating units, including $131 million for the purchase of grain from producers. There are also forward grain sales contracts to consumers and traders and the net of these forward contracts are offset by exchange-traded futures and options contracts. See narrative description of business for the Agriculture Group for further discussion.
(b)	The 2004 funding represents the minimum funding obligation as calculated by the Company’s actuaries. Although the Company has funded the plan at the maximum tax-deductible level in the most recent years, the Company has not yet determined whether it will do so in 2004. The maximum tax-deductible contribution for 2004 is

30

estimated at $3.4 million. Future years can be assumed to approximate this same range of funding.

Included in long-term debt are acquisition liabilities that include minimum royalty payments. There are additional contingent sales-based royalty payments that have not triggered to date and which are not expected to be material to the Company if they trigger in the future. The royalty period ends May 2005.

The Company had standby letters of credit outstanding of $9.1 million at December 31, 2003 of which $8.1 million are credit enhancements for industrial revenue bonds included in the contractual obligations table above.

Approximately 63% of the operating lease commitments above relate to 1,980 railcars that the Company leases from financial intermediaries. See the following section on Off-Balance Sheet Transactions.

The Company is subject to various loan covenants as highlighted previously. Although the Company is and has been in compliance with its covenants, noncompliance could result in default and acceleration of long-term debt payments. The Company does not anticipate noncompliance with its covenants.

Off-Balance Sheet Transactions

The Company’s Rail Group utilizes leasing arrangements that provide off-balance sheet financing for its activities. The Company leases railcars from financial intermediaries under operating leases through sale-leaseback transactions, the majority of which involve operating leasebacks. Railcars owned by the Company, or leased by the Company from a financial intermediary, are generally leased to a customer under an operating lease. The Company also arranges non-recourse lease transactions under which it sells railcars or locomotives to a financial intermediary, and assigns the related operating lease to the financial intermediary on a non-recourse basis. In such arrangements, the Company generally provides ongoing railcar maintenance and management services for the financial intermediary, and receives a fee for such services. On most of the railcars and locomotives, the Company holds an option to purchase these assets at the end of the lease.

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The following table describes the railcar and locomotive positions at December 31, 2003.

Method of Control	Financial Statement	Number
Owned-railcars available for sale	On balance sheet – current		232
Owned-railcar assets leased to others	On balance sheet –   non-current		2,436
Railcars leased from financial institutions	Off balance sheet		1,980
Railcars – non-recourse arrangements	Off balance sheet		1,569
Total Railcars			6,217
Locomotives – leased from financial
intermediaries under limited recourse   arrangements	Off balance sheet		30
Locomotives – non-recourse arrangements	Off balance sheet		44
Total Locomotives			74

Additionally, the Company manages 1,264 railcars for a third party customer for which it receives a fee.

The Company has future lease payment commitments aggregating $24.1 million for the railcars leased by the Company from financial intermediaries under various operating leases. Remaining lease terms vary with none exceeding 10 years. The majority of these railcars have been leased to customers at December 31, 2003 over similar terms. See Note 10 to the Company’s consolidated financial statements in Item 8 for more detail about future lease income. The segment manages risk by matching lease commitments with funding (which means matching terms between the lease to the customer and the funding arrangement with the financial intermediary) where possible and ongoing evaluation of lessee credit worthiness. In addition, the Company prefers non-recourse lease transactions, whenever possible, in order to minimize its credit risk.

As noted previously, the Company’s acquisition of railroad rolling stock and leasing assets in February 2004 added approximately 6,700 railcars, 48 locomotives and contracts to manage another 2,600 railcars to the above balances. Nearly all of the purchased assets are owned outright by subsidiaries of TOP CAT Holding Company LLC, a wholly-owned subsidiary of The Andersons, Inc., and will appear on the Company’s consolidated balance sheet. The majority of the assets are included in a debt securitization whereby financing of $86.4 million was raised to fund the purchase. This financing is non-recourse to the Company and looks only to the securitized assets for collateral.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

The market risk inherent in the Company’s market risk-sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices and interest rates as discussed below.

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Commodity Prices

The availability and price of agricultural commodities are subject to wide fluctuations due to unpredictable factors such as weather, plantings, government (domestic and foreign) farm programs and policies, changes in global demand created by population growth and higher standards of living, and global production of similar and competitive crops. To reduce price risk caused by market fluctuations, the Company follows a policy of hedging its inventories and related purchase and sale contracts. The instruments used are exchange-traded futures and options contracts that function as hedges. The market value of exchange-traded futures and options used for hedging has a high, but not perfect correlation, to the underlying market value of grain inventories and related purchase and sale contracts. The less correlated portion of inventory and purchase and sale contract market value (known as basis) is much less volatile than the overall market value of exchange-traded futures and tends to follow historical patterns. The Company manages this less volatile risk using its daily grain position report to constantly monitor its position relative to the price changes in the market. The Company’s accounting policy for its futures and options hedges, as well as the underlying inventory positions and purchase and sale contracts, is to mark them to the market price daily and include gains and losses in the statement of income in sales and merchandising revenues.

A sensitivity analysis has been prepared to estimate the Company’s exposure to market risk of its commodity position (exclusive of basis risk). The Company’s daily net commodity position consists of inventories, related purchase and sale contracts and exchange-traded contracts. The fair value of the position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures market prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in such prices. The result of this analysis, which may differ from actual results, is as follows:

	December 31
(in thousands)	2003		2002
Net (short) long position	$	675		($2,302	)
Market risk		68		230

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Interest Rates

The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. In addition, the Company has derivative interest rate contracts recorded in its balance sheet at their fair value. The fair value of these contracts is estimated based on quoted market termination values. Market risk, which is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates, is summarized below:

	December 31
(in thousands)	2003		2002
Fair value of long-term debt and interest rate contracts	$	88,711	$	96,358
Fair value in excess of carrying value		1,207		2,236
Market risk		1,005		1,893

Item 8. Financial Statements and Supplementary Data

The Andersons, Inc.
Index to Financial Statements

Report of Independent Auditors	35
Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001	36
Consolidated Balance Sheets as of December 31, 2003 and 2002	37
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001	38
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2003, 2002 and 2001	39
Notes to Consolidated Financial Statements	40
Schedule II – Consolidated Valuation and Qualifying Accounts for the years ended December 31, 2003, 2002 and 2001	73

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Report of Independent Auditors

To the Board of Directors and Shareholders of The Andersons, Inc.

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The Andersons, Inc. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 2, during 2002, the Company adopted EITF Topic D-96, “Accounting for Management Fees Based on a Formula.”

/s/PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Toledo, Ohio
March 8, 2004

35

The Andersons, Inc.
Consolidated Statements of Income

		Year ended December 31
(in thousands, except per common share data)		2003		2002		2001
Sales and merchandising revenues		$	1,246,964	$	1,076,527	$	980,361
Cost of sales and merchandising revenues			1,082,870		913,426		819,610
Gross profit			164,094		163,101		160,751
Operating, administrative and general expenses			143,129		141,028		141,091
Interest expense			8,048		9,812		11,570
Other income / gains:
	Other income (net)		5,048		3,439		3,503
	Gain on insurance settlements		—		302		338
Income before income taxes and cumulative effect of accounting change			17,965		16,002		11,931
Income tax provision			6,264		5,238		2,889
Income before cumulative effect of accounting change			11,701		10,764		9,042
Cumulative effect of change in accounting principle, net of income tax effect			—		3,480		(185	)
Net income		$	11,701	$	14,244	$	8,857
Per common share:
Basic earnings per share:
Income before cumulative effect of accounting change		$	1.64	$	1.48	$	1.24
Cumulative effect of change in accounting principle, net of income tax effect			—		0.48		(0.02	)
Net income		$	1.64	$	1.96	$	1.22
Diluted earnings per share:
Income before cumulative effect of accounting change		$	1.59	$	1.45	$	1.24
Cumulative effect of change in accounting principle, net of income tax effect			—		0.47		(0.03	)
Diluted earnings		$	1.59	$	1.92	$	1.21
Dividends paid		$	0.28	$	0.26	$	0.26

The Notes to Consolidated Financial Statements are an integral part of these statements.

36

The Andersons, Inc.
Consolidated Balance Sheets

			December 31
(in thousands)			2003			2002
Assets
Current assets:
	Cash and cash equivalents		$	6,444		$	6,095
	Accounts and notes receivable:
		Trade receivables, less allowance for doubtful accounts of $2,274 in 2003; $3,014 in 2002		67,375			59,800
		Margin deposits		1,171			—
				68,546			59,800
	Inventories			259,755			256,275
	Railcars available for sale			1,448			550
	Deferred income taxes			3,563			2,894
	Prepaid expenses and other current assets			17,223			11,675
Total current assets				356,979			337,289
Other assets:
	Pension asset			6,434			5,828
	Other assets and notes receivable, less allowance for doubtful notes receivable of $259 in 2003; $222 in 2002			4,806			5,794
	Investments in and advances to affiliates			2,462			969
				13,702			12,591
Railcar assets leased to others, net				29,489			26,399
Property, plant and equipment, net				92,449			92,939
			$	492,619		$	469,218
Liabilities and Shareholders’ equity
Current liabilities:
	Notes payable		$	48,000		$	70,000
	Accounts payable for grain			88,314			75,422
	Other accounts payable			72,291			60,285
	Customer prepayments and deferred revenue			34,366			20,448
	Accrued expenses			19,024			19,604
	Current maturities of long-term debt			5,452			9,775
Total current liabilities				267,447			255,534
Deferred income and other long-term liabilities				1,359			1,098
Employee benefit plan obligations				14,493			12,198
Long-term debt, less current maturities				82,127			84,272
Deferred income taxes				11,402			10,351
Total liabilities				376,828			363,453
Shareholders’ equity:
	Common shares, without par value
		Authorized – 25,000 shares
		Issued – 8,430 shares at stated value of $0.01 per share		84			84
	Additional paid-in capital			67,179			66,662
	Treasury shares, at cost (1,229 in 2003; 1,258 in 2002)			(13,118	)		(12,558	)
	Accumulated other comprehensive loss			(355	)		(815	)
	Unearned compensation			(120	)		(73	)
	Retained earnings			62,121			52,465
				115,791			105,765
			$	492,619		$	469,218

The Notes to Consolidated Financial Statements are an integral part of these statements.

37

The Andersons, Inc.
Consolidated Statements of Cash Flows

			Year ended December 31
(in thousands)			2003			2002			2001
Operating activities
Net income			$	11,701		$	14,244		$	8,857
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Depreciation and amortization			15,139			14,314			14,264
	Provision for losses on accounts and notes receivable			356			353			224
	Cumulative effect of accounting change, net of income tax effect			—			(3,480	)		185
	Gain on insurance settlements			—			(302	)		(338	)
	Gain on sale of property, plant and equipment			(273	)		(406	)		(336	)
	Realized and unrealized (gains) losses on railcars and related leases			(2,146	)		(179	)		1,172
	Deferred income tax provision (benefit)			382			1,432			(539	)
	Other			446			91			368
	Cash provided by operations before changes in operating assets and liabilities			25,605			26,067			23,857
	Changes in operating assets and liabilities:
		Accounts and notes receivable		(9,170	)		(5,249	)		2,080
		Inventories		(3,480	)		(17,984	)		(26,428	)
		Prepaid expenses and other assets		(6,619	)		(474	)		(117	)
		Accounts payable for grain		12,893			8,454			(500	)
		Other accounts payable and accrued expenses		24,864			12,435			(5,000	)
Net cash provided by (used in) operating activities				44,093			23,249			(6,108	)
Investing activities
Purchases of property, plant and equipment				(11,749	)		(9,834	)		(9,155	)
Purchases of railcars				(20,498	)		(8,203	)		(21,790	)
Proceeds from sale or financing of railcars and related leases				16,710			15,985			15,376
Investment in affiliate				(1,182	)		—			—
Proceeds from sale of property, plant and equipment				607			598			951
Proceeds from insurance settlements				—			302			338
Net cash used in investing activities				(16,112	)		(1,152	)		(14,280	)
Financing activities
Net increase (decrease) in short-term borrowings				(22,000	)		(12,600	)		11,300
Proceeds from issuance of long-term debt				2,916			22,333			23,250
Payments of long-term debt				(9,385	)		(29,976	)		(10,845	)
Change in overdrafts				3,126			2,866			(7,796	)
Payment of debt issue costs				—			(634	)		—
Proceeds from sale of treasury shares under stock compensation plans				964			840			332
Dividends paid				(2,009	)		(1,903	)		(1,907	)
Purchase of treasury shares				(1,244	)		(2,625	)		(1,387	)
Net cash provided by (used in) financing activities				(27,632	)		(21,699	)		12,947
Increase (decrease) in cash and cash equivalents				349			398			(7,441	)
Cash and cash equivalents at beginning of year				6,095			5,697			13,138
Cash and cash equivalents at end of year			$	6,444		$	6,095		$	5,697

The Notes to Consolidated Financial Statements are an integral part of these statements.

38

The Andersons, Inc.
Consolidated Statements of Shareholders’ Equity

											Accumulated
					Additional						Other
			Common		Paid-in			Treasury			Comprehensive			Unearned			Retained
(in thousands, except per share data)			Shares		Capital			Shares			Loss			Compensation			Earnings			Total
Balances at January 1, 2001			$	84	$	66,488		$	(9,852	)	$	—		$	(78	)	$	33,194		$	89,836
	Net income																	8,857			8,857
	Other comprehensive income:
		Cumulative effect of accounting change										(1,172	)								(1,172	)
		Other										208									208
	Comprehensive income																				7,893
	Stock awards, stock option exercises, and other shares issued to employees and directors, net of income tax of $18 (62 shares)					(57	)		552						(163	)					332
	Amortization of unearned compensation														158						158
	Purchase of treasury shares (166 shares)								(1,387	)											(1,387	)
	Dividends declared ($0.26 per common share)																	(1,898	)		(1,898	)
Balances at December 31, 2001				84		66,431			(10,687	)		(964	)		(83	)		40,153			94,934
	Net income																	14,244			14,244
	Other comprehensive income :
		Cash flow hedge activity										149									149
	Comprehensive income																				14,393
	Stock awards, stock option exercises, and other shares issued to employees and directors, net of income tax of $303 (132 shares)					231			754						(145	)					840
	Amortization of unearned compensation														155						155
	Purchase of treasury shares (216 shares)								(2,625	)											(2,625	)
	Dividends declared ($0.265 per common share)																	(1,932	)		(1,932	)
Balances at December 31, 2002				84		66,662			(12,558	)		(815	)		(73	)		52,465			105,765
	Net income																	11,701			11,701
	Other comprehensive income:
		Cash flow hedge activity										460									460
	Comprehensive income																				12,161
	Stock awards, stock option exercises, and other shares issued to employees and directors, net of income tax of $387 (129 shares)					517			684						(237	)					964
	Amortization of unearned compensation														190						190
	Purchase of treasury shares (100 shares)								(1,244	)											(1,244	)
	Dividends declared ($0.285 per common share)																	(2,045	)		(2,045	)
Balances at December 31, 2003			$	84	$	67,179		$	(13,118	)	$	(355	)	$	(120	)	$	62,121		$	115,791

The Notes to Consolidated Financial Statements are an integral part of these statements.

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The Andersons, Inc.
Notes to Consolidated Financial Statements

1. Basis of Financial Presentation

These consolidated financial statements include the accounts of The Andersons, Inc. and its wholly-owned and majority-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions are eliminated in consolidation.

2. Summary of Significant Accounting Policies

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash and all highly liquid debt instruments purchased with an initial maturity of three months or less. The carrying values of these assets approximate their fair values.

Inventories and Inventory Commitments

Grain inventories include owned bushels of grain, the value of forward contracts to buy and sell grain, and exchange traded futures and option contracts used to hedge the value of both owned grain and forward contracts. Each of these grain inventory components is marked to the market price. The forward contracts require performance in future periods. Contracts to purchase grain from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of grain to processors or other consumers generally do not extend beyond one year. The terms of contracts for the purchase and sale of grain are consistent with industry standards.

All other inventories are stated at the lower of cost or market. Cost is determined by the average cost method.

Investments In and Advances to Affiliates

The Company holds investments in three limited liability companies and one corporation that are accounted for under the equity method. The Company’s equity in these entities is presented at cost plus its accumulated proportional share of income / loss less any distributions it has received. The Company’s share of income on its investment in these entities aggregated $0.4

40

million in 2003, was negligible in 2002 and 2001 and is included in other income in the statements of income.

In January 2003, the Company invested $1.2 million in Lansing Grain Company, LLC (“LGC”) for a 15.1% interest. Lansing Grain Company, LLC was formed in late 2002 and includes the majority of the assets of the Lansing Grain Company. The terms of the Company’s investment include options to increase its investment in each of the next five years with the potential of attaining majority ownership in 2008. Even though the current ownership percentage of 15.1% is less than 20%, the Company has accounted for the investment under the equity method as its participation on the Board of Managers provides the ability to exercise significant influence over the operating and financial policies of LGC.

Derivatives - Commodity and Interest Rate Contracts

For the purpose of hedging its market price risk exposure on grain owned and related forward grain purchase and sale contracts, the Company holds regulated commodity futures and options contracts for corn, soybeans, wheat and oats. The Company accounts for all commodity contracts using a daily mark-to-market method, the same method it uses to value grain inventory and forward purchase and sale contracts. Company policy limits the Company’s unhedged grain position. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges. Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices or due to sale, maturity or extinguishment of the commodity contract), grain inventories and related forward grain contracts are included in sales and merchandising revenues in the statements of income.

The Company also periodically enters into interest rate contracts to manage interest rate risk on borrowing or financing activities. The Company accounts for its long-term interest rate swap, Treasury rate lock and interest rate corridor contracts as cash flow hedges; accordingly, changes in the fair value of the instruments are recognized in other comprehensive income. While the Company considers all of its derivative positions to be effective economic hedges of specified risks, the Company does not designate or account for other open interest rate contracts as hedges. Changes in the market value of all other interest rate contracts are recognized currently in income. Upon termination of a derivative instrument or a change in the hedged item, any remaining fair value recorded on the balance sheet is immediately recorded as interest expense. The deferred derivative gains and losses on closed Treasury rate locks and the changes in fair value of the interest rate corridors are reclassified into income over the term of the underlying hedged items, which are either long-term debt or lease contracts.

In each of 2003 and 2002, the Company reclassified $0.2 million of other comprehensive income into the Rail Group’s lease cost of sales under the reclassification policy noted above for amortization of the closed Treasury rate locks. Less than $0.1 million in each of 2003 and 2002 was reclassified to interest expense as a result of amortization of other comprehensive income from the change in fair value of the interest rate corridors.

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In 2003, the Company entered into Canadian currency forward contracts totaling $13.8 million in anticipation of acquiring a Canadian company. The value of these contracts was included on the balance sheet and marked-to-market and the resulting unrealized gains and losses were included in the statement of income. When the acquisition failed to be consummated, these positions were liquidated and the resulting realized gain of $0.4 million is included in other income.

Railcars Available for Sale

The Company’s Rail Group purchases, leases, markets and manages railcars for third parties and for internal use. Railcars to which the Company holds title are shown on the balance sheet in one of two categories – railcars available for sale or railcar assets leased to others. Railcars that have been acquired but have not been placed in service are classified as current assets and are stated at the lower of cost or market. Railcars leased to others, both on short- and long-term leases, are classified as long-term assets and are depreciated over their estimated useful lives.

Railcars have economic useful lives of either 40 or 50 years depending on type and year built. Railcars leased to others are depreciated over their remaining useful lives. Additional information about the Rail Group’s leasing activities are presented in Note 10 to the consolidated financial statements.

Property, Plant and Equipment

Property, plant and equipment are carried at cost. Repairs and maintenance are charged to expense as incurred, while betterments that extend useful lives are capitalized. Depreciation is provided over the estimated useful lives of the individual assets, principally by the straight-line method. Estimated useful lives are generally as follows: land improvements and leasehold improvements – 10 to 16 years; buildings and storage facilities – 20 to 30 years; machinery and equipment – 3 to 20 years; and software – 3 to 10 years. The cost of assets retired or otherwise disposed of and the accumulated depreciation thereon are removed from the accounts, with any gain or loss realized upon sale or disposal credited or charged to operations.

Intangible Assets and Goodwill

Intangible assets are recorded at cost, less accumulated amortization. Amortization of intangible assets is provided over their estimated useful lives (generally 5 to 12 years) on the straight-line method. Goodwill is recorded net of accumulated amortization recognized through December 31, 2001. In accordance with Financial Accounting Standards Board (“FASB”) Statement No. 142, “Goodwill and Other Intangible Assets,” effective January 1, 2002, goodwill is no longer amortized, but is subject to periodic impairment tests. Intangible asset and goodwill balances, net of accumulated amortization, included in the balance sheet caption other assets and notes receivable were as follows:

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			Weighted Average				Accumulated
(in thousands)		Group	Life (years)		Original Cost		Amortization		Net Book Value
December 31, 2003
Amortized intangible assets Trademarks / noncompete agreements / customer lists and other acquired intangibles		Processing		5	$	3,988	$	2,858	$	1,130
	Patents and other	Various		12		199		89		110
					$	4,187	$	2,947	$	1,240
Intangible assets no longer subject to amortization
	Goodwill	Agriculture			$	948	$	308	$	640
	Goodwill	Processing				791		105		686
					$	1,739	$	413	$	1,326
December 31, 2002
Amortized intangible assets Trademarks / noncompete agreements / customer lists and other acquired intangibles		Processing		5	$	3,988	$	2,061	$	1,927
	Customer lists	Agriculture		5		75		70		5
	Patents and other	Various		12		179		73		106
					$	4,242	$	2,204	$	2,038

Amortization expense for intangible assets other than goodwill for each of 2003, 2002 and 2001 was $0.8 million. Expected aggregate annual amortization is as follows: 2004 — $0.8 million; 2005 — $0.3 million; and negligible amounts for 2006 and thereafter. In 2001, goodwill amortization of $0.2 million was included in net income ($0.1 million after tax).

Impairment of Long-lived Assets

Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of the assets to the undiscounted future net cash flows the Company expects to generate with the asset. If such assets are considered to be impaired, the Company recognizes impairment expense for the amount by which the carrying amount of the assets exceeds the fair value of the assets.

The Company recognized impairment losses on long-term railcars of $0.3 million in both 2002 and 2001 in cost of sales. The railcar impairments were each recognized on cars nearing the end

43

of their useful life, which carried low lease rates. Fair value was determined by calculating the net present value of the lease stream of the railcars and their salvage value. This charge was recorded by the Rail Group. The railcar impairments were determined during the annual impairment review of long-term railcar assets. The Company also recognized a $0.2 million impairment on an agricultural facility in 2002, which was included in operating, administrative and general expenses. The agricultural facility impairment was triggered by, and based on, the receipt of a bona fide offer from a third-party for an idle facility, and was recorded by the Agriculture Group, and was based on the amount of the third-party offer.

In addition, in 2001, the Company recorded a $1.2 million lower of cost or market adjustment for railcars classified as available for sale. Since railcars available for sale are held as current inventory, the adjustment was made to reduce the value of these cars to their then current market value, determined through a review of recent sales prices of similar railcars.

Accounts Payable for Grain

Accounts payable for grain includes the liability for grain purchases on which price has not been established (delayed price). This amount has been computed on the basis of market prices at the balance sheet date, adjusted for the applicable premium or discount.

Cumulative Effect of Change in Accounting Principle

The Company has negotiated a marketing agreement with Cargill, Incorporated (“Cargill”) that covers certain of its grain facilities (some of which are leased from Cargill). Under the current provisions of this five-year amended and restated agreement (which began in June 1998, was renewed and amended in June 2003 and expires in May 2008), the Company sells grain from these facilities to Cargill at market prices. Income earned from operating the facilities (including buying, storing and selling grain and providing grain marketing services to its producer customers) is shared equally with Cargill once it exceeds a threshold amount. Measurement of this threshold is made on a cumulative basis and cash is paid to Cargill at each contract year end. The Company recognizes its pro-rata share of income to date at each month-end and accrues for any payment to Cargill in accordance with Emerging Issues Task Force Topic D-96, Accounting for Management Fees Based on a Formula (“Topic D-96”).

The original 1998 agreement provided a guarantee of income to the Company up to the threshold amount, measured on a cumulative basis. Any cumulative excess over the threshold was shared equally by the parties. Prior to 2002, the Company accounted for the 1998 marketing agreement by recognizing the proportionate share of income for the guarantee and deferring any excess income until the end of a contract year. The cumulative deferral was then amortized over the remaining months of the contract. On January 1, 2002, the Company changed its method of accounting to adopt Topic D-96 and recognized a cumulative effect adjustment of $5.4 million ($3.5 million, after tax).

At January 1, 2001, the Company recorded in the statement of income a transition adjustment of $305 thousand ($185 thousand after tax) as a result of adopting FASB Statement No. 133, as

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amended, “Accounting for Derivative Instruments and Hedging Activities.” This adjustment was made to write down open interest rate contracts to their fair values. The Company also reclassified deferred net losses of $1.2 million to other comprehensive income. This amount represented deferred net losses on the settlement of Treasury rate locks entered into for the purpose of hedging the interest rate component of firm commitment lease transactions. The deferred losses will be recognized as a component of gross profit over the term of the underlying leases.

Stock-Based Compensation

The Company accounts for its stock-based compensation plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company has adopted the disclosure only provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation.” Accordingly, the Company provides pro forma disclosures assuming that the Company had accounted for its stock-based compensation programs using the fair value method promulgated by Statement No. 123. Included in net income reported was employee stock-based compensation of $0.2 million in each of 2003, 2002 and 2001, respectively, related to restricted shares issued to employees.

		Year Ended December 31
(in thousands, except for per share data)		2003			2002			2001
Net income reported		$	11,701		$	14,244		$	8,857
Add: Stock-based compensation expense included in reported net income, net of related tax effects			190			155			158
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(623	)		(471	)		(476	)
Pro forma net income		$	11,268		$	13,928		$	8,539
Earnings per share:
	Basic – as reported	$	1.64		$	1.96		$	1.22
	Basic – pro forma	$	1.58		$	1.91		$	1.17
	Diluted – as reported	$	1.59		$	1.92		$	1.21
	Diluted – pro forma	$	1.54		$	1.87		$	1.17

Revenue Recognition

Sales of products are recognized at the time title transfers to the customer, which is generally at the time of shipment or when the customer takes possession of goods in the retail stores. Under the Company’s mark-to-market method for its grain operations, gross profit on grain sales is recognized when sales contracts are executed. Sales of grain are then recognized at the time of shipment when title to the grain transfers to the customer. Revenues from other grain merchandising activities are recognized as open grain contracts are marked-to-market or as services are provided. Revenues for all other services are recognized as the service is provided.

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Rental revenues on operating leases are recognized on a straight-line basis over the term of the lease. Sales of railcars to financial intermediaries on a non-recourse basis are recognized as revenue on the date of sale. Sales for these transactions totaled $15.5 million, $0.1 million and $15.3 million in 2003, 2002 and 2001, respectively.

Certain of the Company’s operations provide for customer billings, deposits or prepayments for product that is stored at the Company’s facilities. The sales and gross profit related to these transactions is not recognized until the product is shipped in accordance with the previously stated revenue recognition policy and these amounts are classified as a current liability titled customer prepayments and deferred income.

Sales returns and allowances are provided for at the time sales are recorded. Shipping and handling costs are included in cost of sales. In all cases, revenues are recognized only if collectibility is reasonably assured.

Lease Accounting

The Company accounts for its leases under FASB Statement No. 13, as amended, and related pronouncements.

The Company’s Rail Group leases and manages railcars for third parties, and leases railcars for internal use. The Company is an operating lessor of railcars that are owned by the Company, or leased by the Company from financial intermediaries. The Company records lease income for its activities as an operating lessor as earned, which is generally spread evenly over the lease term. The Company expenses operating lease payments made to financial intermediaries on a straight-line basis over the lease term.

The Company periodically enters into leases with Rail Group customers that are classified as direct financing capital leases. Although lease terms are not significantly different from other operating leases that the Company maintains with its railcar customers, they qualify as capital leases. For these leases, the net minimum lease payments, net of unearned income is included in prepaid expenses and other current assets for the amount to be received within one year and the remainder in other assets. In 2003, the Company sold all of its direct financing lease receivables to a financial intermediary for $3.1 million and recognized a gain of $1.6 million.

The Company also arranges non-recourse lease transactions under which it sells railcars or locomotives to financial intermediaries and assigns the related operating lease on a non-recourse basis. The Company generally provides ongoing railcar maintenance and management services for the financial intermediaries, and receives a fee for such services when earned. On the date of sale, the Company recognizes the proceeds from sales of railcars in non-recourse lease transactions as revenue. Management and service fees are recognized as revenue as the underlying services are provided, which is generally spread evenly over the lease term.

The Company has financed the cost of certain railcar assets through a lease with a financial intermediary. The terms of this lease required the Company to capitalize the assets and record

46

the net present value of the lease obligation on its balance sheet as a long-term borrowing. There was no gain or loss on this financing transaction. This obligation is included with the Company’s long-term debt as described in Note 7 to the consolidated financial statements. The railcars under this lease are being depreciated to their residual value over the term of the lease. Details of the book value of the railcars are included in Note 4 to the consolidated financial statements.

Income Taxes

Income tax expense for each period includes taxes currently payable plus the change in deferred income tax assets and liabilities. Deferred income taxes are provided for temporary differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws governing periods in which the differences are expected to reverse. The Company evaluates the realizability of deferred tax assets and provides a valuation allowance for amounts that management does not believe are more likely than not to be recoverable, as applicable.

Advertising

Advertising costs are expensed as incurred. Advertising expense of $3.6 million, $3.8 million and $4.2 million in 2003, 2002, and 2001, respectively, is included in operating, administrative and general expenses.

Earnings per Share

Basic earnings per share is equal to net income divided by weighted average shares outstanding. Diluted earnings per share is equal to basic earnings per share plus the incremental per share effect of dilutive options and restricted shares.

	Year ended December 31
(in thousands)	2003		2002		2001
Weighted average shares outstanding – basic		7,141		7,283		7,281
Restricted shares and shares contingently issuable upon exercise of options		199		146		35
Weighted average shares outstanding – diluted		7,340		7,429		7,316

Diluted earnings per common share excludes the impact of 1 thousand and 260 thousand employee stock options for 2002 and 2001, respectively, as such options were antidilutive. There were no such antidilutive options in 2003.

New Accounting Standards

In December 2003, the FASB issued a revision to Interpretation No. 46, “Consolidation of Variable Interest Entities.” FIN No. 46 provides guidance on identification of a variable interest

47

entity (“VIE”) and on determination of whether the VIE should be consolidated in an enterprise’s financial statements. In general, an enterprise deemed to be the primary beneficiary of a VIE is required to consolidate the VIE. FIN No. 46 is effective immediately for any special-purpose entities and must be adopted for any pre-existing VIEs by the end of March 31, 2004.

The Company’s railcar leasing activities, as described above, include transactions with financial intermediaries that may constitute variable interest entities under the guidance of FIN No. 46. The preliminary evaluation of these arrangements to determine whether any of these arrangements involves a VIE or, if a VIE exists, whether the Company is the primary beneficiary of the VIE, concluded that it is unlikely that VIE’s will be consolidated. However, further interpretations of this standard could result in changes to that conclusion.

In December 2003, the FASB issued a revision of SFAS No. 132, “Employers Disclosure about Pensions and Other Post Retirement Benefits,” to expand disclosure requirements to include descriptions of plan assets, investment strategy, measurement dates, plan obligations, cash flows and components of net periodic benefit cost recognized during interim periods. The Company adopted the provisions of SFAS No. 132, as revised, on December 31, 2003 as reflected in Note 11. The adoption did not impact the consolidated financial statements, results of operations or liquidity of the Company.

Reclassifications

Certain amounts in the 2002 and 2001 financial statements have been reclassified to conform to the 2003 presentation. These reclassifications had no effect on net income or shareholders’ equity as previously presented.

3. Inventories

Major classes of inventories are as follows:

	December 31
(in thousands)	2003		2002
Grain	$	152,703	$	156,742
Agricultural fertilizer and supplies		33,665		25,699
Lawn and garden fertilizer and corncob products		42,631		42,947
Retail merchandise		28,898		29,076
Railcar repair parts		1,572		1,455
Other		286		356
	$	259,755	$	256,275

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4. Property, Plant and Equipment and Railcar Assets Leased to Others

The components of property, plant and equipment and railcar assets leased to others are as follows:

	December 31
(in thousands)	2003		2002
Land	$	11,845	$	11,735
Land improvements and leasehold improvements		30,086		29,122
Buildings and storage facilities		99,120		95,892
Machinery and equipment		124,753		121,911
Software		5,470		4,771
Construction in progress		1,293		2,369
		272,567		265,800
Less accumulated depreciation and amortization		180,118		172,861
	$	92,449	$	92,939
Railcar assets leased to others	$	37,174	$	32,144
Less accumulated depreciation		7,685		5,745
	$	29,489	$	26,399

On December 31, 2001, the Company entered into a sale-leaseback transaction with a financial institution; the Company accounts for its leaseback as a capital lease. These assets have a cost of $4.1 million and are included with railcar assets leased to others for both 2003 and 2002. Accumulated amortization for these assets was $0.5 and $0.3 million at December 31, 2003 and 2002, respectively.

5. Nonoperating Gains

During 2002, a conference facility owned by the Company was damaged by fire. This facility was insured for replacement value and the Company received insurance funds to repair the damaged assets. The 2002 gain of $0.3 million represents the insurance proceeds received in 2002 in excess of the net book value of the destroyed assets.

During 2000, a grain tank and related assets at the Company’s Albion, Michigan facility were destroyed in a windstorm. This facility was insured for replacement value and the Company received insurance funds to replace the assets lost. The 2001 gain of $0.3 million represents the insurance proceeds received in 2001 in excess of the net book value of the destroyed assets.

6. Short-Term Borrowing Arrangements

During 2003, the Company renewed its borrowing arrangement with a syndicate of banks. The arrangement, initially entered into in 2002, provides the Company with $150 million in short-term lines of credit and an additional $50 million in a three-year line of credit. Short-term

49

borrowings under this arrangement totaled $48.0 and $70.0 million at December 31, 2003 and 2002, respectively. The borrowing arrangement terminates on October 29, 2004 but allows for indefinite renewals at the Company’s option and as long as certain covenants are met. Management expects to renew the arrangement prior to its termination date. Borrowings under the lines of credit bear interest at variable interest rates, which are based on LIBOR, the prime rate or the federal funds rate, plus a spread. The terms of the borrowing agreement provide for annual commitment fees. Prior to the 2002 syndication, the Company managed several separate lines of credit for unsecured short-term debt with banks. The following information relates to short-term borrowings:

				December 31
(in thousands, except percentages)	2003			2002			2001
Maximum amount borrowed	$	127,200		$	139,200		$	130,400
Average daily amount borrowed		93,453			92,534			91,014
Weighted average interest rate		2.07	%		3.24	%		5.10	%

7. Long-Term Debt and Interest Rate Contracts

Long-term debt consists of the following:

		December 31
(in thousands, except percentages)		2003		2002
Note payable, 5.55%, payable $143 monthly, remainder due 2012		$	16,971	$	17,758
Note payable, 6.95%, payable $317 quarterly, remainder due 2008			14,879		16,147
Note payable, 5.55%, payable $291 quarterly beginning in 2004, due 2016			10,541		10,681
Note payable, variable rate (2.56% at December 31, 2003), payable quarterly, due 2005			6,291		6,787
Industrial development revenue bonds:
	Variable rate (1.21% at December 31, 2003), due 2019		4,650		4,650
	Variable rate (1.25% at December 31, 2003), due 2025		3,100		3,100
Liabilities related to acquisition, discounted at 8.25%, due in variable quarterly installments through 2005			2,059		2,651
Debenture bonds, 5.50% to 8.00%, due 2004 through 2013			25,083		27,628
Obligations under capital lease			3,563		4,150
Other notes payable and bonds			442		495
			87,579		94,047
Less current maturities			5,452		9,775
		$	82,127	$	84,272

In connection with its short-term borrowing agreement with a syndicate of banks, the Company obtained an unsecured $50.0 million long-term line of credit. Borrowings under this line of credit will bear interest based on LIBOR, plus a spread. The long-term line of credit expires on

50

October 30, 2005, but may be renewed by the Company for an additional three years as long as covenants are met. After considering its standby letters of credit totaling $9.1 million at December 31, 2003, the Company had available borrowing capacity under this facility of $40.9 million.

The notes payable due 2008, 2012 and 2016 and the industrial development revenue bonds are collateralized by first mortgages on certain facilities and related equipment with a book value of $27.7 million. The note payable due 2005 is collateralized by railcars with a book value of $5.4 million.

The Company’s short-term and long-term borrowing agreements include both financial and non-financial covenants that require the Company, among other things, to:

• maintain minimum working capital of $45.0 million and net equity (as defined) of $65.0 million;

• limit the addition of new long-term recourse debt;

• limit its unhedged grain position to 2.0 million bushels; and

• restrict the amount of dividends paid.

The Company was in compliance with all covenants at December 31, 2003 and 2002.

The aggregate annual maturities of long-term debt, including sinking fund requirements and capital lease obligations, are as follows: 2004 — $5.5 million; 2005 — $10.3 million; 2006 — $11.2 million; 2007 — $8.1 million; 2008 — $16.4 million; and $36.1 million thereafter.

Interest paid (including interest on short-term lines of credit) amounted to $7.8 million, $10.1 million and $10.7 million in 2003, 2002 and 2001, respectively.

The Company has entered into derivative interest rate contracts to manage interest rate risk on short-term borrowings. The contracts convert variable interest rates to short-term fixed rates, consistent with projected borrowing needs. At December 31, 2003, the Company has entered into three forward starting short-term interest rate derivatives with a total notional amount of $30.0 million to hedge its short-term borrowings. These agreements fix interest rates between 2.06% and 2.39% and are effective at various terms between October 2004 and October 2005. The Company also had a three year swaption starting December 5, 2003, cancelable at the option of the bank on March 3, 2004, that fixes interest rates at 1.21% for a total notional amount of $15.0 million. The bank exercised its cancellation option on March 3, 2004. Although these instruments are intended to hedge interest rate risk on short-term borrowings, the Company has elected not to account for them as hedges. Changes in their fair value are included in interest expense in the statement of income.

The Company has also entered into various derivative financial instruments to hedge the interest rate component of long-term debt and lease obligations. The following table displays the contracts open at December 31, 2003.

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Interest Rate					Initial
Hedging					Notional Amount			Interest
Instrument	Year Entered		Year of Maturity		(in millions)		Hedged Item	Rate
Cap		2000		2005	$	12.5	Interest rate component of a long-term note payable – not accounted for as a hedge		7.66	%
Swap		2001		2004	$	14.6	Convert floating interest rate component of an operating lease to a fixed rate		3.27	%
Corridor		2002		2006	$	4.8	Interest rate component of a railcar debt financing		4.25% - 7.00	%
Corridor		2002		2007	$	4.3	Interest rate component of a railcar sale-leaseback transaction		4.25% - 7.00	%
Cap		2003		2008	$	1.4	Interest rate component of an operating lease – not accounted for as a hedge		3.95	%

The initial notional amounts on the above instruments amortize monthly in the same manner as the underlying hedged item. Changes in the fair value of the caps are included in interest expense in the statements of income, as they are not accounted for as cash flow hedges. The swap and the interest rate corridors are designated as cash flow hedges with changes in their fair values included as a component of other comprehensive income or loss. Also included in accumulated other comprehensive income are closed treasury rate locks entered into to hedge the interest rate component of railcar lease transactions prior to their closing. The reclassification of these amounts from other comprehensive income into interest or cost of railcar sales occurs over the term of the hedged debt or lease, as applicable.

The fair values of all derivative instruments are included in other assets and notes receivable or other long-term liabilities. The net fair value amount for 2003 and 2002 was less than $0.1 million. The mark-to-market effect of long-term and short-term interest rate contracts on interest expense was a $0.1 million additional interest expense in 2003 and 2001 and $0.1 million interest credit for 2002. If there are no additional changes in fair value, the Company expects to reclassify $0.1 million from other comprehensive income into interest expense or cost of railcar sales in 2004. Counterparties to the short and long-term derivatives are large international financial institutions.

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8. Income Taxes

Income tax provision (benefit) consists of the following:

		Year ended December 31
(in thousands)		2003		2002		2001
Current:
	Federal	$	5,124	$	3,606	$	3,311
	State and local		758		200		117
			5,882		3,806		3,428
Deferred:
	Federal		206		1,288		(496	)
	State and local		176		144		(43	)
			382		1,432		(539	)
Total:
	Federal		5,330		4,894		2,815
	State and local		934		344		74
		$	6,264	$	5,238	$	2,889

A reconciliation from the statutory U.S. federal tax rate to the effective tax rate follows:

		Year ended December 31
		2003			2002			2001
Statutory U.S. federal tax rate			35.0	%		35.0	%		35.0	%
Increase (decrease) in rate resulting from:
	Effect of commissions paid to foreign sales corporation or excluded extraterritorial income		(3.6	)		(3.2	)		(11.3	)
	State and local income taxes, net of related federal taxes		3.4			1.4			0.4
	Other, net		0.1			(0.5	)		0.1
Effective tax rate			34.9	%		32.7	%		24.2	%

Income taxes paid in 2003, 2002 and 2001 were $5.2 million, $2.5 million and $4.3 million, respectively.

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Significant components of the Company’s deferred tax liabilities and assets are as follows:

		December 31
(in thousands)		2003			2002
Deferred tax liabilities:
	Property, plant and equipment and railcar assets leased to others	$	(15,465	)	$	(14,084	)
	Prepaid employee benefits		(4,277	)		(3,857	)
	Deferred income		(193	)		—
	Other		(386	)		(344	)
			(20,321	)		(18,285	)
Deferred tax assets:
	Employee benefits		7,160			6,469
	Deferred income		—			1,805
	Accounts and notes receivable		1,237			1,246
	Inventory		2,721			947
	Investments		1,043			13
	Other		321			348
			12,482			10,828
Net deferred tax liability		$	(7,839	)	$	(7,457	)

In 2002, the Company decreased a $1.9 million deferred tax asset related to its adoption of EITF Topic D-96 as discussed in Note 2. This amount was included in the statement of income as a cumulative effect of a change in accounting principle.

In 2002, the Company recorded a deferred tax asset of $0.5 million, related to the accounting for derivatives under Statement 133. The 2002 amount is included in other comprehensive income in the statement of shareholders’ equity.

We have recorded reserves for tax exposures based on our best estimate of probable and reasonably estimable tax matters. We do not believe that a material additional loss is reasonably possible for tax matters.

9. Stock Compensation Plans

The Company’s Amended and Restated Long-Term Performance Compensation Plan dated December 14, 2001 (the “LT Plan”) authorizes the Board of Directors to grant options and share awards to employees and outside directors for up to 2.1 million of the Company’s common shares. Options granted under the LT Plan have a maximum term of 10 years. Options granted to outside directors have a fixed term of five years and vest after one year. Options granted to management personnel under the LT Plan have a five-year term and vest 40% immediately, an additional 30% after one year and the remaining 30% after two years. Options granted under the LT Plan are structured as fixed grants with exercise price equal to the market value of the underlying stock on the date of the grant; accordingly, no compensation expense is recognized for these grants.

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The LT Plan also permits awards of restricted stock. The Company issued 24 thousand, 15 thousand and 21 thousand restricted shares during 2003, 2002 and 2001, respectively; 26 thousand restricted shares remain outstanding at December 31, 2003. These shares carry voting and dividend rights; however, sale of the shares is restricted prior to vesting. Restricted shares vest 50% after one year and the remaining 50% after two years. Restricted shares issued under the LT Plan are recorded at their fair value on the grant date with a corresponding charge to shareholders’ equity representing the unearned portion of the award. The unearned portion is amortized as compensation expense on a straight-line basis over the related vesting period. Compensation expense related to restricted stock issued under the LT Plan amounted to $0.2 million in each of 2003, 2002 and 2001.

Certain Company executives and outside directors have elected to receive a portion of their cash compensation in stock options and/or restricted stock issued under the LT Plan. These options and restricted stock vest immediately. The options have a ten-year term. There were 4 thousand, 3 thousand and 6 thousand restricted shares issued in lieu of cash compensation in 2003, 2002 and 2001, respectively and 10 thousand options issued in 2002.

The Company’s Employee Share Purchase Plan (the “ESP Plan”) allows employees to purchase common shares through payroll withholdings. The Company has reserved 300 thousand common shares for issuance to and purchase by employees under this plan. The ESP Plan also contains an option component. The purchase price per share under the ESP Plan is the lower of the market price at the beginning or end of the year. Employees purchased 23 thousand, 24 thousand and 33 thousand shares under the ESP Plan in 2003, 2002 and 2001, respectively. The Company records a liability for withholdings not yet applied towards the purchase of common stock. No compensation expense is recognized for stock purchases or options under the ESP Plan.

Pro forma information regarding net income and earnings per share required by FASB Statement No. 123, “Accounting for Stock-Based Compensation,” is included in Note 2 to the consolidated financial statements and is determined as if the Company accounted for its employee stock options under the fair value method. The fair value of each option grant is estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions by year.

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	2003			2002			2001
Long Term Performance Compensation Plan
Risk free interest rate		2.78	%		4.42	%		4.99	%
Dividend yield		2.20	%		2.60	%		3.01	%
Volatility factor of the expected market price of the Company’s common shares		.298			.300			.267
Expected life for the options (in years)		5.00			5.30			5.00
Employee Share Purchase Plan
Risk free interest rate		1.32	%		2.17	%		5.32	%
Dividend yield		2.20	%		2.60	%		3.01	%
Volatility factor of the expected market price of the Company’s common shares		.298			.300			.267
Expected life for the options (in years)		1.00			1.00			1.00

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period.

A summary of the Company’s stock option activity and related information for the years ended December 31 follows:

	Long-Term Performance Compensation Plan
	2003					2002					2001
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
(common shares in thousands)	Shares			Price		Shares			Price		Shares			Price
Outstanding at beginning of year		808		$	9.37		915		$	9.18		862		$	9.24
Granted		205			12.70		171			10.00		224			8.63
Exercised		(205	)		10.54		(239	)		9.14		(93	)		8.83
Expired/forfeited		(23	)		9.23		(39	)		9.12		(78	)		8.68
Outstanding at end of year		785		$	9.94		808		$	9.37		915		$	9.18

	2003		2002		2001
Weighted average fair value of options granted during year	$	3.17	$	2.62	$	2.00
Options exercisable at end of year		611		662		732
Weighted average exercise price of options exercisable at end of year	$	9.34	$	9.35	$	9.35

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Options available for grant at December 31, 2003		641
Price range of options at December 31, 2003	$8.25 to $12.70
Weighted average remaining contractual life (in years)		4.10

The following table provides additional information about outstanding options categorized by exercise price.

					Weighted				Weighted
					Average				Average
			Weighted-		Remaining				Exercise Price
Range of	Outstanding		Average		Contractual		Vested		of Vested
Exercise Price	Options		Exercise Price		Life		Options		Options
$  8.25 - - $  9.99		418	$	8.56		4.05		418	$	8.56
$10.00 - $11.74		164	$	10.01		4.34		120	$	10.01
$11.75 - $12.70		203	$	12.70		4.01		73	$	12.70

10. Other Commitments and Contingencies

Railcar leasing activities:

The Company is a lessor of railcars. The majority of railcars are leased to customers under operating leases that may be either net leases or full service leases under which the Company provides maintenance and fleet management services. The Company also provides such services to financial intermediaries to whom it has sold railcars and locomotives in non-recourse lease transactions. Fleet management services generally include maintenance, escrow, tax filings and car tracking services.

Many of the Company’s leases provide for renewals. The Company also generally holds purchase options for railcars it has sold and leased-back from a financial intermediary, and railcars sold in non-recourse lease transactions.

Lease income from operating leases to customers and rental expense for railcar leases were as follows:

	Year ended December 31
(in thousands)	2003		2002		2001
Rental and service income – operating leases	$	12,653	$	11,521	$	9,896
Rental expense	$	5,108	$	5,007	$	4,387

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Future minimum rentals and service income for all noncancelable railcar operating leases greater than one year are as follows:

	Future Rental and		Future
	Service Income –		Minimum
(in thousands)	Operating Leases		Rental Expense
Year ended December 31
2004	$	12,716	$	5,868
2005		9,682		4,407
2006		7,086		2,792
2007		5,669		2,254
2008		4,678		2,001
Future years		13,303		6,749
	$	53,134	$	24,071

Other Leasing Activities:

The Company, as a lessee, leases real property, vehicles and other equipment under operating leases. Certain of these agreements contain lease renewal and purchase options. The Company also leases excess property to third parties. Net rental expense under these agreements was $4.9 million, $5.1 million and $5.4 million in 2003, 2002 and 2001, respectively. Future minimum lease payments (net of sublease income commitments) under agreements in effect at December 31, 2003 are as follows: 2004 — $2.7 million; 2005 — $2.5 million; 2006 — $1.2 million; 2007 — $1.2 million; 2008 — $1.0 million; and $4.5 million thereafter.

Other Commitments:

The Company has agreed to fund a research and development effort at a rate of $0.2 million per year for five years, ending June 30, 2007. The commitment may be satisfied, in part, by qualifying internal costs or expenditures to third parties.

The Company has from time to time entered into agreements which resulted in indemnifying third parties against certain potential liabilities. Management believes that judgments, if any, related to such agreements would not have a material effect on the Company’s financial condition, results of operations or cash flow.

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11. Employee Benefit Plan Obligations

Defined Contribution Plans:

The Company provides retirement benefits for substantially all of its employees under several defined benefit and defined contribution plans. The Company’s expense for its defined contribution plans amounted to $1.4 million in each of 2003, 2002 and 2001. The Company also provides certain health insurance benefits to employees, including retirees.

Defined Benefit Plans:

The Company has both funded and unfunded noncontributory defined benefit pension plans that cover substantially all of its employees. The plans provide defined benefits based on years of service and average monthly compensation for the highest five consecutive years of employment within the final ten years of employment.

The Company also has postretirement health care benefit plans covering substantially all of its full time employees hired prior to January 1, 2003. These plans are generally contributory and include a limit on the Company’s share for most retirees. Effective October 1, 2002, the Company amended its retiree health care plan to eliminate all retiree health care benefits for new employees hired after January 1, 2003. In addition, the Company has limited its premium contribution for future years to the rates in effect at December 31, 2002 plus a 3% inflation factor per year after that date. Finally, the Company raised its employee and retiree co-payments for all prescription drugs. These changes resulted in an $8.7 million reduction in the benefit obligation as measured at December 31, 2002.

The measurement date for all plans is December 31.

Obligation and Funded Status

Following are the details of the liability and funding status of the pension and postretirement benefit plans:

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							Postretirement
	Pension Benefits						Benefits
(in thousands)	2003			2002			2003			2002
Change in benefit obligation
Benefit obligation at beginning of year	$	33,604		$	26,959		$	18,883		$	18,950
Service cost		2,684			2,265			532			721
Interest cost		2,148			1,891			1,266			1,601
Actuarial (gains)/losses		4,631			4,040			1,562			7,011
Plan amendment		—			—			—			(8,658	)
Participant contributions		—			—			132			120
Benefits paid		(1,779	)		(1,551	)		(947	)		(862	)
Benefit obligation at end of year		41,288			33,604			21,428			18,883
Change in plan assets
Fair value of plan assets at beginning of year		24,125			24,480			—			—
Actual gains (losses) on plan assets		5,878			(3,310	)		—			—
Company contributions		4,296			4,506			815			742
Participant contributions		—			—			132			120
Benefits paid		(1,779	)		(1,551	)		(947	)		(862	)
Fair value of plan assets at end of year		32,520			24,125			—			—
Funded (underfunded) status of plans at end of year		(8,768	)		(9,479	)		(21,428	)		(18,883	)
Unrecognized net actuarial loss		14,591			14,670			16,773			16,063
Unrecognized prior service cost		63			89			(6,727	)		(7,216	)
Prepaid (accrued) benefit cost	$	5,886		$	5,280		$	(11,382	)	$	(10,036	)

Amounts recognized in the consolidated balance sheets at December 31 consist of:

							Postretirement
	Pension Benefits						Benefits
(in thousands)	2003			2002			2003			2002
Accrued expenses	$	(548	)	$	(548	)	$	—		$	—
Pension asset		6,434			5,828			—			—
Employee benefit plan obligations		—			—			(11,382	)		(10,036	)
Net amount recognized	$	5,886		$	5,280		$	(11,382	)	$	(10,036	)

Included in employee and benefit plan obligations are $2.7 million and $1.7 million at December 31, 2003 and 2002, respectively, of deferred compensation for certain employees who, due to Internal Revenue Service guidelines, may not take full advantage of the Company’s primary defined contribution plan. Assets funding this plan are recorded on the Company’s consolidated balance sheet at fair value in prepaid expenses and other current assets.

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Amounts applicable to an unfunded Company defined benefit plan with accumulated benefit obligations in excess of plan assets are as follows:

(in thousands)	2003		2002
Projected benefit obligation	$	858	$	1,252
Accumulated benefit obligation	$	451	$	228

Following are components of the net periodic benefit cost for each year:

	Pension Benefits									Postretirement Benefits
(in thousands)	2003			2002			2001			2003			2002			2001
Service cost	$	2,684		$	2,265		$	1,884		$	532		$	721		$	610
Interest cost		2,148			1,891			1,560			1,266			1,601			1,224
Expected return on plan assets		(2,182	)		(2,197	)		(2,366	)		—			—			—
Amortization of prior service cost		26			26			26			(489	)		(122	)		—
Recognized net actuarial loss		1,014			246			25			852			587			420
Amortization of net transition obligation		—			—			—			—			83			111
Benefit cost	$	3,690		$	2,231		$	1,129		$	2,161		$	2,870		$	2,365

Assumptions

	Pension Benefits									Postretirement Benefits
Weighted Average Assumptions	2003			2002			2001			2003			2002			2001
Used to Determine Benefit Obligations at Measurement Date
Discount rate		6.25	%		6.75	%		7.25	%		6.25	%		6.75	%		7.25	%
Rate of compensation increases		4.00	%		4.00	%		4.00	%		—			—			—
Used to Determine Net Periodic Benefit Cost for Years ended December 31
Discount rate		6.75	%		7.25	%		7.50	%		6.75	%		7.25	%		7.50	%
Expected long-term return on plan assets		9.00	%		9.00	%		9.00	%		—			—			—
Rate of compensation increases		4.00	%		4.00	%		4.00	%		—			—			—

The expected long-term return on plan assets was determined based on the current asset allocation and historical results from plan inception. Our expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels and is disclosed in the Plan Assets section of this Note. The plan strives to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio.

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Assumed Health Care Cost Trend Rates at Beginning of Year

	2003			2002
Health care cost trend rate assumed for next year		7.5	%		8.0	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		5.0	%		5.0	%
Year that the rate reaches the ultimate trend rate		2008			2008

The assumed health care cost trend rate has a significant effect on the amounts reported for postretirement benefits. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:

	One-Percentage-Point
(in thousands)	Increase		Decrease
Effect on total service and interest cost components in 2003	$	316	$	(252	)
Effect on postretirement benefit obligation as of December 31, 2003		412		(372	)

To partially fund self-insured health care and other employee benefits, the Company makes payments to a trust. Assets of the trust amounted to $4.1 million and $4.0 million at December 31, 2003 and 2002, respectively, and are included in prepaid expenses and other current assets.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act was signed into law. This law provides for a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the benefit established by the law. Because implementing regulations under the legislation have not been issued and the implications of the legislation’s provisions on our retiree healthcare programs need to be fully assessed, we have elected to defer the accounting for the changes in Medicare. We will account for the effects of this legislation in the period in which authoritative guidance on the accounting for the federal subsidy is issued. The Company has not estimated the impact on our accumulated postretirement benefit obligation.

Plan Assets

The Company’s pension plan weighted average asset allocations at December 31 by asset category, are as follows:

Asset Category	2003			2002
Equity securities		75	%		65	%
Debt securities		19	%		22	%
Cash and equivalents		6	%		13	%
		100	%		100	%

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The investment policy and strategy for the assets of the Company’s funded defined benefit plan includes the following objectives:

• ensure superior long term capital growth and capital preservation

• reduce the level of the unfunded accrued liability in the plan, and

• offset the impact of inflation

Risks of investing are managed through asset allocation and diversification and are monitored by the Company’s pension committee on a semi-annual basis. Available investment options include U.S. Government and agency bonds and instruments, equity and debt securities of public corporations listed on U.S. stock exchanges, exchange listed U.S. mutual funds investing in equity and debt securities of publicly traded domestic or international companies and cash or money market securities. In order to minimize risk, the Company has placed the following portfolio market value limits on its investments, to which the investments must be rebalanced after each quarterly cash contribution. Note that the single security restriction doesn’t apply to mutual funds.

	Percentage of Total Portfolio Market Value
	Minimum			Maximum			Single Security
Equity based		60	%		80	%		<10	%
Fixed income based		20	%		35	%		<5	%
Cash and equivalents		1	%		5	%		<5	%

There is no equity or debt of the Company included in the assets of the defined benefit plan. The December 31, 2003 and 2002 balances are outside the portfolio market value limits as significant a result of end of year contributions made and held as a cash or cash equivalent on the measurement date.

Cash Flows

The Company plans to contribute the minimum required contribution to its qualified defined benefit plan in 2004. The Company reserves the right to make contributions in excess of the legally required minimum contribution level, and, in fact, has done so in recent years.

12. Fair Values of Financial Instruments

The fair values of the Company’s cash equivalents, margin deposits, short-term borrowings and certain long-term borrowings approximate their carrying values since the instruments are close to maturity and/or carry variable interest rates based on market indices. The Company accounts for investments in affiliates on the equity method. The estimated fair value of these investments could not be obtained without incurring excessive costs as these investments have no quoted market price.

Certain long-term notes payable and the Company’s debenture bonds bear fixed rates of interest and terms of up to 12 years. Based upon current interest rates offered by the Company on similar

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bonds and rates currently available to the Company for long-term borrowings with similar terms and remaining maturities, the Company estimates the fair values of its long-term debt instruments outstanding at December 2003 and 2002, as follows:

(in thousands)	Carrying Amount		Fair Value
2003:
Long-term notes payable	$	44,450	$	44,900
Debenture bonds		25,083		25,919
	$	69,533	$	70,819
2002:
Long-term notes payable	$	47,237	$	49,242
Debenture bonds		27,628		27,863
	$	74,865	$	77,105

13. Business Segments

The Company’s operations include four reportable business Groups that are distinguished primarily on the basis of products and services offered. The Agriculture Group includes grain merchandising, the operation of terminal grain elevator facilities and the manufacture and distribution of agricultural inputs, primarily fertilizer, to dealers and farmers. The Rail Group includes the leasing, marketing and fleet management of railcars and locomotives, railcar repair and metal fabrication. The Processing Group includes the production and distribution of lawn care and corncob-based products. The Retail Group includes the operation of six large retail stores, a distribution center and a lawn and garden equipment sales and service shop.

Included in Other are the corporate level amounts not attributable to an operating Group and the marketing of the Company’s excess real estate.

The segment information below (in thousands) includes the allocation of expenses shared by one or more Groups. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. Inter-segment sales are made at prices comparable to normal, unaffiliated customer sales. Operating income (loss) for each Group is based on net sales and merchandising revenues plus identifiable other income less all identifiable operating expenses, including interest expense for carrying working capital and long-term assets. Capital expenditures include additions to property, plant and equipment, software and intangible assets.

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2003	Agriculture		Rail		Processing		Retail		Other			Total
Revenues from external customers	$	899,174	$	35,200	$	134,017	$	178,573	$	—		$	1,246,964
Inter-segment sales		12,280		914		1,146		—		—			14,340
Other income (net)		2,518		90		964		835		641			5,048
Interest expense (income) (a)		5,134		925		1,906		1,320		(1,237	)		8,048
Operating income (loss)		13,868		4,062		1,022		3,413		(4,400	)		17,965
Identifiable assets		272,229		50,263		83,577		55,526		31,024			492,619
Capital expenditures		7,507		558		1,262		1,397		1,025			11,749
Railcar expenditures		—		20,498		—		—		—			20,498
Depreciation and amortization		5,986		3,064		2,272		2,470		1,347			15,139

2002	Agriculture		Rail		Processing			Retail		Other			Total
Revenues from external customers	$	762,268	$	18,747	$	114,315		$	181,197		—		$	1,076,527
Inter-segment sales		8,330		877		1,216			—		—			10,423
Other income (net)		1,340		41		501			685		872			3,439
Gain on insurance settlement		—		—		—			—		302			302
Interest expense (income) (a)		5,772		1,068		2,333			1,546		(907	)		9,812
Operating income (loss)		15,154		1,563		(1,322	)		4,003		(3,396	)		16,002
Cumulative effect of change in accounting principle, net of tax effect		3,480		—		—			—		—			3,480
Identifiable assets		263,651		35,378		85,140			57,046		28,003			469,218
Capital expenditures		5,760		199		832			1,694		1,349			9,834
Railcar expenditures		—		8,203		—			—		—			8,203
Depreciation and amortization		5,950		2,525		2,263			2,415		1,161			14,314

2001	Agriculture		Rail			Processing			Retail		Other			Total
Revenues from external customers	$	658,524	$	31,061		$	112,827		$	177,949	$	—		$	980,361
Inter-segment sales		5,645		930			1,212			—		—			7,787
Other income (net)		1,196		248			300			618		1,141			3,503
Gain on insurance settlement		338		—			—			—		—			338
Interest expense (income) (a)		6,179		1,846			3,428			1,900		(1,783	)		11,570
Operating income (loss)		19,765		(349	)		(7,654	)		1,868		(1,699	)		11,931
Cumulative effect of change in accounting principle, net of tax effect		—		—			—			—		(185	)		(185	)
Identifiable assets		244,289		45,037			84,709			57,289		27,000			458,324
Capital expenditures		5,845		166			1,549			907		688			9,155
Railcar expenditures		—		21,790			—			—		—			21,790
Depreciation and amortization		6,399		2,432			2,341			2,426		666			14,264

65

(a) The interest income reported in the Other segment includes net interest income at the corporate level. These amounts result from a rate differential between the interest rate on which interest is allocated to the operating segments and the actual rate at which borrowings are made.

Grain sales for export to foreign markets amounted to approximately $181 million, $149 million and $191 million in 2003, 2002 and 2001, respectively.

Grain sales of $197 million, $154 million and $122 million in 2003, 2002, and 2001, respectively, were made to Cargill, Inc.

14. Subsequent Events

On February 12, 2004, the Company announced the completion of an acquisition of rolling stock and leasing assets from Railcar Ltd. and Progress Rail Services Corporation, both of which are part of Progress Energy, Inc.. The assets, which include approximately 6,700 railcars, 48 locomotives and contracts to manage an additional 2,600 railcars for third-party investors, were purchased for $82.4 million and will be owned by several subsidiaries under TOP CAT Holdings LLC. TOP CAT Holdings is a newly formed LLC in which the Company is the sole equity investor. Assets will be managed by the Company’s Rail Group and are currently under lease in the United States, Canada and Mexico. Non-recourse financing of approximately $86.4 million was obtained to complete the asset purchase. The Company expects to complete its purchase price allocation in the first quarter of 2004 but anticipates the majority of cost will be allocated to the railcars and locomotives with some definite-lived intangible assets.

66

15. Quarterly Consolidated Financial Information (Unaudited)

The following is a summary of the unaudited quarterly results of operations for 2003 and 2002.

(in thousands, except for per common share data)

					Income (Loss) before
					Cumulative Effect						Net Income (Loss)
								Per Share-						Per Share-
Quarter Ended	Net Sales		Gross Profit		Amount			Basic			Amount			Basic
2003
March 31	$	238,651	$	32,883	$	(481	)	$	(0.07	)	$	(481	)	$	(0.07	)
June 30		312,150		47,729		7,793			1.09			7,793			1.09
September 30		253,027		30,238		(2,349	)		(0.33	)		(2,349	)		(0.33	)
December 31		443,136		53,244		6,738			0.94			6,738			0.94
Year	$	1,246,964	$	164,094	$	11,701			1.64		$	11,701			1.64
2002
March 31	$	215,561	$	35,015	$	681		$	0.09		$	4,161		$	0.57
June 30		301,001		48,919		8,328			1.14			8,328			1.14
September 30		204,868		33,779		(630	)		(0.09	)		(630	)		(0.09	)
December 31		355,097		45,388		2,385			0.33			2,385			0.33
Year	$	1,076,527	$	163,101	$	10,764			1.48		$	14,244			1.96

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

The Company is not organized with one Chief Financial Officer. Our Vice President, Controller and CIO is responsible for all accounting and information technology decisions while our Vice President, Finance and Treasurer is responsible for all treasury functions and financing decisions. Each of them, along with the President and Chief Executive Officer (“Certifying Officers”), are responsible for evaluating our disclosure controls and procedures. These named Certifying Officers have evaluated our disclosure controls and procedures as defined in the rules of the Securities and Exchange Commission, as of December 31, 2003 and have determined that such controls and procedures were effective in ensuring that material information required to be disclosed by the Company in the reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Our Certifying Officers are primarily responsible for the accuracy of the financial information that is presented in this report. To meet their responsibility for financial reporting, they have established internal controls and procedures which they believe are adequate to provide

67

reasonable assurance that the Company’s assets are protected from loss. These procedures are reviewed by the Company’s internal auditors in order to monitor compliance. In addition, our Board’s Audit Committee, which is composed entirely of independent directors, meets regularly with management, internal audit and the independent auditors to review accounting, auditing and financial matters.

There were no significant changes in internal controls or in other factors that could significantly affect internal controls during the fourth quarter of 2003 or subsequent to the date of the Certifying Officers’ evaluation.

PART III

Item 10. Directors and Executive Officers of the Registrant

For information with respect to the executive officers of the registrant, see “Executive Officers of the Registrant” included in Part I, Item 4a of this report. For information with respect to the Directors of the registrant, see “Election of Directors” in the Proxy Statement for the Annual Meeting of the Shareholders to be held on May 13, 2004 (the “Proxy Statement”), which is incorporated herein by reference; for information concerning 1934 Securities and Exchange Act Section 16(a) Compliance, see such section in the Proxy Statement, incorporated herein by reference.

Item 11. Executive Compensation

The information set forth under the caption “Executive Compensation” in the Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information set forth under the caption “Share Ownership” and “Executive Compensation – Equity Compensation Plan Information” in the Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

None

Item 14. Principal Accountant Fees and Services

The information set forth under “Appointment of Independent Auditors” in the Proxy Statement is incorporated herein by reference.

68

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1)	The consolidated financial statements of the Company are set forth under Item 8 of this report on Form 10-K
(2)	The following consolidated financial statement schedule is included in Item 15(d):

		Page
II.	Consolidated Valuation and Qualifying Accounts - years ended December 31,    2003, 2002 and 2001		72

             All other schedules for which provisions are made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted.

(3) Exhibits:

2.1	Agreement and Plan of Merger, dated April 28, 1995 and amended as of September 26, 1995, by and between The Andersons Management Corp. and The Andersons. (Incorporated by reference to Exhibit 2.1 to Registration Statement No. 33-58963).
3.1	Articles of Incorporation. (Incorporated by reference to Exhibit 3(d) to Registration Statement No. 33-16936).
3.4	Code of Regulations of The Andersons, Inc. (Incorporated by reference to Exhibit 3.4 to Registration Statement No. 33-58963).
4.3	Specimen Common Share Certificate. (Incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-58963).
4.4	The Seventeenth Supplemental Indenture dated as of August 14, 1997, between The Andersons, Inc. and The Fifth Third Bank, successor Trustee to an Indenture between The Andersons and Ohio Citizens Bank, dated as of October 1, 1985. (Incorporated by reference to Exhibit 4.4 to The Andersons, Inc. the 1998 Annual Report on Form 10-K).
10.1	Management Performance Program. * (Incorporated by reference to Exhibit 10(a) to the Predecessor Partnership’s Form 10-K dated December 31, 1990, File No. 2-55070).
10.2	The Andersons, Inc. Amended and Restated Long-Term Performance Compensation Plan * (Incorporated by reference to Appendix A to the Proxy Statement for the April 25, 2002 Annual Meeting).

69

10.3	The Andersons, Inc. Employee Share Purchase Plan * (Incorporated by reference to Appendix C to Registration Statement No. 33-58963).
10.4	Marketing Agreement between The Andersons, Inc. and Cargill, Incorporated dated June 1, 1998 (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2003)
10.5	Lease and Sublease between Cargill, Incorporated and The Andersons, Inc. dated June 1, 1998 (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2003)
10.6	Amended and Restated Marketing Agreement between The Andersons, Inc.; The Andersons Agriculture Group LP; and Cargill, Incorporated dated June 1, 2003 (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2003)
10.7	Amendment to Lease and Sublease between Cargill, Incorporated; the Andersons Agriculture Group LP; and The Andersons, Inc. dated July 10, 2003 (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2003)
10.8	Amended and Restated Asset Purchase agreement by and among Progres Rail Services and related entities and Cap Acquire LLC, Cap Acquire Canada ULC and Cap Acquire Mexico S. de R.L. de C.V. (Incorporated by reference from Form 8-K filed February 27, 2004)
10.9	Indenture between NARCAT LLC, CARCAT ULC, and NARCAT Mexico S. de R.L. de C.V. (Issuers) and Wells Fargo Bank, National Association (Indenture Trustee) dated February 12, 2004
10.10	Management Agreement between NARCAT LLC, CARCAT ULC, and NARCAT Mexico S. de R.L. de C.V. (the Companies), The Andersons, Inc. (the Manager) and Wells Fargo Bank, National Association (Indenture Trustee and Backup Manager) dated February 12, 2004
10.11	Servicing Agreement between NARCAT LLC, CARCAT ULC, and NARCAT Mexico S. de R.L. de C.V. (the Companies), The Andersons, Inc. (the Servicer) and Wells Fargo Bank, National Association (Indenture Trustee and Backup Servicer) dated February 12, 2004
21	Subsidiaries of The Andersons, Inc.
23	Consent of Independent Accountants
31.1	Certification of President and Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a)

70

31.2	Certification of Vice President, Corporate Controller & CIO under Rule 13(a)-14(a)/15d-14(a)
31.3	Certification of Vice President, Finance and Treasurer under Rule 13(a)-14(a)/15d-14(a)
32.1	Section 1350 Certifications

* Management contract or compensatory plan.

       The Company agrees to furnish to the Securities and Exchange Commission a copy of any long-term debt instrument or loan agreement that it may request.

(b)	Reports on Form 8-K:
	A report on Form 8-K was filed on October 22, 2003 which contained the Company’s third quarter press release.
(c)	Exhibits:
	The exhibits listed in Item 15(a)(3) of this report, and not incorporated by reference, follow “Financial Statement Schedule” referred to in (d) below.
(d)	Financial Statement Schedule
	The financial statement schedule listed in 15(a)(2) follows “Signatures.”

71

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE ANDERSONS, INC. (Registrant)
By	/s/Michael J. Anderson
	Michael J. Anderson
	President and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date	Signature	Title	Date
/s/Michael J. Anderson Michael J. Anderson	President and Chief Executive Officer (Principal Executive Officer)	3/11/04	/s/Paul M. Kraus Paul M. Kraus	Director	3/11/04
/s/Richard R. George Richard R. George	Vice President, Controller & CIO (Principal Accounting Officer)	3/11/04	/s/Donald L. Mennel Donald L. Mennel	Director	3/11/04
/s/Gary L. Smith Gary L. Smith	Vice President, Finance & Treasurer (Principal Financial Officer)	3/11/04	/s/David L. Nichols David L. Nichols	Director	3/11/04
/s/Richard P. Anderson Richard P. Anderson	Chairman of the Board Director	3/11/04	/s/Sidney A. Ribeau Sidney A. Ribeau	Director	3/11/04
/s/Thomas H. Anderson Thomas H. Anderson	Director	3/11/04	/s/Charles A. Sullivan Charles A. Sullivan	Director	3/11/04
/s/John F. Barrett John F. Barrett	Director	3/11/04	/s/Jacqueline F. Woods Jacqueline F. Woods	Director	3/11/04

72

THE ANDERSONS, INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

(in thousands)			Additions
	Balance at		Charged to			Charged to				Balance at
	Beginning of		Costs and			Other		(1)		End of
Description	Period		Expenses			Accounts –		Deductions		Period
Allowance for Doubtful Accounts Receivable – Year ended December 31
2003	$	3,014	$	319		$	—	$	1,059	$	2,274
2002		2,701		514			—		201		3,014
2001		3,084		448			—		831		2,701
Allowance for Doubtful Notes Receivable – Year ended December 31
2003	$	222	$	37		$	—	$	—	$	259
2002		472		(161	)		—		89		222
2001		698		(224	)		—		2		472

(1) Uncollectible accounts written off, net of recoveries

73

THE ANDERSONS, INC.

EXHIBIT INDEX

Exhibit
Number
10.9	Indenture between NARCAT LLC, CARCAT ULC, and NARCAT Mexico S. de R.L. de C.V. (Issuers) and Wells Fargo Bank, National Association (Indenture Trustee) dated February 12, 2004
10.10	Management Agreement between NARCAT LLC, CARCAT ULC, and NARCAT Mexico S. de R.L. de C.V. (the Companies), The Andersons, Inc. (the Manager) and Wells Fargo Bank, National Association (Indenture Trustee and Backup Manager) dated February 12, 2004
10.11	Servicing Agreement between NARCAT LLC, CARCAT ULC, and NARCAT Mexico S. de R.L. de C.V. (the Companies), The Andersons, Inc. (the Servicer) and Wells Fargo Bank, National Association (Indenture Trustee and Backup Servicer) dated February 12, 2004
21	Subsidiaries of The Andersons, Inc.
23	Consent of Independent Accountants
31.1	Certification of President and Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a)
31.2	Certification of Vice President, Corporate Controller & CIO under Rule 13(a)-14(a)/15d-14(a)
31.3	Certification of Vice President, Finance and Treasurer under Rule 13(a)-14(a)/15d-14(a)
32.1	Section 1350 Certifications

EX-10.9

                                                                    EXHIBIT 10.9

================================================================================

                                  NARCAT LLC,
                                CARCAT ULC, and
                       NARCAT MEXICO, S. DE R.L. DE C.V.
                                (the "Issuers")

                                      and

                     WELLS FARGO BANK, NATIONAL ASSOCIATION
                           (the "Indenture Trustee")

                        -------------------------------

                                   INDENTURE

                         Dated as of February 12, 2004

                        -------------------------------

               $29,000,000 2.79% CLASS A-1 RAILCAR NOTES DUE 2019
               $21,000,000 4.57% CLASS A-2 RAILCAR NOTES DUE 2019
               $31,400,000 5.13% CLASS A-3 RAILCAR NOTES DUE 2019
               $ 5,000,000 14.00% CLASS B RAILCAR NOTES DUE 2019

================================================================================



                               TABLE OF CONTENTS



      SECTION                                        HEADING                               PAGE
                                                                                        
ARTICLE I               DEFINITIONS; INTERPRETATION.....................................       3

       Section 1.01.    Definitions.....................................................       3
       Section 1.02.    Terms Defined in the Servicing Agreement, Sale Agreements
                           or Management Agreement......................................      37
       Section 1.03.    Interpretation..................................................      37

ARTICLE II              NOTE FORM.......................................................      37

       Section 2.01.    General.........................................................      37
       Section 2.02.    Forms of Notes..................................................      38

ARTICLE III             TERMS OF NOTES; TRANSFERS.......................................      41

       Section 3.01.    Payment of Principal and Interest...............................      41
       Section 3.02.    Payments to Holders.............................................      41
       Section 3.03.    Execution, Authentication, Delivery and Dating..................      42
       Section 3.04.    Temporary Notes.................................................      43
       Section 3.05.    Registration, Registration of Transfer and Exchange.............      43
       Section 3.06.    Transfer and Exchange...........................................      47
       Section 3.07.    Mutilated, Destroyed, Lost or Stolen Notes......................      49
       Section 3.08.    Persons Deemed Holders..........................................      49
       Section 3.09.    Cancellation of Notes...........................................      50
       Section 3.10.    Definitive Notes................................................      50
       Section 3.11.    Tax Treatment...................................................      50
       Section 3.12.    Withholding Taxes...............................................      52

ARTICLE IV              AUTHENTICATION AND DELIVERY OF NOTES; POST-CLOSING
                        FILINGS.........................................................      53

       Section 4.01.    General Provisions..............................................      53
       Section 4.02.    Post-Closing Filings............................................      57

ARTICLE V               SATISFACTION AND DISCHARGE......................................      58

       Section 5.01.    Satisfaction and Discharge of Indenture.........................      58
       Section 5.02.    Application of Trust Money......................................      59

ARTICLE VI              DEFAULTS AND REMEDIES...........................................      59

       Section 6.01.    Events of Default...............................................      59
       Section 6.02.    Acceleration of Maturity; Rescission and Annulment..............      61
       Section 6.03.    Payment Obligations upon Acceleration...........................      62
       Section 6.04.    Remedies........................................................      63
       Section 6.05.    Optional Preservation of Collateral.............................      64




                                                                                           
       Section 6.06.    Indenture Trustee May File Proofs of Claim......................      64
       Section 6.07.    Indenture Trustee May Enforce Claims Without Possession
                           of Notes.....................................................      65
       Section 6.08.    Application of Money Collected..................................      65
       Section 6.09.    Limitation on Suits.............................................      67
       Section 6.10.    Unconditional Right of Holders to Receive Principal and
                           Interest.....................................................      68
       Section 6.11.    Restoration of Rights and Remedies..............................      68
       Section 6.12.    Rights and Remedies Cumulative..................................      68
       Section 6.13.    Delay or Omission Not Waiver....................................      68
       Section 6.14.    Control by Controlling Party....................................      69
       Section 6.15.    Waiver of Past Defaults.........................................      69
       Section 6.16.    Undertaking for Costs...........................................      70
       Section 6.17.    Waiver of Stay or Extension Laws................................      70
       Section 6.18.    Sale of Collateral..............................................      70
       Section 6.19.    Action on Notes.................................................      71

ARTICLE VII             THE INDENTURE TRUSTEE...........................................      71

       Section 7.01.    Certain Duties and Responsibilities.............................      71
       Section 7.02.    Notice of Defaults, Events of Default, Servicer Termination
                           Events and Rapid Amortization Events.........................      72
       Section 7.03.    Certain Rights of Indenture Trustee.............................      73
       Section 7.04.    Not Responsible for Recitals or Issuance of Notes...............      74
       Section 7.05.    May Hold Notes..................................................      75
       Section 7.06.    Money Held in Trust.............................................      75
       Section 7.07.    Compensation and Reimbursement..................................      75
       Section 7.08.    Corporate Indenture Trustee Required; Eligibility...............      75
       Section 7.09.    Resignation and Removal; Appointment of Successor...............      76
       Section 7.10.    Acceptance of Appointment by Successor..........................      76
       Section 7.11.    Merger, Conversion, Consolidation or Succession to
                           Business of Indenture Trustee................................      77
       Section 7.12.    Co-trustees and Separate Trustees...............................      77
       Section 7.13.    Indenture Trustee to Hold Original Leases; Indenture Trustee
                           Check-In Procedures..........................................      78
       Section 7.14.    Money for Note Payments to Be Held in Trust.....................      80
       Section 7.15.    Representations and Warranties of Indenture Trustee.............      80
       Section 7.16.    Reporting by Indenture Trustee..................................      81

ARTICLE VIII            PURCHASES AND RELEASES..........................................      82

       Section 8.01.    Purchase of Railcars and Leases.................................      82
       Section 8.02.    Releases........................................................      83
       Section 8.03.    Collateral......................................................      83

ARTICLE IX              SUPPLEMENTAL INDENTURES.........................................      84

       Section 9.01.    Supplemental Indentures without Consent of Holders..............      84
 


                                     -ii-



                                                                                           
       Section 9.02.    Supplemental Indentures with Consent of Holders.................      85
       Section 9.03.    Prospective Amendment of Eligibility Criteria and
                           Concentration Limits.........................................      86
       Section 9.04.    Execution of Supplemental Indentures............................      86
       Section 9.05.    Effect of Supplemental Indentures...............................      86
       Section 9.06.    Reference in Notes to Supplemental Indentures...................      86
       Section 9.07.    Amendments to Other Transaction Documents.......................      86

ARTICLE X                  REPRESENTATIONS AND WARRANTIES...............................      87

       Section 10.01.   Representations and Warranties..................................      87

ARTICLE XI              COVENANTS.......................................................      94

       Section 11.01.      Payment of Principal and Interest............................      94
       Section 11.02.      Maintenance of Office or Agency..............................      95
       Section 11.03.      Money for Note Payments to Be Held in Trust..................      95
       Section 11.04.      Corporate Existence..........................................      96
       Section 11.05.      Protection of Collateral.....................................      96
       Section 11.06.      Negative Covenants...........................................      98
       Section 11.07.      Statement as to Compliance...................................      98
       Section 11.08.      Investment Company Act.......................................      99
       Section 11.09.      Enforcement of Servicing Agreement, Management
                           Agreement, Sale Agreements and Funds
                           Transfer Agreement...........................................      99
       Section 11.10.      Issuers May Not Consolidate..................................      99
       Section 11.11.      Opinions as to Collateral....................................      99
       Section 11.12.      Performance of Obligations...................................      99
       Section 11.13.      Pro-Rata Purchases...........................................      99
       Section 11.14.      Insurance....................................................     100
       Section 11.15.      Leasing of Railcars..........................................     102
       Section 11.16.      Notice of Defaults, Events of Default, Servicer Events of
                           Termination, Manager Events of Termination and Rapid
                           Amortization Events..........................................     104
       Section 11.17.      Limitation on Liability of Directors, Officers, or
                              Employees of the Issuers..................................     104
       Section 11.18.      Obligations Under Leases.....................................     104
       Section 11.19.      Maintenance of Interests.....................................     105
       Section 11.20.      RESERVED.....................................................     105
       Section 11.21.      RESERVED.....................................................     105
       Section 11.22.      UMLER Designations...........................................     105
       Section 11.23.      Post-Closing Records.........................................     105
       Section 11.24.      RESERVED.....................................................     105
       Section 11.25.      Notification of Breaches.....................................     105
       Section 11.26.      Non-Consolidation............................................     105
       Section 11.27.      Collections Received.........................................     105
       Section 11.28.      Sale Treatment...............................................     105



                                      -iii-



                                                                                          
       Section 11.29.      [RESERVED]...................................................     106
       Section 11.30.      Ownership Interest...........................................     106
       Section 11.31.      [RESERVED]...................................................     106
       Section 11.32.      No Change in Payment Instructions to Lessees.................     106
       Section 11.33.      No Deposits to Lockbox Accounts or Collection
                           Accounts.....................................................     106
       Section 11.34.      No Change in Name, Identity or Organizational
                           Documents....................................................     107
       Section 11.35.      No Amendment to Transaction Documents........................     107
       Section 11.36.      Compliance with Laws, etc....................................     107
       Section 11.37.      Authorizations, Approvals and Recordations...................     107
       Section 11.38.      Reporting Requirements.......................................     107
       Section 11.39.      Audit and Inspection Rights..................................     108
       Section 11.40.      Payment of Charges...........................................     109
       Section 11.41.      Maintenance of Records.......................................     109
       Section 11.42.      Post-Acquisition Matters.....................................     109
       Section 11.43.      Use and Maintenance of Railcar Assets........................     109
       Section 11.44.      Tort Claims..................................................     110
       Section 11.45.      Identification...............................................     110
       Section 11.46.      No Amendment to Any Lease....................................     111
       Section 11.47.      Transfer of Railcars Among Issuers...........................     111

ARTICLE XII             ACCOUNTS AND ACCOUNTINGS........................................     111

       Section 12.01.      Collection of Money..........................................     111
       Section 12.02.      Collection Accounts..........................................     112
       Section 12.03.      Cash Collateral Accounts.....................................     120
       Section 12.04.      Operating Expense Reserve Account............................     121
       Section 12.05.      Policy Payment Account.......................................     123
       Section 12.06.      Prefunding Account...........................................     123
       Section 12.07.      Redemption Account...........................................     124
       Section 12.08.      Optional Deposits by the Class A Note Insurer................     125
       Section 12.09.      Securities Account...........................................     125
       Section 12.10.      Reports by Indenture Trustee to Holders......................     125

ARTICLE XIII            THE CLASS A NOTE POLICY.........................................     126

       Section 13.01.      Claims under the Class A Note Policy.........................     126
       Section 13.02.      Preference Claims............................................     127
       Section 13.03.      Surrender of Class A Note Policy.............................     129
       Section 13.04.      Class A Note Insurer Deemed Holder for Certain
                           Purposes.....................................................     129

ARTICLE XIV             REDEMPTION OF NOTES.............................................     129

       Section 14.01.      Redemption at the Option of the Issuers; Election to
                           Redeem.......................................................     129
       Section 14.02.      Notice to Indenture Trustee and Class A Note Insurer.........     130



                                    -iv-



                                                                                        
       Section 14.03.      Notice of Redemption by the Issuers..........................     130
       Section 14.04.      Deposit of the Redemption Prices.............................     130
       Section 14.05.      Notes Payable on Redemption Date.............................     131

ARTICLE XV              PROVISIONS OF GENERAL APPLICATION...............................     131

       Section 15.01.      General Provisions...........................................     131
       Section 15.02.      Acts of Holders..............................................     131
       Section 15.03.      Notices, Etc, to Indenture Trustee, Issuers, the Class A
                           Note Insurer and Rating Agencies.............................     132
       Section 15.04.      Notices to Holders; Waiver...................................     133
       Section 15.05.      Successors and Assigns.......................................     134
       Section 15.06.      Separability.................................................     134
       Section 15.07.      Benefits of Indenture........................................     134
       Section 15.08.      Legal Holidays...............................................     134
       Section 15.09.      Governing law................................................     134
       Section 15.10.      Counterparts.................................................     134
       Section 15.11.      Corporate Obligation.........................................     135
       Section 15.12.      Compliance Certificates and Opinions.........................     135
       Section 15.13.      No Bankruptcy Petition Against any Issuer....................     135
       Section 15.14.      Waiver of Jury Trial.........................................     136
       Section 15.15.      Consent to Jurisdiction......................................     136
       Section 15.16.      Integration..................................................     136
       Section 15.17.      Successors and Assigns; Binding Effect.......................     136
       Section 15.18.      Further Assurances...........................................     136
       Section 15.19.      Expenses.....................................................     136
       Section 15.20.      Survival of Representations and Warranties...................     137
       Section 15.21.      Interest Calculations........................................     137

Schedule I     Lease and Railcar Schedule...............................................     I-1
Schedule II    Additional Permitted Liens...............................................    II-1
Schedule III   Initial Appraised Values.................................................   III-1
Schedule IV    Lease Delivery Exceptions................................................    IV-1
Schedule V     Delinquency Schedule.....................................................     V-1
Schedule VI    Prefunding Wiring Instructions...........................................    VI-1

Exhibit A-1    Form of Class A-3 Investment Letter......................................   A-1-1
Exhibit A-2    Form of Class B Investment Letter........................................   A-2-1
Exhibit B-1    Form of Class A-1 Note...................................................   B-1-1
Exhibit B-2    Form of Class A-2 Note...................................................   B-2-1
Exhibit B-3    Form of Class A-3 Note...................................................   B-3-1
Exhibit B-4    Form of Class B Note.....................................................   B-4-1
Exhibit C      Form of Certificate of the Indenture Trustee.............................     C-1
Exhibit D-1    Form of Class A-1, Class A-2 and Class B Non-Bank Certificate............     D-1
Exhibit D-2    Form of Class A-3 Non-Bank Certificate...................................     D-2



                                       -v-



         This INDENTURE, dated as of February 12, 2004 (herein, as amended,
restated, and supplemented or otherwise modified from time to time as permitted
hereby, this "Indenture"), is among NARCAT LLC, a Delaware limited liability
company ("NARCAT"), CARCAT ULC, a Nova Scotia unlimited liability company
("CARCAT"), and NARCAT MEXICO, S. DE R.L. DE C.V., a Mexican limited liability
company with variable capital ("NARCAT Mexico") (each, an Issuer," and,
collectively, the "Issuers"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a
national banking association (the "Indenture Trustee").

                                    RECITALS

         A        The Issuers have duly authorized the execution and delivery of
this Indenture to provide for four classes of the Issuers' Railcar Notes,
designated as Class A-1 Notes (the "Class A-1 Notes"), Class A-2 Notes (the
"Class A-2 Notes"), Class A-3 Notes (the "Class A-3 Notes" and, together with
the Class A-1 Notes and the Class A-2 Notes, the "Class A Notes") and Class B
Notes (the "Class B Notes" and, together with the Class A Notes, the "Notes"),
issuable as provided in this Indenture.

         B        All obligations of the Issuers under this Indenture shall be
joint and several, except as may be expressly provided otherwise herein;
provided, however, that (a) all payments on the Class A-1 Notes, Class A-2 Notes
and Class B Notes shall be made solely from amounts held in the NARCAT
Collection Account (as defined herein) or, in the case of the Class A-1 Notes
and Class A-2 Notes, the Class A Note Policy (as defined below), and (b) all
payments on the Class A-3 Notes shall be made by or on behalf of CARCAT solely
from amounts held in the CARCAT Collection Account (as defined herein) or the
Class A Note Policy (as defined below) unless the Controlling Party (as defined
herein) otherwise directs after an acceleration of the Notes following the
occurrence of an Event of Default (as defined herein). All covenants and
agreements made by the Issuers herein are for the benefit and security of the
Holders of the Notes and the Class A Note Insurer (as defined below).

         C        MBIA Insurance Corporation, a New York domiciled stock
insurance corporation (the "Class A Note Insurer") has issued and delivered a
financial guaranty insurance policy, dated the date of initial issuance of the
Class A Notes (together with any endorsements, the "Class A Note Policy"),
pursuant to which the Class A Note Insurer agrees to make Insured Payments (as
defined in the Class A Note Policy) with respect to the Class A Notes.

         D        As an inducement to the Class A Note Insurer to issue and
deliver the Class A Note Policy, the Issuers and the Class A Note Insurer have
executed and delivered (i) the Insurance and Indemnification Agreement, dated as
of February 12, 2004 (as amended, restated, supplemented or otherwise modified,
the "Insurance Agreement"), among the Issuers, the Servicer (as defined herein),
the Manager (as defined herein), the Sellers (as defined herein), Holdco (as
defined herein), the Indenture Trustee and the Class A Note Insurer, and (ii)
the Premium Letter dated as of February 12, 2004 (as amended, restated,
supplemented or otherwise modified, the "Premium Letter") between the Issuers
and the Class A Note Insurer.



         E        The Issuers have agreed to pledge the Collateral (as defined
herein) to the Indenture Trustee for the benefit of the Holders of the Notes and
the Class A Note Insurer on the terms provided herein to secure the Issuers'
performance of the Secured Obligations (as defined herein).

         F        Subject to the relative rights and priorities of the various
Classes of Notes provided for herein, the covenants of each party are for the
benefit of the other parties and for the equal and ratable benefit of the
Holders of the Notes and the Class A Note Insurer.

         G        All things necessary to make the Notes, when executed by the
Issuers and authenticated and delivered hereunder, the valid joint and several
obligations of the Issuers, and to make this Indenture a valid agreement of the
parties hereto in accordance with its terms, have been done.

         NOW, THEREFORE, in consideration of the premises, the mutual agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

                                GRANTING CLAUSE

         The Issuers hereby Grant to the Indenture Trustee, for the benefit of
the Holders of the Notes, as their interests may appear, and, subject to the
provisions hereof, for the benefit of the Class A Note Insurer, all property of
the Issuers, whether owned on the Closing Date or thereafter acquired,
including, without limitation, all of the rights, title, interest and benefits
of the Issuers in and to (a) the Existing Leases and all payments of Rent and
other amounts due under the Existing Leases on or after the Closing Date or the
Prefunded Railcar Acquisition Date, as applicable; (b) any Subsequent Leases and
all payments of Rent and other amounts due under such Subsequent Leases on or
after their dates of origination or, if later, the dates of transfer thereof to
an Issuer; (c) the Railcars, including all rights of the Issuers in any
associated registration numbers or marks; (d) the Cash Collateral Accounts, the
Operating Expense Reserve Account (including the NARCAT OER Subaccount and the
CARCAT OER Subaccount), the Prefunding Account, the Redemption Account
(including the NARCAT Redemption Subaccount and the CARCAT Redemption
Subaccount), the Policy Payment Account (including the NARCAT Policy Payment
Subaccount and the CARCAT Policy Payment Subaccount) and the Collection Accounts
and all Eligible Investments and any other funds or investments from time to
time on deposit therein; (e) the Asset Purchase Agreement, each Sale Agreement,
the Management Agreement, the Servicing Agreement, the Car Mark Agreement, the
GNRR Agreement, the Railcar Storage Agreement and the Funds Transfer Agreement,
including any remedies thereunder; (f) all warranties and maintenance
agreements, if any, with respect to the Railcars; (g) any Insurance Policies,
including rights to Insurance Proceeds, related to the Leases and the Railcars;
(h) the Lease Files; (i) all books, records and other documents relating to the
foregoing; and (j) all proceeds of the foregoing (including, but not by way of
limitation, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, chattel paper, checks, deposit accounts, insurance proceeds,
recoveries, condemnation awards, rights to payment of any and every kind, and
other forms of obligations and receivable which at any time constitute, all or
part or are included in the proceeds of any of the foregoing), in each case
whether now owned or

                                       -2-


hereafter acquired (all of the foregoing being hereinafter referred to,
collectively, as the "Collateral"). The Class A Notes, but not the Class B
Notes, will also have the benefit of any payments to be made pursuant to the
Class A Note Policy.

         Such Grants are made in trust, to secure payments of amounts due with
respect to the Notes ratably and without prejudice, priority or distinction
between the Notes (subject to the payment priorities and other provisions of
this Indenture), and to secure (i) the payment of all amounts on the Notes as
such amounts become due in accordance with their terms, (ii) the payment of all
other sums payable in accordance with the provisions of this Indenture and the
other Transaction Documents, including, but not limited to, Reimbursement
Obligations, and (iii) compliance by the Issuers with the provisions of this
Indenture and the other Transaction Documents, all as provided in this
Indenture.

         The Indenture Trustee acknowledges such Grants, accepts the trusts
hereunder in accordance with the provisions of this Indenture, and agrees to
perform the duties herein required pursuant to the terms and provisions of this
Indenture and subject to the conditions hereof.

         PROVIDED, HOWEVER, that if there shall well and truly be paid the
principal of the Notes and the interest due or to become due on the Notes, at
the times and in the manner mentioned in the Notes, according to the true intent
and meaning thereof, and the Issuers shall cause all Reimbursement Obligations
to be paid to the Class A Note Insurer and payments shall be made into the
Collection Accounts as required under this Indenture and the payment of all
other sums and shall well and truly keep, perform and observe all the covenants
and conditions pursuant to the terms of this Indenture and the other Transaction
Documents to be kept, performed and observed by the Issuers, and the Issuers
shall pay or cause to be paid to the Indenture Trustee and all of its agents for
the registration, authentication, transfer or exchange of Notes all sums of
money due or to become due to it or them in accordance with the terms and
provisions hereof, then this Indenture and the rights hereby Granted shall
cease, terminate and be void; otherwise, this Indenture shall be and remain in
full force and effect.

                                   ARTICLE I

                          DEFINITIONS; INTERPRETATION

     Section 1.01. Definitions. Except as otherwise expressly provided or unless
the context otherwise requires, the following terms have the respective meanings
set forth below for all purposes of this Indenture.

         "AAR" shall mean the Association of American Railroads.

         "Accounting Date" shall mean the last day of each Collection Period.

         "Act" shall have, with respect to any Holder, the meaning set forth in
Section 15.02.

         "Affiliate" shall mean, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under common
control with such specified Person. For

                                      -3-



the purposes of this definition, "control" when used with respect to any
specified Person shall mean the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; the terms "controlling" and "controlled"
have meanings correlative to the foregoing; and a Person shall be deemed to have
control of another Person if the first such Person owns voting securities
constituting an aggregate amount of at least 5% of the second such Person.

         "Agent Member" shall mean the members of, or participants in, the
Security Depository.

         "Appraisal Date" shall mean January 30, 2004.

         "Appraisals" shall mean the appraisals described in Section 4.01(q).

         "Appraised Value Reduction Factor" shall mean, with respect to any
Accounting Date and with respect to any Railcar, an amount equal to the
following:

                  (a)      if such Railcar was included in the Appraisals, the
         Appraised Value Reduction Factor of such Railcar will be determined by
         (i) subtracting from the Initial Appraised Value of such Railcar from
         an amount equal to one half of the sum of the values projected by each
         Appraiser to such Railcar as of the Projected Appraised Value Date,
         (ii) dividing the result by 84, and (iii) multiplying the foregoing by
         the number of months since the Accounting Date immediately preceding
         the Closing Date; and

                  (b)      if such Railcar was added to the pool after the
         Appraisal Date, the Appraised Value Reduction Factor of such Railcar
         will be determined by (i) subtracting from the Initial Appraised Value
         of such Railcar an amount equal to the appraised value that would have
         been determined as of the Projected Appraised Value Date under clause
         (a) for railcars and locomotives having similar characteristics (such
         as type of car, year built, refurbishment, possible uses of the car)
         that were actually included in the Appraisals, (ii) dividing the result
         by 84, and (iii) multiplying the foregoing by the number of months
         since the Accounting Date immediately preceding the Closing Date.

         "Article 9 Assets" shall mean the Collateral of a type in which an
interest may be perfected by the filing of a financing statement pursuant to
Article 9 of the Uniform Commercial Code in an applicable jurisdiction within
the United States.

         "Asset Purchase Agreement" shall mean the Amended and Restated Asset
Purchase Agreement dated as of January 30, 2004, by and among Railcar Entities,
The Andersons and the Sellers, as the same may be amended, restated, modified or
supplemented from time to time in accordance with the terms thereof.

         "Authorized Officer" shall mean, with respect to any entity, any
manager of such entity, or the President, any Vice President, any Assistant Vice
President, or any other officer or employee of, or authorized signatory or agent
for, such entity who has been duly authorized by the Board of Directors of such
entity, or any authorized officer of such entity, to perform the specific act or
duty or to sign the specific document in question.

                                      -4-



         "Automatic Acceleration" shall have the meaning set forth in Section
6.02.

         "Available Funds" shall mean, with respect to any Payment Date all cash
received during the related Collection Period from the following: (a)
Collections received by the Servicer or the Indenture Trustee, (b) net earnings
on the funds on deposit in the Collection Accounts, the Operating Expense
Reserve Account (including the NARCAT OER Subaccount and the CARCAT OER
Subaccount) and the Prefunding Account, (c) an amount equal to the lesser of (i)
the aggregate balances of the Cash Collateral Accounts as of the related
Accounting Date and (ii) the aggregate amount required to be withdrawn from the
Cash Collateral Accounts with respect to such Payment Date in accordance with
Section 12.03(a), (d) indemnification amounts paid pursuant to the Asset
Purchase Agreement and received by the Indenture Trustee, other than any such
indemnification amounts to which the Initial Manager shall be entitled pursuant
to Section 4.04(f) of the Management Agreement; and (e) any amounts on deposit
in the Collection Accounts as of the related Accounting Date (including any
Class A Note Insurer Optional Deposit), to the extent not duplicative of the
items described in clauses (a) through (d).

         "Backup Manager" shall have the meaning set forth in the preamble of
the Management Agreement.

         "Backup Manager Fee" shall have the meaning set forth in the Management
Agreement.

         "Backup Servicer" shall have the meaning set forth in the preamble of
the Servicing Agreement.

         "Backup Servicer Fee" shall have the meaning set forth in the Servicing
Agreement.

         "Bailee Letter" shall mean that certain Bailee Letter, dated January
30, 2004, by and among the Railcar Entities and the Indenture Trustee, a form of
which is attached hereto as Exhibit E.

         "Basic Principal Payment" shall mean, with respect to each Payment
Date, an amount equal to the sum of (a) the lesser of (i) the Note Principal
Balance of all Outstanding Notes and (ii) with respect to the Payment Dates in
March and April of 2004, zero, and with respect to each Payment Date thereafter,
$600,000, and (b) any Overdue Basic Principal Payments.

         "Benefit Plan" shall have the meaning set forth in Section
3.05(c)(viii).

         "Board of Directors" shall mean either the board of directors,
managers, or other applicable management individuals of any Person or any duly
authorized committee of such board or group.

         "Board Resolution" shall mean a copy of a resolution certified by the
Secretary or an Assistant Secretary of a Person to have been duly adopted by its
Board of Directors and to be in full force and effect on the date of such
certification.

                                      -5-



         "Book-Entry Notes" shall mean a beneficial interest in the Class A-1
Notes and Class A-2 Notes which are owned by QIBs, ownership and transfers of
which shall be made through book entries by a Security Depository as described
in Section 2.02.

         "Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banking institutions in New York, New York,
Toledo, Ohio, Toronto, Ontario or the city and state in which the Indenture
Trustee maintains its Corporate Trust Office are authorized or obligated by law,
regulation or executive order to be closed.

         "Canadian Article 9 Asset" shall mean all Article 9 Assets which the
Canadian Seller purports to transfer to CARCAT pursuant to the CARCAT Sale
Agreement.

         "Canadian Filed Documents" shall mean those documents filed with the
Canadian Regulator within 10 days of the Closing Date pursuant to Section
2.03(h) of the Management Agreement.

         "Canadian Insolvency Proceedings" shall mean proceedings commenced by
or against the Canadian Seller under the Bankruptcy and Insolvency Act (Canada),
the Winding-up and Restructuring Act (Canada), the Companies' Creditors
Arrangement Act (Canada), the oppression remedy provisions of the Nova Scotia
Companies Act, or the appointment of a receiver of the Canadian Seller under
Canadian or Nova Scotia law, as applicable.

         "Canadian Lease" shall mean a Lease with a Lessee for which a Canadian
address is referenced on the Lease.

         "Canadian Railcar" shall mean a Railcar which is the subject of a
Canadian Lease.

         "Canadian Regulator" shall mean the Office of the Registrar General of
Canada, which maintains the database pursuant to Section 105 of the Canada
Transportation Act.

         "Canadian Seller" shall mean Cap Acquire Canada ULC, a Nova Scotia
unlimited liability company, and its permitted successors and assigns.

         "Canadian Tax Act" shall mean the Income Tax Act (Canada).

         "Capped Manager Reimbursement" shall mean the aggregate amount payable
on any Payment Date pursuant to Section 12.02(d)(vi) and Section 6.08(a)(vi),
which aggregate amount shall not exceed $50,000.

         "Car Hire Rules" shall mean the U.S. Code of Car Hire Rules, Circular
No. OT-10, and the related rules and regulations, promulgated by the AAR, as the
same may be amended, restated, modified or supplemented from time to time in
accordance with the terms thereof.

         "Car Mark Agreement" shall mean that certain Car Mark Agreement, dated
as of the Closing Date, by and between Progress Rail Services Corporation and
the U.S. Seller.

                                      -6-



         "Car Service Rules" shall mean the U.S. Code of Car Service Rules,
Circular No. OT-10, and the related rules and regulations, promulgated by the
AAR, as the same may be amended, restated, modified or supplemented from time to
time in accordance with the terms thereof.

         "CARCAT" shall mean CARCAT ULC, a Nova Scotia unlimited liability
company, and its permitted successors and assigns.

         "CARCAT Cash Collateral Account" shall mean the segregated trust
account established and maintained in the name of CARCAT, and pledged to the
Indenture Trustee for the benefit of the Holders and the Class A Note Insurer,
established in accordance with Section 12.03, which account shall constitute
part of the Collateral.

         "CARCAT Collection Account" shall mean the segregated trust account
established and maintained in the name of CARCAT, for the benefit of the
Indenture Trustee on behalf of the Holders and the Class A Note Insurer,
established in accordance with Section 12.02, which account shall constitute
part of the Collateral.

         "CARCAT OER Subaccount" shall have the meaning set forth in Section
12.04(a).

         "CARCAT OER Subaccount Required Balance" shall have the meaning set
forth in Section 12.04(a).

         "CARCAT Policy Payment Subaccount" shall have the meaning set forth in
Section 12.05(a).

         "CARCAT Redemption Subaccount" shall have the meaning set forth in
Section 12.07(a).

         "CARCAT Sale Agreement" shall mean the CARCAT Sale Agreement, dated as
of February 12, 2004, between the Canadian Seller and CARCAT, as the same may be
amended, restated, modified or supplemented from time to time in accordance with
the terms thereof.

         "Cash Collateral Accounts" shall mean, individually or collectively, as
the context may require, the NARCAT Cash Collateral Account and the CARCAT Cash
Collateral Account.

         "Class" shall mean all of the Notes of a series having the same
interest rate, priority of payments and designation.

         "Class A Note Insurer" shall have the meaning set forth in the
Recitals.

         "Class A Note Insurer Default" shall mean the existence and continuance
of any of the following:

                  (a)      the Class A Note Insurer shall have failed to make a
         payment required under the Class A Note Policy in accordance with its
         terms;

                                      -7-



                  (b)      the Class A Note Insurer shall have (i) filed a
         petition or commenced any case or proceeding under any provision or
         chapter of the United States Bankruptcy Code or any other similar
         federal or state law relating to insolvency, bankruptcy,
         rehabilitation, liquidation, or reorganization, (ii) made a general
         assignment for the benefit of its creditors, or (iii) had an order for
         relief entered against it under the United States Bankruptcy Code or
         any other similar federal or state law relating to insolvency,
         bankruptcy, rehabilitation, liquidation, or reorganization which is
         final and nonappealable; or

                   (c)     a court of competent jurisdiction or the New York
         Department of Insurance or other competent regulatory authority shall
         have entered a final and nonappealable order, judgment, or decree (i)
         appointing a custodian, trustee, agent or receiver for the Class A Note
         Insurer or for all or any material portion of its property or (ii)
         authorizing the taking of possession by a custodian, trustee, agent, or
         receiver of the Class A Note Insurer (or the taking of possession of
         all or any material portion of the property of the Class A Note
         Insurer).

         "Class A Note Insurer Optional Deposit" shall have the meaning set
forth in Section 12.08.

         "Class A Note Interest" shall mean, with respect to any Payment Date,
the sum of the Class A-1 Note Interest, the Class A-2 Note Interest and the
Class A-3 Note Interest.

         "Class A Note Policy" shall have the meaning set forth in the Recitals.

         "Class A Notes" shall have the meaning set forth in the Recitals.

         "Class A Overdue Interest" shall mean, with respect to any Payment
Date, the sum of the Class A-1 Overdue Interest, the Class A-2 Overdue Interest
and the Class A-3 Overdue Interest.

         "Class A-1 Holders" shall mean the holders of the Class A-1 Notes.

         "Class A-1 Note Interest" shall mean (a) with respect to the initial
Payment Date, the product of (i) 1/360 of the Class A-1 Note Interest Rate times
(ii) the actual number of days from and including the Closing Date through the
day immediately preceding the initial Payment Date times (iii) the Note
Principal Balance of the Class A-1 Notes as of the Closing Date, and (b) with
respect to any subsequent Payment Date, the sum of (i) the product of (x) 1/12
of the Class A-1 Note Interest Rate times (y) the Note Principal Balance of the
Class A-1 Notes as of the immediately preceding Payment Date after giving effect
to all payments of principal of the Class A-1 Notes on such immediately
preceding Payment Date and (ii) the Class A-1 Overdue Interest, if any.

         "Class A-1 Note Interest Rate" shall mean 2.79% per annum.

         "Class A-1 Notes" shall mean the Railcar Notes, designated as Class A-1
Railcar Notes, issued in accordance with the provisions of this Indenture.

                                      -8-



         "Class A-1 Overdue Interest" shall mean, with respect to any Payment
Date, the sum of (a) the positive difference, if any, between (i) the amount of
Class A-1 Note Interest due on the immediately preceding Payment Date and (ii)
the amount of Class A-1 Note Interest actually paid to Holders (from Available
Funds, without giving effect to any draws under the Class A Note Policy) on such
immediately preceding Payment Date, plus (b) (to the extent permitted by law)
interest on any such shortfall at the Overdue Rate from and including the
immediately preceding Payment Date through the day immediately preceding the
Payment Date of such calculation.

         "Class A-1/A-2 Initial Purchaser" shall mean BB&T Capital Markets.

         "Class A-1/A-2 Purchase Agreement" shall mean that certain purchase
agreement, dated February 9, 2004, by and among the Issuers, The Andersons and
the Class A-1/A-2 Initial Purchaser, as the same may be amended, restated,
modified or supplemented from time to time in accordance with the terms thereof.

         "Class A-2 Holders" shall mean the holders of the Class A-2 Notes.

         "Class A-2 Note Interest" shall mean (a) with respect to the initial
Payment Date, the product of (i) 1/360 of the Class A-2 Note Interest Rate times
(ii) the actual number of days from and including the Closing Date through the
day immediately preceding the initial Payment Date times (iii) the Note
Principal Balance of the Class A-2 Notes as of the Closing Date, and (b) with
respect to any subsequent Payment Date, the sum of (i) the product of (x) 1/12
of the Class A-2 Note Interest Rate times (y) the Note Principal Balance of the
Class A-2 Notes as of the immediately preceding Payment Date after giving effect
to all payments of principal of the Class A-2 Notes on such immediately
preceding Payment Date and (ii) the Class A-2 Overdue Interest, if any.

         "Class A-2 Note Interest Rate" shall mean 4.57% per annum.

         "Class A-2 Notes" shall mean the Railcar Notes, designated as Class A-2
Railcar Notes, issued in accordance with the provisions of this Indenture.

         "Class A-2 Overdue Interest" shall mean, with respect to any Payment
Date, the sum of (a) the positive difference, if any, between (i) the amount of
Class A-2 Note Interest due on the immediately preceding Payment Date and (ii)
the amount of Class A-2 Note Interest actually paid to Holders (from Available
Funds, without giving effect to any draws under the Class A Note Policy) on such
immediately preceding Payment Date, plus (b) (to the extent permitted by law)
interest on any such shortfall at the Overdue Rate from and including the
immediately preceding Payment Date through the day immediately preceding the
Payment Date of such calculation.

         "Class A-3 Holders" shall mean the holders of the Class A-3 Notes.

         "Class A-3 Initial Purchaser" shall mean BMO Nesbitt Burns Inc.

                                      -9-



         "Class A-3 Note Interest" shall mean (a) with respect to the initial
Payment Date, the product of (i) 1/360 of the Class A-3 Note Interest Rate times
(ii) the actual number of days from and including the Closing Date through the
day immediately preceding the initial Payment Date times (iii) the Note
Principal Balance of the Class A-3 Notes as of the Closing Date, and (b) with
respect to any subsequent Payment Date, the sum of (i) the product of (x) 1/12
of the Class A-3 Note Interest Rate times (y) the Note Principal Balance of the
Class A-3 Notes as of the immediately preceding Payment Date after giving effect
to all payments of principal of the Class A-3 Notes on such immediately
preceding Payment Date and (ii) the Class A-3 Overdue Interest, if any.

         "Class A-3 Note Interest Rate" shall mean 5.13% per annum.

         "Class A-3 Notes" shall mean the Railcar Notes, designated as Class A-3
Railcar Notes, issued in accordance with the provisions of this Indenture.

         "Class A-3 Overdue Interest" shall mean, with respect to any Payment
Date, the sum of (a) the positive difference, if any, between (i) the amount of
Class A-3 Note Interest due on the immediately preceding Payment Date and (ii)
the amount of Class A-3 Note Interest actually paid to Holders (from Available
Funds, without giving effect to any draws under the Class A Note Policy) on such
immediately preceding Payment Date, plus (b) (to the extent permitted by law)
interest on any such shortfall at the Overdue Rate from and including the
immediately preceding Payment Date through the day immediately preceding the
Payment Date of such calculation.

         "Class A-3 Purchase Agreement" shall mean that certain purchase
agreement, dated February 9, 2004, by and among the Issuers, The Andersons and
the Class A-3 Initial Purchaser, as the same may be amended, restated, modified
or supplemented from time to time in accordance with the terms thereof.

         "Class B Holders" shall mean the holders of the Class B Notes.

         "Class B Initial Purchaser" shall mean CapStone Investments.

         "Class B Note Interest" shall mean (a) with respect to the initial
Payment Date, the product of (i) 1/360 of the Class B Note Interest Rate times
(ii) the actual number of days from and including the Closing Date through the
day immediately preceding the initial Payment Date times (iii) the Note
Principal Balance of the Class B Notes as of the Closing Date, and (b) with
respect to any subsequent Payment Date, the sum of (i) the product of (x) 1/12
of the Class B Note Interest Rate times (y) the Note Principal Balance of the
Class B Notes as of the immediately preceding Payment Date after giving effect
to all payments of principal of the Class B Notes on such immediately preceding
Payment Date and (ii) the Class B Overdue Interest, if any.

         "Class B Note Interest Rate" shall mean 14.00% per annum.

                                      -10-



         "Class B Notes" shall mean the Railcar Notes, designated as Class B
Railcar Notes, issued in accordance with the provisions of this Indenture.

         "Class B Overdue Interest" shall mean, with respect to any Payment
Date, the sum of (a) the positive difference, if any, between (i) the amount of
Class B Note Interest due on the immediately preceding Payment Date and (ii) the
amount of Class B Note Interest actually paid to Holders (from Available Funds)
on such immediately preceding Payment Date, plus (b) (to the extent permitted by
law) interest on any such shortfall at the Overdue Rate from and including the
immediately preceding Payment Date through the day immediately preceding the
Payment Date of such calculation.

         "Class B Purchase Agreement" shall mean that certain purchase
agreement, dated February 9, 2004, by and among the Issuers, The Andersons and
the Class B Initial Purchaser, as the same may be amended, restated, modified or
supplemented from time to time in accordance with the terms thereof.

         "Clean-up Call" shall mean a redemption of the Notes in accordance with
Section 14.01(b).

         "Closing Date" shall mean February 12, 2004.

         "Collateral" shall mean the property and rights Granted to the
Indenture Trustee pursuant to the Granting Clause of this Indenture for the
benefit of the Holders and the Class A Note Insurer.

         "Collection Accounts" shall mean, individually or collectively, as the
context may require, the NARCAT Collection Account and the CARCAT Collection
Account.

         "Collection Period" shall mean, with respect to any Payment Date, the
period beginning on the first day of the calendar month immediately preceding
such Payment Date and ending on the last day of such calendar month (each such
calendar month and portion thereof being referred to as the "related" Collection
Period with respect to a Payment Date); provided, that the initial Collection
Period shall begin on the Closing Date and shall end on February 29, 2004.

         "Collections" shall mean, with respect to any Collection Period: (a)
payments received under the Leases (including without limitation, Rents) other
than (i) any prepayments with respect to future Collection Periods and (ii) in
the case of any Lease conveyed by the Manager to an Issuer pursuant to a
substitution of a Lease in accordance with Section 4.04 of the Management
Agreement, payments in respect of periods occurring prior to such conveyance;
(b) Insurance Proceeds, whether received under the Leases or otherwise (but
without duplication of amounts received in clause (a)), to the extent such
amounts are not used to repair or refurbish the related Railcar for the purpose
of making it available for sale or lease; (c) Railcar Release Proceeds; (d)
Purchase Proceeds; (e) Liquidation Proceeds; and (f) payments of Railroad
Mileage Credits attributable to the Railcars.

         "Concentration Limits" shall have the meaning set forth in Section
11.15(c).

                                      -11-



         "Controlling Party" shall mean (i) so long as any Class A Notes shall
be Outstanding and no Class A Note Insurer Default shall have occurred and be
continuing, the Class A Note Insurer, and (ii) if no Class A Notes shall be
Outstanding or a Class A Note Insurer Default shall have occurred and is
continuing, the Majority Holders.

         "Corporate Trust Office" shall mean the principal corporate trust
office of the Indenture Trustee located at MAC N9311-161, Sixth Street and
Marquette Avenue, Minneapolis, Minnesota 55479, Attention: Corporate Trust
Services - Asset-Backed Administration, or at such other address as the
Indenture Trustee may designate from time to time by notice to the Holders, the
Class A Note Insurer, the Servicer, the Manager and the Issuers, or the
principal corporate trust office of any successor Indenture Trustee.

         "Coverage Ratio" shall mean as of any Accounting Date, commencing with
the Accounting Date occurring on July 31, 2004, the ratio of:

                  (a)      the sum of all Collections received during the
         Collection Period ending on such Accounting Date and the immediately
         preceding five Collection Periods minus the sum of (i) all payments to
         be made on the Payment Date related to such Accounting Date and the
         immediately preceding five Payment Dates pursuant to Section
         12.02(d)(vi) and Section 6.08(a)(vi), (ii) all payments of Operating
         Expense Deposit Amounts to be made on the Payment Date related to such
         Accounting Date and the immediately preceding five Payment Dates and
         (iii) the aggregate Manager Fee and Backup Manager Fee payable on the
         Payment Date related to such Accounting Date and the immediately
         preceding five Payment Dates; to

                  (b)      the aggregate amount of the Trustee Fee, the Servicer
         Fee, the Backup Servicer Fee, the Premium payable to the Class A Note
         Insurer, the Class A Note Interest, the Class B Note Interest, the
         Basic Principal Payments and that portion of the Supplemental Principal
         Payment described in clauses (a)(i) and (ii) of the definition thereof,
         in each case payable on the Payment Date related to such Accounting
         Date and the immediately preceding five Payment Dates.

         "Default" shall mean any occurrence or circumstance which with notice
or the lapse of time or both would become an Event of Default.

         "Defaulted Lease" shall have the meaning set forth in the Servicing
Agreement.

         "Deferred Supplemental Principal Payment" shall mean, with respect to
any Payment Date, the positive difference, if any, between (a) the Supplemental
Principal Payment payable on the prior Payment Date and (b) the aggregate amount
of the Supplemental Principal Payment actually paid from Available Funds
(without giving effect to any draws under the Class A Note Policy) to Holders on
the prior Payment Date.

         "Definitive Notes" shall mean certificated definitive, fully registered
Notes.

                                      -12-



         "Determination Date" shall mean the tenth day of each calendar month
(or if such day is not a Business Day, the next succeeding Business Day)
commencing March 10, 2004.

         "Draw Date" means, with respect to any Payment Date, the third Business
Day (as defined in the Class A Note Policy) preceding such Payment Date.

         "DTC" shall mean The Depository Trust Company, a New York corporation
and its successors and assigns.

         "Eligible Investments" shall mean any and all of the following
instruments:

                  (a)      direct obligations of, and obligations fully
         guaranteed by, the United States of America or any agency or
         instrumentality of the United States of America the obligations of
         which are backed by the full faith and credit of the United States of
         America;

                  (b)      (i) demand and time deposits in, certificates of
         deposit of, banker's acceptances issued by or federal funds sold by any
         depository institution or trust company (including the Indenture
         Trustee or its agent acting in their respective commercial capacities)
         incorporated under the laws of the United States of America or any
         State thereof, having capital and surplus (as shown by its latest
         annual report of condition) aggregating at least $100,000,000, and
         subject to supervision and examination by federal and/or state
         authorities, so long as at the time of such investment or contractual
         commitment providing for such investment, such depository institution
         or trust company has a short term unsecured debt rating of at least
         "A1" by S&P and at least "P1" by Moody's and provided that each such
         investment has an original maturity of no more than 365 days, and (ii)
         any other demand or time deposit or deposit which is fully insured by
         the Federal Deposit Insurance Corporation;

                  (c)      repurchase obligations with a term not to exceed 10
         days with respect to any security described in clause (a) above and
         entered into with a depository institution or trust company (acting as
         a principal), having capital and surplus (as shown by its latest annual
         report of condition) aggregating at least $100,000,000, and having a
         short-term unsecured debt rating of "A1" or higher by S&P, and "P1" or
         higher by Moody's; provided, however, that collateral transferred
         pursuant to such repurchase obligation must be of the type described in
         clause (a) above and must (i) be valued weekly at current market price
         plus accrued interest, (ii) pursuant to such valuation, equal, at all
         times, 105% of the cash transferred by the Indenture Trustee in
         exchange for such collateral and (iii) be delivered to the Indenture
         Trustee or, if the Indenture Trustee is supplying the collateral, an
         agent for the Indenture Trustee, in such a manner as to accomplish
         perfection of a security interest in the collateral by possession of
         certificated securities;

                  (d)      commercial paper having an original maturity of less
         than 365 days and issued by an institution having a short term
         unsecured debt rating in the highest available rating category of each
         of the Rating Agencies at the time of such investment;

                                      -13-



                  (e)      a guaranteed investment contract approved by each of
         the Rating Agencies and the Controlling Party and issued by an
         insurance company or other corporation having a long term unsecured
         debt rating in the highest available rating category of each of the
         Rating Agencies at the time of such investment;

                  (f)      money market funds having ratings in one of the two
         highest available rating categories of S&P and the highest available
         rating category of Moody's at the time of such investment which invest
         only in other Eligible Investments; any such money market funds which
         provide for demand withdrawals being conclusively deemed to satisfy any
         maturity requirement for Eligible Investments set forth in this
         Indenture; and

                  (g)      any other investment approved by the Controlling
         Party and each Rating Agency.

Each of the Eligible Investments may be purchased by the Indenture Trustee or
through an Affiliate of the Indenture Trustee. All Eligible Investments shall be
made in the name of the Indenture Trustee for the benefit of the Holders and the
Class A Note Insurer.

         "Eligible Lease" shall mean, as of any date of determination, a Lease
that satisfies each of the representations and warranties with respect to Leases
contained in Section 4.03 of the Management Agreement as of the immediately
preceding Accounting Date.

         "Eligible Railcar" shall mean, as of any date of determination, a
Railcar that satisfies the representations and warranties with respect to
Railcars contained in Section 4.03 of the Management Agreement as of the
immediately preceding Accounting Date.

         "Environmental Claim" shall mean any claim alleging any damage to the
environment or violation of any Environmental Law.

         "Environmental Law" shall mean any federal, state, provincial, local,
or foreign statute, law, regulation, ordinance, rule, judgment, order, decree,
permit, concession, grant, franchise, license, agreement or governmental
restriction relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to any
of the foregoing related to Hazardous Commodities or wastes, air emissions and
discharges to waste or public systems.

         "ERISA" shall mean The Employee Retirement Income Security Act of 1974,
as amended.

         "Event of Default" shall have the meaning set forth in Section 6.01.

         "Event of Loss" shall mean, with respect to any Railcar, the occurrence
of any of the following events with respect to such Railcar: (a) loss of such
Railcar or the loss of use of such Railcar due to destruction, damage beyond
repair, or rendition of such Railcar permanently unfit for normal use for any
reason whatsoever; (b) any damage to such Railcar which results in the receipt
of Insurance Proceeds with respect to such Railcar on the basis of an actual,
constructive

                                      -14-



or compromised total loss; (c) the theft or disappearance of such Railcar which
results in the loss of possession of such Railcar for a period in excess of 60
days; (d) title to such Railcar shall be confiscated, requisitioned or otherwise
taken by a Governmental Authority, under the power of eminent domain or
otherwise; (e) the requisition of use by any Governmental Authority (other than
by a United States Governmental Authority, a Canadian Governmental Authority or
a Mexican Governmental Authority, in each case, whose long term unsecured
foreign currency debt obligations are rated AAA or above by S&P and Aaa by
Moody's) for a period of greater than 90 days, or by a United States
Governmental Authority, a Canadian Governmental Authority or a Mexican
Governmental Authority, in each case, whose long term foreign currency debt
obligations are rated AAA or above by S&P and Aaa by Moody's, for a period in
excess of 180 days or (f) during the term of any Lease, such other events with
respect to such Railcar that would give rise to the Lessee's obligation to make
a "loss value" payment (or equivalent payment) with respect to such Railcar.

         "Excepted Leases" shall mean Leases which have terms of less than one
year, including, but not limited to, month-to-month Leases.

         "Existing Leases" shall mean, collectively, the Initial Existing Leases
and the Prefunded Existing Leases.

         "Final Payment Date" shall mean, with respect to any Note, the date on
which the final principal payment on such Note is to be made as herein provided,
whether on the Stated Legal Maturity Date, the Redemption Date or any other
date.

         "Financial Statements" shall mean, with respect to any Person,
consolidated balance sheets, statements of income, retained earnings and cash
flows of such Person.

         "Fitch" shall mean Fitch, Inc. (formerly known as Fitch Investors
Service, L.P.).

         "FRA" shall have the meaning set forth in the Management Agreement.

         "Full Service Lease" shall mean a Lease with respect to which the
lessor maintains and services the Railcars subject to such Lease, pays ad
valorem property taxes and provides several other ancillary services, including
auditing of Railroad Mileage Credits due from railroad companies.

         "Funds Transfer Agreement" shall mean that certain Source of Funds
Direction Agreement, dated as of February 12, 2004, by and among NARCAT, CARCAT,
the U.S. Seller, the Canadian Seller and Holdco, as the same may be amended,
restated, modified or supplemented from time to time in accordance with the
terms thereof.

         "GAAP" shall mean generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such accounting profession, in effect from time to time.

                                      -15-



         "Global Notes" shall mean the Rule 144A Global Notes, beneficial
ownership and transfers of which shall be made through book entries by the
Security Depository.

         "GNRR Agreement" shall mean that certain Car Mark Agreement, dated June
21, 2001, by and between Railcar, Ltd., and Georgia Northeastern Railroad
Company, as the same may be amended, restated, modified or supplemented from
time to time in accordance with the terms thereof.

         "Governmental Authority" shall mean any federal, state, provincial,
municipal or other governmental or quasi-governmental department, commission,
board, bureau, agency, authority or instrumentality, or any court or
administrative bureau, in each case whether of the United States, any of its
possessions or territories, or of any foreign nation or any jurisdiction
thereof, or, with respect to any Person, any arbitration, tribunal or
non-governmental authority to whose jurisdiction such Person has consented
(including, without limitation, the United States Department of Transportation,
the FRA and the STB).

         "Grant" shall mean to grant, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, mortgage, pledge, create and grant a security
interest in and right of set-off against, deposit, set over and confirm. A Grant
of the Collateral includes all rights, powers and options (but none of the
obligations) of the Granting party, including the immediate and continuing right
to claim, collect, receive and receipt for the Lease Receivables and other
payments with respect to the Leases, the Railcars and the other Railcar Assets,
and all other money or payments due with respect to the Collateral, to give and
receive notices and other communications, to make waivers or other agreements,
to exercise all rights and options, to bring Proceedings in the name of the
Granting party or otherwise, and generally to do and receive anything which the
Granting party is or may be entitled to do or receive thereunder or with respect
thereto.

         "Gross Rent" shall mean, with respect to each Collection Period, the
Rents due during such Collection Period.

         "Hazardous Commodities" shall mean the following commodities:

                  (a)      any substance that is listed as a "hazardous waste"
         pursuant to 42 U.S.C. Section 6901 et seq. or exhibits one or more of
         the characteristics of "hazardous waste" described in regulations
         promulgated pursuant to 42 U.S.C. Section 6901 et seq.;

                  (b)      any substance that is a "hazardous substance" under
         the definition set forth in 42 U.S.C. Section 9601(14);

                  (c)      any substance contained on a list of "extremely
         hazardous substances" pursuant to 42 U.S.C. Section 11002(a)(2);

                  (d)      any petroleum product (other than solid plastic
         products);

                  (e)      any radioactive material;

                                      -16-



                  (f)      asbestos;

                  (g)      polychlorinated biphenyls;

                  (h)      any substance that is a "pesticide" under the
         definition set forth in 7 U.S.C. Section 136(u);

                  (i)      any chemical substance or living organism regulated
         under 21 U.S.C. Chapter 9 (the Federal Food, Drug and Cosmetic Act)
         which is capable of having an acute or chronic toxic effect upon any
         species of living organism;

                  (j)      any Municipal Waste referred to in, or any K grade or
         W grade commodities listed in Appendix A to, Car Service Rule 14;

                  (k)      any other substance, product, liquid, waste,
         pollutant, chemical, contaminant, insecticide, pesticide, gaseous or
         solid matter, organic or inorganic matter, fuel, micro-organism, ray,
         odor, radiation, energy, vector, plasma, constituent or material which
         (a) is or becomes listed, regulated or addressed under any
         Environmental Law, or (b) is, or is deemed to be, alone or in any
         combination, hazardous, hazardous waste, toxic, a pollutant, a
         deleterious substance, a contaminant or a source of pollution or
         contamination under any Environmental Law applicable to Railcars
         operating in Canada; and

                  (l)      any other commodity designated by the Indenture
         Trustee or the Class A Note Insurer as a Hazardous Commodity based upon
         the Indenture Trustee's or the Class A Note Insurer's, as applicable,
         reasonable judgment and belief, consistent with standard or prudent
         railroad rolling stock industry practice, that such commodity is a
         contaminating or hazardous commodity.

For the avoidance of doubt, it is understood and agreed that the designation of
(or the failure to designate) any commodity as a Hazardous Commodity shall in no
event be deemed a representation, warranty or advice by the Indenture Trustee or
the Class A Note Insurer as to the danger (or safety) of such commodity.

         "Holdco" shall mean TOP CAT Holding Co., a Delaware corporation, and
its permitted successors and assigns.

         "Holder" shall mean the Person in whose name a Note is registered in
the Note Register.

         "Incremental Class A Interest" shall mean, if and to the extent that
interest accrues on the Note Principal Balance of any Class A Note at the
Overdue Rate, the excess of such interest over the amount of interest accruing
at the Class A-1 Note Interest Rate, the Class A-2 Note Interest Rate or the
Class A-3 Note Interest Rate, as applicable.

                                      -17-



         "Indenture" or "this Indenture" shall mean this instrument as
originally executed and, if from time to time supplemented or amended by one or
more indentures supplemental hereto entered into pursuant to the applicable
provisions hereof, as so supplemented or amended.

         "Indenture Trustee" shall mean Wells Fargo Bank, National Association,
a national banking association, until a successor Person shall have become the
Indenture Trustee pursuant to the applicable provisions of this Indenture, and
thereafter "Indenture Trustee" shall mean such successor Person.

         "Independent Appraiser" shall mean any independent railroad rolling
stock appraisal expert of recognized standing selected by the Manager and
approved by the Controlling Party; provided that the Controlling Party may
select any railroad rolling stock appraisal expert (acceptable to the Class A
Note Insurer so long as no Class A Note Insurer Default has occurred and is
continuing and the Class A Notes are still Outstanding) without the approval of
the Manager or any Issuer during the continuation of an Event of Default.

         "Initial Appraised Value" shall mean, (a) in respect of any Initial
Railcar, an amount determined by reference to the schedule attached hereto as
Schedule III or (b) in respect of any Substitute Railcar, an amount determined
by the Manager, in its reasonable judgment, which is equal to one half of the
sum of the values which, had such Substitute Railcar been covered by the
Appraisals, would have been assigned by each Appraiser to such Substitute
Railcar as of the Appraisal Date (based upon the values of railcars and
locomotives having similar characteristics (such as type of car, year built,
refurbishment, possible uses of the car) that were actually included in the
Appraisals) using a "comparable sales approach" to determining the fair market
value of such Substitute Railcar if such Substitute Railcar were sold in
arms-length open market transactions without taking into consideration any value
derived from the Existing Leases (corresponding to the "Traditional Collateral
Valuation" in the Appraisal issued by RailSolutions, Inc., and the "Market
Approach/Current Fair Market Value" in the Appraisal issued by D. W. Beary &
Associates, Inc.); provided, however, that in the event that, at any one time,
ten or more Substitute Railcars shall be required to be substituted as provided
in Section 8.01(b), then the determination of the Manager referenced above
shall, unless otherwise agreed by the Controlling Party, be supported by new
appraisals prepared by no fewer than two Independent Appraisers.

         "Initial CARCAT Cash Collateral Deposit" shall mean $1,150,000.

         "Initial Existing Leases" shall mean, any contract, agreement or other
arrangement between the owner of an Initial Railcar and any third party
providing for the lease, hire, operation or other use of such Initial Railcar by
or through such third party, including a Master Lease Agreement (each schedule
to a Master Lease Agreement, together with the terms of such Master Lease
Agreement, constituting a separate and independent lease), lease, operating
agreement, use agreement, a car hire contract or Per Diem Lease sold to an
Issuer on the Closing Date, including any riders, supplements and annexes
thereto, as the same may be amended, restated, supplemented or otherwise
modified in accordance with the terms hereof.

         "Initial Manager" shall have the meaning set forth in the Management
Agreement.

                                      -18-



         "Initial NARCAT Cash Collateral Deposit" shall mean $1,050,000.

         "Initial Purchaser" or "Initial Purchasers" shall mean, individually or
collectively, as the context may require, the Class A-1/A-2 Initial Purchaser,
the Class A-3 Initial Purchaser and the Class B Initial Purchaser.

         "Initial Railcar Assets" shall mean any Railcar Assets as they apply to
any Initial Railcar or Initial Existing Lease.

         "Initial Railcars" shall mean those Railcars transferred by a Seller to
an Issuer pursuant to the applicable Sale Agreement on the Closing Date and
identified on the Lease and Railcar Schedule as of the Closing Date.

         "Insurance Agreement" shall have the meaning set forth in the Recitals.

         "Insurance Policy" shall mean liability, property, or casualty
insurance policy or any other type of insurance policy as the context may
require.

         "Insurance Proceeds" shall mean any and all amounts related to the
Railcars, the Railcar Assets, the Leases or other Collateral, to the extent
received by the Servicer or the Indenture Trustee, paid (a) under an Insurance
Policy, (b) by or on behalf of a Lessee or railroad, (c) by the Manager pursuant
to its obligations with respect to insurance under the Management Agreement, or
(d) from any other source with respect to casualty or other losses with respect
to the Railcars (whether or not constituting an Event of Loss), in each case
with respect to any casualty or other destruction resulting in economic loss to
a Railcar.

         "Insured Payment" shall have the meaning set forth in the Class A Note
Policy.

         "Insurers" shall have the meaning set forth in Section 11.14(a).

         "Interchange Rules" shall have the meaning set forth in the Sale
Agreements.

         "Intercompany Advance Agreement" shall mean the Intercompany Advance
Agreement, dated as of February 12, 2004, by and among The Andersons, the
Canadian Seller, the Mexican Seller, CARCAT and NARCAT Mexico, as the same may
be amended, restated, modified or supplemented from time to time in accordance
with the terms thereof.

         "Investment Letter" shall mean, with respect to the Class A-3 Notes, a
letter substantially in the form attached hereto as Exhibit A-1 and, with
respect to the Class B Notes, a letter substantially in the form attached hereto
as Exhibit A-2.

         "Issuer Order" or "Issuer Request" shall mean a written order or
request signed by one of the managers or by the Chairman of the Board, the
President, a Vice President, the Treasurer, an Assistant Treasurer, the
Controller, an Assistant Controller, the Secretary or an Assistant Secretary of
each Issuer and delivered to the Indenture Trustee.

                                      -19-



         "Issuer Retained Interest" shall mean any payment to the Issuers in
accordance with Section 12.02(d)(xxiii).

         "Issuers" shall mean NARCAT, CARCAT and NARCAT Mexico, until one or
more successor Persons shall have become an Issuer pursuant to the applicable
provisions of this Indenture, and thereafter the Issuers shall include such
successor Person.

         "Law" shall mean any law, statute, ordinance, rule, regulation,
judgment, injunction, order, decree or code adopted, enacted or promulgated by
any Governmental Authority or the requirements of the AAR, any self-regulatory
agency or any entity of a nature similar to that of any of the foregoing.

         "Lease" shall mean any Existing Lease or Subsequent Lease and "Leases"
shall mean, collectively, all Existing Leases and Subsequent Leases.

         "Lease Exception Report" shall have the meaning set forth in Section
7.13(b).

         "Lease File" shall have the meaning set forth in the Servicing
Agreement.

         "Lease and Railcar Schedule" shall mean the listing of Leases and
Railcars being pledged to the Indenture Trustee on the Closing Date attached
hereto as Schedule I, as the same may be adjusted to reflect (a) the acquisition
by NARCAT of the Prefunded Railcars on the Prefunded Railcar Acquisition Date,
(b) any Subsequent Lease added pursuant to Section 11.15 and Section 2.03(c) of
the Management Agreement or (c) the release of any Railcar from the Lien of this
Indenture pursuant to Section 8.02. The Lease and Railcar Schedule as of the
Closing Date shall be a comprehensive list consisting of all Leases and Railcars
listed on the "Lease and Railcar Schedules" identified in the Sale Agreements.

         "Lease Receivables" shall mean, with respect to any Lease, the right to
receive (a) the Rents and other amounts payable to the lessor under such Lease
and (b) any Railroad Mileage Credits relating to such Lease including, with
respect to (a) and (b) above, the right to enforce, to declare a default under,
or to terminate the Lease insofar as it gives rise to such Lease Receivable, and
to repossess the related Railcar, in the event such Lease becomes a Defaulted
Lease.

         "Leased Railcars" shall mean, with respect to any Accounting Date,
Railcars that are subject to a Lease.

         "Lessee" shall mean the lessee under each related Lease, or a successor
or assignee of such lessee, but not including a sublessee.

         "Liability Insurance" shall have the meaning set forth in Section
11.14(a)(ii).

         "Liens" shall mean any and all liens, encumbrances, mortgages,
hypothecs, charges, claims, restrictions, pledges, security interests and
impositions of any nature or kind (including

                                      -20-



any conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).

         "Liquidation Proceeds" shall mean (a) any and all amounts (other than
Insurance Proceeds) received by the Servicer or any Issuer in connection with
the complete or partial liquidation of a Defaulted Lease, whether through sale
of such Lease and/or re-leasing or sale of the related Railcar or otherwise, and
(b) any proceeds of any Railcar which has not been released from the Lien of
this Indenture pursuant to Section 8.02 (whether such proceeds arise from the
re-lease or sale of such Railcar).

         "Lockbox Account" shall have the meaning set forth in the Servicing
Agreement.

         "Lockbox Agreements" shall have the meaning set forth in the Servicing
Agreement.

         "Lockbox Bank" shall have the meaning set forth in the Servicing
Agreement.

         "Maintenance Expense Reimbursement Request" shall have the meaning set
forth in Section 2.06(b) of the Management Agreement.

         "Majority Holders" shall mean, at any time, (a) if any Class A Notes
remain Outstanding, the Holders of Class A Notes representing a majority in
aggregate unpaid principal amount of all Class A Notes then Outstanding and (b)
if no Class A Notes remain Outstanding, the Holders of Class B Notes
representing a majority in aggregate unpaid principal amount of all Class B
Notes then Outstanding.

         "Management Agreement" shall mean the Management Agreement, dated as of
February 12, 2004, by and among the Manager, the Indenture Trustee, the Backup
Manager, NARCAT, CARCAT and NARCAT MEXICO, as the same may be amended, restated,
modified or supplemented from time to time in accordance with the terms thereof.

         "Manager" shall mean The Andersons, and its permitted successors and
assigns.

         "Manager Event of Termination" shall have the meaning set forth in the
Management Agreement.

         "Manager Fee" shall have the meaning set forth in the Management
Agreement.

         "Master Lease Agreement" shall mean an agreement between a proposed
lessor of a Railcar and a proposed lessee of a Railcar setting forth the general
terms and provisions governing any such lease, but which agreement does not
itself constitute a lease of specific Railcars.

         "Material Adverse Effect" means, with respect to any entity or group of
entities or assets or liabilities (a) a material adverse effect on or change in,
or any development that, insofar as reasonably can be foreseen, is reasonably
likely to have a material adverse effect on or change in the business,
operations, assets, liabilities, prospects, financial condition or results of
operations

                                      -21-



of the applicable matter taken as a whole, other than any change, circumstance
or effect (i) relating to the economy or securities markets in general, (ii)
relating generally to the industries in which such entity or group of entities
or assets or liabilities operates and not specifically relating to it, or (iii)
resulting from the execution or performance of this Indenture or the
announcement thereof, (b) a material adverse effect on the ability of such
entity or group of entities to perform any of their respective obligations under
this Indenture or any other Transaction Document, (c) a material adverse effect
on the interests or rights of or benefits or remedies available to the Indenture
Trustee or any other Secured Party (and their respective successors and assigns)
under this Indenture or any other Transaction Document, (d) an adverse effect on
the validity or enforceability of this Indenture or any other Transaction
Document or (e) an adverse effect on the value, utility or useful life of any
Railcar or other Collateral which exceeds, individually or in the aggregate, 10%
of the aggregate Stated Value of all of the Railcars.

         "Maximum Class A Note Amount" shall mean, as of any Payment Date, the
original Note Principal Balance of the Class A Notes, less the sum of (a) all
scheduled Basic Principal Payments in respect of the Class A Notes (including
the Basic Principal Payment for such Payment Date), and (b) any Supplemental
Principal Payments actually made in respect of the Class A Notes prior to such
Payment Date to the extent such Supplemental Principal Payments related to the
sale of, or the occurrence of any Event of Loss with respect to any Railcar.

         "Mexican Article 9 Assets" shall mean all Article 9 Assets which the
Mexican Seller purports to transfer to NARCAT MEXICO pursuant to the NARCAT
MEXICO Sale Agreement.

         "Mexican Railcars" shall mean Railcars which have been permanently
imported into Mexico.

         "Mexican Seller" shall mean Cap Acquire Mexico, S. de R.L. de C.V., a
Mexican limited liability company with variable capital, and its permitted
successors and assigns.

         "Mexican Withholding Taxes" shall have the meaning set forth in Section
3.12(a).

         "Minimum Long-Term Rating" shall have the meaning set forth in Section
11.15(c).

         "Modified Lease" shall have the meaning set forth in the Management
Agreement.

         "Monthly Average Lease Rate" shall mean, for any Accounting Date, (a)
the Gross Rent for the related Collection Period, minus (b) the sum of (i) the
Operating Expense Deposit Amount related to Leased Railcars, plus (ii) the
Manager Fee accrued for the related Collection Period with respect to Leased
Railcars, plus (iii) the amount of Capped Manager Reimbursement, if any, to be
paid on the related Payment Date, divided by (c) the number of Leased Railcars.

         "Monthly Manager Report" shall have the meaning set forth in the
Management Agreement.

                                      -22-



         "Monthly Servicer Report" shall have the meaning set forth in the
Servicing Agreement.

         "Monthly Utilization Rate" shall mean, for any Accounting Date, the
percentage determined by dividing:

                  (a)      the total number of Eligible Railcars subject to a
         Lease as of such Accounting Date, other than any such Eligible Railcars
         which are subject to a Lease as to which Rent shall be overdue by more
         than 90 days, by

                  (b)      the total number of Eligible Railcars as of such
         Accounting Date.

         "Moody's" shall mean Moody's Investors Service, Inc., and its
successors and assigns.

         "NARCAT" shall mean NARCAT LLC, a Delaware limited liability company,
and its permitted successors and assigns.

         "NARCAT Cash Collateral Account" shall mean the segregated trust
account established and maintained in the name of NARCAT and NARCAT Mexico, and
pledged to the Indenture Trustee for the benefit of the Holders and the Class A
Note Insurer, established in accordance with Section 12.03, which account shall
constitute part of the Collateral.

         "NARCAT Collection Account" shall mean the segregated trust account
established and maintained in the name of NARCAT and NARCAT Mexico, for the
benefit of the Indenture Trustee on behalf of the Holders and the Class A Note
Insurer, established in accordance with Section 12.02, which account shall
constitute part of the Collateral.

         "NARCAT Entities" shall mean NARCAT and NARCAT Mexico, collectively.

         "NARCAT Mexico" shall mean NARCAT Mexico, S. de R.L. de C.V., a Mexican
limited liability company with variable capital, and its permitted successors
and assigns.

         "NARCAT Mexico Sale Agreement" shall mean the NARCAT Mexico Sale
Agreement, dated as of February 12, 2004, between the Mexican Seller and NARCAT
Mexico, as the same may be amended, restated, modified or supplemented from time
to time in accordance with the terms thereof.

         "NARCAT OER Subaccount" shall have the meaning set forth in Section
12.04(a).

         "NARCAT OER Subaccount Required Balance" shall have the meaning set
forth in Section 12.04(a).

         "NARCAT Redemption Subaccount" shall have the meaning set forth in
Section 12.07(a).

         "NARCAT Policy Payment Subaccount" shall have the meaning set forth in
Section 12.05(a).

                                      -23-



         "NARCAT Sale Agreement" shall mean the NARCAT Sale Agreement, dated as
of February 12, 2004, between the U.S. Seller and NARCAT, as the same may be
amended, restated, modified or supplemented from time to time in accordance with
the terms thereof.

         "Non-Mexican Collateral" shall mean all Collateral with respect to
which first priority security interests may be created under the laws of the
United States or any state thereof, or Canada or any province thereof.

         "Note" or "Notes" shall mean, individually or collectively, the Class A
Notes and the Class B Notes.

         "Note Depository Agreement" shall mean the agreement dated February 12,
2004, among the Issuers, the Indenture Trustee and DTC, as the initial Security
Depository, relating to the Book-Entry Notes.

         "Note Owner" shall mean, with respect to a Book-Entry Note, the Person
who is the beneficial owner of such Book-Entry Note, as reflected on the books
of the Security Depository or on the books of a Person maintaining an account
with such Security Depository (directly as a Security Depository Participant or
as an indirect participant, in each case in accordance with the rules of such
Security Depository) or the Person who is the beneficial owner of such
Book-Entry Note, as reflected in the Note Register in accordance with Section
3.05.

         "Note Principal Balance" shall mean, with respect to a Note (or, if the
context so requires, with respect to all Notes Outstanding or all Notes of any
Class Outstanding), as of any date of determination, the original principal
balance of such Note (or Notes or Class of Notes, as applicable), as reduced by
all amounts previously paid on such Note (or Notes or Class of Notes, as
applicable) in reduction of the principal balance of such Note (or Notes or
Class of Notes, as applicable) which have not been returned to any Issuer or to
any other Person for any reason.

         "Note Register" and "Note Registrar" shall have the respective meanings
specified in Section 3.05.

         "Offering Memorandum" shall mean (i) with respect to the Class A-1
Notes, the Class A-2 Notes and the Class B Notes, the offering memorandum, dated
February 9, 2004, pursuant to which the Class A-1 Notes, the Class A-2 Notes and
the Class B Notes are offered and (ii) with respect to the Class A-3 Notes, the
Canadian offering memorandum, dated February 9, 2004, pursuant to which the
Class A-3 Notes are offered.

         "Officer's Certificate" shall mean, with respect to any company, a
certificate signed by a manager of such company or by the Chairman of the Board,
the President, a Vice President, the Treasurer, the Controller, an Assistant
Controller, the Secretary or an Assistant Secretary of such company, and
delivered to the Indenture Trustee and which certificate shall comply with the
applicable requirements of Section 15.12. Unless otherwise specified, any
reference in this Indenture to an Officer's Certificate shall be to an Officer's
Certificate executed by all Issuers.

         "Operating Agreement" shall have the meaning set forth in the Sale
Agreements.

                                      -24-



         "Operating Expense" means any actual out-of-pocket expense paid to a
third party to maintain the Railcars, to pay taxes and insurance with respect to
the Railcars (excluding, in the case of CARCAT, reimbursement to NARCAT for
payments made in respect of the Class A Note Policy), and other amounts
specified in the Management Agreement.

         "Operating Expense Deposit Amount" shall mean, with respect to each
Payment Date, the sum of (a) $75 multiplied by the number of Railcars subject to
a Full Service Lease or Modified Lease and operating primarily in the United
States as of the related Accounting Date, (b) $90 multiplied by the number of
Railcars subject to a Full Service Lease or Modified Lease and operating
primarily in Canada as of the related Accounting Date, (c) $90 multiplied by the
number of Railcars subject to a Full Service Lease or Modified Lease and
operating primarily in Mexico as of the related Accounting Date, (d) $0
multiplied by the number of Railcars subject to a Lease which is a Triple Net
Lease as of the related Accounting Date and (e) $30 multiplied by the number of
Railcars not subject to a Lease as of the related Accounting Date, regardless of
where such Railcar is primarily operated.

         "Operating Expense Reserve Account" shall mean the segregated trust
account established for the benefit of the Holders and the Class A Note Insurer
and established in accordance with Section 12.04, which account shall constitute
part of the Collateral.

         "Opinion of Counsel" shall mean a written opinion of counsel who may,
except as otherwise expressly provided in this Indenture, be counsel (which may
be internal counsel) for one or more of the Issuers and who shall be reasonably
satisfactory to the Indenture Trustee and the Class A Note Insurer and which
opinion shall comply with the applicable requirements of Section 15.12.

         "Optional Redemption" shall mean a redemption of the Notes in
accordance with Section 14.01(a).

         "Outstanding" shall mean, with respect to Notes, as of any date of
determination, all Notes theretofore authenticated and delivered under this
Indenture except:

                  (a)      Notes theretofore cancelled by the Note Registrar or
         delivered to the Note Registrar for cancellation;

                  (b)      Notes for whose payment money in the necessary amount
         has been theretofore irrevocably deposited with the Indenture Trustee
         or any Paying Agent (other than any Issuer) in trust for the Holders of
         such Notes pursuant to Article V (provided, however, that if such Notes
         are to be redeemed, notice of such redemption has been duly given
         pursuant to this Indenture or provision therefor, satisfactory to the
         Indenture Trustee, has been made);

                  (c)      Notes in exchange for or in lieu of which other Notes
         have been authenticated and delivered pursuant to this Indenture unless
         proof satisfactory to the Indenture Trustee is presented that any such
         Notes are held by a bona fide purchaser; and

                                      -25-



                  (d)      Notes alleged to have been destroyed, lost or stolen
         for which replacement Notes have been issued as provided for in Section
         3.07;

provided, however, that for purposes of determining whether the Holders of the
requisite principal amount of the Outstanding Notes have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Notes
owned by any Issuer or any other obligor upon the Notes or any Affiliate of any
Issuer or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Indenture Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, or waiver, only Notes which the Indenture Trustee knows to be
so owned shall be so disregarded. Notes so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Indenture Trustee the pledgee's right to exercise the
Holders' rights to act with respect to such Notes and that the pledgee is not an
Issuer or any other obligor upon the Notes or any Affiliate of any Issuer or
such other obligor.

         "Overdue Basic Principal Payments" shall mean, with respect to any
Payment Date, the positive difference, if any, between (a) the Basic Principal
Payment due on the immediately preceding Payment Date and (b) the aggregate
amount of the Basic Principal Payment actually paid from Available Funds
(without giving effect to any draws under the Class A Note Policy) to Holders on
such immediately preceding Payment Date.

         "Overdue Rate" shall mean, with respect to the Class A Notes, the Prime
Rate, plus 2% per annum, and, with respect to the Class B Notes, the Class B
Note Interest Rate.

         "Overdue Scheduled Class B Payments" shall mean, with respect to any
Payment Date, the positive difference, if any, between (a) the Scheduled Class B
Payment due on the immediately preceding Payment Date and (b) the aggregate of
Scheduled Class B Payment actually paid from Available Funds to Holders on such
immediately preceding Payment Date.

         "Ownership Interest" shall mean, with respect to any Note, any
ownership interest in such Note, including any interest in such Note as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial.

         "Paying Agent" shall mean the Indenture Trustee or any other Person
that meets the eligibility standards for the Indenture Trustee specified in
Section 7.08 and is authorized by the Issuers to pay the principal of, or
interest on, any Notes on behalf of the Issuers.

         "Payment Date" shall mean the 15th day of each calendar month (or if
such day is not a Business Day, the next succeeding Business Day), commencing
March 15, 2004.

         "Per Diem Lease" shall mean a Lease in which the Lessee pays an amount
based on the miles traveled and the use of the Railcar, although the Lessee may
have free use of the Railcar while the Railcar is on a Lessee's railroad.

         "Permitted Liens" shall mean (a) materialmens', mechanics', carriers',
repairmens', employees' or other similar Liens arising in the ordinary course of
business, other than Liens for

                                      -26-



amounts due and owing, that individually or in the aggregate do not detract from
the value of the property subject thereto or affected thereby, (b) Liens for
current Taxes, of any kind, not yet due and payable or that are being contested
in good faith by appropriate proceeding for which adequate reserves have been
established in accordance with GAAP, so long as enforcement thereof has been
stayed and such proceedings do not involve any material risk of forfeiture, loss
or sale of Railcars, (c) statutory Liens arising or incurred in the ordinary
course of business by operation of Law for which payment is not yet due and
payable or that are being contested in good faith by appropriate proceedings and
for which adequate reserves have been established in accordance with GAAP, and
(d) any other Liens that are listed on Schedule II attached hereto.

         "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, limited liability company, trust (including
any beneficiary thereof), unincorporated organization or government or any
agency or political subdivision thereof.

         "Policy Claim Amount" shall mean, with respect to any Payment Date, the
amount payable in accordance with the terms of the Class A Note Policy equal to
the sum of (a) the amount, if any, by which Class A Note Interest (excluding any
Incremental Class A Interest and Class A Overdue Interest) due and payable to
Holders of the Class A Notes Outstanding on such Payment Date exceeds Available
Funds remaining on deposit in the Collection Accounts after the payment of all
amounts in clauses (i) through (x) of Section 12.02(d) or clauses (i) through
(x) of Section 6.08, as applicable) and after giving effect to (i) any required
transfers from the relevant Cash Collateral Account to pay such Class A Note
Interest and (ii) any Class A Note Insurer Optional Deposit made with respect to
such Payment Date, (b) if such Payment Date is also the Stated Legal Maturity
Date, the remaining unpaid Note Principal Balance of the Class A Notes after
taking into account all distributions of principal to be made with respect to
the Notes (pursuant to clauses (xiii) and (xiv) of Section 12.02(d) or clause
(xiii) of Section 6.08, as applicable) on such Payment Date and (c) any amounts
previously distributed by or on behalf of an Issuer to a Holder of a Class A
Note on such Class A Note that is recoverable and sought to be recovered as a
voidable preference by a bankruptcy trustee pursuant to the U.S. Bankruptcy Code
or the Bankruptcy and Insolvency Act (Canada), as amended from time to time, in
accordance with a final, non-appealable order of a court having competent
jurisdiction thereover.

         "Policy Payment Account" shall mean the segregated trust account
established by and maintained in the name of the Indenture Trustee for the
benefit of the Holders and the Class A Note Insurer, established in accordance
with Section 12.05, which account shall constitute part of the Collateral.

         "Predecessor Notes" shall have the meaning set forth in Section
3.03(c).

         "Preference Claim" shall have the meaning set forth in Section
13.02(b).

         "Preferred Lessee" shall have the meaning set forth in Section
11.14(b).

         "Prefunded Amount" shall mean $3,482,000.

                                      -27-



         "Prefunded Existing Lease" shall mean, any contract, agreement or other
arrangement between the owner of a Prefunded Railcar and any third party
providing for the lease, hire, operation or other use of such Prefunded Railcar
by or through such third party, including a Master Lease Agreement (each
schedule to a Master Lease Agreement, together with the terms of such Master
Lease Agreement, constituting a separate and independent lease), lease,
operating agreement, use agreement, a car hire contract or Per Diem Lease listed
on the Prefunded Lease and Railcar Schedule and sold to NARCAT on the Prefunded
Railcar Acquisition Date, including any riders, supplements and annexes thereto,
as the same may be amended, restated, supplemented or otherwise modified in
accordance with the terms hereof.

         "Prefunded Lease and Railcar Schedule" shall have the meaning ascribed
thereto in the NARCAT Sale Agreement.

         "Prefunded Railcar" shall mean any Railcar listed on the Prefunded
Lease and Railcar Schedule, which is to be acquired by NARCAT under the NARCAT
Sale Agreement (and which the U.S. Seller has become obligated to acquire after
the Closing Date, but prior to the Prefunded Account Expiration Date, pursuant
to the Asset Purchase Agreement).

         "Prefunded Railcar Acquisition Date" shall mean the date of the
acquisition by NARCAT of the Prefunded Railcars and the Prefunded Existing
Leases.

         "Prefunded Railcar Assets" shall mean any Railcar Assets as they apply
to any Prefunded Railcar.

         "Prefunding Account" shall mean the segregated trust account maintained
in the name of the Indenture Trustee for the benefit of the Holders and the
Class A Note Insurer and established in accordance with Section 12.06, which
account shall constitute part of the Collateral.

         "Prefunding Account Expiration Date" shall mean March 12, 2004.

         "Premium" shall have the meaning ascribed thereto in the Premium
Letter.

         "Premium Letter" shall have the meaning set forth in the Recitals.

         "Prime Rate" shall mean the corporate base rate, prime rate or base
rate of interest, as applicable, pursuant to the Wall Street Journal or
successor publication from time to time, changing when and as such rate changes,
as reasonably determined by the Controlling Party.

         "Proceeding" shall mean any suit in equity, action at law or other
judicial or administrative proceeding.

         "Projected Appraised Value Date" shall mean January 30, 2011, the date
which is seven years from the Appraisal Date.

         "Property Insurance" shall have the meaning set forth in Section
11.14(a)(i).

                                      -28-



         "Purchase" shall have the meaning set forth in the Management
Agreement.

         "Purchase Agreements" shall mean, collectively, the Class A-1/A-2
Purchase Agreement, the Class A-3 Purchase Agreement and the Class B Purchase
Agreement.

         "Purchase Price" shall have the meaning set forth in the Management
Agreement.

         "Purchase Proceeds" shall mean, with respect to any Railcar and/or
Lease, the actual amount (a) deposited to the relevant Collection Account by the
Manager under Section 4.04(b) of the Management Agreement, (b) deposited to the
relevant Collection Account by the Servicer under Section 4.03(b) of the
Servicing Agreement, or (c) received by any Seller, the Manager, the Servicer or
any Issuer in satisfaction of an indemnity or repurchase obligation under the
Asset Purchase Agreement with respect to a Railcar and/or Lease (net of any
amounts required to be paid to Manager as described in Section 4.04(f) of the
Management Agreement).

         "QIB" shall mean a "qualified institutional buyer" within the meaning
of Rule 144A.

         "Railcar" or "Railcars" shall mean the railroad rolling stock and
locomotives identified on the Lease and Railcar Schedule from time to time,
including without limitation, all related parts, supplies, machinery, apparatus,
accessions, additions, improvements, fittings and things appurtenant thereto,
and other equipment or components of any nature from time to time incorporated
or installed therein and replacements thereof and substitutions therefor.

         "Railcar Assets" shall mean, collectively:

                  (a)      the Railcars, including all rights in the associated
         registration numbers and marks;

                  (b)      the Leases;

                  (c)      all guaranties, if any, with respect to the Leases;

                  (d)      the Lease Receivables;

                  (e)      all warranties and maintenance agreements, if any,
         with respect to the Railcars;

                  (f)      the Lease Files;

                  (g)      all intellectual property associated with the Leases,
         Railcars and other Railcar Assets;

                  (h)      all of the Seller's rights, title and interest in, to
         and under the Asset Purchase Agreement with respect to the foregoing,
         including all remedies thereunder for breaches of any representations,
         warranties, covenants or agreements contained therein;

                                      -29-



                  (i)      all documents, instruments, certificates, agreements
         and books and records, including computer programs, evidencing or
         otherwise relating to the foregoing;

                  (j)      all Insurance Policies, including Insurance Proceeds
         related to the foregoing; and

                  (k)      all collections and other proceeds (including
         insurance proceeds) of any of the foregoing.

         "Railcar Entities" shall mean Progress Services Corporation, Railcar,
Ltd., Progress Rail Services De Mexico, S.A. de C.V. and 3079936 Nova Scotia
Company.

         "Railcar Release Proceeds" shall mean the net proceeds deposited into
the relevant Collection Account as a result of an Issuer's obtaining the release
of a Railcar from the Lien of this Indenture in accordance with Section 8.02(a).

         "Railcar Storage Agreement" shall have the meaning set forth in the
Management Agreement.

         "Railroad Mileage Credits" shall mean the difference between (a)
amounts paid or payable to an Issuer or a Lessee under any Lease representing
compensation for use of the applicable Railcars by railroad companies or other
users thereof in accordance with applicable Car Hire Rules, Car Service Rules
and the Interchange Rules, and for Per Diem Leases shall include any estimated
payments and shortfall payments paid or, if guaranteed, payable by the Lessee
thereunder and, to the extent payable to such Issuer under such Per Diem Lease,
hourly and mileage rates prescribed for such Railcars registered in UMLER and
the car hire accounting rate master files of the AAR then in effect and (b)
amounts paid or payable by such Issuer under any Lease to such Lessee pursuant
to any revenue-sharing provisions thereof or other credits to which such Lessee
is entitled. For purposes of clarification, Railroad Mileage Credits do not
include any amounts payable under a Lease with respect to Events of Loss,
maintenance or indemnities thereunder.

         "Rapid Amortization Event" shall mean the existence of any one or more
of the following events, as of any Payment Date, unless waived in writing by the
Controlling Party:

                  (a)      after giving effect to the making of any Basic
         Principal Payment and Supplemental Principal Payment on such Payment
         Date, the Note Principal Balance of all Class A Notes Outstanding is
         greater than the Maximum Class A Note Amount;

                  (b)      any one or more of the following circumstances exists
         for three or more consecutive Accounting Dates preceding such Payment
         Date:

                           (i)      for any calculation made with respect to
                  July 31, 2004, or any Accounting Date thereafter, the Monthly
                  Average Lease Rate is less than $200;

                           (ii)     the Monthly Utilization Rate is 80% or less;
                  or

                                      -30-



                           (iii)    for any calculation made with respect to
                  July 31, 2004, or any Accounting Date thereafter, the Coverage
                  Ratio is less than 1.15;

                  (c)      after giving effect to the making of any Basic
         Principal Payment and Supplemental Principal Payment on such Payment
         Date, the Note Principal Balance of the Class A Notes then Outstanding
         is greater than 90% of the Stated Value of all Eligible Railcars as of
         the related Accounting Date;

                  (d)      the occurrence of an event permitting the Controlling
         Party to replace the Servicer or the Manager following the expiration
         of all applicable cure periods;

                  (e)      the occurrence of an Event of Default; or

                  (f)      a breach of a Concentration Limit; provided that if
         such breach is caused solely by (i) the downgrade or withdrawal of a
         debt rating with respect to a Lessee, (ii) a merger, consolidation, or
         other affiliation of a Lessee with another Lessee, or (iii) the
         exercise of eminent domain, nationalization or other similar action by
         any governmental agency or authority with respect to a Lessee, then
         such breach shall not constitute a Rapid Amortization Event;

provided, however, that a Rapid Amortization Event will be deemed to be cured if
the event that gave rise to such Rapid Amortization Event shall no longer exist
with respect to three consecutive Payment Dates (otherwise it will be deemed to
continue to exist at all times after its occurrence unless waived, in writing,
by notice delivered to the Indenture Trustee and the Class A Note Insurer by the
Controlling Party).

         "Rating Agencies" shall mean S&P and Fitch.

         "Rating Agency Condition" shall mean, with respect to any action and a
Class of the Notes, that each Rating Agency with respect to such Class shall
have been given ten days' (or such shorter period as is acceptable to such
Rating Agency) prior notice thereof and that no Rating Agency shall have
notified the Issuers, the Servicer, the Class A Note Insurer or the Indenture
Trustee in writing that such action will result in a qualification, reduction or
withdrawal of its then-current rating.

         "Record Date" shall mean, with respect to a Payment Date or a
Redemption Date, the last day of the related Collection Period, whether or not a
Business Day.

         "Redemption Account" shall mean the segregated trust account
established by and maintained in the name of the Issuers for the benefit of the
Indenture Trustee on behalf of the Holders and the Class A Note Insurer,
established in accordance with Section 12.07, which account shall constitute
part of the Collateral.

         "Redemption Date" shall mean the date fixed pursuant to Section 14.01.

                                      -31-



         "Redemption Differential" means the positive difference, if any,
between (a) the applicable Redemption Prices for all Notes to be redeemed on the
Redemption Date and (b) the sum of the Remaining Cash Collateral Amounts and the
Issuer Retained Interest.

         "Redemption Price" shall mean, as of any Redemption Date, the following
redemption prices (expressed as a percentage of the principal amount of the
Notes to be redeemed), plus accrued but unpaid interest on the Notes at the
applicable Note Interest Rate to the date fixed for redemption, in each case,
together with accrued but unpaid interest on the Notes:



          REDEMPTION DATES           REDEMPTION PRICE   REDEMPTION PRICE
       (BOTH DATES INCLUSIVE)        OF CLASS A NOTES   OF CLASS B NOTES
- ------------------------------------------------------------------------
                                                  
February 2011 Payment Date through
January 2012 Payment Date                  100%               108%
- ------------------------------------------------------------------------
February 2012 Payment Date through
January 2013 Payment Date                  100%               104%
- ------------------------------------------------------------------------
February 2013 Payment Date and
thereafter                                 100%               100%
- -------------------------------------------------------------------------


provided, however, that for a Clean-Up Call exercised with respect to any
Payment Date on or before the January 2011 Payment Date, the redemption price
will be 100% with respect to the Class A Notes and 110% with respect to the
Class B Notes, in each case, together with accrued but unpaid interest on the
Notes.

         "Redemption Record Date" shall mean, with respect to any redemption of
Notes, the date fixed pursuant to Section 14.01.

         "Registered Holder" shall mean, with respect to a Note, the Person
whose name appears on the Note Register on the applicable Record Date or
Redemption Record Date.

         "Regular Supplemental Principal Payment" shall mean, with respect to
each Payment Date, the amount set forth in clause (a) of the definition of
Supplemental Principal Payment.

         "Reimbursement Obligations" shall mean an amount equal to the sum of
(a) all amounts paid under the Class A Note Policy, less any payments under the
Class A Note Policy previously reimbursed pursuant to Section 12.02(d) or
Section 6.08, (b) any other amounts payable to the Class A Note Insurer under
the Insurance Agreement, the Premium Letter or any other Transaction Document
and (c) interest on the amounts stated above at a rate per annum equal to the
Overdue Rate (as defined in the Insurance Agreement).

         "Reinvestment Income" shall mean any interest or other earnings earned
on all or part of the Collateral.

         "Remaining Cash Collateral Amounts" shall mean, with respect to a
Redemption Date, all amounts that would remain on deposit in the Cash Collateral
Accounts after application to all amounts having a higher priority than the
Issuer Retained Interest in Section 12.02(d).

                                      -32-



         "Rent" shall mean, as the context may require, with respect to all
Leases or with respect to each Lease, 100% of the periodic lease payments for
the Railcar leased under the Lease as specified on the Lease and Railcar
Schedule.

         "Required CARCAT Cash Collateral Amount" shall mean, initially, the
Initial CARCAT Cash Collateral Deposit and, as of any Payment Date, shall mean
an amount equal to the greater of (a) eight (8) times the aggregate amount of
scheduled interest payable with respect to the Class A-3 Notes on such Payment
Date and (b) $500,000 for so long as any Class A Notes remain outstanding.

         "Required NARCAT Cash Collateral Amount" shall mean, initially, the
Initial NARCAT Cash Collateral Deposit and, as of any Payment Date, shall mean
an amount equal to five (5) times the aggregate amount of scheduled interest
payable with respect to the Class A-1 and Class A-2 Notes on such Payment Date.

         "Responsible Officer" shall mean, with respect to the Indenture
Trustee, any Senior Vice President, Vice President, Assistant Vice President or
Corporate Trust Officer assigned by the Indenture Trustee to administer its
corporate trust matters.

         "Rule 144A" shall mean the rule designated as "Rule 144A" promulgated
by the Securities and Exchange Commission under the Securities Act.

         "Rule 144A Global Note" shall mean the permanent global note,
evidencing Class A-1 Notes and Class A-2 Notes, in the form of the Class A-1
Note or Class A-2 Note attached hereto as Exhibit B-1 or Exhibit B-2, that is
deposited with and registered in the name of the Security Depository or its
nominee, representing the Class A-1 Notes or Class A-2 Notes sold in reliance on
Rule 144A.

         "S&P" or "Standard & Poor's" shall mean Standard & Poor's Rating
Services, a division of The McGraw-Hill Companies, Inc., and its successors and
assigns.

         "Sale" shall have the meaning set forth in Section 6.18.

         "Sale Agreements" shall mean, collectively, (a) the NARCAT Sale
Agreement, (b) the CARCAT Sale Agreement and (c) the NARCAT Mexico Sale
Agreement.

         "Scheduled Class B Payment" shall mean, with respect to each Payment
Date, an amount equal to the sum of (a) the lesser of (i) the Note Principal
Balance of all Outstanding Class B Notes, and (ii) with respect to each Payment
date before the Payment Date in August of 2004, zero, and with respect to each
Payment Date thereafter, $50,000, and (b) any Overdue Scheduled Class B
Payments.

         "Scrapped Payment Amount" shall mean, as of any Payment Date, the
greater of $2,000 and the amount necessary to cause the Note Principal Balance
of the Class A Notes not to exceed 90% of the Stated Value of all Eligible
Railcars as of the related Accounting Date.

                                      -33-



         "Scrapped Railcar" shall mean a Railcar designated by the Manager, on
behalf of the relevant Issuer, as no longer having utility for a reason other
than an Event of Loss.

         "Secured Obligations" shall mean all amounts and obligations which the
Issuers may at any time owe to or on behalf of the Class A Note Insurer and the
Indenture Trustee for the benefit of the Holders under this Indenture, the Notes
and the other Transaction Documents.

         "Secured Parties" shall mean, collectively, the Indenture Trustee, the
Holders of the Notes and the Class A Note Insurer.

         "Securities Act" shall mean the Securities Act of 1933, as amended.

         "Security Depository" shall mean DTC or any other organization
registered as a "Security Depository" pursuant to Section 17A of the Exchange
Act.

         "Security Depository Participant" shall mean a broker, dealer, bank,
other financial institution or other Person for whom from time to time a
Security Depository effects book-entry transfers and pledges of securities
deposited with the Security Depository.

         "Self-insure" and "self-insurance" shall have the meaning set forth in
Section 11.14(b).

         "Seller" shall mean any of the U.S. Seller, the Canadian Seller or the
Mexican Seller, as the context may require.

         "Servicer" shall mean the Person who shall have been appointed as
servicer pursuant to the applicable provisions of the Servicing Agreement until
a successor Person shall have been appointed as servicer and thereafter
"Servicer" shall mean such successor Person.

         "Servicer Events of Termination" shall have the meaning set forth in
Section 6.01 of the Servicing Agreement.

         "Servicer Fee" shall have the meaning set forth in the Servicing
Agreement.

         "Servicing Agreement" shall mean the Servicing Agreement dated as of
February 12, 2004, by and among the Servicer, the Backup Servicer, the Indenture
Trustee and the Issuers, pursuant to which the Servicer will service and
administer the Collateral Granted to the Indenture Trustee hereunder, as the
same may be amended, restated, modified or supplemented from time to time in
accordance with the terms thereof.

         "Solvent" shall mean with respect to any Person that as of the date of
determination both (a)(i) the then fair saleable value of the property of such
Person is (A) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (B) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person, (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction, and (iii) such Person does

                                      -34-



not intend to incur, or believe (nor should it reasonably believe) that it will
incur, debts beyond its ability to pay such debts as they become due; and (b)
such Person is "solvent" within the meaning given that term and similar terms
under applicable Laws relating to fraudulent transfers and conveyances. For
purposes of this definition, the amount of any contingent liability at any time
shall be computed as the amount that, in light of all of the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.

         "Source of Funds Requirements" shall have the meaning set forth in
Section 12.02(f).

         "Source Payments" shall have the meaning set forth in Section 14.01(a).

         "Stated Legal Maturity Date" shall mean February 15, 2019.

         "Stated Value" shall mean, as of any Accounting Date and with respect
to any Railcar, an amount equal to the Initial Appraised Value of such Railcar,
as reduced by the Appraised Value Reduction Factor.

         "STB" shall mean the U.S. Surface Transportation Board.

         "Subsequent Lease" shall mean any contract, agreement or other
arrangement between the owner of a Railcar and any third party providing for the
lease, hire, operation or other use of such Railcar by or through such third
party, other than a Prefunded Existing Lease, including a Master Lease Agreement
(each schedule to a Master Lease Agreement, together with the terms of such
Master Lease Agreement, constituting a separate and independent lease), lease,
operating agreement, use agreement, a car hire contract or Per Diem Lease,
entered into by an Issuer after the Closing Date which meets the requirements
of, and is entered into in accordance with, Section 11.15, including any riders,
supplements and annexes thereto, as the same may be amended, restated,
supplemented or otherwise modified in accordance with the terms hereof.

         "Substitute Railcar" shall have the meaning set forth in the Management
Agreement.

         "Successor Manager" shall have the meaning set forth in the Management
Agreement.

         "Supplemental Manager Fee" shall have the meaning set forth in the
Management Agreement.

         "Supplemental Principal Payment" shall mean, with respect to each
Payment Date:

                  (a)      a supplemental principal payment on the Notes
         consisting of the sum of (i) $100,000, (ii) for each Payment Date
         beginning with the March 2004 Payment Date through and including the
         February 2007 Payment Date, $83,333, (iii) the higher of (x) the net
         proceeds received by the Issuers, the Sellers, the Manager or the
         Servicer during the related Collection Period, whether from Insurance
         Proceeds, the Lessees or otherwise, as a result of the sale or the
         occurrence of any Event of Loss with respect to any Railcar, and (y)
         the Stated Value of any such Railcar which shall have been sold or as

                                      -35-



         to which an Event of Loss shall have occurred during the related
         Collection Period, or, in the case of up to 630 Scrapped Railcars
         (excluding locomotives) each of which may be sold during Collection
         Periods ending on or before January 31, 2005, the Scrapped Payment
         Amount, (iv) 90% of the Stated Value of each Prefunded Railcar not
         purchased on or before the Prefunding Account Expiration Date, and (v)
         any Deferred Supplemental Principal Payment Payments; plus

                  (b)      if a Rapid Amortization Event exists and has not been
         cured or waived on such Payment Date, all Available Funds remaining on
         deposit in the Collection Accounts after the payment of the Regular
         Supplemental Principal Payment.

         "Tax Payment Amount" shall mean the amount required to pay all taxes,
including, without limitation, any income, withholding, excise, sales, gross
receipts, general corporation, tangible or intangible personal property,
privilege, or license taxes due and owing by any Issuer or by Holdco with
respect to the activities of such Issuer to any taxing authority in any
jurisdiction.

         "Tax Payment Recipient" shall mean any taxing authority in any
jurisdiction, or any intermediary (which shall not be an Affiliate of any
Issuer) which has been irrevocably instructed by any Issuer or the Servicer to
pay Taxes on behalf of an Issuer.

         "Taxes" shall mean any and all taxes, levies, imposts, duties,
assessments, charges and withholdings imposed or required to be collected by or
paid over to any Governmental Authority, including any interest, penalties,
fines, assessments or additions imposed with respect to the foregoing.

         "The Andersons" shall mean The Andersons, Inc., an Ohio corporation,
and its permitted successors and assigns.

         "Transaction Documents" shall mean, collectively, this Indenture, the
Servicing Agreement, the Management Agreement, the Sale Agreements, the Purchase
Agreements, the Lockbox Agreements, the Asset Purchase Agreement (and any
associated documents), the Class A Note Policy, the Insurance Agreement, the
Premium Letter, the Funds Transfer Agreement, the Intercompany Advance Agreement
and the Notes, and all documents, agreements, instruments and certificates
executed in connection with any of the foregoing.

         "Triple Net Lease" shall mean, as of the date of determination, any
Lease identified as such on the then current Lease and Railcar Schedule.

         "Tripped Concentration Limit" shall have the meaning set forth in
Section 11.15(c).

         "Trustee Fee" shall mean the fees of the Indenture Trustee set forth in
that certain fee letter, dated February 12, 2004, and acknowledged on February
12, 2004, by the Issuers.

         "UMLER" shall mean the Universal Machine Language Equipment Register
maintained by the AAR.

                                      -36-



         "U.S. Article 9 Assets" shall mean all Article 9 Assets which the U.S.
Seller purports to transfer to NARCAT pursuant to the NARCAT Sale Agreement.

         "U.S. Filed Documents" shall mean those documents filed with the STB
within 10 days of the Closing Date pursuant to Section 2.03(h) of the Management
Agreement.

         "U.S. Seller" shall mean Cap Acquire, LLC, a Delaware limited liability
company, and its permitted successors and assigns.

         "U.S. Tax Code" shall have the meaning set forth in Section 3.11(b).

         "Vice President" shall mean, with respect to any Person, any vice
president, whether or not designated by a number or a word or words added before
or after the title "vice president."

     Section 1.02. Terms Defined in the Servicing Agreement, Sale Agreements or
Management Agreement. For the purposes of this Agreement, capitalized terms used
but not otherwise defined herein shall have the respective meanings assigned to
such terms in the Servicing Agreement or, if not defined therein, in the Sale
Agreements or, if not defined therein, in the Management Agreement, as
applicable.

     Section 1.03. Interpretation. For all purposes of this Indenture, except
as otherwise expressly provided or unless the context otherwise requires, (a)
terms used in this Indenture include, as appropriate, all genders and the plural
as well as the singular, (b) references to this Indenture include all Exhibits
and Schedules hereto, (c) references to words such as "herein," "hereof" and the
like shall refer to this Indenture as a whole and not to any particular part,
Article or Section within this Indenture, (d) references to an Article or
Section such as "Article I" or "Section 1.01" shall refer to the applicable
Article or Section of this Indenture, (e) the term "include" and all variations
thereof shall mean "include without limitation," (f) the term "or" shall include
"and/or," (g) the term "proceeds" shall have the meaning ascribed to such term
in the UCC or the Personal Property Security Act (Nova Scotia), as applicable,
(h) any defined term which relates to a document shall include within its
definition any amendments, modifications, renewals, restatements, extensions,
supplements or substitutions permitted hereunder which have been or are
hereafter executed and delivered in accordance with the terms thereof, (i) any
defined term which relates to a Person shall include within its definition the
successors and permitted assigns of such Person, (j) in the computation of a
period of time from a specified date to a later specified date, the word "from"
shall mean "from and including" and the words "to" and "until" shall mean "to
but excluding," and (k) any defined term which relates to a statute or code or
section of such statute or code shall include within its definition any
successor statute or code or section thereof, as applicable.

                                   ARTICLE II

                                    NOTE FORM

     Section 2.01. General. (a) The Notes shall be designated as Class A-1
Notes, Class A-2 Notes, Class A-3 Notes and Class B Notes. The Class A-3 Notes
shall be issued solely to

                                      -37-



Holders who are residents of Canada for the purposes of the Canadian Tax Act,
and any transfers of the Class A-3 Notes shall be limited to Persons who are
such residents; provided, however, that this requirement shall not apply to the
Class A Note Insurer to the extent that it may succeed to the interest of a
Holder of a Class A-3 Note following payment of a claim under the Class A Note
Policy.

         (b)      All payments of principal and interest made by the Issuers
with respect to the Notes shall be made only from the Collateral and, with
respect to the Class A Notes, the Class A Note Policy, on the terms and
conditions specified herein.

         (c)      Except as otherwise provided herein, all Notes shall be
substantially identical in all respects. Except as specifically provided herein,
all Notes issued, authenticated and delivered under this Indenture shall be in
all respects equally and ratably entitled to the benefits hereof without
preference, priority or distinction on account of the actual time or times of
authentication and delivery, all in accordance with the terms and provisions of
this Indenture.

         (d)      The aggregate original stated principal balance of the Class
A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and Class B Notes that may
be executed by an Authorized Officer of each of the Issuers and authenticated
and delivered by the Indenture Trustee and Outstanding at any given time under
this Indenture is limited to $29,000,000, $21,000,000, $31,400,000 and
$5,000,000, respectively.

         (e)      Holders of the Notes shall be entitled to payments of interest
as provided herein. The Notes shall have a final maturity on the Stated Legal
Maturity Date. All Notes of the same Class shall be secured on a parity with one
another, with no Note of any Class having any priority over any other Note of
that same Class.

         (f)      The Notes that are authenticated and delivered to the Holders
by the Indenture Trustee upon an Issuer Order on the Closing Date shall be dated
as of the Closing Date. Any Note issued later in exchange for, or in replacement
of, any Note issued on the Closing Date shall be dated the date of its
authentication.

         (g)      Each Note is issuable in the minimum denomination of
$1,000,000, and integral multiples of $100,000 in excess thereof; provided that
one Note of each Class may be issued in an additional amount equal to any
remaining portion of the aggregate original stated principal balance of the
Notes of such Class.

     Section 2.02. Forms of Notes. The Notes shall be in substantially the form
set forth in Exhibit B-1, Exhibit B-2, Exhibit B-3 and Exhibit B-4, as
applicable, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
Issuers, as evidenced by their execution thereof.

                                      -38-



         The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined by
the officers executing such Notes, as evidenced by their execution of such
Notes.

         Each Note shall be dated the date of its authentication. The terms of
the Notes are set forth in Exhibit B-1, Exhibit B-2, Exhibit B-3 and Exhibit
B-4, and are part of the terms of this Indenture.

         The Notes are being offered and sold by the Issuers to the Initial
Purchasers pursuant to the Purchase Agreements. The Class A-1 Notes and Class
A-2 Notes shall initially be issued as Global Notes and the Class A-3 Notes and
Class B Notes shall be issuable as Definitive Notes.

         (a)      Global Notes. The Class A-1 Notes and Class A-2 Notes offered
and sold by the Class A-1/A-2 Initial Purchaser to QIBs in reliance on Rule 144A
shall be issued initially in the form of Rule 144A Global Notes, which shall be
deposited on behalf of the purchasers of the Class A-1 Notes and Class A-2 Notes
represented thereby with the Indenture Trustee, as custodian for the Security
Depository, and registered in the name of the Security Depository or a nominee
of the Security Depository, duly executed by the Issuers and authenticated by
the Indenture Trustee as hereinafter provided. The aggregate principal amount of
the Rule 144A Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Indenture Trustee and the Security
Depository or its nominee as hereinafter provided. The Indenture Trustee shall
not be liable for any error or omission by the Security Depository in making
such record adjustments and the records of the Indenture Trustee shall be
controlling with regard to the Note Principal Balance of Class A-1 Notes and
Class A-2 Notes hereunder.

         Each Global Note shall represent such of the Outstanding Class A-1
Notes or Class A-2 Notes as shall be specified therein and each shall provide
that it shall represent the aggregate amount of Outstanding Class A-1 Notes and
Class A-2 Notes from time to time endorsed thereon and that the aggregate amount
of Outstanding Class A-1 Notes and Class A-2 Notes represented thereby may from
time to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the amount of Outstanding Class A-1 Notes and Class A-2
Notes represented thereby shall be made by the Indenture Trustee, or by the Note
Registrar at the direction of the Indenture Trustee, in accordance with
instructions given by the Holder thereof.

         Except as set forth in Section 3.06, the Global Notes may be
transferred, in whole and not in part, only to another nominee of the Security
Depository or to a successor of the Security Depository or its nominee.

         (b)      Book-Entry Provisions. This Section 2.02(b) shall apply only
to the Rule 144A Global Notes deposited with or on behalf of the Security
Depository.

         The Issuers shall execute and the Indenture Trustee shall, in
accordance with this Section 2.02(b), authenticate and deliver one Global Note
for the Class A-1 Notes and one Global Note for the Class A-2 Notes which (i)
shall be registered in the name of the Security

                                      -39-



Depository or the nominee of the Security Depository and (ii) shall be delivered
by the Indenture Trustee to the Security Depository or pursuant to the Security
Depository's instructions or held by the Indenture Trustee as custodian for the
Security Depository.

         Agent Members shall have no rights either under this Indenture with
respect to any Global Note held on their behalf by the Security Depository or by
the Indenture Trustee as custodian for the Security Depository or under such
Global Note, and the Security Depository may be treated by the Issuers, the
Indenture Trustee and the Class A Note Insurer and any agent of the Issuers, the
Indenture Trustee or the Class A Note Insurer as the absolute owner of such
Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Issuers, the Indenture Trustee or the Class A Note
Insurer or any agent of the Issuers, the Indenture Trustee or the Class A Note
Insurer from giving effect to any written certification, proxy or other
authorization furnished by the Security Depository or impair, as between the
Security Depository and its Agent Members, the operation of customary practices
of such Security Depository governing the exercise of the rights of a Note
Owner.

         The Note Registrar, the Indenture Trustee and the Class A Note Insurer
shall be entitled to treat the Security Depository for all purposes of this
Indenture (including the payment of principal of and interest on the Class A-1
Notes and Class A-2 Notes and the giving of instructions or directions
hereunder) as the sole Holder of the Class A-1 Notes and Class A-2 Notes, and
shall have no obligation to the Note Owners of Class A-1 Notes or Class A-2
Notes.

         The rights of Note Owners of Class A-1 Notes and Class A-2 Notes shall
be exercised only through the Security Depository and shall be limited to those
established by law and agreements between such Note Owners of Class A-1 Notes
and Class A-2 Notes and the Security Depository and/or the Agent Members
pursuant to the Note Depository Agreement. The initial Security Depository will
make book-entry transfers among the Agent Members and receive and transmit
payments of principal of and interest on the Class A-1 Notes and Class A-2 Notes
to such Agent Members with respect to such Global Notes.

         Whenever this Indenture requires or permits actions to be taken based
upon instructions or directions of Holders of Class A Notes evidencing a
specified percentage of the Outstanding amount of the Class A Notes, the
Security Depository shall be deemed to represent such percentage only to the
extent that it has received instructions to such effect from Note Owners of
Class A-1 Notes or Class A-2 Notes and/or Agent Members owning or representing,
respectively, such required percentage of the beneficial interest in the Notes
and has delivered such instructions to the Indenture Trustee.

         (c)      Definitive Notes. Except as provided in this Section 2.02 and
in Sections 3.06 and 3.10, Holders of the Class A-1 Notes and Class A-2 Notes
will not be entitled to receive physical delivery of Definitive Notes. Holders
of the Class A-3 Notes and the Class B Notes will only be entitled to receive
Definitive Notes, and will not be entitled to hold such Notes as Book-Entry
Notes at any time.

                                      -40-



                                  ARTICLE III

                           TERMS OF NOTES; TRANSFERS

     Section 3.01. Payment of Principal and Interest. (a) Principal payments on
the Notes, to the extent that Available Funds are available for the payments
thereof, in an amount equal to the Basic Principal Payment and the Supplemental
Principal Payment will be made on each Payment Date to the Holders in accordance
with Section 12.02(d) and Section 6.08.

         (b)      Each Class of Notes shall be entitled to receive payments of
interest on their respective Note Principal Balances on each Payment Date as
provided herein at the Class A-1 Note Interest Rate, the Class A-2 Note Interest
Rate, the Class A-3 Note Interest Rate or the Class B Note Interest Rate, as
applicable, from the Closing Date until the Note Principal Balance of each such
Class is reduced to zero or until payment is provided therefor as set forth in
Article XIV. After the initial Payment Date, payments of interest accrued on
each Class of Notes and payable on each Payment Date will be calculated on the
Note Principal Balance of each Class of Notes as of the immediately preceding
Payment Date after giving effect to any payments of principal on such
immediately preceding Payment Date. With respect to the initial Payment Date,
interest will be calculated on the Note Principal Balance of each Class of Notes
from the Closing Date through the day preceding the initial Payment Date. All
computations of interest accrued on any Note shall be made on the basis of a
360-day year consisting of 12 thirty-day months.

         (c)      If the entire amount of the Class A-1 Note Interest, Class A-2
Note Interest, Class A-3 Note Interest or Class B Note Interest that is due on
any Payment Date shall not have been punctually made or duly provided for when
and as due (after giving effect to any applicable cure or grace period), then
interest on the applicable Overdue Interest shall accrue (to the extent
permitted by law), from the date such amount was due until paid, at the Class
A-1 Note Interest Rate, Class A-2 Note Interest Rate, Class A-3 Note Interest
Rate or the Class B Note Interest Rate, as applicable.

         (d)      The rights of the Holders of the Class B Notes to receive
payments of principal and interest in respect of the Class B Notes on any
Payment Date, Stated Maturity Date or Redemption Date shall be subordinated to
the rights of the Holders of Class A Notes to receive payments of principal and
interest in respect of the Class A Notes on such Payment Date, Stated Maturity
Date or Redemption Date and certain other payments as set forth in Section
12.02(d) and Section 6.08.

     Section 3.02. Payments to Holders. (a) Holders of Notes of each Class
shall, subject to the priorities and conditions set forth in Section 12.02(d) or
Section 6.08, be entitled to receive payments of interest and principal on each
Payment Date (including any Overdue Interest, Overdue Basic Principal Payments
and Deferred Supplemental Principal Payments). Any payment of interest or
principal payable with respect to the Notes on the applicable Payment Date shall
be made to the Person in whose name such Note is registered at the close of
business on the Record Date for such Payment Date in the manner provided in
Section 3.02(c).

                                      -41-



         (b)      All reductions in the Note Principal Balance of a Note (or one
or more Predecessor Notes) effected by payments of principal made on any Payment
Date shall be binding upon all Holders of such Note and of any Note issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof,
whether or not such payment is noted on such Note.

         (c)      The Indenture Trustee shall pay to each Holder of record as of
the related Record Date either (i) by wire transfer, in immediately available
funds to the account of such Holder at a bank or other entity having appropriate
facilities therefor, if such Holder shall have provided to the Indenture Trustee
appropriate written instructions at least five Business Days prior to related
Payment Date (which instructions shall remain in effect for subsequent Payment
Dates unless revoked by such Holder), or (ii) if the Indenture Trustee has not
received timely written instructions regarding the account of a Holder, by check
mailed to such Holder at the address of such Holder appearing in the Note
Register, the amounts to be paid to such Holder pursuant to such Holder's Notes;
provided, that so long as the Notes are registered in the name of the Security
Depository such payments shall be made to the nominee thereof in immediately
available funds.

         (d)      Unless the Controlling Party otherwise directs in the case of
an acceleration of the Notes following the occurrence of an Event of Default,
(a) all payments of principal and interest with respect to the Class A-1 Notes,
the Class A-2 Notes and the Class B Notes shall be payable solely from amounts
held in the NARCAT Collection Account or, in the case of the Class A-1 Notes and
the Class A-2 Notes, from amounts funded under the Class A Note Policy, and (b)
all payments of principal and interest with respect to the Class A-3 Notes shall
be payable solely from amounts held in the CARCAT Collection Account or from
amounts funded under the Class A Note Policy.

     Section 3.03. Execution, Authentication, Delivery and Dating. (a) The Notes
shall be executed by an Authorized Officer of each of the Issuers. The signature
of each such Authorized Officer on the Notes may be manual or facsimile. Notes
bearing the manual or facsimile signature of any individual who was, at the time
of execution thereof, an Authorized Officer of an Issuer, shall bind such
Issuer, notwithstanding the fact that such individual ceased to hold such office
prior to the authentication and delivery of such Notes or did not hold such
office at the date of issuance of such Notes.

         (b)      At any time and from time to time after the execution and
delivery of this Indenture, the Issuers may deliver Notes executed by an
Authorized Officer of each of the Issuers to the Indenture Trustee for
authentication, and the Indenture Trustee, upon receipt of the Notes and of an
Issuer Order, shall authenticate and deliver such Notes; provided, however, that
the Indenture Trustee shall not authenticate the Notes on the Closing Date
unless and until it shall have received the documents listed in Section 4.01.

         (c)      Notes issued upon transfer, exchange or replacement of other
Notes (such other Notes, "Predecessor Notes") shall be issued in authorized
denominations reflecting the Note Principal Balance so transferred, exchanged or
replaced, but shall represent only the Note Principal Balance so transferred,
exchanged or replaced. In the event that any Note is divided

                                      -42-



into more than one Note in accordance with this Article III, such Note Principal
Balance shall be divided among the Notes delivered in exchange therefor.

         (d)      No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication, substantially in the form provided for herein,
executed by the Indenture Trustee by the manual signature of a Responsible
Officer of the Indenture Trustee, and such executed certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered.

     Section 3.04. Temporary Notes. Except for Book-Entry Notes, temporary
Notes shall be issuable in any authorized denomination, and substantially in the
form of the Definitive Notes but with such omissions, insertions and variations
as may be appropriate for temporary Notes, all as may be determined by the
Issuers. Every such temporary Note shall be executed by an Authorized Officer of
each of the Issuers and authenticated by the Indenture Trustee upon the same
conditions and in substantially the same manner, and with the same effect, as
the Definitive Notes. Without unreasonable delay the Issuers will execute and
deliver to the Indenture Trustee Definitive Notes (other than in the case of
Notes in global form) and thereupon any or all temporary Notes (other than in
the case of Notes in global form) may be surrendered in exchange therefor, at
the Corporate Trust Office, and the Indenture Trustee shall authenticate and
deliver in exchange for such temporary Notes an equal aggregate principal amount
of Definitive Notes. Such exchange shall be made by the Issuers at their own
expense and without any charge therefor. Until so exchanged, the temporary Notes
shall in all respects be entitled to the same benefits and subject to the same
limitations under this Indenture as Definitive Notes authenticated and delivered
hereunder.

     Section 3.05. Registration, Registration of Transfer and Exchange. (a) The
Indenture Trustee (the "Note Registrar") shall cause to be kept at its Corporate
Trust Office a register (the "Note Register"), in which, subject to such
reasonable regulations as it may prescribe, the Indenture Trustee shall provide
for the registration of the Notes and the registration of transfers of such
Notes.

         If a Person other than the Indenture Trustee is appointed by the
Issuers as Note Registrar, the Issuers will give each of the Indenture Trustee,
the Class A Note Insurer and the Holders prompt written notice of the
appointment of such Note Registrar and of the location, and any change in the
location, of the Note Register. The Indenture Trustee, the Class A Note Insurer
and each Holder shall have the right to inspect the Note Register at all
reasonable times and to obtain copies thereof. The Indenture Trustee, the Class
A Note Insurer and each Holder shall have the right to rely upon a certificate
executed on behalf of the Note Registrar by a Responsible Officer thereof as to
the names and addresses of the Holders and the principal amounts and the amounts
and number of such Notes.

         (b)      Each Person who has or who acquires any Ownership Interest in
a Note shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the provisions of this Section 3.05.

                                      -43-



         (c)      Each purchaser of Class A-1 Notes, Class A-2 Notes and Class B
Notes will be deemed to have represented and agreed as follows (terms used in
this section that are defined in Rule 144A or the Securities Act are used herein
as defined therein):

                           (i)      The purchaser understands that the Notes
         will be offered and may be resold by the Initial Purchasers only to
         QIBs pursuant to Rule 144A.

                           (ii)     The purchaser is (i) purchasing the Notes
         for its own account or an account with respect to which it exercises
         sole investment discretion, (ii) a QIB, and any such account is a QIB,
         (iii) aware that the sale to it is being made in reliance on Rule 144A,
         and (iv) (or such account is) acquiring such Notes for investment and
         not with a view to, or for offer or sale in connection with, any
         distribution or fractionalization thereof or with any intention of
         reselling the Notes or any part thereof, subject to any requirement of
         law that the disposition of its property or the property of such
         account or accounts be at all times within its or their control and
         subject to its or their ability to resell such Notes pursuant to Rule
         144A.

                           (iii)    The purchaser understands that the Notes
         have not been registered under the Securities Act, and that if in the
         future it decides to reoffer, resell, pledge or otherwise transfer such
         Notes it will do so only (i) pursuant to Rule 144A to a person whom the
         seller reasonably believes is a QIB in a transaction meeting the
         requirements of Rule 144A, purchasing for its own account or for the
         account of a QIB, whom the Holder has informed that such reoffer,
         resale, pledge or other transfer is being made in reliance on Rule 144A
         or to the Issuers pursuant to the terms of this Indenture, or (ii)
         pursuant to another exemption available under the Securities Act as
         evidenced by an opinion of counsel acceptable to the Issuers and the
         Indenture Trustee.

                           (iv)     The purchaser understands that the Notes
         will bear legends to the following effect unless the Issuers determine
         otherwise consistent with applicable Law:

                           THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED
                           UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
                           "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THE
                           HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES (1)
                           THAT THIS NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR
                           OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE
                           SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY
                           PURSUANT (A) TO RULE 144A UNDER THE SECURITIES ACT
                           ("RULE 144A") TO A PERSON WHOM THE HOLDER REASONABLY
                           BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER ("QIB")
                           WITHIN THE MEANING OF RULE 144A, PURCHASING FOR ITS
                           OWN ACCOUNT, OR A QIB PURCHASING FOR THE ACCOUNT OF A
                           QIB, IN A TRANSACTION MEETING THE REQUIREMENTS OF
                           RULE 144A OR TO AN ISSUER PURSUANT TO THE TERMS OF
                           THE INDENTURE OR (B) PURSUANT TO ANOTHER EXEMPTION
                           AVAILABLE UNDER THE SECURITIES ACT AS EVIDENCED BY AN
                           OPINION OF COUNSEL ACCEPTABLE TO THE INDENTURE
                           TRUSTEE AND THE ISSUERS, AND (2) THAT IT WILL DELIVER
                           TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
                           HEREIN IS TO BE

                                      -44-



                           TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
                           THIS LEGEND. THE INDENTURE RELATED TO THIS NOTE
                           CONTAINS A PROVISION REQUIRING THE INDENTURE TRUSTEE
                           TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE OR
                           ANY INTEREST HEREIN IN VIOLATION OF THE FOREGOING.
                           EACH TRANSFEREE ACCEPTING A BENEFICIAL INTEREST IN
                           THIS NOTE IS DEEMED TO REPRESENT TO THE ISSUERS THAT
                           IT IS EITHER A QIB PURCHASING FOR ITS OWN ACCOUNT, A
                           QIB PURCHASING FOR THE ACCOUNT OF ANOTHER QIB OR A
                           PERMITTED TRANSFEREE AS SPECIFIED IN THE
                           ABOVE-REFERENCED OPINION OF COUNSEL.

                           THE INFORMATION CONTAINED IN THIS NOTE IS THE
                           EXCLUSIVE RESPONSIBILITY OF THE ISSUERS AND HAS NOT
                           BEEN REVIEWED OR APPROVED BY THE NATIONAL BANKING AND
                           SECURITIES COMMISSION OF MEXICO (COMISION NACIONAL
                           BANCARIA Y DE VALORES DE MEXICO). THE REGISTRATION IN
                           THE SPECIAL SECTION OF THE NATIONAL SECURITIES
                           REGISTRY, HANDLED BY THE NATIONAL BANKING AND
                           SECURITIES COMMISSION OF MEXICO, DOES NOT IMPLY
                           CERTIFICATION CONCERNING THE VALIDITY OF THE NOTES OR
                           THE SOLVENCY OF THE ISSUERS.

                           THE NOTES HAVE NOT BEEN REGISTERED IN THE SECURITIES
                           SECTION OF THE MEXICAN NATIONAL SECURITIES REGISTRY,
                           AND, THEREFORE, THEY ARE NOT SUBJECT TO A PUBLIC
                           OFFERING OR PLACEMENT IN MEXICO. ANY MEXICAN INVESTOR
                           WHO ACQUIRES ANY OF THE NOTES WILL DO SUCH UNDER ITS
                           OWN RESPONSIBILITY.

                           (v)      If the purchaser is acquiring any Note as a
         fiduciary or agent for one or more investor accounts, it represents
         that it has sole investment discretion with respect to such account and
         that it has full power to make the acknowledgments, representations and
         agreements contained herein on behalf of each such account.

                           (vi)     The purchaser is a QIB purchasing for its
         own account or for the account of another QIB and it, and such other
         person (if applicable), are aware that the sale to it is being made in
         reliance on Rule 144A.

                           (vii)    The purchaser acknowledges that transfers of
         the Notes shall otherwise be subject in all respects to the
         restrictions applicable thereto contained in this Indenture.

                           (viii)   Either (A) that the purchaser (or the
         account, as applicable) will not acquire the Notes with the assets of
         any "employee benefit plan" as defined in Section 3(3) of ERISA which
         is subject to Title I of ERISA or any "plan" as defined in Section 4975
         of the U.S. Tax Code (each such entity, a "Benefit Plan") or (B) no
         non-exempt "prohibited transaction" under Section 406 of ERISA or
         Section 4975 of the U.S.

                                      -45-



         Tax Code will occur in connection with the purchaser's or such
         account's acquisition or holding of the Notes.

                           (ix)     The purchaser acknowledges that (A) none of
         the Issuers, the Manager, the Servicer, the Initial Purchasers, the
         Class A Note Insurer or any person representing any of them has made
         any representation to it with respect to the Issuers, the Manager, the
         Servicer, the Class A Note Insurer or the offering of the Notes other
         than the information which is contained in the Offering Memorandum, and
         (B) the purchaser has had access to such financial and other
         information concerning the Issuers, the Manager, the Servicer, the
         Class A Note Insurer and the offering of the Notes as it has deemed
         necessary in connection with its decision to purchase the Notes,
         including an opportunity to ask questions of and request information
         from the relevant Initial Purchaser, the Issuers, the Manager, and the
         Servicer.

                           (x)      The purchaser acknowledges that the Issuers,
         the Initial Purchasers and others will rely on the truth and accuracy
         of the foregoing acknowledgments, representations and agreements, and
         agrees that if any of the foregoing acknowledgments, representations
         and agreements deemed to have been made by it are no longer accurate,
         it shall promptly notify the Issuers and the applicable Initial
         Purchaser.

         In addition to the above representations, each purchaser of Class B
Notes will also be deemed to have represented and agreed that, notwithstanding
anything in the Indenture to the contrary, no transfer or issuance of any Class
B Note or any interest in any Issuer or any direct or indirect interest therein
shall be made (i) that would result in there being more than one hundred (100)
owners in the aggregate of the Class B Notes and equity owners of any of the
Issuers, or (ii) to any beneficial owner of an interest in a partnership,
grantor trust or S corporation (herein referred to as a "Flow-through entity")
which Flow-through entity's ownership, directly or indirectly through other
Flow-through entities, of Notes constitutes fifteen percent (15%) or more,
measured by value, of such Flow-through entity's assets. The purchaser either
acknowledges that it is not a Flow-through entity, or, if it is a Flow-through
entity, it shall provide a description of the structure of such Flow-through
entity to the Issuers on its Investment Letter.

         (d)      Each purchaser of Class A-3 Notes in Canada will be required
to execute an Investment Letter in the form attached as Exhibit A-2 prior to
purchasing Class A-3 Notes. Each purchaser of Class A-3 Notes will also be
deemed to have represented and agreed as follows:

                           (i)      The purchaser is a resident of Canada for
         the purposes of the Income Tax Act (Canada).

                           (ii)     The purchaser is a resident of one of the
         provinces or territories of Canada and is a person or company to whom
         the Class A-3 Notes may be offered and sold in reliance upon an
         exemption from the prospectus requirements of the securities
         legislation of one or more of the provinces or territories in which the
         offering and sale of the Class A-3 Notes is, or is deemed to be, taking
         place.

                                      -46-



                           (iii)    The purchaser is a "qualified institutional
         buyer" as defined in Rule 144A.

                           (iv)     The purchaser is basing its investment
         decision solely on the Canadian Offering Memorandum and not on any
         other information concerning the Issuers or the Offering.

                           (v)      The purchaser has reviewed and acknowledges
         the terms referred to under the heading "Resale Restrictions" in the
         Canadian Offering Memorandum.

         (e)      Other than with respect to Book-Entry Notes, at the option of
a Holder, Notes may be exchanged for other Notes of any authorized denominations
and of a like Note Principal Balance and Class upon surrender of the Notes to be
exchanged at the Corporate Trust Office. Whenever any Notes are so surrendered
for exchange, the Issuers shall execute, and the Indenture Trustee shall
authenticate and deliver, the Notes which the Holder making the exchange is
entitled to receive.

         (f)      Other than with respect to Book-Entry Notes, any Note
presented or surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by a written instrument of transfer substantially in
the form of the assignment included as part of Exhibit B-1, B-2, B-3 or B-4
hereto duly executed. All Notes issued upon any registration of transfer or
exchange of Notes shall be the valid, joint and several obligations of the
Issuers, evidencing the same rights, and entitled to the same benefits under
this Indenture, as the Class of Notes surrendered upon such registration of
transfer or exchange. No service charge shall be made for any registration of
transfer or exchange of Notes, but the Issuers and the Indenture Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge as may be imposed in connection with any registration of transfer or
exchange of Notes, other than exchanges pursuant to Section 3.06 not involving
any transfer.

         The Notes have not been and will not be registered under the Securities
Act, and, except for the registration with the Special Section of the Mexican
National Securities Registry (Registro Nacional de Valores or RNV), the Notes
will not be registered or qualified (including any qualification by prospectus
for distribution to the public) under the securities laws of any state, Canadian
province or other jurisdiction. The Notes generally may be transferred only to a
QIB. In addition, the Class A-3 Notes may be transferred only to Persons who are
residents of Canada for purposes of the Canadian Tax Act and meet certain
requirements under applicable Canadian securities legislation.

     Section 3.06. Transfer and Exchange. (a) The transfer and exchange of
Global Notes or beneficial interests therein shall be effected through the
Security Depository, in accordance with this Indenture and the procedures of the
Security Depository therefor, which shall include restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act. Beneficial interests in a Global Note may be transferred to persons who
take delivery thereof in the form of a beneficial interest in the same Global
Note in accordance with the transfer restrictions set forth in the legend in
subsection (c)(iv) of Section 3.05.

                                      -47-



         (b)      Transfer and Exchange from Definitive Notes to Definitive
Notes. When Definitive Notes are presented by a Holder to the Note Registrar
with a request:

                           (i)      to register the transfer of Definitive Notes
         in the form of other Definitive Notes; or

                           (ii)     to exchange such Definitive Notes for an
         equal principal amount of Definitive Notes of other authorized
         denominations, the Note Registrar shall register the transfer or make
         the exchange as requested; provided, however, that the Definitive Notes
         presented or surrendered for register of transfer or exchange:

                                    (A)      shall be duly endorsed or
                           accompanied by a written instruction of transfer in
                           form satisfactory to the Note Registrar duly executed
                           by such Holder or by his attorney, duly authorized in
                           writing;

                                    (B)      if such Definitive Note is being
                           transferred to a QIB in accordance with Rule 144A, a
                           certification to that effect from such Holder (in
                           substantially the form of Exhibit A-1 or Exhibit A-2,
                           as applicable, hereto); or

                                    (C)      if such Definitive Note is being
                           transferred in reliance on any other exemption from
                           the registration requirements of the Securities Act,
                           a certification to that effect from such Holder (in
                           substantially the form of Exhibit A-1 or Exhibit A-2,
                           as applicable, hereto) and an opinion of counsel from
                           such Holder or the transferee reasonably acceptable
                           to the Issuers, the Class A Note Insurer (in the case
                           of a proposed transfer of a Class A Note and so long
                           as no Class A Note Insurer Default shall have
                           occurred and is continuing) and the Indenture Trustee
                           to the effect that such transfer is in compliance
                           with the Securities Act.

                                    (D)      in the case of a transfer of the
                           Class A-3 Notes, such transfer shall be to a resident
                           of Canada for the purposes of the Income Tax Act
                           (Canada) and pursuant to an exemption order for the
                           prospectus requirements of the securities legislation
                           of the provinces or territories in Canada in which
                           such transaction is taking place.

         (c)      Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture, a Global Note may not be
transferred as a whole except by the Security Depository to a nominee of the
Security Depository or by a nominee of the Security Depository to the Security
Depository or another nominee of the Security Depository or by the Security
Depository or any such nominee to a successor Security Depository or a nominee
of such successor Security Depository.

         (d)      Other than as specified in the Purchase Agreements, the
Initial Purchasers shall not be required to deliver, and neither the Issuers nor
the Indenture Trustee shall demand therefrom, any of the certifications or
opinions described in this Section 3.06 in connection with the initial issuance
of the Notes and the delivery thereof by the Issuers.

                                      -48-



     Section 3.07. Mutilated, Destroyed, Lost or Stolen Notes. (a) If (i) any
mutilated Note is surrendered to the Indenture Trustee or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by the Indenture Trustee to hold each of the
Issuers and the Indenture Trustee harmless, then, in the absence of actual
notice to the Issuers or the Indenture Trustee that such Note has been acquired
by a bona fide purchaser, the Issuers shall execute, and the Indenture Trustee
shall authenticate and deliver upon an Issuer Order, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Note, a new Note or Notes of
the same tenor and Class and principal balance bearing a number not
contemporaneously outstanding; provided, however, that if any such mutilated,
destroyed, lost or stolen Note shall have become subject to receipt of payment
in full, instead of issuing a new Note, the Indenture Trustee may make a payment
with respect to such Note without surrender thereof, except that any mutilated
Note shall be surrendered. If, after the delivery of such new Note or payment
with respect to a destroyed, lost or stolen Note pursuant to the proviso to the
preceding sentence, a bona fide purchaser of the original Note in lieu of which
such new Note was issued presents for receipt of payments such original Note,
the Issuers, the Class A Note Insurer (in the case of any Class A Note) and the
Indenture Trustee shall be entitled to recover such new Note (or such payment)
from the Person to whom it was delivered or any Person taking such new Note from
such Person, except a bona fide purchaser, and each of the Issuers, the Class A
Note Insurer (in the case of any Class A Note) and the Indenture Trustee shall
be entitled to recover upon the security or indemnity provided therefor to the
extent of any loss, damage or cost incurred by the Issuers, the Class A Note
Insurer or the Indenture Trustee in connection therewith.

         (b)      Upon the issuance of any new Note under this Section 3.07, the
Issuers or the Indenture Trustee may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto.

         (c)      Every new Note issued pursuant to this Section 3.07 in lieu of
any destroyed, lost or stolen Note shall constitute an original additional joint
and several contractual obligation of the Issuers, whether or not the destroyed,
lost or stolen Note shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Notes duly issued hereunder.

         (d)      The provisions of this Section 3.07 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment with respect to mutilated, destroyed, lost or stolen
Notes.

     Section 3.08. Persons Deemed Holders. Before due presentment for
registration of transfer of any Note, the Issuers, the Class A Note Insurer, the
Indenture Trustee and any agent of any Issuer, the Class A Note Insurer or the
Indenture Trustee may treat the Person in whose name any Note is registered or
in whose name any beneficial interest of a Note is registered pursuant to
Section 3.05 as the owner of such Note (a) on the applicable Record Date for the
purpose of receiving payments with respect to principal and interest on such
Note and (b) on any date for all other purposes whatsoever, whether or not such
Note be overdue, and none of the Issuers, the Class A Note Insurer, the
Indenture Trustee nor any agent of any Issuer, the Class A Note Insurer or the
Indenture Trustee shall be affected by any notice to the contrary.

                                      -49-



     Section 3.09. Cancellation of Notes. All certificated Notes surrendered for
payment, registration of transfer, exchange or prepayment shall, if surrendered
to any Person other than the Indenture Trustee, be delivered to the Indenture
Trustee and shall be promptly canceled by it; provided, that no Class A Note
shall be canceled if such payment is made from funds paid under the Class A Note
Policy until the Class A Note Insurer has confirmed to the Indenture Trustee in
writing that it has received all Reimbursement Obligations. The Issuers may at
any time deliver to the Indenture Trustee for cancellation any Note previously
authenticated and delivered hereunder which the Issuers may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section 3.09 except as expressly
permitted by this Indenture. All canceled Notes shall be held and disposed of by
the Indenture Trustee in accordance with its standard retention and disposal
policy.

     Section 3.10. Definitive Notes. The Class A-3 Notes and the Class B Notes
will be issued as Definitive Notes and will not at any time that such Notes are
Outstanding be issued to the Securities Depository or its nominee. The Class A-1
Notes and Class A-2 Notes will be issued as Definitive Notes, rather than to the
Securities Depository or its nominee, only if (a) the Issuers advise the Note
Registrar in writing that the Securities Depository is no longer willing or able
to discharge properly its responsibilities as the Securities Depository with
respect to the Book-Entry Notes and the Issuers are unable to locate a qualified
successor, (b) the Issuers, at their option, elect to terminate the book-entry
system through the Securities Depository or (c) after the occurrence of an Event
of Default, Holders representing at least a majority of the outstanding
principal amount of the Class A-1 Notes or the Class A-2 Notes, as applicable,
advise the Issuers through the Securities Depository in writing that the
continuation of a book-entry system through the Securities Depository (or a
successor thereto) is no longer in such Holders' best interest. Upon the
occurrence of any of the events described in this paragraph, the Issuers will be
required to notify the Note Registrar, and the Note Registrar will be required
to notify all Holders of Class A-1 Notes and Class A-2 Notes through
participants of the availability of Definitive Notes. Upon surrender by the
Securities Depository of its Book-Entry Notes and receipt of instructions for
reregistration, the Issuers will reissue the Book-Entry Notes as Definitive
Notes to the Class A-1 Holders and Class A-2 Holders in the amounts specified in
the reregistration instructions.

     Section 3.11. Tax Treatment. (a) The Issuers have structured the
transactions represented by this Indenture and the Notes with the intention that
the Notes be treated, for all purposes, as indebtedness. Each Holder by its
acquisition of a Note agrees, for all purposes, to treat the Notes as
indebtedness. Each provision of the Indenture, the Purchase Agreements and the
Notes shall be construed in accordance with this intention, and no party to the
Indenture or a Purchase Agreement and no Holder shall take, fail to take or
permit to be taken any act that may be inconsistent with this statement of
intention. Without limiting the generality of the preceding sentence, under no
circumstances will any of the Issuers, the Indenture Trustee or the Holders
elect to treat any Issuer as a corporation for U.S. federal income tax purposes;
further, an election shall be filed to cause NARCAT Mexico to be treated as a
disregarded entity (or, if contrary to the intent of the parties, the Notes were
determined not to constitute indebtedness for federal income tax purposes, as a
partnership) for U.S. federal income tax purposes.

                                      -50-



         (b)      No ownership interest in any Note or shall be issued, sold,
transferred, listed or otherwise exchanged at any time on an established
securities market, including (i) a national securities exchange registered under
the Securities Exchange Act of 1934, as amended (the "1934 Act") or exempted
from registration because of the limited volume of transactions; (ii) a foreign
securities exchange that, under the law of the jurisdiction where it is
organized, satisfied regulatory requirements that are analogous to the
regulatory requirements under the 1934 Act applicable to exchanges described in
clause (i); (iii) a regional or local exchange; or (iv) an over-the-counter
market, as the terms in clauses (i), (ii), (iii) and (iv) are defined for
purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the
"U.S. Tax Code").

         (c)      Notwithstanding anything in the Indenture to the contrary, no
transfer or issuance of any Class B Note or any interest in any Issuer or any
direct or indirect interest therein shall be made (i) that would result in there
being more than one hundred (100) owners in the aggregate of the Class B Notes
and equity owners of any of the Issuers, or (ii) to any beneficial owner of an
interest in a partnership, grantor trust or S corporation (herein referred to as
a "Flow-through entity") which Flow-through entity's ownership, directly or
indirectly through other Flow-through entities, of Notes constitutes fifteen
percent (15%) or more, measured by value, of such Flow-through entity's assets.

         (d)      Based upon representations made by the Issuers, no "interests
in real property," secure the Notes. The term "interests in real property"
includes fee ownership and co-ownership of land or improvements thereon,
leaseholds of land or improvements thereon, options to acquire land or
improvements thereon, and options to acquire leaseholds of land or improvements
thereon. The term also includes timeshare interests that represent an undivided
fractional fee interest, or undivided leasehold interest, in real property, and
that entitle the holders of the interests to the use and enjoyment of the
property for a specified period of time each year. The term "real property"
means land or improvements thereon, such as buildings or other inherently
permanent structures thereon (including items which are structural components of
such buildings or structures). In addition, the term "real property" includes
interests in real property. Local law definitions will not be controlling for
purposes of determining the meaning of the term "real property." The term
includes, for example, the wiring in a building, plumbing systems, central
heating or central air-conditioning machinery, pipes or ducts, elevators or
escalators installed in the building, or other items which are structural
components of building or other permanent structure. The term does not include
assets accessory to the operation of a business, such as machinery, printing
press, transportation equipment which is not a structural component of the
building, office equipment, refrigerators, individual air-conditioning units,
grocery counters, furnishings of a motel, hotel, or office building, etc., even
though such items may be termed fixtures under local law.

         (e)      Each purchaser shall, on or prior to the date the first
payment becomes due after the date that it becomes a purchaser, and thereafter
within 30 days after requested in writing by NARCAT or the Indenture Trustee and
within a reasonable period of time (but in no event later than the day before
the date of the next payment due to such purchaser on the Notes) after a change
in the information on any form previously delivered, provide NARCAT and the
Indenture Trustee with (i) if such purchaser is a "United States person" under
Section 7701(a)(30) of the U.S. Tax Code (other than a purchaser who is a
corporation whose

                                      -51-



name contains the words "insurance company," "reinsurance company," "assurance
company," "Corporation" or "Inc.") a properly completed Internal Revenue Service
Form W-9 or any successor form prescribed by the Internal Revenue Service or
(ii) if such purchaser is not a "United States person" under Section 7701(a)(30)
of the U.S. Tax Code, (x) a properly completed Internal Revenue Service Form
W-8BEN or any successor form prescribed by the Internal Revenue Service,
certifying that such purchaser is entitled to benefits under an income tax
treaty to which the United States is a party which provides a complete exemption
from United States withholding taxes, (y) a properly completed Internal Revenue
Service Form W-8ECI or any successor form prescribed by the Internal Revenue
Service, certifying that the income receivable under the Notes or any other
Transaction Document is effectively connected with the conduct by such Person of
a trade or business in the United States or (z) if such purchaser is not a
"bank" within the meaning of Section 881(c)(3)(A) of the U.S. Tax Code, a
certificate substantially in the form of Exhibit D-1 or D-2, as applicable,
completed Internal Revenue Service Form W-8BEN or any successor form prescribed
by the Internal Revenue Service, certifying that such purchaser is not a United
States person under Section 7701(a)(30) of the U.S. Tax Code; provided that if
there is a change in the information on any form previously delivered by a
purchaser and such purchaser is not eligible to provide any replacement form
(and if applicable, replacement certificate) hereunder, such purchaser shall
notify NARCAT and the Indenture Trustee of such event no later than the day
before the date of the next payment due to such purchaser on the Notes. In
regard to any non-U.S. holder of a Note that is treated as a partnership for
U.S. income tax purposes, the above requirements shall be satisfied by the
beneficial owners of interests in such non-U.S. holder (looking through partners
that are foreign intermediaries or flow-through entities).

         (f)      The Indenture Trustee shall not file any election under
Treasury Regulations Section 301.7701-3 to cause the Indenture to be treated as
an association taxable as a corporation.

     Section 3.12. Withholding Taxes. (a)(i) The Issuers agree to make interest
payments to the Holders so that the net amounts received by the Holders, after
the withholding of any taxes ("Mexican Withholding Taxes") required by Mexico's
Federal Income Tax Law on interest payments made by NARCAT Mexico, will equal
the amounts that the Holders would have received if no withholding had been
required, and (ii) NARCAT Mexico agrees to pay to the Mexican taxing authorities
(as a portion of Tax Payment Amounts in Section 6.08 or Section 12.02(d), as
applicable) such amounts as shall be required to comply with NARCAT Mexico's
obligation to pay Mexican Withholding Taxes on a timely basis.

         (b)      If either (i) a court or the Internal Revenue Service
determines that Taxes must be withheld on interest payments made by NARCAT to
Holders who are nonresidents and who are not citizens of the United States, or
(ii) Taxes must be withheld on interest payments made by CARCAT to Holders who
are not residents of Canada within the meaning of the Canada Tax Act, then
payments of interest to such nonresident Holders will be reduced to the extent
required to pay such taxes, notwithstanding any other provision of this
Indenture.

         (c)      The Class A Note Policy does not cover any shortfalls
resulting from withholding tax liability or interest or penalties in respect of
such liability.

                                      -52-



                                   ARTICLE IV

           AUTHENTICATION AND DELIVERY OF NOTES; POST-CLOSING FILINGS

     Section 4.01. General Provisions. The Notes shall be executed by Authorized
Officers of each of the Issuers and delivered to the Indenture Trustee for
authentication and thereupon the same shall be authenticated and delivered by
the Indenture Trustee upon an Issuer Order upon receipt by the Indenture Trustee
of the following:

                  (a)      copies of each of the Transaction Documents, duly
         executed and delivered by each of the parties thereto (other than the
         Indenture Trustee);

                  (b)      a Board Resolution of each of the Issuers, the
         Servicer, the Manager and each Seller authorizing, as applicable, the
         execution, delivery and performance of the Transaction Documents to
         which it is a party and the transactions contemplated thereby;

                  (c)      a certificate or other official document evidencing
         any authorization, approval or consent of each government body or
         bodies required for valid issuance of such Notes or the execution,
         delivery and performance of any of the Transaction Documents;

                  (d)      one or more Opinions of Counsel with respect to each
         Issuer, each Seller, Holdco, the Servicer and the Manager, as
         applicable (which may rely upon one or more Officer's Certificates from
         the related Person as to matters of fact and which may be based on such
         assumptions and subject to such exceptions, limitations and
         qualifications as are customarily contained in opinions of this nature)
         substantially to the effect that, and with such modifications as may be
         necessary under the laws of Canada and Mexico, (i) such Person has been
         duly formed and is validly existing and in good standing under the laws
         of the respective jurisdiction identified in this Indenture and is duly
         qualified to do business in said jurisdiction and has the power and
         authority to enter into and perform its obligations under the
         Transaction Documents to which such Person is a party; (ii) this
         Indenture and each other Transaction Document to which such Person is a
         party (other than the Notes) has been duly authorized, executed and
         delivered by such Person and constitutes the valid, legal and binding
         agreement of such Person, enforceable in accordance with its terms;
         (iii) with respect to each Issuer, the Notes have been duly authorized
         by such Issuer and, when issued and authenticated in accordance with
         the terms of the Indenture, will be valid and binding, joint and
         several obligations of the Issuers enforceable in accordance with their
         terms; (iv) the execution, delivery and performance by such Person of
         its obligations under the Indenture, the Notes or any other Transaction
         Document to which such Person is a party will not conflict with or
         violate any of the organizational documents of such Person or any
         applicable Law or order, rule or regulation of any court,
         administrative agency or other governmental authority having
         jurisdiction over such Person; (v) no consent, approval or
         authorization of any governmental authority is required for the
         execution and delivery by such Person of the Indenture, the Notes or
         any other Transaction Document to which such Person is a party except
         as shall have been therefore received and except as may be required
         under the

                                      -53-



         securities or "blue sky" laws of various jurisdictions in connection
         with the delivery of the Notes; (vi) such Person has full power and
         authority to assign, pledge, hypothecate and deposit all of its right,
         title and interest in and to the Leases, the Railcars and the other
         Collateral owned thereby to the Issuers, in the case of the Sellers,
         and to the Indenture Trustee, in the case of the Issuers, free from any
         Lien (other than any Permitted Lien), security interest, encumbrance or
         other right, title or interest of any person, subject, however, to the
         rights of the Lessees in the Railcars under the related Leases; (vii)
         to the extent Article 9 of the UCC is applicable, the Indenture,
         together with the filing of UCC-1 financing statements in the filing
         offices to be identified in such opinion or opinions is effective to
         Grant to and create in favor of the Indenture Trustee for the benefit
         of the Secured Parties as security for the Notes, a perfected security
         interest in the Leases, the Railcars and the other Collateral owned by
         such Issuer; (viii) the offer and sale of the Notes under the
         circumstances contemplated by each Purchase Agreement is exempt from
         the registration requirements of the Securities Act, and no
         qualification of the Indenture is required under the Trust Indenture
         Act of 1939, as amended; and (ix) with respect to each Issuer, such
         Issuer is not an "investment company" required to register as such
         under the Investment Company Act of 1940, as amended;

                  (e)      an Opinion of Counsel with respect to certain matters
         relating to filings required to be made with the STB in respect of the
         security interest of the Indenture Trustee in each Railcar and any
         related Existing Lease (other than Excepted Leases) (which opinions may
         rely upon one or more Officer's Certificates from the related Issuer as
         to matters of fact and which may be based on such assumptions and
         subject to such exceptions, limitations and qualifications as are
         customarily contained in opinions of this nature) and substantially to
         the effect that (a) the U.S. Filed Documents have been prepared for
         filing with the STB in compliance with the relevant STB Filings
         Requirements; (b) except for the filing of the U.S. Filed Documents, no
         consent, approval, authorization or order of, or registration with, the
         STB or with any other governmental authority or regulatory body is
         required with respect to perfection of the assignments of the Existing
         Leases and the security interest in the Existing Leases and the
         Railcars contemplated by the Indenture; (c) other than the U.S. Filed
         Documents and such exceptions as may be agreed upon by the Class A Note
         Insurer, no document evidencing a Lien and encumbrance on, or security
         interest in, the Initial Railcars appears in the recordation files and
         records maintained by the STB pursuant to the relevant STB filing
         requirements; and (d) under the relevant STB filing requirements, upon
         the STB's recordation of the U.S. Filed Documents, such filing and
         recordation constitutes notice to, and such U.S. Filed Documents will
         be enforceable against, all persons (subject to such exceptions as may
         be agreed upon by the Class A Note Insurer and no other filing,
         depositing, registering or recording under any law of the United
         States, a state within the United States (or its political
         subdivisions) or territory or possession of the United States, is
         necessary to protect the interests of the parties to the U.S. Filed
         Documents in the Initial Railcars, and no re-recording, re-filing or
         re-registering of any of the foregoing documents with the STB is
         necessary to continue such notice and enforceability under present law
         and regulations;

                                      -54-



                  (f)      an Opinion of Counsel with respect to certain matters
         relating to filings required to be made with the Canadian Regulator in
         respect of the security interest of Indenture Trustee in each Canadian
         Railcar and Canadian Lease (which opinions may rely upon one or more
         Officer's Certificates from CARCAT as to matters of fact and which may
         be based upon such assumptions and subject to such exceptions,
         limitations and qualifications as are customarily contained in opinions
         of this nature) and substantially to the effect that

                           (i)      the Canadian Filed Documents have been
                  prepared for filing with the Canadian Regulator in compliance
                  with the requirements of the Canadian Regulator;

                           (ii)     the deposit of the Canadian Filed Documents
                  will protect the rights of the Indenture Trustee in and to the
                  Canadian Railcars and Canadian Leases and no other filing,
                  recording, deposit or registration is necessary in Canada or
                  in any province or territory thereof to protect such rights;

                           (iii)    the Canadian Filed Documents are valid
                  against all persons; and

                           (iv)     no document evidencing a currently
                  outstanding lease, mortgage, hypothec, bailment or security
                  interest or any amendment or assignment thereto was located in
                  the database maintained by the Canadian Regulator with respect
                  to the Railcars;

                  (g)      an Opinion of Counsel (which may rely upon one or
         more Officer's Certificates as to matters of fact and which may be
         based on such assumptions and subject to such exceptions, limitations
         and qualifications as are customarily contained in opinions of this
         nature) substantially to the effect that, in the event that The
         Andersons were to become a debtor under the bankruptcy laws of the
         United States or Canada, a court would not order the substantive
         consolidation of Holdco, any Seller or any Issuer with any such debtor;

                  (h)      an Officer's Certificate of each Issuer stating that
         such Issuer is not in Default under this Indenture and there is no
         Event of Default hereunder and that the issuance of the Notes will not
         result in any breach of any of the terms, conditions or provisions of,
         or constitute a default under, such Issuer's Certificate of Formation
         or other corporation formation document, as applicable, or operating
         agreement or other organizational or constitutional document, as
         applicable, or any indenture, mortgage, deed of trust or other
         agreement or instrument to which such Issuer is a party or by which
         such Issuer is bound, or any order of any court or administrative
         agency entered in any Proceeding to which such Issuer is a party or by
         which it may be bound or to which it may be subject; and that all
         conditions precedent provided in this Indenture relating to the
         authentication and delivery of the Notes have been complied with and an
         Officer's Certificate of each Seller to the effect that all of such
         Seller's representations and warranties in the Sale Agreements were
         accurate as of the time made;

                                      -55-



                  (i)      a copy of an officially certified document, dated not
         more than 30 days prior to the Closing Date, evidencing the due
         organization and good standing of each Issuer, the Servicer, the
         Manager and each Seller in their respective jurisdictions of
         incorporation or formation, as applicable;

                  (j)      copies of the corporate formation documents of each
         Issuer, the Servicer, the Manager and each Seller;

                  (k)      the initial Lease and Railcar Schedule;

                  (l)      except in respect of those Leases identified on
         Schedule IV hereto, the sole original executed counterpart of each
         Lease, including any amendments or modifications thereto, subject to
         such exceptions as shall have been approved by the Controlling Party,
         as provided in Section 7.13 (and the Indenture Trustee shall have
         delivered to the Servicer, the Manager, the Issuers, the Class A Note
         Insurer and the Holders a certificate in the form attached hereto as
         Exhibit C to the effect that the Indenture Trustee has received each
         such Lease);

                  (m)      evidence that the Indenture Trustee has established
         the Collection Accounts, the Cash Collateral Accounts, the Operating
         Expense Reserve Account (including the NARCAT OER Subaccount and the
         CARCAT OER Subaccount), the Prefunding Account and the Policy Payment
         Account (including the NARCAT Policy Payment Subaccount and the CARCAT
         Policy Payment Subaccount) and evidence of the funding of the Cash
         Collateral Accounts and the Prefunding Account;

                  (n)      a certificate from each Issuer to the effect that, in
         the case of each Lease, Railcar and other Railcar Assets being
         transferred pursuant to its related Sale Agreement immediately prior to
         the delivery thereof to the Indenture Trustee:

                           (i)      each Issuer (A) is the owner of each Lease
                  and Railcar transferred to it pursuant to its respective Sale
                  Agreement free from any Lien, security interest, encumbrance
                  or other right, title or interest of any Person known to the
                  Issuer, other than the rights of the Lessee or sublessee under
                  the Lease and the security interest assigned to the Indenture
                  Trustee pursuant to the Indenture, (B) has not assigned any
                  interest or participation in such Lease or Railcar (or, if any
                  such interest or participation has been assigned, it has been
                  released), and (C) has full right to Grant such Lease and
                  Railcar to the Indenture Trustee;

                           (ii)     the information set forth with respect to
                  each such Lease, Railcar and other Railcar Assets transferred
                  to it pursuant to its respective Sale Agreement in the initial
                  Lease and Railcar Schedule is correct in all material
                  respects;

                           (iii)    the Issuer has Granted to the Indenture
                  Trustee all of its right, title, and interest in each Lease,
                  Railcar and other Railcar Assets transferred to it pursuant to
                  its respective Sale Agreement; and

                                      -56-



                           (iv)     each lease, railcar and other related asset
                  transferred to it pursuant to its respective Sale Agreement
                  constitutes a Lease, Railcar or Railcar Asset;

                  (o)      a rating letter issued by each of the Rating Agencies
         to the Issuers, the Class A Note Insurer and the Indenture Trustee
         assigning a rating to the Class A Notes of "AAA" by S&P and "AAA" by
         Fitch and a rating to the Class B Notes of "B" by S&P;

                  (p)      such lien searches and releases of liens as the
         Indenture Trustee or the Class A Note Insurer deems necessary to
         establish that the Non-Mexican Collateral of each Issuer and the Seller
         (including, without limitation, the Non-Mexican Collateral owned by
         each Issuer on the Closing Date) are free and clear of any Liens other
         than Permitted Liens;

                  (q)      appraisals of the Railcars issued by RailSolutions,
         Inc., and D. W. Beary & Associates, Inc., together with letters
         reaffirming the values set forth therein as of January 30, 2004; and

                  (r)      such other documents as the Indenture Trustee, the
         Class A Note Insurer or the Holders may reasonably require.

         Section 4.02. Post-Closing Filings. Each Issuer shall file, or cause to
be filed, no later than the Closing Date, the applicable UCC financing
statements described below:

                  (a)      to perfect the U.S. Seller's transfer pursuant to the
         NARCAT Sale Agreement of its interest in the U.S. Article 9 Assets to
         NARCAT, a UCC financing statement in Delaware (the state in which the
         U.S. Seller is organized), naming the U.S. Seller as debtor, NARCAT as
         intermediate assignor and the Indenture Trustee as secured party;

                  (b)      to perfect NARCAT's pledge of its interest in the
         U.S. Article 9 Assets to the Indenture Trustee pursuant to the
         Indenture, a UCC financing statement in Delaware (the state in which
         NARCAT is organized), naming NARCAT as debtor and the Indenture Trustee
         as secured party;

                  (c)      to perfect (to the extent effective) the Canadian
         Seller's transfer pursuant to the CARCAT Sale Agreement of its interest
         in the Canadian Article 9 Assets to CARCAT, a UCC financing statement
         in each of the District of Columbia and Ohio, naming the Canadian
         Seller as debtor, CARCAT as intermediate assignor and the Indenture
         Trustee as secured party;

                  (d)      to perfect (to the extent effective) CARCAT's pledge
         of its interest in the Canadian Article 9 Assets to the Indenture
         Trustee pursuant to the Indenture, a UCC financing statement in each of
         the District of Columbia and Ohio, naming CARCAT as debtor and the
         Indenture Trustee as secured party;

                                      -57-



                  (e)      to perfect (to the extent effective) the Mexican
         Seller's transfer pursuant to the NARCAT Mexico Sale Agreement of its
         interest in the Mexican Article 9 Assets to NARCAT Mexico, a UCC
         financing statement in each of the District of Columbia and Ohio,
         naming the Mexican Seller as debtor, NARCAT Mexico as intermediate
         assignor and the Indenture Trustee as secured party;

                  (f)      to perfect (to the extent effective) NARCAT Mexico's
         pledge of its interest in the Mexican Article 9 Assets to the Indenture
         Trustee pursuant to the Indenture, a UCC financing statement in each of
         the District of Columbia and Ohio, naming NARCAT Mexico as debtor and
         the Indenture Trustee as secured party;

                  (g)      to perfect the transfer to the Canadian Seller
         pursuant to the Asset Purchase Agreement of its interest in the
         Canadian Railcars and Canadian Leases, a financing statement filed
         pursuant to the Personal Property Security Act (Nova Scotia) naming
         3079936 Nova Scotia Company as assignor/debtor and the Canadian Seller
         as assignee/secured party;

                  (h)      to perfect the Canadian Seller's transfer pursuant to
         the CARCAT Sale Agreement of its interest in the Canadian Railcars and
         Canadian Leases to CARCAT, a financing statement filed pursuant to the
         laws of the Personal Property Security Act (Nova Scotia) naming the
         Canadian Seller as assignor/debtor and CARCAT as assignee/secured
         party; and

                  (i)      to perfect CARCAT's pledge of its interest in the
         Canadian Railcars and Canadian Leases to the Indenture Trustee pursuant
         to the Indenture, a financing statement pursuant to the Personal
         Property Security Act (Nova Scotia) naming CARCAT as debtor and the
         Indenture Trustee as secured party.

                                    ARTICLE V

                           SATISFACTION AND DISCHARGE

     Section 5.01. Satisfaction and Discharge of Indenture. This Indenture shall
cease to be of further effect (except as to any surviving rights of registration
of transfer and exchange or payment) with respect to any Notes and the Indenture
Trustee, on demand of and at the expense of the Issuers, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture with
respect to such Notes and shall pay, assign, transfer and deliver to the Issuers
upon an Issuer Order acknowledged and agreed to in writing by the Controlling
Party all cash, securities and other property held by it as part of the
Collateral (except for amounts required to pay and discharge the entire
remaining indebtedness of the Notes), when

                  (a)      either

                           (i)      all Notes theretofore authenticated and
                  delivered (other than (A) Notes which have been destroyed,
                  lost or stolen and which have been replaced or paid as
                  provided in Section 3.07, and (B) Notes for whose payment

                                      -58-


                  money has theretofore been deposited in trust as provided in
                  Section 11.03) have been delivered to the Indenture Trustee
                  for cancellation; or

                           (ii)     all Notes not theretofore delivered to the
                  Indenture Trustee for cancellation have become due and payable
                  and the Issuers have irrevocably deposited or caused to be
                  deposited with the Indenture Trustee, in trust for the
                  purpose, an amount sufficient to pay and discharge the
                  principal amount, interest and premium, if any, due on such
                  Notes not theretofore delivered to the Indenture Trustee for
                  cancellation; and

                  (b)      payment in full of (i) all fees and expenses of the
         Indenture Trustee, the Servicer, the Manager, the Backup Servicer and
         the Backup Manager, (ii) all amounts owing to the Class A Note Insurer
         (including, without limitation, any early termination fee payable under
         the Insurance Agreement) and (iii) all other obligations of the Issuers
         under the Transaction Documents.

     Section 5.02. Application of Trust Money. Subject to the last paragraph of
Section 11.03, all monies deposited with the Indenture Trustee pursuant to
Section 5.01 shall be held in trust and applied by it, in accordance with the
provisions of the Notes and this Indenture, to the payment, either directly or
through any Paying Agent as the Indenture Trustee may determine, to the Persons
entitled thereto, of the principal and interest for whose payment such money has
been deposited with the Indenture Trustee; but such money need not be segregated
from other funds except to the extent required herein or to the extent required
by law.

                                   ARTICLE VI

                              DEFAULTS AND REMEDIES

     Section 6.01. Events of Default. "Event of Default," wherever used herein,
means any one of the following events:

                  (a)      failure of the Issuers to make any payment of
         interest on the Class A Notes when due on any Payment Date or, if no
         Class A Notes shall then be Outstanding, failure of the Issuers to make
         any payment of interest on the Class B Notes when due on any Payment
         Date;

                  (b)      after giving effect to all Basic Principal Payments,
         any Supplemental Principal Payments, and any Scheduled Class B Payments
         made on any Payment Date, the Note Principal Balance of all Notes is
         greater than the Stated Value of all Eligible Railcars as of the
         immediately preceding Accounting Date;

                  (c)      default in the performance, or breach, of any
         material covenant, agreement, or other obligation of any Issuer in any
         Transaction Document or any representation or warranty (other than a
         covenant or warranty default in the performance of which or breach of
         which is specifically dealt with elsewhere in this Section 6.01) of any
         Issuer in any Transaction Document proves to be incorrect at the time
         made in any

                                      -59-



         material respect, and continuance of such default or breach for a
         period of 30 days after the earlier of (i) actual knowledge by any of
         the Issuers, the Manager or the Servicer or (ii) there shall have been
         given to the Issuers by the Indenture Trustee or to the Issuers and the
         Indenture Trustee by the Controlling Party, a written notice specifying
         such default or breach and requiring it to be remedied and stating that
         such notice is a "Notice of Default" hereunder;

                  (d)      the entry of a decree or order for relief by a court
         having jurisdiction over any Issuer under the United States Bankruptcy
         Code or in a Canadian Insolvency Proceeding or any other applicable
         federal, state or foreign bankruptcy or insolvency law, or appointing a
         receiver, liquidator, assignee, trustee, or sequestrator (or other
         similar official) of such Issuer or of any substantial part of its
         property, or ordering the winding up or liquidation of its affairs, and
         the continuance of any such involuntary decree or involuntary order
         unstayed and in effect for a period of 30 consecutive days;

                  (e)      the institution by any Issuer of Proceedings to be
         adjudicated bankrupt or insolvent, or the consent by it to the
         institution of bankruptcy or insolvency Proceedings against it, or the
         filing by it of a petition or answer or consent seeking reorganization
         or relief under the United States Bankruptcy Code or any other
         applicable federal, state or foreign law, the commencement of a
         Canadian Insolvency Proceeding by or against any Issuer or the consent
         by it to the filing of any such petition or to the appointment of a
         receiver, liquidator, assignee, trustee or sequestrator (or other
         similar official) of such Issuer or of any substantial part of its
         property, or the making by it of an assignment for the benefit of
         creditors, or the admission by it in writing of its inability to pay
         its debts generally as they become due, or the taking of action by any
         Issuer in furtherance of any such action;

                  (f)      the Indenture shall cease to be in full force and
         effect or the Liens in existence and in connection therewith cease to
         be valid, first priority perfected security interests in the Issuers'
         interests in the Non-Mexican Collateral, subject only to Permitted
         Liens;

                  (g)      any Issuer becomes required to register as an
         "investment company" within the meaning of the Investment Company Act
         of 1940, as amended;

                  (h)      a writ of attachment or similar action or process has
         been filed against a Collection Account, a Cash Collateral Account, the
         Operating Expense Reserve Account (including the NARCAT OER Subaccount
         or the CARCAT OER Subaccount), the Policy Payment Account (including
         the NARCAT Policy Payment Subaccount or the CARCAT Policy Payment
         Subaccount), the Prefunding Account or any Lockbox Account, or any
         other component of the Collateral and such writ or other action or
         process shall not have been stayed or dismissed within 30 days from the
         entry thereof;

                  (i)      entry of final judgment of a court of competent
         jurisdiction against any of the Issuers in an amount exceeding
         $1,000,000, which judgment remains unsatisfied and unstayed for a
         period exceeding 30 days from the entry thereof;

                                      -60-



                  (j)      NARCAT becomes subject to taxation as an association
         (or publicly traded partnership) taxable as a corporation, or any other
         Issuer becomes subject to taxation as an association (or publicly
         traded partnership) under the U.S. Tax Code;

                  (k)      any draw on the Class A Note Policy;

                  (l)      failure to have repaid any Note in full on the Stated
         Legal Maturity Date;

                  (m)      the occurrence of a reportable event (within the
         meaning of Section 4043 of ERISA) with respect to any Benefit Plan, or
         the occurrence of any event or condition with respect to a Benefit Plan
         which reasonably could be expected to result in the imposition of a
         Lien on all or part of any Collateral;

                  (n)      a Manager Event of Termination has occurred and is
         continuing and (i) the Backup Manager has not assumed the duties of
         Manager and (ii) the Controlling Party is unable to find an acceptable
         replacement Manager who succeeds to the role of "Manager" within 30
         days after the Indenture Trustee gives notice of such termination as
         provided in the Management Agreement;

                  (o)      a Servicer Event of Termination has occurred and is
         continuing and (i) the Backup Servicer has not assumed the duties of
         Servicer and (ii) the Controlling Party is unable to find an acceptable
         replacement Servicer who succeeds to the role of "Servicer" within 30
         days after the Indenture Trustee gives notice of such termination as
         provided in the Servicing Agreement; or

                  (p)      any failure to pay income or withholding taxes
         following notice to an Issuer from the relevant governmental agency and
         the expiration of any statutory grace periods, which has given rise to
         the ability of a relevant governmental agency to perfect a governmental
         Lien on all or any material part of the Collateral.

     Section 6.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default pursuant to Section 6.01(a)-(c) or (f)-(p) occurs and is
continuing, then and in every such case the Indenture Trustee with the consent
of the Controlling Party may, and at the direction of the Controlling Party
shall, declare the principal of all the Notes to be immediately due and payable,
by a notice in writing to the Issuers, the Class A Note Insurer and the Holders.
Upon any such declaration such principal shall become immediately due and
payable without any presentment, demand, protest or other notice of any kind
(except such notices as shall be expressly required by the provisions of this
Indenture), all of which are hereby expressly waived. If an Event of Default
pursuant to Section 6.01(d) or (e) occurs and is continuing, then in such case
the principal of all the Notes shall be automatically due and payable without
any presentment, demand, protest or other notice of any kind (an "Automatic
Acceleration").

         At any time after such a declaration of acceleration has been made, but
before any Sale of the Collateral has been made or a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article VI provided, the Controlling Party, by written
notice to the Issuers and the Indenture Trustee, may rescind and annul such

                                      -61-



declaration and its consequences (except that in the case of (A) a default (i)
in payment of interest when due or (ii) in payment of principal on the Stated
Legal Maturity Date with respect to the Class A Notes (unless the payment in
question has been made by the Class A Note Insurer pursuant to the Class A Note
Policy) or, (B) if no Class A Notes are Outstanding, a payment default on the
Class B Notes, the consent of all of the Holders of such Class shall be required
to rescind and annul such a declaration and its consequences) if

                  (a)      the Issuers have paid or deposited with the Indenture
         Trustee a sum sufficient to pay:

                           (i)      all interest which has been become due and
                  payable on all Class A Notes or, if no Class A Notes are
                  Outstanding, the Class B Notes,

                           (ii)     the principal of any Class A Notes or, if no
                  Class A Notes are Outstanding, the Class B Notes, which has
                  become due otherwise than by such declaration of acceleration
                  and interest thereon at the rate borne by such Notes,

                           (iii)    to the extent that payment of such interest
                  is lawful, interest upon Overdue Interest on the Notes at the
                  rate borne by such Notes to the date of such payment or
                  deposit, and

                           (iv)     all sums paid or advanced by the Indenture
                  Trustee, the Class A Note Insurer or any Holder hereunder and
                  the reasonable compensation, expenses, disbursements and
                  advances of the Indenture Trustee, the Class A Note Insurer
                  and the Holders, their agents and counsel to the date of such
                  payment or deposit;

                  and

                  (b)      all Events of Default, other than the nonpayment of
         the principal of the Notes which have become due solely by such
         declaration of acceleration, have been cured or waived as provided in
         Section 6.15.

         No such rescission shall affect any subsequent default or impair any
right consequent thereon.

     Section 6.03. Payment Obligations upon Acceleration. Each Issuer covenants
that if an Event of Default shall occur and be continuing with respect to any
Notes, and the Notes have been declared due and payable and such declaration has
not been rescinded and annulled, or there has been an Automatic Acceleration,
the Issuers will, upon demand of the Indenture Trustee (acting at the direction
of the Controlling Party), pay to the Indenture Trustee, for the benefit of the
Holders of Notes and the Class A Note Insurer, the whole amount then due and
payable on such Notes for principal and interest, with interest upon any Overdue
Basic Principal Payment and Deferred Supplemental Principal Payment and, to the
extent that payment of such interest shall be legally enforceable, upon Overdue
Interest, at the Overdue Rate, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection,

                                      -62-



including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee, its agents and counsel.

     Section 6.04. Remedies. If an Event of Default shall have occurred and be
continuing, the Indenture Trustee, in its own name and as trustee of an express
trust, may, with the consent of the Controlling Party, or shall, acting at the
direction of the Controlling Party, do one or more of the following:

                  (a)      institute Proceedings for the collection of all
         amounts then payable on the Notes, payable to the Class A Note Insurer
         and otherwise payable under this Indenture, whether by declaration or
         otherwise, prosecute such Proceeding to judgment or final decree, and
         enforce the same against the Issuers and collect the monies adjudged or
         decreed to be payable in the manner provided by law out of the property
         of the Issuers, wherever situated;

                  (b)      proceed to protect and enforce its rights and the
         rights of the Holders, by such appropriate Proceedings as may be
         consented to or directed by the Controlling Party, whether for the
         specific enforcement of any covenant or agreement in this Indenture or
         in aid of the exercise of any power Granted herein, or to enforce any
         other proper remedy;

                  (c)      sell the Collateral or any portion thereof or rights
         or interest therein, at one or more Sales called and conducted in any
         manner permitted by law;

                  (d)      institute Proceedings from time to time for the
         complete or partial foreclosure of this Indenture with respect to the
         Collateral;

                  (e)      notify Lessees to make payments directly on such
         account as shall be designated by the Controlling Party (the Indenture
         Trustee to use Lessee contact information provided to it by the
         Controlling Party);

                  (f)      appoint by instrument in writing one or more
         receivers, managers or receivers and managers of one or more of the
         Issuers or any or all of the Collateral with such rights, powers and
         authority (including any or all of the rights, powers and authority of
         the Indenture Trustee under this Indenture) as may be provided for in
         the instrument of appointment or any supplemental instrument, and
         remove and replace any such Receiver from time to time. To the extent
         permitted by applicable Law, any receiver, manager or receiver and
         manager appointed by the Indenture Trustee will (for purposes relating
         to responsibility for the receiver's, manager's or receiver and
         manager's acts or omissions) be considered to be the agent of the
         applicable Issuer and not of the Indenture Trustee, the Class A Note
         Insurer or any of the Holders;

                  (g)      apply to a court of competent jurisdiction for the
         appointment of a receiver, a manager or a receiver and manager of one
         or more of the Issuers or of any or all of the Collateral; and

                                      -63-



                  (h)      exercise any remedies of a secured party under the
         Uniform Commercial Code or other applicable Law and take any other
         appropriate action to protect and enforce the rights and remedies of
         the Indenture Trustee, the Class A Note Insurer or the Holders of the
         Notes hereunder.

     Section 6.05. Optional Preservation of Collateral. If (a) an Event of
Default shall have occurred and be continuing and (b) no Automatic Acceleration
has occurred, and no Notes have been declared due and payable or such
declaration and its consequences have been annulled and rescinded, the Indenture
Trustee, upon direction from the Controlling Party, by giving written notice of
such election to the Issuers, shall take possession of and retain the Collateral
intact, collect or cause the collection of the proceeds thereof and make and
apply all payments and deposits and maintain all accounts in respect of such
Notes in accordance with the provisions of Article XII of this Indenture. If the
Indenture Trustee is unable to or is stayed from giving such notice to the
Issuers for any reason whatsoever, such election shall be effective as of the
time of such determination or request, as the case may be, notwithstanding any
failure to give such notice, and the Indenture Trustee shall give such notice
upon the removal or cure of such inability or stay (but shall have no obligation
to effect such removal or cure). Any such election may be rescinded with respect
to any Collateral remaining at the time of such rescission by written notice to
the Indenture Trustee and the Issuers from the Controlling Party.

     Section 6.06. Indenture Trustee May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
Proceeding relating to any Issuer or any other obligor upon any of the Notes or
the property of any Issuer or of such other obligor or their creditors, the
Indenture Trustee (irrespective of whether the principal of the Notes shall then
be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Indenture Trustee shall have made any demand on the
Issuers for the payment of Overdue Basic Principal Payments or Overdue Interest)
shall be entitled and empowered, to intervene, at the direction of the
Controlling Party, in such Proceeding or otherwise,

                  (a)      to file and prove a claim for the whole amount of
         principal and interest owing and unpaid in respect of the Notes issued
         hereunder and to file such other papers or documents as may be
         necessary or advisable in order to have the claims of the Indenture
         Trustee (including any claim for the reasonable compensation, expenses,
         disbursements and advances of the Indenture Trustee, its agents and
         counsel and any other amounts due the Indenture Trustee under Section
         7.07), the Class A Note Insurer and of the Holders allowed in such
         judicial Proceeding, and

                  (b)      to collect and receive any monies or other property
         payable or deliverable on any such claims and to distribute the same;

and any receiver, assignee, trustee, liquidator, or sequestrator (or other
similar official) in any such judicial Proceeding is hereby authorized by the
Class A Note Insurer and each Holder to make such payments to the Indenture
Trustee, and in the event that the Indenture Trustee shall consent to the making
of such payments directly to the Class A Note Insurer or the Holders, to pay to
the Indenture Trustee any amount due to it for the reasonable compensation,
expenses,

                                      -64-



disbursements and advances of the Indenture Trustee, its agents and counsel, and
any other amounts due the Indenture Trustee under Section 7.07.

         Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or accept or adopt on behalf of the Class A
Note Insurer or any Holder any plan of reorganization, arrangement, adjustment
or composition affecting the Notes or the rights of the Class A Note Insurer or
any Holder thereof, or to authorize the Indenture Trustee to vote in respect of
the claim of the Class A Note Insurer or any Holder in any such Proceeding.

     Section 6.07. Indenture Trustee May Enforce Claims Without Possession of
Notes. All rights of actions and claims under this Indenture or the Notes may be
prosecuted and enforced by the Indenture Trustee without the possession of any
of the Notes or the production thereof in any Proceeding relating thereto, and
any such Proceedings instituted by the Indenture Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Notes and the Class A Note
Insurer.

     Section 6.08. Application of Money Collected. (a) If the Notes have become
accelerated pursuant to Section 6.02, any money collected by the Indenture
Trustee pursuant to this Article VI, and all monies available in the Collection
Accounts shall be applied (after giving effect to the Source of Funds
Requirements and any transfers made pursuant to the Funds Transfer Agreement,
unless otherwise directed by the Controlling Party) in the following order on
each Payment Date (it being understood that if the Notes have not been
accelerated pursuant to Section 6.02, Available Funds shall be distributed
pursuant to Section 12.02(d)):

                  (i)      to the Tax Payment Recipients, any Tax Payment
         Amounts then due and owing by any Issuer;

                  (ii)     to the Indenture Trustee, the Backup Manager and the
         Backup Servicer, pari passu, all fees and expenses related to the
         exercise of remedies under any Transaction Document (up to a maximum of
         $150,000 or such higher amount as may be consented to by the
         Controlling Party) and the Trustee Fee, the Backup Manager Fee and the
         Backup Servicer Fee, respectively;

                  (iii)    to the Lessees entitled thereto, any Railroad Mileage
         Credits to which they are entitled under the Leases;

                  (iv)     to the Class A Note Insurer and the Indenture
         Trustee, pari passu, all out-of-pocket expenses incurred in connection
         with the transition to a successor Manager; provided, however, that the
         aggregate amount payable under this clause, together with any
         corresponding payments paid in accordance with Section 12.02(d) with
         respect to any one such transition shall not exceed $200,000;

                  (v)      to the Manager, the Manager Fee;

                                      -65-


                  (vi)     to the Manager for reimbursement for Operating
         Expenses made by the Manager in excess of amounts available therefor
         which are held in the Operating Expense Reserve Account; provided,
         however, that the aggregate amount payable on any Payment Date pursuant
         to this clause, together with any corresponding payments paid in
         accordance with Section 12.02(d), shall not exceed the Capped Manager
         Reimbursement;

                  (vii)    to the Class A Note Insurer and the Indenture
         Trustee, pari passu, all out-of-pocket expenses incurred in connection
         with the transition to a successor Servicer; provided, however, that
         the aggregate amount payable under this clause, together with any
         corresponding payments paid in accordance with Section 12.02(d), with
         respect to any one such transition shall not exceed $100,000;

                  (viii)   to the Servicer, the Servicer Fee;

                  (ix)     to the Indenture Trustee, for deposit in the
         Operating Expense Reserve Account, the applicable Operating Expense
         Deposit Amounts for the CARCAT OER Subaccount and the NARCAT OER
         Subaccount, subject to the provisions of Section 12.04(a);

                  (x)      to the Holders of the Class A Notes, pari passu, an
         amount equal to the Class A Note Interest; provided, however, that,
         notwithstanding the foregoing, the Class A Note Insurer shall be
         entitled to receive, to the extent of Available Funds, all Incremental
         Class A Interest and all Class A Overdue Interest to the extent of any
         interest payments made by the Class A Note Insurer under, and in
         compliance with, the Class A Note Policy and interest thereon accruing
         at the Overdue Rate;

                  (xi)     to the Class A Note Insurer, accrued Premium due with
         respect to the Class A Note Policy, reimbursement of any claims under
         the Class A Note Policy with respect to draws to pay Class A Note
         Interest, including any Class A Overdue Interest owed with respect
         thereto, any Incremental Class A Interest and, in an amount not to
         exceed $50,000 in any calendar year, any other fees, expenses and
         indemnities owing to the Class A Note Insurer, together in each case
         with any interest thereon;

                  (xii)    to the Indenture Trustee, for deposit to the NARCAT
         Cash Collateral Account and the CARCAT Cash Collateral Amount, pari
         passu, such amounts necessary to cause the amounts held therein to
         equal the Required NARCAT Cash Collateral Amount and the Required
         CARCAT Cash Collateral Amount, respectively;

                  (xiii)   to the Holders of the Class A Notes, pari passu, any
         remaining amounts until the Note Principal Balance of all Class A Notes
         has been reduced to zero;

                  (xiv) to the extent not previously paid, to the Class A Note
         Insurer, the amount of any unreimbursed claims paid by the Class A Note
         Insurer under the Class A Note Policy with respect to principal on the
         Class A Notes, and any fees, expenses and indemnities owing to the
         Class A Note Insurer, together in each case with any interest owed
         thereon;

                                      -66-


                  (xv)     to the Holders of the Class B Notes, pari passu, an
         amount equal to the accrued but unpaid Class B Note Interest;

                  (xvi)    to the Holders of the Class B Notes, pari passu, any
         remaining amounts until the Note Principal Balance of the Class B Notes
         has been reduced to zero;

                  (xvii)   to the Indenture Trustee, the Backup Manager, the
         Backup Servicer and the Class A Note Insurer, pari passu, any fees,
         expenses and indemnities owing thereto but not previously paid;

                  (xviii)  to the Manager, any expenses, indemnities and
         reimbursement payments owing thereto but not previously paid;

                  (xix)    to the Servicer, any expenses, indemnities and
         reimbursement payments owing thereto but not previously paid;

                  (xx)     to the Manager, the Supplemental Manager Fee; and

                  (xxi)    to the Issuers.

         Notwithstanding any other provision of this Indenture, funds paid to
the Issuers pursuant to clause (xxi) above automatically shall be released from
the Lien of this Indenture.

         In making the withdrawals and payments required by this Section 6.08,
the Indenture Trustee shall act in accordance with the Monthly Servicer Report
and shall be fully protected in relying thereon, unless (x) a Responsible
Officer has actual knowledge to the contrary or the Controlling Party has
notified the Indenture Trustee that a Servicer Event of Termination has occurred
and is continuing and has given instructions contrary to those contained in the
Monthly Servicer Report, or (y) no Monthly Servicing Report has been delivered
or the Controlling Party has instructed the Indenture Trustee that the Monthly
Servicer Report is incorrect, in which case the Indenture Trustee shall rely
upon the written instructions of the Controlling Party, and shall be fully
protected in relying thereon.

     Section 6.09. Limitation on Suits. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless

                  (a)      such Holder has previously given written notice to
         the Indenture Trustee and the Class A Note Insurer of a continuing
         Event of Default;

                  (b)      the Controlling Party shall have made written request
         to the Indenture Trustee to institute Proceedings in respect of such
         Event of Default in its own name as Indenture Trustee hereunder;

                                      -67-


                  (c)      such Holder or Holders have offered to the Indenture
         Trustee reasonable indemnity against the costs, expenses and
         liabilities to be incurred in compliance with such request;

                  (d)      the Indenture Trustee for 60 days after its receipt
         of such notice, request and offer of indemnity has failed to institute
         any such Proceedings; and

                  (e)      no direction inconsistent with such written request
         has been given to the Indenture Trustee during such 60-day period by
         the Controlling Party;

it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes, or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the Holders
of Notes and it being further understood that nothing in this Section 6.09 shall
be deemed to permit any action prohibited by Section 15.13.

     Section 6.10. Unconditional Right of Holders to Receive Principal and
Interest. Notwithstanding any other provision in this Indenture, but subject to
the priorities of payment provided for herein, the Holder of any Note shall have
the right, which is absolute and unconditional, to receive payment of the
principal and interest on such Note as such principal and interest become due
and payable and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.

     Section 6.11. Restoration of Rights and Remedies. If the Indenture Trustee,
the Class A Note Insurer or any Holder has instituted any Proceeding to enforce
any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Indenture Trustee, the Class A Note Insurer or to such Holder, then and in
every case the Issuers, the Class A Note Insurer, the Indenture Trustee and the
Holders shall, subject to any determination in such Proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Indenture Trustee, the Class A Note Insurer and
the Holders shall continue as though no such Proceeding had been instituted.

     Section 6.12. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee, the Class A Note Insurer or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.

     Section 6.13. Delay or Omission Not Waiver. No delay or omission of the
Indenture Trustee, the Class A Note Insurer or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver

                                      -68-


of any such Event of Default or any acquiescence therein. Every right and remedy
given by this Article VI or by law to the Indenture Trustee, the Class A Note
Insurer or to the Holders may be exercised from time to time, and as often as
may be deemed expedient, by the Indenture Trustee, the Class A Note Insurer or
by the Holders, as the case may be.

     Section 6.14. Control by Controlling Party. The Controlling Party shall
have the right to direct the time, method and place of conducting any Proceeding
for any remedy available to the Indenture Trustee with respect to the Notes or
exercising any trust or power conferred on the Indenture Trustee with respect to
the Notes; provided that with respect to the Notes:

                  (a)      such direction shall not be in conflict with any rule
         of law or with this Indenture, and

                  (b)      the Indenture Trustee may take any other action
         deemed proper by the Indenture Trustee which is not inconsistent with
         such direction; provided, however, that, subject to Section 7.01, the
         Indenture Trustee need not take any action which the Indenture Trustee
         in good faith, by a Responsible Officer or Responsible Officers of the
         Indenture Trustee, determines might involve it in liability or be
         unjustly prejudicial to the Holders not consenting (unless the
         Indenture Trustee is furnished with the reasonable indemnity referred
         to in Section 6.14(c)); and

                  (c)      the Indenture Trustee has been furnished reasonable
         indemnity against costs, expenses and liabilities which it might incur
         in connection therewith as provided in Section 7.01(f).

     Section 6.15. Waiver of Past Defaults. The Controlling Party, by written
notice to the Issuers and the Indenture Trustee, may, on behalf of the Class A
Note Insurer and all Holders, waive any past Default or Event of Default
hereunder and its consequences, except a Default or Event of Default:

                  (a)      (I) in (i) the payment of the principal of any Note
         at the Stated Legal Maturity Date or (ii) the payment of interest with
         respect to the Class A Notes when due, unless, in either case, such
         amounts have been paid by the Class A Note Insurer (in which case, the
         Controlling Party may waive such Default an Event of Default); or (II)
         if no Class A Notes are Outstanding, a payment default on the Class B
         Notes; or

                  (b)      in respect of a covenant or provision hereof which
         under Article IX cannot be modified or amended without the consent of
         the Holder of each Outstanding Note affected.

         Upon any such waiver, such Default or Event of Default (and any Event
of Default arising from any such Default) shall cease to exist and shall be
deemed to have been cured for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereon.

                                      -69-


     Section 6.16. Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Note by its acceptance thereof shall be deemed to have
agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 6.16 shall not apply to any suit instituted by the
Indenture Trustee or the Class A Note Insurer, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in principal
amount of the Outstanding Notes, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of, or premium, if any, or interest
on any Note on or after the Stated Legal Maturity Date expressed in such Note.

     Section 6.17. Waiver of Stay or Extension Laws. Each of the Issuers
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance
of this Indenture; and each Issuer (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
Granted to the Indenture Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

     Section 6.18. Sale of Collateral. (a) The power to effect any sale (a
"Sale") of any Collateral pursuant to Section 6.04 shall not be exhausted by any
one or more Sales as to any Collateral remaining unsold, but shall continue
unimpaired until all of the Collateral shall have been sold or all amounts
payable on the Notes and under this Indenture with respect thereto shall have
been paid. The Indenture Trustee may from time to time postpone any Sale by
public announcement made at the time and place of such Sale. It is hereby
expressly agreed that the Indenture Trustee is not limited to any amount fixed
by law as compensation for any Sale.

         (b)      The Indenture Trustee or the Class A Note Insurer may bid for
and acquire any Collateral in connection with a public Sale thereof, and in lieu
of paying cash therefor, may make settlement for the purchase price by crediting
against amounts owing on the Notes or other amounts secured by this Indenture,
all or part of the net proceeds of such Sale after deducting the reasonable
costs, charges and expenses incurred by the Indenture Trustee in connection with
such Sale. The purchase by the Indenture Trustee or the Class A Note Insurer of
any or all of the Collateral shall not be deemed a Sale or disposition thereof
for purposes of Section 6.18(a). The Notes need not be produced in order to
complete any such Sale, or in order for the net proceeds of such Sale to be
credited against the Notes. The Indenture Trustee and the Class A Note Insurer
may hold, lease, operate, manage or otherwise deal with any property so acquired
in any manner permitted by law.

         (c)      The Indenture Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any of the Collateral in
connection with a Sale thereof. In addition, the Indenture Trustee is hereby
irrevocably appointed the agent and attorney-in-fact of

                                      -70-


the Issuers to transfer and convey its interest in any of the Collateral in
connection with a Sale thereof, and to take all action necessary to effect such
Sale. Such power of attorney shall be deemed coupled with an interest and be
irrevocable. No purchaser or transferee at such a sale shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies.

     Section 6.19. Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the Lien of this Indenture nor any rights or remedies
of the Indenture Trustee, the Class A Note Insurer or the Holders shall be
impaired by the recovery of any judgment by the Indenture Trustee against any
Issuer or by the levy of any execution under such judgment upon any of the
Collateral or upon any of the assets of any Issuer.

                                   ARTICLE VII

                              THE INDENTURE TRUSTEE

     Section 7.01. Certain Duties and Responsibilities. (a) Except during the
continuance of an Event of Default known to the Indenture Trustee as provided in
subsection (e) below:

                  (i)      The Indenture Trustee undertakes to perform such
         duties and only such duties as are specifically set forth in this
         Indenture, and no implied covenants or obligations shall be read into
         this Indenture against the Indenture Trustee; and

                  (ii)     in the absence of bad faith on its part, the
         Indenture Trustee may conclusively rely, as to the truth of the
         statements and the correctness of the opinions expressed therein, upon
         certificates or opinions furnished to the Indenture Trustee and
         conforming to the requirements of this Indenture.

         (b)      If an Event of Default known to the Indenture Trustee as
provided in subsection (e) below has occurred and is continuing, the Indenture
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.

         (c)      No provision of this Indenture shall be construed to relieve
the Indenture Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:

                  (i)      this subsection (c) shall not be construed to limit
         the effect of subsection (a) of this Section 7.01;

                  (ii)     the Indenture Trustee shall not be liable for any
         error of judgment made in good faith by a Responsible Officer, unless
         it shall be proved that the Indenture Trustee was negligent in
         ascertaining the pertinent facts;

                                      -71-


                  (iii)    the Indenture Trustee shall not be liable with
         respect to any action taken or omitted to be taken by it in good faith
         in accordance with the direction of the Controlling Party relating to
         the time, method and place of conducting any Proceeding for any remedy
         available to the Indenture Trustee, or exercising any trust or power
         conferred upon the Indenture Trustee under this Indenture; and

                  (iv)     no provision of this Indenture shall require the
         Indenture Trustee to expend or risk its own funds or otherwise incur
         any financial liability in the performance of any of its duties
         hereunder, or in the exercise of any of its rights or powers, if it
         shall have reasonable grounds for believing that repayment of such
         funds or adequate indemnity against such risk or liability is not
         reasonably assured to it.

         (d)      Whether or not therein expressly so provided, every provision
of this Indenture relating to the conduct or affecting the liability of or
affording protection to the Indenture Trustee shall be subject to the provisions
of this Section 7.01.

         (e)      For all purposes under this Indenture, the Indenture Trustee
shall not be deemed to have notice of any Event of Default described in Section
6.01(d) or 6.01(e), any Default described in Section 6.01(c), any Servicer
Termination Event, any Manager Termination Event or any Rapid Amortization Event
unless a Responsible Officer assigned to and working in the Indenture Trustee's
corporate trust department has actual knowledge thereof or unless written notice
of any such event is received by the Indenture Trustee at the Corporate Trust
Office, and such notice references the Notes, the Issuers, the Collateral or
this Indenture.

         (f)      The Indenture Trustee shall be under no obligation to
institute any suit, or to take any remedial Proceeding under this Indenture, or
to enter any appearance or in any way defend in any suit in which it may be made
defendant, or to take any steps in the execution of the trusts hereby created or
in the enforcement of any rights and powers hereunder until it shall be
indemnified to its satisfaction against any and all costs and expenses, outlays
and counsel fees and other reasonable disbursements and against all liability,
except liability that is adjudicated, in connection with any action so taken.

         (g)      Notwithstanding any extinguishment of all right, title and
interest of the Issuers in and to the Collateral following an Event of Default
and a consequent declaration of acceleration of the maturity of the Notes,
whether such extinguishment occurs through a Sale of the Collateral to another
Person, the acquisition of the Collateral by the Indenture Trustee with respect
to the Collateral (or the proceeds thereof), and the rights of the Holders shall
continue to be governed by the terms of this Indenture.

         (h)      Notwithstanding anything to the contrary contained herein, the
provisions of subsections (e) through (g), inclusive, of this Section 7.01 shall
be subject to the provisions of subsections (a) through (c), inclusive, of this
Section 7.01.

     Section 7.02. Notice of Defaults, Events of Default, Servicer Termination
Events, Manager Events of Termination and Rapid Amortization Events. Within two
Business Days after the occurrence of any Default, Event of Default, Servicer
Termination Event, Manager

                                      -72-


Event of Termination or Rapid Amortization Event known to the Indenture Trustee,
the Indenture Trustee shall transmit by facsimile communication confirmed by
mail to the Class A Note Insurer and by mail to all Holders of Notes, as their
names and addresses appear on the Note Register, notice of such Default, Event
of Default, Servicer Termination Event, Manager Event of Termination or Rapid
Amortization Event known to the Indenture Trustee, unless such Default, Event of
Default, Servicer Termination Event, Manager Event of Termination or Rapid
Amortization Event shall have been cured or waived.

     Section 7.03. Certain Rights of Indenture Trustee. Except as otherwise
provided in Section 7.01,

                  (a)      the Indenture Trustee may rely and shall be protected
         in acting or refraining from acting upon any resolution, certificate,
         statement, instrument, opinion, report, notice, request, direction,
         consent, order, bond, note or other obligation, paper or document
         believed by it to be genuine and to have been signed or presented by
         the proper party or parties;

                  (b)      any request or direction of the Issuers mentioned
         herein shall be sufficiently evidenced by an Issuer Request or Issuer
         Order, and any resolution of any Board of Directors may be sufficiently
         evidenced by a Board Resolution;

                  (c)      whenever in the administration of this Indenture the
         Indenture Trustee shall deem it desirable that a matter be proved or
         established prior to taking, suffering or omitting any action
         hereunder, the Indenture Trustee (unless other evidence be herein
         specifically prescribed) may, in the absence of bad faith on its part,
         rely upon an Officer's Certificate;

                  (d)      the Indenture Trustee may consult with counsel and
         the written advice of such counsel or any Opinion of Counsel shall be
         full and complete authorization and protection in respect of any action
         taken, suffered or omitted by it hereunder in good faith and in
         reliance thereon;

                  (e)      the Indenture Trustee shall be under no obligation to
         exercise any of the rights or powers vested in it by this Indenture at
         the request or direction of the Class A Note Insurer or any of the
         Holders pursuant to this Indenture, unless the Class A Note Insurer or
         such Holders shall have offered to the Indenture Trustee reasonable
         security or indemnity against the costs, expenses and liabilities which
         might be incurred by it in compliance with such request or direction;

                  (f)      the Indenture Trustee shall not be bound to make any
         investigation into the facts or matters stated in any resolution,
         certificate, statement, instrument, opinion, report, notice, request,
         direction, consent, order, bond, note or other paper or document, but
         the Indenture Trustee, at the direction of the Controlling Party, shall
         make such further inquiry or investigation into such facts or matters
         as it may see fit, and, if the Indenture Trustee shall determine to
         make such further inquiry or investigation, it shall be

                                      -73-


         entitled to examine the books, records and premises of each Issuer,
         upon reasonable notice and at reasonable times personally or by agent
         or attorney; and

                  (g)      the Indenture Trustee may execute any of the trusts
         or powers hereunder or perform any duties hereunder either directly or
         by or through agents or attorneys and the Indenture Trustee shall not
         be responsible for any misconduct or negligence on the part of any
         agent or attorney appointed with due care by it hereunder.

     Section 7.04. Not Responsible for Recitals or Issuance of Notes. (a) The
recitals contained herein and in the Notes, except the certificates of
authentication on the Notes, shall be taken as the statements of the Issuers,
and the Indenture Trustee assumes no responsibility for their correctness. The
Indenture Trustee makes no representations as to the validity or condition of
the Collateral or any part thereof, or as to the title of the Issuers thereto or
as to the security afforded thereby or hereby, or as to the validity or
genuineness of any securities at any time pledged and deposited with the
Indenture Trustee hereunder or as to the validity or sufficiency of this
Indenture or of the Notes. The Indenture Trustee shall not be accountable for
the use or application by any Issuer of Notes or the proceeds thereof or of any
money paid to any Issuer under any provisions hereof.

         (b)      Except as otherwise expressly provided herein and without
limiting the generality of the foregoing, the Indenture Trustee shall have no
responsibility or liability for or with respect to the existence or validity of
any Railcar or Lease, the perfection of any security interest (whether as of the
date hereof or at any future time), the maintenance of or the taking of any
action to maintain such perfection, the validity of the assignment of any
portion of the Collateral to the Indenture Trustee or of any intervening
assignment, the review of any Lease (it being understood that the Indenture
Trustee has not reviewed and does not intend to review the substance or form of
any such Lease) the performance or enforcement of any Lease, the compliance by
the Issuers, the Sellers, the Manager or the Servicer with any covenant or the
breach by the Issuers, the Sellers, the Manager or the Servicer of any warranty
or representation made hereunder or in any related document or the accuracy of
any such warranty or representation, any investment of monies in the Collection
Accounts, the Cash Collateral Accounts, the Operating Expense Reserve Account
(including the NARCAT OER Subaccount and the CARCAT OER Subaccount) or the
Prefunding or any loss resulting therefrom, the acts or omissions of the
Issuers, the Class A Note Insurer, the Sellers, the Manager, the Servicer, or
any Lessee, any action of the Servicer, the Manager or the Sellers taken in the
name of the Indenture Trustee, or the validity of the Servicing Agreement, the
Management Agreement or the Sale Agreements.

         (c)      The Indenture Trustee shall not have any obligation or
liability under any Lease by reason of or arising out of this Indenture or the
Granting of a security interest in such Lease hereunder or the receipt by the
Indenture Trustee of any payment relating to any Lease pursuant hereto, nor
shall the Indenture Trustee be required or obligated in any manner to perform or
fulfill any of the obligations of the Issuers under or pursuant to any Lease, or
to make any payment, or to make any inquiry as to the nature or the sufficiency
of any payment received by it, or the sufficiency of any performance by any
party, under any Lease.

                                      -74-


     Section 7.05. May Hold Notes. The Indenture Trustee, the Servicer, the
Manager, any Paying Agent, the Note Registrar or any other agent of the Issuers,
in its individual or any other capacity, may become the owner or pledgee of
Notes and if operative, may otherwise deal with the Issuers with the same rights
it would have if it were not Indenture Trustee, Servicer, Manager, Paying Agent,
Note Registrar or such other agent.

     Section 7.06. Money Held in Trust. Money held in trust by the Indenture
Trustee or any Paying Agent hereunder need not be segregated from other funds
except to the extent required herein or required by law. The Indenture Trustee
or any Paying Agent shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the Issuers or provided
herein.

     Section 7.07. Compensation and Reimbursement. The Issuers agree, jointly
and severally, to make payment to the Indenture Trustee of the following
(provided that any amounts payable below shall be paid only pursuant to Section
12.02(d) or Section 6.08 or from other funds available to the Issuers that are
not subject to the Lien of the Indenture):

                  (a)      the Trustee Fee (which shall not be limited by any
         provision of law in regard to the compensation of a trustee of an
         express trust);

                  (b)      except as otherwise expressly provided herein, such
         amount as may be necessary to reimburse the Indenture Trustee upon its
         request for all extraordinary out-of-pocket expenses (including,
         without limitation, any out-of-pocket expenses incurred in connection
         with providing copies of the Transaction Documents and other documents
         to the Secured Parties and other interested parties), disbursements and
         advances incurred or made by the Indenture Trustee in accordance with
         any provision of this Indenture (including the reasonable compensation
         and the expenses and disbursements of the Indenture Trustee's agents
         and counsel), except any such expense, disbursement or advance as may
         be attributable to its negligence or bad faith; and

                  (c)      such amount as may be necessary to indemnify the
         Indenture Trustee for, and to hold it harmless against, any loss,
         liability or expense incurred without negligence or bad faith on its
         part, arising out of or in connection with the acceptance or
         administration of this trust, including the costs and expenses of
         defending itself against any claim or liability in connection with the
         exercise or performance of any of its powers or duties hereunder.

     Section 7.08. Corporate Indenture Trustee Required; Eligibility. There
shall at all times be a Indenture Trustee hereunder which shall be a national
banking association organized and doing business under the laws of the United
States of America or of any state, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$100,000,000, subject to supervision or examination by federal or state
authority, satisfactory to the Controlling Party and having an office within the
United States of America. If such national banking association publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section 7.08, the combined capital and surplus of such national banking
association shall be

                                      -75-


deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Indenture Trustee shall
cease to be eligible in accordance with the provisions of this Section 7.08, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article VII.

     Section 7.09. Resignation and Removal; Appointment of Successor. (a) No
resignation or removal of the Indenture Trustee and no appointment of a
successor Indenture Trustee pursuant to this Article VII shall become effective
until the acceptance of appointment by the successor Indenture Trustee under
Section 7.10.

         (b)      The Indenture Trustee may resign at any time by giving 30
days' prior written notice thereof to the Issuers, the Class A Note Insurer and
each Holder. If an instrument of acceptance by a successor Indenture Trustee
shall not have been delivered to the Indenture Trustee within 30 days after the
giving of such notice of resignation, the resigning Indenture Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Indenture Trustee. Such court may thereupon, after such notice, if any, as it
may deem proper, appoint a successor Indenture Trustee.

         (c)      The Indenture Trustee may be removed at any time by the
Controlling Party by notice delivered to the Indenture Trustee and to the
Issuers.

         (d)      If the Indenture Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the Indenture
Trustee for any reason, the Controlling Party shall promptly appoint a successor
Indenture Trustee. Such successor Indenture Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor
Indenture Trustee and supersede the successor Indenture Trustee appointed by the
Controlling Party. If no successor Indenture Trustee shall have been so
appointed by the Controlling Party within one year after such resignation,
removal or incapability or the occurrence of such vacancy, and shall have
accepted appointment in the manner hereinafter provided, any Holder who has been
a Registered Holder of a Note for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the appointment of a successor Trustee.

         (e)      The Issuers shall give notice to each of the Holders in the
manner provided in Section 15.04 of each resignation and each removal of the
Indenture Trustee and each appointment of a successor Indenture Trustee. Each
notice shall include the name of the successor Indenture Trustee and the address
of its Corporate Trust Office.

     Section 7.10. Acceptance of Appointment by Successor. Every successor
Indenture Trustee appointed hereunder shall execute, acknowledge and deliver to
the Issuers, the Class A Note Insurer and the retiring Indenture Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Indenture Trustee shall become effective and such successor
Indenture Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Indenture
Trustee; but, on request of the Issuers or the successor Indenture Trustee, such
retiring Indenture Trustee shall, upon payment of its reasonable charges,
execute and deliver an instrument transferring to such

                                      -76-


successor Indenture Trustee all the rights, powers and trusts of the retiring
Indenture Trustee, and shall duly assign, transfer and deliver to such successor
Indenture Trustee all property and money held by such retiring Indenture Trustee
hereunder. Upon request of any such successor Indenture Trustee, the Issuers
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Indenture Trustee all such rights, powers and
trusts.

         No successor Indenture Trustee shall accept its appointment unless at
the time of such acceptance such successor Indenture Trustee shall be eligible
under this Article VII.

     Section 7.11. Merger, Conversion, Consolidation or Succession to Business
of Indenture Trustee. Any entity into which the Indenture Trustee may be merged
or converted or with which it may be consolidated, or any entity resulting from
any merger, conversion or consolidation to which the Indenture Trustee shall be
a party, or any entity succeeding to all or substantially all of the corporate
trust business of the Indenture Trustee, shall be the successor of the Indenture
Trustee hereunder; provided such entity shall be otherwise qualified and
eligible under this Article VII, without the execution or filing of any paper or
any further act on the part of any of the parties hereto, and notice thereof
shall be provided by the Indenture Trustee to the Holders and the Class A Note
Insurer. In case any Notes have been authenticated, but not delivered, by the
Indenture Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Indenture Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect as if
such successor Indenture Trustee had itself authenticated such Notes.

     Section 7.12. Co-trustees and Separate Trustees. At any time or times, for
the purpose of meeting the legal requirements of any jurisdiction in which any
of the Collateral may at the time be located, the Issuers and the Indenture
Trustee shall have power to appoint, and, upon the written request of the
Indenture Trustee or of the Controlling Party, the Issuers shall for such
purpose join with the Indenture Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to appoint,
one or more Persons approved by the Indenture Trustee, either to act as
co-trustee, jointly with the Indenture Trustee of any or all of the Collateral,
or to act as separate trustee of any such property, in either case with such
powers as may be provided in the instrument of appointment, and to vest in such
Person or Persons in the capacity aforesaid, any property, title, right or power
deemed necessary or desirable, subject to the other provisions of this Section
7.12. If the Issuers do not join in such appointment within 30 days after the
receipt by it of a request so to do, or in case an Event of Default has occurred
and is continuing, the Indenture Trustee alone shall have power to make such
appointment.

         Should any written instrument from the Issuers be reasonably required
by any co-trustee or separate trustee so appointed for more fully confirming to
such co-trustee or separate trustee such property, title, right or power, any
and all such instruments shall, on request, be executed, acknowledged and
delivered by the Issuers.

         Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms:

                                      -77-


                  (i)      The Notes shall be authenticated and delivered by,
         and all rights, powers, duties and obligations hereunder in respect of
         the custody of securities, cash and other personal property held by, or
         required to be deposited or pledged with, the Indenture Trustee
         hereunder, shall be exercised solely by the Indenture Trustee;

                  (ii)     The rights, powers, duties and obligations hereby
         conferred or imposed upon the Indenture Trustee in respect of any
         property covered by such appointment shall be conferred or imposed upon
         and exercised or performed by the Indenture Trustee or by the Indenture
         Trustee and such co-trustee or separate trustee jointly, as shall be
         provided in the instrument appointing such co-trustee or separate
         trustee, except to the extent that under any law of any jurisdiction in
         which any particular act is to be performed, the Indenture Trustee
         shall be incompetent or unqualified to perform such act, in which event
         such rights, powers, duties and obligations shall be exercised and
         performed by such co-trustee or separate trustee;

                  (iii)    The Indenture Trustee at any time, by an instrument
         in writing executed by it, with the concurrence of the Issuers
         evidenced by a Board Resolution with respect to each Issuer, may accept
         the resignation of or remove any co-trustee or separate trustee,
         appointed under this Section 7.12, and, in case an Event of Default has
         occurred and is continuing, the Indenture Trustee shall have power to
         accept the resignation of, or remove, any such co-trustee or separate
         trustee without the concurrence of the Issuers. Upon the written
         request of the Indenture Trustee, the Issuers shall join with the
         Indenture Trustee in the execution, delivery and performance of all
         instruments and agreements necessary or proper to effectuate such
         resignation or removal. A successor to any co-trustee or separate
         trustee that has so resigned or been removed may be appointed in the
         manner provided in this Section 7.12;

                  (iv)     No co-trustee or separate trustee hereunder shall be
         personally liable by reason of any act or omission of the Indenture
         Trustee or any other such trustee hereunder nor shall the Indenture
         Trustee be liable by reason of any act or omission of any co-trustee or
         separate trustee selected by the Indenture Trustee with due care or
         appointed in accordance with directions to the Indenture Trustee
         pursuant to Section 6.14; and

                  (v)      Any Act of Holders delivered to the Indenture Trustee
         shall be deemed to have been delivered to each such co-trustee and
         separate trustee.

     Section 7.13. Indenture Trustee to Hold Original Leases; Indenture Trustee
Check-In Procedures. (a) The Indenture Trustee shall hold each original
counterpart of a Lease that may from time to time be delivered to the Indenture
Trustee in accordance with this Indenture, the Servicing Agreement or the
Management Agreement, until such time as such Lease is released from the Lien of
this Indenture pursuant to the terms of this Indenture.

         (b)      Prior to the Closing Date, the Indenture Trustee checked in
the Initial Existing Leases pursuant to the procedures set forth in the Bailee
Letter. The Indenture Trustee shall perform a check-in of all (i) Prefunded
Existing Leases, by the fifth Business Day after the receipt of such Prefunded
Existing Leases and the Prefunded Lease and Railcar Schedule (and an

                                      -78-


electronic copy of such Prefunded Lease and Railcar Schedule), and (ii)
Subsequent Leases, by the fifth Business Day after the receipt of such
Subsequent Leases and an updated Lease and Railcar Schedule (and an electronic
copy of such Lease and Railcar Schedule). Upon the completion of each check-in,
the Indenture Trustee shall deliver via facsimile to the Servicer, the Manager,
the Issuers, the Class A Note Insurer and the Holders a certification in
substantially the form attached hereto as Exhibit C to the effect that (except
for original counterparts of Leases identified on Schedule IV hereto or as
described on the deficiency report attached thereto (the "Lease Exception
Report")) (i) the Indenture Trustee has received the original counterparts for
each Lease listed on the related Lease and Railcar Schedule or Prefunded Lease
and Railcar Schedule, as applicable, and it is holding such Leases as Indenture
Trustee for the benefit of the Holders, (ii) such documents have been reviewed
by it and do not appear on their face to have been mutilated, damaged, torn or
otherwise physically altered and relate to such Lease identified in the Lease
and Railcar Schedule or Prefunded Lease and Railcar Schedule, as applicable, and
(iii) the Indenture Trustee does not hold an original copy of any Lease for or
on behalf of any Person other than the Secured Parties.

         (c)      The Issuers shall cause the Manager to resolve any such
exceptions noted in the Lease Exception Report to the Controlling Party's
satisfaction, and no Lease for which exceptions remain shall be an Eligible
Lease unless the Controlling Party has otherwise provided its written consent;
provided that the Controlling Party's consent to any such exception shall not
release the Manager from its purchase obligations under Section 4.04 of the
Management Agreement arising as a result of a breach of a representation or
warranty with respect to such Lease not covered by such written consent. The
Indenture Trustee shall be under no duty or obligation to inspect, review or
examine the Leases to determine that the same are genuine, enforceable or
appropriate for the represented purpose or that they have actually been recorded
or that they are other than what they purport to be on their face.

         (d)      The Indenture Trustee shall hold the originally executed copy
of each Lease that constitutes chattel paper for the purposes of the UCC until
such time as such Lease is released from the Lien of this Indenture or delivered
to the Servicer pursuant to the terms hereof or of the Servicing Agreement. The
Indenture Trustee shall hold the Leases in the same state as the location of the
Corporate Trust Office, which initially is in Minneapolis, Minnesota.

         (e)      The Indenture Trustee, in its capacity as custodian of the
original counterparts of the Leases, shall, upon reasonable notice, permit the
Class A Note Insurer and the Holders access to the Leases at all reasonable
times, upon reasonable notice and during the Trustee's normal business hours.
Such access shall be afforded without charge to the Class A Note Insurer and the
Holders but only upon reasonable request.

         (f)      The Indenture Trustee hereby agrees to hold the originally
executed copy of each Lease and the other items of Collateral it receives on
behalf of the Secured Parties, and to maintain exclusive custody of any such
Collateral from time to time pledged to the Indenture Trustee, on behalf of the
Secured Parties. In performing its duties hereunder, the Indenture Trustee
agrees to act with reasonable care, using that degree of skill and attention
that a custodian would exercise with respect to files relating to all comparable
collateral that it services or holds for others.

                                      -79-


         (g)      The Indenture Trustee shall segregate and maintain continuous
custody of all Leases, chattel paper, documents and instruments in secure and
fire resistant facilities in accordance with customary standards for such
custody.

         (h)      The Indenture Trustee shall (i) act exclusively as the
custodian for, and the bailee of, the Secured Parties, (ii) hold each Lease,
chattel paper, document and instrument received by it for the exclusive use and
benefit of the Secured Parties, and (iii) make disposition thereof only in
accordance with the terms of this Indenture or with written instructions
furnished by the Controlling Party.

     Section 7.14. Money for Note Payments to Be Held in Trust. The Indenture
Trustee agrees, subject to the provisions of this Section 7.14, that it will
hold all sums held by it for the payment of principal or interest on the Notes
in trust for the benefit of the Holders entitled thereto until such sums shall
be paid to such Persons or otherwise disposed of as herein provided.

         Any money deposited with the Indenture Trustee in trust for the payment
of the principal or interest on any Note and remaining unclaimed for three years
after such principal or interest has become due and payable shall be paid to or
at the direction of the Issuers; and the Holder of such Note shall thereafter,
as an unsecured general creditor, and subject to any applicable statute of
limitations, look only to the Issuers for payment thereof, and all liability of
the Indenture Trustee with respect to such trust money or the related Note shall
thereupon cease; provided, however, that the Indenture Trustee, before being
required to make any such repayment, may at the expense of the Issuers cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the city in which
the Corporate Trust Office is located, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such publication, any unclaimed balance of such money then
remaining will be repaid to, or at the direction of, the Issuers. The Indenture
Trustee may also adopt and employ, at the expense of the Issuers, any other
reasonable means of notification of such repayment (including, but not limited
to, mailing notice of such repayment to Holders whose right to or interest in
monies due and payable but not claimed is determinable from the records of the
Indenture Trustee at the last address as shown on the Note Register for each
such Holder).

     Section 7.15. Representations and Warranties of Indenture Trustee. The
Indenture Trustee hereby represents and warrants that:

                  (a)      the Indenture Trustee is a national banking
         association duly organized, validly existing and in good standing under
         the laws of the United States, and has the power to own its assets and
         to transact the business in which it is presently engaged;

                  (b)      the Indenture Trustee has the power, authority and
         legal right to execute, deliver and perform this Indenture and to
         authenticate the Notes, and the execution, delivery and performance of
         this Indenture and the authentication of the Notes has been duly
         authorized by the Indenture Trustee by all necessary corporate action;

                                      -80-


                  (c)      this Indenture, assuming due authorization, execution
         and delivery by the other parties hereto, constitutes the legal, valid
         and binding agreement of the Indenture Trustee, enforceable against the
         Indenture Trustee in accordance with its terms, except that (i) such
         enforcement may be subject to bankruptcy, insolvency, reorganization,
         moratorium or other similar laws (whether statutory, regulatory or
         decisional) now or hereafter in effect relating to creditors' rights
         generally and the rights of trust companies in particular and (ii) the
         remedy of specific performance and injunctive and other forms of
         equitable relief may be subject to certain equitable defenses and to
         the discretion of the court before which any proceeding therefor may be
         brought, whether in a proceeding at law or in equity;

                  (d)      the performance by the Indenture Trustee of its
         obligations under this Indenture will not conflict with, result in any
         breach of any of the terms and provisions of, or constitute (with or
         without notice, lapse of time or both) a default under, the
         organizational documents or bylaws of the Indenture Trustee;

                  (e)      to the best of the knowledge of the Indenture
         Trustee, there are no proceedings or investigations to which the
         Indenture Trustee is a party pending, or, to the knowledge of the
         Indenture Trustee, threatened, before any court, regulatory body,
         administrative agency or other tribunal or Governmental Authority (i)
         asserting the invalidity of this Indenture, the Notes or any other
         Transaction Document, (ii) seeking to prevent the issuance of the Notes
         or the consummation of any of the transactions contemplated by this
         Indenture or any other Transaction Document or (iii) seeking any
         determination or ruling that would materially and adversely affect the
         performance by the Indenture Trustee of its obligations under, or the
         validity or enforceability of, this Indenture, the Notes or any other
         Transaction Document; and

                  (f)      neither the execution or delivery by the Indenture
         Trustee of this Indenture or any other Transaction Document nor the
         consummation by the Indenture Trustee of the transactions contemplated
         hereby or by any other Transaction Document requires the consent or
         approval of, the giving of notice to, the registration with, or the
         taking of any other action with respect to, any Governmental Authority
         under any existing federal law governing the banking or trust powers of
         the Indenture Trustee.

     Section 7.16. Reporting by Indenture Trustee. To the extent that the
Transaction Documents do not expressly require that items be delivered directly
to the Class A Note Insurer by a party other than the Indenture Trustee, the
Indenture Trustee shall promptly furnish to the Class A Note Insurer a copy of
all reports, financial statements and notices received or prepared by the
Indenture Trustee pursuant to the terms of this Indenture and the other
Transaction Documents.

                                      -81-


                                  ARTICLE VIII

                             PURCHASES AND RELEASES

     Section 8.01. Purchase of Railcars and Leases. (a) If at any time any
Issuer or the Indenture Trustee discovers or is notified by the Manager that any
representation or warranty of the Initial Manager contained in Section 4.03 of
the Management Agreement was incorrect at the time as of which such
representation or warranty was made, then the party discovering such
circumstance shall promptly notify the other parties hereto and the Class A Note
Insurer.

         (b)      In the event that the failure of any representation or
warranty of the Initial Manager contained in Section 4.03 of the Management
Agreement (other than the representation and warranty set forth in Section
4.03(pp) thereof)) to be correct at the time as of which it was made materially
and adversely affects the interests of the Holders of the Notes in any Railcar
or Lease which is the subject of such representation or warranty, then the
Issuers shall require the Initial Manager to eliminate or cure such circumstance
or condition within the time period set forth in Section 4.04 of the Management
Agreement. If the Initial Manager fails or is unable to cure such circumstance
or condition in accordance with the Management Agreement, then the Issuers shall
require the Initial Manager to take such steps as are necessary to (i) if a
Lease is the subject of such representation or warranty, Purchase all of the
Railcars covered by such Lease (and the related Lease and other Railcar Assets
relating solely to such Railcars) at the Purchase Price in accordance with
Section 4.04 of the Management Agreement, or (ii) if a Railcar is the subject of
such representation or warranty, either (A) Purchase such Railcar at the
Purchase Price in accordance with Section 4.04 of the Management Agreement or
(B) provide a Substitute Railcar meeting all of the requirements of Section 4.03
of the Management Agreement, complying with the Concentration Limits and having
a Stated Value which, when aggregated with the Stated Values of all other
Substitute Railcars then being provided, shall be no less than the aggregate
Stated Value of all Railcars then being replaced, so that the representations
and warranties with respect to such Railcar or Lease, as applicable, are
correct. In the event of any breach of the representation or warranty set forth
in Section 4.03(pp) of the Management Agreement, the Issuers shall require the
Initial Manager to Purchase or provide Substitute Railcars to the extent
required to cure such breach. Upon such Purchase or substitution, the Indenture
Trustee shall release the Railcar so purchased or replaced (and any related
Lease and other Railcar Assets relating solely to such Railcar) from the Lien of
this Indenture pursuant to Section 8.02.

         (c)      In the event that the initial Servicer shall be obligated to
Purchase any Railcar (and any related Lease and other Railcar Assets) pursuant
to Section 4.03(b) of the Servicing Agreement, then the Issuers shall require
the initial Servicer to effect such Purchase in the manner, within the time and
for the Purchase Price specified in Section 4.03(b) of the Servicing Agreement.
Upon such Purchase, the Indenture Trustee shall release the Railcar in question
(and any related Lease and other Railcar Assets relating solely to such Railcar)
from the Lien of this Indenture pursuant to Section 8.02.

         (d)      In the event that the Initial Manager fails to Purchase or
substitute, or the initial Servicer fails to Purchase, any Railcar (and any
related Lease and other Railcar Assets) by the time required in Section 4.04(b)
of the Management Agreement or Section 4.03(b) of the

                                      -82-


Servicing Agreement, respectively, the Indenture Trustee, provided it has
received notice in accordance with Section 4.04(a) of the Management Agreement
or Section 4.03 of the Servicing Agreement, respectively, shall promptly notify
the Class A Note Insurer of such failure.

     Section 8.02. Releases. (a) The Issuers shall be entitled to sell and
obtain a release from the Lien of this Indenture (i) any Railcar with respect to
which an Event of Loss shall have occurred, (ii) any Scrapped Railcar, (iii) any
Railcar having a net sales price in excess of its Stated Value, if to do so
would be, in the Manager's good faith determination, in the best interests of
the relevant Issuer, and (iv) any Railcar required to be purchased or
substituted for by the Manager in accordance with Section 4.04 of the Management
Agreement or purchased by the Servicer in accordance with Section 4.03 of the
Servicing Agreement; provided, however, that (A) except in the case of (x)
Railcars sold subsequent to the occurrence of an Event of Loss with respect
thereto, (y) Scrapped Railcars and (z) Railcars so purchased or substituted by
the Manager or the Servicer, the aggregate Stated Value of the Railcars sold in
such sales cannot exceed more than 10% of the sum of (I) the aggregate Stated
Values of all Initial Railcars as of the Closing Date and (II) the aggregate
Stated Value of all Prefunded Railcars purchased on the Prefunded Railcar
Acquisition Date, and (B) in making the good faith determination referenced
above, any successor to the Initial Manager shall be entitled to base such
determination upon appraisals furnished by Independent Appraisers. Any such sale
(other than a sale resulting from an event described in clause (i) or (iv),
above) shall be made only to entities which are not Affiliates of The Andersons
and only if the release of such Railcar will not result in, or exacerbate, a
breach of a Concentration Limit. Any proceeds of such sale shall be deposited
into the relevant Collection Account and thereafter the relevant Issuer shall be
entitled to obtain a release from the Lien of the Indenture of any sold Railcar
(and any related Lease and other Railcar Assets related solely to such Railcar)
if such Issuer delivers to the Indenture Trustee and the Class A Note Insurer an
Officer's Certificate (x) identifying the Railcars (and any related Lease and
other Railcar Assets) to be released, (y) certifying that the conditions
precedent to such release contained in the Transaction Documents had been
complied with and (z) requesting the release thereof.

         (b)      The Indenture Trustee shall, on or after the Termination Date,
release any remaining portion of the Trust Estate from the Lien created by this
Indenture and shall distribute any funds then on deposit in any account in
accordance with the provisions of this Indenture.

         (c)      The Indenture Trustee and the Class A Note Insurer shall be
entitled to receive at least 10 days' notice of any action to be taken pursuant
to clauses (iii) or (iv) of Section 8.02(a), accompanied by copies of any
instruments involved.

         (d)      Upon satisfaction of the conditions specified in subsection
(a) or (b), the Indenture Trustee shall release from the Lien of this Indenture
and deliver to or upon the order of the Issuers the Railcars, the related Lease
(if any) and the Railcar Assets relating solely to such Railcars and to the
extent described in the Issuers' request for release.

        Section 8.03. Collateral. The Indenture Trustee may, and when required
by the provisions of Articles VI and VIII of this Indenture shall, execute or
authorize, as appropriate, instruments to release property from the Lien of this
Indenture, or convey the Indenture Trustee's

                                      -83-


interest in the same, in a manner and under circumstances which are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article VIII
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
monies.

                                   ARTICLE IX

                             SUPPLEMENTAL INDENTURES

     Section 9.01. Supplemental Indentures without Consent of Holders. (a)
Without the consent of the Holders of any Notes, the Issuers and the Indenture
Trustee, at any time and from time to time, but with the consent of the Class A
Note Insurer (so long as no Class A Note Insurer Default shall have occurred and
be continuing), may enter into one or more indentures supplemental hereto, in
form satisfactory to the Indenture Trustee, for any of the following purposes:

                  (i)      to correct or amplify the description of any property
         at any time subject to the Lien of this Indenture, or better to assure,
         convey and confirm unto the Indenture Trustee any property subject or
         required to be subjected to the Lien of this Indenture, or to subject
         to the Lien of this Indenture additional property;

                  (ii)     to add to the conditions, limitations and
         restrictions on the authorized amount, terms and purposes of issue,
         authentication and delivery of any Notes, as herein set forth,
         additional conditions, limitations and restrictions thereafter to be
         observed, for the benefit of the Holders;

                  (iii)    to evidence the succession of another Person to any
         Issuer, and the assumption by such successor of the covenants of such
         Issuer in accordance with the provisions of this Indenture;

                  (iv)     to add to the covenants of the Issuers, for the
         benefit of the Holders of all Notes, or to surrender any right or power
         herein conferred upon any Issuer;

                  (v)      to convey, transfer, assign, mortgage or pledge any
         property to or with the Indenture Trustee;

                  (vi)     to cure any ambiguity, to correct or supplement any
         provision herein which may be defective or inconsistent with any other
         provisions with respect to matters or questions arising under this
         Indenture, which shall not be inconsistent with the provisions of this
         Indenture, provided that such action shall not adversely affect the
         interests of the Holders of the Notes as evidenced by an Officer's
         Certificate of the Servicer;

                  (vii)    to evidence the succession of the Indenture Trustee
         pursuant to Article VII; or

                                      -84-


                  (viii)   to add to any Events of Default.

         (b)      The Indenture Trustee is hereby authorized to join in the
execution of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained, but the Indenture
Trustee shall not be obligated to enter into any such supplemental indenture
that affects the Indenture Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise. The Issuers will send a copy of
any such supplemental indenture to the Class A Note Insurer and each Holder
promptly following the execution and delivery thereof.

     Section 9.02. Supplemental Indentures with Consent of Holders. (a) With the
consent of the Controlling Party, the Issuers and the Indenture Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:

                  (i)      change the Stated Legal Maturity Date or the due date
         of any installment of principal of, or any installment of interest on,
         any Note, or reduce the principal amount thereof or the rate of
         interest thereon or change any place of payment where, or the coin or
         currency in which, any Note or the interest thereon is payable, or
         change the authorized denomination of any Note, or impair the right to
         institute suit for the enforcement of any such payment;

                  (ii)     reduce the percentage in principal amount of the
         Outstanding Notes (or the Outstanding Notes of a Class), the consent of
         the Holders of which is required for any such supplemental indenture,
         or the consent of the Holders of which is required for any waiver of
         compliance with certain provisions of this Indenture or certain
         defaults hereunder or their consequences provided for in this Indenture
         or the consent of which is required to waive any payment default on the
         Notes;

                  (iii)    modify or alter the provisions of the proviso to the
         definition of the term "Outstanding"; or

                  (iv)     permit the creation of any Lien ranking prior to or
         on a parity with the Lien of this Indenture with respect to any
         Collateral or, except as otherwise provided in Section 8.02, deprive
         the Holder of any Note of the security afforded by the Lien of this
         Indenture.

         (b)      Promptly after the execution by the Issuers and the Indenture
Trustee of any supplemental indenture pursuant to this Section 9.02, the Issuers
shall mail to the Class A Note Insurer and the Holders of the Notes to which
such supplemental indenture relates, a conformed copy of such supplemental
indenture. Any failure of the Issuers to mail such conformed copy, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.

                                      -85-


     Section 9.03. Prospective Amendment of Eligibility Criteria and
Concentration Limits. Notwithstanding anything in this Article IX to the
contrary, the Controlling Party has the right, without needing the consent of
the Holders or the Indenture Trustee, to amend prospectively any of the
Eligibility Criteria and the Concentration Limits; provided, however, that if
the Controlling Party is not the Class A Note Insurer, the Rating Agency
Condition shall be met in connection with any such amendment.

     Section 9.04. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article IX or the modifications thereby of the trusts created by this
Indenture, the Indenture Trustee shall be entitled to receive upon request, and
(subject to Section 7.01) shall be fully protected in relying upon, an Opinion
of Counsel reasonably acceptable to the Indenture Trustee stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture. The Indenture Trustee may, but shall not (except to the extent
required in case of a supplemental indenture entered into under Section
9.01(a)(vii)) be obligated to, enter into any such supplemental indenture which
affects the Indenture Trustee's own duties or immunities under this Indenture or
otherwise.

     Section 9.05. Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this Article IX, this Indenture shall be modified
in accordance therewith, and such supplemental indenture shall form a part of
this Indenture for all purposes, and every Holder of Notes theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.

     Section 9.06. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuers shall so determine,
new Notes so modified as to conform, in the opinion of the Indenture Trustee and
the Issuers, to any such supplemental indenture may be prepared and executed by
the Issuers and authenticated and delivered by the Indenture Trustee in exchange
for outstanding Notes.

     Section 9.07. Amendments to Other Transaction Documents. If the Indenture
Trustee shall be required to consent to an amendment, restatement, supplement or
other modification to any Transaction Document other than this Indenture, the
Indenture Trustee shall do so only upon receiving written direction or consent
from the Controlling Party; provided, however, that, if the Controlling Party is
not the Class A Note Insurer, the Indenture Trustee may act without such
direction or consent if the amendment, supplement or other modification is to
cure any ambiguity, to correct or supplement any provision which may be
defective or inconsistent with any other provisions with respect to matters or
questions arising under such Transaction Document, which shall not be
inconsistent with the provisions of such Transaction Document, but only if such
action shall not adversely affect the interests of the Holders of the Notes or
the Class A Note Insurer (in which case the Indenture Trustee shall act only at
the direction of all Holders and the Class A Note Insurer adversely affected).

                                      -86-


                                    ARTICLE X

                         REPRESENTATIONS AND WARRANTIES

     Section 10.01. Representations and Warranties. Each of the Issuers hereby
jointly represents and warrants to, and agrees with, the Indenture Trustee, the
Class A Note Insurer and the Holders that, as of the Closing Date:

         (a)      Each Issuer has been duly organized and is validly existing
and in good standing as entity of the type, and organized under the laws of the
jurisdiction, identified as the outset of this Indenture, with all requisite
power and authority to own its properties and to transact the business in which
it is now engaged, and each such Issuer is duly qualified to do business and is
in good standing in each jurisdiction where the nature of its business requires
it to be so qualified except where failure to so qualify would not have a
Material Adverse Effect. Each Issuer has all requisite power and authority and
has taken all action necessary to enter into this Indenture and the other
Transaction Documents to which it is a party, to consummate the transactions
contemplated hereby and thereby, and to perform its obligations hereunder and
thereunder. The execution, delivery and performance by each Issuer of this
Indenture and the other Transaction Documents are within such Issuer's powers,
have been duly authorized by all necessary action and do not contravene any
applicable Law, such Issuer's organizational documents or any contractual or
other obligation binding on or affecting such Issuer or any of its assets. The
chief place of business and chief executive office of each of each Issuers is
located at the address of such Issuer referred to in Section 15.03, and the
offices where such Issuer keeps all its books, records and documents relating to
the Railcar Assets are located at the addresses specified in Section 15.03. The
exact legal name of each Issuer is set forth on the signature page hereof and
each Issuer's organizational identification number is as follows: (i) for
NARCAT, 3686233, (ii) for NARCAT Mexico, none and (iii) for CARCAT, 3086095. No
Issuer has changed its name, changed its corporate structure, changed its
jurisdiction of organization, changed its chief place of business/chief
executive office or used any name other than its exact legal name at any time
during the past five years. Each Issuer has delivered to the Indenture Trustee
and the Class A Note Insurer a true and correct copy of each of its
organizational documents.

         (b)      The performance of each Issuer's obligations under this
Indenture and each other Transaction Document to which it is a party will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any Lien
(other as contemplated by this Indenture and the other Transaction Documents,
and other than Permitted Liens) upon any of the property or assets of such
Issuer pursuant to the terms of any indenture, mortgage, deed of trust, or other
agreement (including the Leases) or instrument to which it is a party or by
which it is bound or to which any of its property or assets is subject, nor will
such action result in any violation of the provisions of any organizational
document of such Issuer or any statute or any order, rule or regulation of any
court or Governmental Authority having jurisdiction over it or any of its
properties; and no consent, approval, authorization, order, registration or
qualification of or with any court, or any such Governmental Authority is
required for the consummation of the other transactions contemplated by this
Indenture or any other Transaction Document to which such Issuer is a party
except such

                                      -87-


consents, approvals and authorizations which have been obtained or such
registrations or qualifications which have been made.

         (c)      Each Transaction Document to which any Issuer is a party has
been duly authorized, executed and delivered by such Issuer and each such
Transaction Document is a valid and legally binding agreement of such Issuer,
enforceable against such Issuer in accordance with its terms, subject as to
enforceability to applicable bankruptcy, insolvency, reorganization and other
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity regardless of whether enforcement
is sought in a court of law or equity.

         (d)      All Railcars are properly registered, to the extent required
pursuant to applicable Law, in jurisdictions within the United States, Canada or
Mexico, in the name of the respective Lessee or the applicable Issuer, to the
extent required by, and in accordance with, the laws of such jurisdiction. No
Issuer has received any notice of any Event of Loss, or any event which with the
passage of time or the giving of notice, or both, would constitute an Event of
Loss with respect to any Railcar.

         (e)      Each Issuer is the owner of each of the Railcar Assets, free
from any Lien, security interest, encumbrance or other right, title or interest
of any Person (other than Permitted Liens), subject however to the rights of the
Lessees in the Railcars under the related Leases and the rights of sublessees,
and each Issuer shall defend such Railcar Assets against all claims and demands
of all Persons at any time claiming the same or any interest therein adverse to
that of the Indenture Trustee.

         (f)      Each Issuer has heretofore provided to the Indenture Trustee
and the Class A Note Insurer copies, or access to original copies, of all of the
Leases, as amended, which copies are true and complete copies of the Leases, and
the Leases have not been amended or modified subsequent to the above copies
being made available to the Indenture Trustee and the Class A Note Insurer,
except immaterial amendments made in the ordinary course of business or as
reflected in the Lease and Railcar Schedule.

         (g)      All filings and recordings required to perfect the security
interest of the Indenture Trustee in the Non-Mexican Collateral will be
accomplished and will be in full force and effect no later than the Closing Date
or such later date as contemplated by the Transaction Documents.

         (h)      The Lease and Railcar Schedule contains a complete and correct
statement of the Rents payable by each Lessee specified therein, separately set
forth with respect to each separate Lease and each group of Railcars, for each
month for the number of months of anticipated Rents under each such Lease.

         (i)      [RESERVED.]

         (j)      The Delinquency Schedule attached as Schedule V hereto
contains a complete and correct statement of all Lessees that are, as of the
Closing Date, delinquent in making payments of the Rents due under the related
Leases and the number of days of each such delinquency.

                                      -88-


         (k)      Except with respect to Permitted Liens, this Indenture creates
in favor of the Indenture Trustee, for the benefit of the Secured Parties, a
legal, valid and enforceable security interest in the Collateral. The security
interest in the Non-Mexican Collateral granted to the Indenture Trustee pursuant
to this Indenture (i) constitutes a first priority perfected security interest
with respect to such Non-Mexican Collateral under any applicable Law and (ii)
will be entitled to all of the rights, benefits and priorities provided to a
holder of a first priority security interest under any such applicable Law. All
filings, deposits, registrations and other recordations shall have been
accomplished with respect to the Indenture in the United States and Canada (and
in each political subdivision thereof) as may be required by applicable Law to
establish and perfect the Indenture Trustee's rights in and to the Non-Mexican
Collateral therein, and any giving of notice or any other action to such end
required by applicable Law has been given or taken (including, without
limitation, the placement of notices in The Canada Gazette).

         (l)      No Default, Event of Default, Manager Event of Termination,
Servicer Event of Termination or event that with the passage of time or the
giving of notice or both would constitute a Default, Event of Default, Manager
Event of Termination, Servicer Event of Termination has occurred and is
continuing and no Rapid Amortization Event exists.

         (m)      Both before and after giving effect to the transactions
contemplated by this Indenture, each Issuer is Solvent.

         (n)      All information heretofore furnished by each Issuer to the
Indenture Trustee and Class A Note Insurer for purposes of or in connection with
this Indenture, the other Transaction Documents, or any transaction contemplated
hereby or thereby is, and all such information hereafter furnished by it
hereunder will be, true, complete and correct in every material respect, on the
date such information is stated or certified, and no such item contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements contained therein, in
the light of the circumstances under which they were made, not misleading (it
being understood that with respect to any information received by each Issuer
from the Railcar Entities, the Sellers or any Lessee and furnished to the
Indenture Trustee and Class A Note Insurer, each Issuer represents that any such
information, to its knowledge, is true, complete and correct in every material
respect, on the date such information is stated or certified, and no such item
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they were made,
not misleading).

         (o)      Each Issuer has (i) except for a filing relating to NARCAT
Mexico, which will report zero tax due and owing, timely filed all federal,
state and local tax returns or permitted extensions thereof in the United States
and all other tax returns or permitted extensions thereof in foreign
jurisdictions required to be filed, (ii) paid or made adequate provision in
accordance with GAAP for the payment of all taxes, assessments and other
governmental charges and (iii) accounted for the sale of the Railcar Assets
hereunder, in its books and financial statements as sales, consistent with GAAP.

         (p)      Each Issuer is operated in such a manner that the separate
corporate existence of each Issuer, on the one hand, and the Railcar Entities
and the Initial Manager or any Affiliate

                                      -89-


thereof, on the other, would not be disregarded in the event of the bankruptcy
or insolvency of any of the Railcar Entities or the Initial Manager or any
Affiliate thereof or any Issuer and, without limiting the generality of the
foregoing:

                  (i)      each Issuer is a limited purpose corporation whose
         activities are restricted in its organizational documents to activities
         related to purchasing or otherwise acquiring the Railcar Assets and
         related assets and rights and conducting any related or incidental
         business or activities it deems necessary or appropriate to carry out
         its primary purpose, including entering into the Indenture and the
         other Transaction Documents;

                  (ii)     no Issuer has engaged, or presently engages, in any
         activity other than those activities expressly permitted hereunder and
         under the other Transaction Documents, nor has each Issuer entered into
         any agreement other than this Indenture, the other Transaction
         Documents to which it is a party, and with the prior written consent of
         the Controlling Party, any other agreement necessary to carry out more
         effectively the provisions and purposes hereof or thereof;

                  (iii)    (A) each Issuer maintains its own deposit account or
         accounts, separate from those of any of its Affiliates, with commercial
         banking institutions, (B) the funds of each Issuer are not and have not
         been diverted to any other Person for any use other than the corporate
         use of each Issuer, and (C), except as may be expressly permitted or
         required by this Indenture or any other Transaction Document, the funds
         of each Issuer are not and have not been commingled with those of any
         other Person;

                  (iv)     to the extent that any Issuer contracts or does
         business with vendors or service providers where the goods and services
         provided are partially for the benefit of any other Person, the costs
         incurred in so doing are fairly allocated to or among such Issuer and
         such entities for whose benefit the goods and services are provided,
         and such Issuer and each such entity bears its fair share of such
         costs; and all material transactions between each Issuer and any of its
         Affiliates shall be only on an arm's-length basis;

                  (v)      each Issuer maintains a principal executive and
         administrative office through which its business is conducted and a
         telephone number and stationery through which all business
         correspondence and communication are conducted separate from those of
         its Affiliates;

                  (vi)     each Issuer conducts its affairs strictly in
         accordance with its organizational documents and observes all
         necessary, appropriate and customary corporate formalities, including
         (A) holding all regular and special equity holders' and directors' or
         managers', as applicable, meetings appropriate to authorize all company
         action (which, in the case of regular equity holders' and directors' or
         managers', as applicable, meetings, are held at least annually), (B)
         keeping separate and accurate minutes of such meetings, (C) passing all
         resolutions or consents necessary to authorize actions taken or to be
         taken, and (D) maintaining accurate and separate books, records and
         accounts, including intercompany accounts;

                                      -90-


                  (vii)    all decisions with respect to each Issuer's business
         and daily operations are independently made by such Issuer (although
         the officer making any particular decision may also be an employee,
         officer or director of an Affiliate of another Issuer) and are not
         dictated by any Affiliate of such Issuer (it being understood that the
         Manager, which is an Affiliate of such Issuer, will undertake and
         perform all of the operations, functions and obligations of it set
         forth in the Management Agreement and it may appoint sub-Managers,
         which may be Affiliates of such Issuer, to perform certain of such
         operations, functions and obligations and that the Servicer, which is
         an Affiliate of such Issuer, will undertake and perform all of the
         operations, functions and obligations of it set forth the Servicing
         Agreement and it may appoint sub-Servicers, which may be Affiliates of
         such Issuer, to perform certain of such operations, functions and
         obligations);

                  (viii)   each Issuer acts solely in its own name and through
         its own authorized officers and agents, has not held itself out as a
         "division" or "part" of any other Person, and no Affiliate of such
         Person shall be appointed to act as its agent, except as expressly
         permitted by this Indenture and the other Transaction Documents;

                  (ix)     no Affiliate of any Issuer advances funds to such
         Issuer, other than as is otherwise expressly provided herein or in the
         other Transaction Documents, and no Affiliate of any Issuer (other than
         pursuant to the express terms of the Transaction Documents) otherwise
         supplies funds to, or guaranties debts of, any other Issuer;

                  (x)      other than organizational expenses and as expressly
         provided herein, each Issuer pays all expenses, indebtedness and other
         obligations incurred by it;

                  (xi)     no Issuer guarantees, or is otherwise liable for, any
         obligation of any of its Affiliates (other than the other Issuers
         pursuant to the Transaction Documents);

                  (xii)    any financial reports required of any Issuer comply
         with GAAP and are issued separately from, but may be consolidated with,
         any reports prepared for any of its Affiliates;

                  (xiii)   each Issuer is adequately capitalized to engage in
         the transactions contemplated in its organizational documents;

                  (xiv)    no Issuer acts as agent for any of its Affiliates,
         but instead presents itself to the public as an entity separate from
         each such Affiliate and independently engaged in the business of
         purchasing and financing Railcar Assets;

                  (xv)     NARCAT maintains a board of managers consisting of
         three individuals, CARCAT maintains a board of directors consisting of
         three individuals and NARCAT Mexico maintains a board of managers
         consisting of three individuals. Each Issuer's board of managers or
         board of directors, as applicable, includes at least one independent
         director or manager, as applicable, (A) who is not currently or within
         the preceding five years has been: (1) a stockholder, director,
         officer, employee, manager, or partner of The Andersons or any
         Affiliate of The Andersons (other than as an independent director or

                                      -91-


         manager of any Issuer, Seller or Holdco), (2) a direct or indirect
         holder of any voting securities of The Andersons or any Affiliate of
         The Andersons, (3) a creditor, supplier, contractor or any other person
         who derives any of its purchases or revenues from its activities with
         The Andersons or any of The Andersons' other Affiliates, or (4) a
         member of the immediate family of any stockholder, director, officer,
         employee, partner, customer, supplier or contractor of The Andersons or
         any of its other Affiliates, and (B) who has (1) prior experience as an
         independent director for a corporation whose charter documents required
         the unanimous consent of all independent directors thereof before such
         corporation could consent to the institution of bankruptcy or
         insolvency proceedings against it or could file a petition seeking
         relief under any applicable federal or state law relating to
         bankruptcy; and (2) is employed with one or more entities that provide,
         in the ordinary course of their respective businesses, advisory,
         management or placement services to issuers of securitization or
         structural finance instruments, agreements or securities; and

                  (xvi)    the organizational documents of each Issuer require
         (A) the affirmative vote of an independent director or manager, as
         applicable, before a voluntary petition under Section 301 of the
         Bankruptcy Code or analogous petition under any other insolvency law
         may be filed by such Person, and (B) such Person to maintain correct
         and complete books and records of account and minutes of the meetings
         and other proceedings of its stockholders and board of directors or
         managers, as applicable.

Without limiting the foregoing, all of the factual statements and assumptions
relating to each Issuer that are set forth in each of the opinions relating to
bankruptcy matters and delivered pursuant to Section 4.01(f) are true and
correct.

         (q)      The sale, transfer, assignment and conveyance contemplated by
this Indenture is not subject to and will not result in any tax, fee or
governmental charge payable by any Issuer to any Governmental Authority
("Transfer Taxes"), other than Transfer Taxes which have been or will be paid by
such Issuer as due. In the event that any Issuer receives actual notice of any
Transfer Taxes arising out of such transfer, assignment and conveyance, on
written demand by Indenture Trustee and Class A Note Insurer, or upon any Issuer
otherwise being given notice thereof, such Issuer shall pay, and otherwise
indemnify and hold Indenture Trustee and Class A Note Insurer harmless, from and
against any and all such Transfer Taxes.

         (r)      No Issuer has any material intellectual property.

         (s)      There have been no Proceedings made or brought by or against
Issuers or settled or terminated in the period beginning on its date of
formation, or, to the knowledge of any Issuer, threatened or contemplated, in
each case that, in the reasonable judgment of any Issuer, if adversely
determined, would have a Material Adverse Effect.

         (t)      No Issuer maintains, participates in or contributes to any (A)
deferred compensation or retirement plan or arrangement, (B) tax-qualified or
nonqualified defined contribution or defined benefit plan or arrangement which
is an employee pension benefit plan (as defined in Section 3(2) of ERISA), (C)
employee welfare benefit plan (as defined in Section 3(1) of

                                      -92-


ERISA), (D) phantom stock appreciation right, stock option, stock purchase or
other stock based plan, or (E) any fringe benefit plan or program. No Issuer
maintains or contributes to any employee welfare benefit plan that provides
health, accident or life insurance benefits to former employees, their spouses
or dependents, other than in accordance with Section 4980B of the U.S. Tax Code
or Part 6 of Subtitle B of Title I of ERISA or other applicable Law.

         (u)      No Issuer is party to, bound by, or negotiating in respect of
any collective bargaining agreement or any other agreement with any labor union,
association or other employee group in connection with its railcar leasing
business, nor, to the knowledge of any Issuer, is any employee that primarily
works in connection with its railcar leasing business represented by any labor
union or similar association. No labor union or employee organization has been
certified or recognized as the collective bargaining representative of any
employee of such Issuer that primarily works in connection with its railcar
leasing business. To the knowledge of each Issuer, there are no formal union
organizing campaigns or representation proceedings in process or formally
threatened with respect to any employee of each Issuer that primarily work in
connection with its railcar leasing business, nor are there any existing or, to
the knowledge of each Issuer, threatened at large labor strikes, work stoppages,
organized slowdowns, unfair labor practice charges, or labor arbitration
proceedings affecting employees of such Issuer that primarily work in connection
with its railcar leasing business.

         (v)      Except to the extent such matters would not have a Material
Adverse Effect on the Railcar Assets:

                  (i)      to the knowledge of each Issuer, the Railcar Assets
         owned by it are in compliance with all applicable Environmental Laws
         related to the Collateral. Except for matters that have been fully
         resolved, each Issuer has not received any written communication from
         any person or Governmental Authority that alleges that its operations
         in connection with the Collateral are not in compliance with applicable
         Environmental Laws;

                  (ii)     to the knowledge of such Issuer, it has obtained all
         environmental, health and safety permits and governmental
         authorizations (collectively, the "Environmental Permits") necessary
         for the conduct of its railcar leasing business, and all such permits
         are in good standing or, where applicable, a renewal application has
         been timely filed and is pending agency approval, and to the knowledge
         of each Issuer, such Issuer is in compliance with all terms and
         conditions of the Environmental Permits; and

                  (iii)    there is no Environmental Claim pending or, to the
         knowledge of each Issuer, threatened against or concerning the Railcar
         Assets.

To the knowledge of each Issuer, no release of any Hazardous Commodity has
occurred on or from any of the Railcar Assets, which requires investigation,
assessment, monitoring, remediation or cleanup under Environmental Laws.

         (w)      Each Issuer has complied with all "bulk sales" laws of its
jurisdiction of organization and principal place of business.

                                      -93-


         (x)      Each Issuer hereby jointly and severally represents and
warrants to, and agrees with, the Indenture Trustee, the Class A Note Insurer
and the Holders, that each Railcar and Lease included in the Collateral is an
"Eligible Railcar" or "Eligible Lease," as applicable.

         (y)      Each Issuer remakes each of the representations and warranties
made by it in each of the other Transaction Documents to which each Issuer is a
party, as if the same were set forth in full herein.

         (z)      No Issuer has any Subsidiaries. No Issuer owns, beneficially
or of record, any capital stock, evidences of Indebtedness or other securities
of, nor has made any loans or advances to nor has any investments or interests
in, any Person, other than Eligible Investments.

         (aa)     No Issuer is an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

         (bb)     Since its date of formation, no Material Adverse Change has
occurred with respect to any Issuer.

         (cc)     The proceeds of (A) the Class A-1 Notes, Class A-2 Notes and
Class B Notes shall be used solely by NARCAT and NARCAT Mexico, and (B) the
Class A-3 Notes shall be used solely by CARCAT, for the purchase of the Railcar
Assets, to make deposits to the Collection Accounts and, in the case of NARCAT
and NARCAT Mexico, the Prefunding Account, and to pay expenses related to this
Indenture and the other Transaction Documents. No Issuer will, directly or
indirectly, use any portion of the proceeds of the Notes hereunder for the
purpose of purchasing or carrying any margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System or to
extend credit to any Person for the purpose of purchasing or carrying any such
margin stock.

         (dd)     No procedures believed to be adverse to the interests of any
of the Secured Parties were used by any Issuer, the Seller, the Manager or the
Servicer in identifying and/or selecting and/or transferring the Railcar Assets
to each Issuer and Granting the Collateral to the Indenture Trustee on behalf of
the Secured Parties.

         (ee)     Each Issuer shall have given reasonably equivalent value in
consideration for the transfer to each Issuer of the Railcar Assets pursuant to
the Sale Agreement to which it is a party, no such transfer shall have been made
for or on account of an antecedent debt, and no such transfer is or may be
voidable or subject to avoidance under any applicable bankruptcy law.

                                   ARTICLE XI

                                    COVENANTS

     Section 11.01. Payment of Principal and Interest. The Issuers, jointly and
severally, will duly and punctually pay or cause to be paid the principal of and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.

                                      -94-


     Section 11.02. Maintenance of Office or Agency. The Issuers will maintain
an office or agency within the United States of America where Notes may be
presented or surrendered for payment, where Notes may be surrendered for
registration of transfer or exchange and where notices and demand to or upon the
Issuers in respect of the Notes and this Indenture may be served. The Issuers
hereby initially appoint the Indenture Trustee at its Corporate Trust Office for
each of said purposes. The Issuers will give prompt written notice to the Class
A Note Insurer and the Indenture Trustee of the location, and of any change in
the location, of any such office or agency. If at any time the Issuers shall
fail to maintain any such office or agency or shall fail to furnish to the Class
A Note Insurer and the Indenture Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Indenture Trustee and the Issuers hereby appoint the Indenture Trustee its agent
to receive all such presentations, surrenders, notices and demands.

     Section 11.03. Money for Note Payments to Be Held in Trust. If there is any
Paying Agent other than the Indenture Trustee, the Issuers will cause each
Paying Agent other than the Indenture Trustee to execute and deliver to the
Indenture Trustee an instrument in which such Paying Agent shall agree with the
Indenture Trustee that, subject to the provisions of this Section 11.03, such
Paying Agent will:

                  (a)      hold all sums held by it for the payment of principal
         of or interest on Notes in trust for the benefit of the Holders
         entitled thereto until such sums shall be paid to such Persons or
         otherwise disposed of as herein provided;

                  (b)      give the Indenture Trustee notice of any Default or
         Event of Default by the Issuers (or any other obligor upon the Notes)
         in the making of any payment of principal or interest; and

                  (c)      at any time during the continuance of any such
         Default or Event of Default, upon the written request of the Indenture
         Trustee, forthwith pay to the Indenture Trustee all sums so held in
         trust by such Paying Agent.

         The Issuers may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Issuer Order direct any Paying Agent to pay, to the Indenture Trustee all
sums held in trust by such Paying Agent, such sums to be held by the Indenture
Trustee upon the same trusts as those upon which such sums were held by such
Paying Agent; and, upon such payment by any Paying Agent to the Indenture
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.

         Any money deposited with the Indenture Trustee or any Paying Agent in
trust for the payment of the principal of or interest on any Note and remaining
unclaimed for six years after such principal or interest has become due and
payable shall be paid to or at the direction of the Issuers on Issuer Request;
and the Holder of such Note shall thereafter, as an unsecured general creditor,
and subject to any applicable statute of limitations, look only to the Issuers,
jointly and severally, for payment thereof, and all liability of the Indenture
Trustee or such Paying Agent with respect to such trust money, shall thereupon
cease; provided, however, that the Indenture Trustee or such Paying Agent,
before being required to make any such repayment, may at the

                                      -95-


expense of the Issuers cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the city in which the Corporate Trust Office is located, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Issuers.
The Indenture Trustee may also adopt and employ, at the expense of the Issuers,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose right to or
interest in monies due and payable but not claimed is determinable from the
records of any Paying Agent, at the last address as shown on the Note Register
for each such Holder).

     Section 11.04. Corporate Existence. Each Issuer will keep in full effect
its existence, rights and franchises as a limited liability company, a Nova
Scotia unlimited liability company or a Mexican limited liability company with
variable capital, respectively, under the laws of its jurisdiction, will operate
in accordance with, and subject to the limitations set forth in, its formation
documents, and will obtain and preserve its qualification to do business as a
foreign entity in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes and each other Transaction Document to which it is a party.

     Section 11.05. Protection of Collateral. (a) The Issuers will from time to
time execute and deliver all such supplements and amendments hereto and all such
financing statements, continuation statements, instruments of further assurance
and other instruments as are necessary to protect the Collateral, and will take
such other actions as the Indenture Trustee or the Class A Note Insurer
reasonably deems necessary or advisable to:

                  (i)      Grant more effectively any or all of the Collateral;

                  (ii)     maintain or preserve the Lien of this Indenture and
         the first priority perfected nature of such Lien (subject only to
         Permitted Liens) or carry out more effectively the purposes hereof;

                  (iii)    perfect, publish notice of, or protect the validity
         of any Grant made or to be made by this Indenture;

                  (iv)     enforce any rights arising under or with respect to
         any of the Railcar Assets or, where appropriate, any security interest
         in the Collateral and the proceeds thereof; or

                  (v)      preserve and defend title to the Collateral and the
         rights of the Indenture Trustee, the Class A Note Insurer and the
         Holders therein against the claims of all Persons and parties.

Without limiting the generality of the foregoing, each Issuer will (i)
authenticate or execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices as may be necessary,
or as the Indenture Trustee or the Class A Note

                                      -96-


Insurer may reasonably request, in order to perfect and preserve the pledges,
assignments and security interests of the Collateral granted or purported to be
granted hereby, (ii) at the request of the Indenture Trustee, the Class A Note
Insurer (if the Class A Notes are still Outstanding) or the Controlling Party
(if not the Class A Note Insurer) during the continuance of any Default, Event
of Default, Manager Event of Termination, Servicer Event of Termination or any
event that with the passage of time or the giving of notice or both would become
a Manager Event of Termination or a Servicer Event of Termination, mark
conspicuously each document included in the Collateral and each of its records
pertaining to the Collateral with a legend, in form and substance satisfactory
to the Indenture Trustee, the Class A Note Insurer (if the Class A Notes are
still Outstanding) and the Controlling Party (if not the Class A Note Insurer),
including that such document, chattel paper or record is subject to the pledge,
assignment and security interest granted hereby, (iii) if any Collateral shall
be evidenced by a promissory note or other instrument or chattel paper, deliver
and pledge to the Indenture Trustee hereunder such note or instrument or chattel
paper duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to the Indenture Trustee, the
Class A Note Insurer (if the Class A Notes are still Outstanding) and the
Controlling Party (if not the Class A Note Insurer) and (iv) take such steps as
the Indenture Trustee, the Controlling Party (if not the Class A Note Insurer)
or the Class A Note Insurer (if the Class A Notes are still Outstanding) may
reasonably request for the Indenture Trustee (A) to obtain an acknowledgement,
in form and substance satisfactory to the Indenture Trustee and the Controlling
Party (if not the Class A Note Insurer) or the Class A Note Insurer (if the
Class A Notes are still Outstanding), of any bailee having possession of any of
the Collateral that the bailee holds such Collateral for the Indenture Trustee
or (B) to obtain "control" of any Investment Property, Deposit Accounts,
Letter-of-Credit Rights or electronic chattel paper with any agreements
establishing control to be in form and substance satisfactory to the Indenture
Trustee and the Controlling Party (if not the Class A Note Insurer) or the Class
A Note Insurer (if the Class A Notes are still Outstanding). A photocopy or
other reproduction of this Indenture or any security agreement or financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by applicable Law.

         (b)      If an Event of Default shall have occurred and be continuing,
each Issuer hereby irrevocably designates the Indenture Trustee as its agent and
attorney-in-fact to authorize any financing statement, continuation statement or
other instrument required pursuant to this Section 11.05; provided, however,
that the Indenture Trustee shall not be obligated to authorize or file such
instruments except upon written instruction from the Servicer, the Manager, the
Issuers or the Controlling Party to authorize such instruments. Such power of
attorney shall be deemed coupled with an interest and be irrevocable.

         (c)      Each Issuer will furnish to the Indenture Trustee and the
Controlling Party or the Class A Note Insurer (if the Class A Notes are still
Outstanding) from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Indenture Trustee, the Controlling Party (if not the Class A
Note Insurer) or the Class A Note Insurer may reasonably request, all in
reasonable detail. Each Issuer hereby authorizes the Indenture Trustee to regard
its printed name or rubber stamp signature on statements or schedules as the
equivalent of a manual signature by an authorized officer or agent of such
Issuer.

                                      -97-


     Section 11.06. Negative Covenants. No Issuer will:

                  (a)      sell, transfer, exchange, assign (by operation of law
         or otherwise) or otherwise dispose of any of the Collateral (except as
         provided in Section 8.02) or assign any right to receive income in
         respect thereof;

                  (b)      claim any credit on, or make any deduction from, the
         principal or interest payable in respect of the Notes by reason of the
         payment of any taxes levied or assessed upon any of the Collateral;

                  (c)      amend, restate, alter, change or repeal its
         certificate of formation or any other organizational document thereof
         without the consent of the Controlling Party;

                  (d)      as to the initial issuance of the Class A Notes under
         this Indenture, issue such Notes unless such Notes have been rated at
         least "AAA" by S&P and "AAA" by Fitch, and as to the initial issuance
         of the Class B Notes under this Indenture, issue such Notes unless such
         Notes have been rated at least "B" by S&P; nor will any Issuer issue
         any subsequent incurrence of debt pursuant to any other notes, bonds,
         securities, or other obligations other than trade payables and expense
         accruals incurred in the ordinary course of business and which are
         incidental to its business purpose, for so long as the Notes remain
         outstanding;

                  (e)      (i) permit the validity or effectiveness of this
         Indenture or any Grant under this Indenture to be impaired, or permit
         this Indenture to be amended, hypothecated, subordinated, terminated or
         discharged, or permit any Person to be released from any covenants or
         obligations under this Indenture, except as may be expressly permitted
         hereby and thereby, (ii) permit any Lien (other than Permitted Liens),
         charge, security interest, mortgage or other encumbrances to be created
         on or extended to or otherwise arise upon or burden the Collateral or
         any part thereof or any interest therein or the proceeds thereof, or
         (iii) permit this Indenture not to constitute a valid first priority
         security interest in the Collateral, subject only to Permitted Liens;
         or

                  (f)      dissolve or liquidate in whole or in part.

     Section 11.07. Statement as to Compliance. Each Issuer will deliver to the
Indenture Trustee, the Class A Note Insurer, the Rating Agency, and to each
Holder of the Notes, on or before each December 31 (commencing December 31,
2004), a written statement signed by an Authorized Officer of such Issuer,
stating, as to the signer thereof, that:

                  (a)      a review of the activities of such Issuer during the
         preceding year and of performance under this Indenture has been made
         under his or her supervision, and

                  (b)      such Issuer has fulfilled all of its obligations
         under this Indenture throughout such year, or, if there has been a
         default in the fulfillment of any such obligation, specifying each such
         Default known to him or her and the nature and status thereof.

                                      -98-


     Section 11.08. Investment Company Act. Each Issuer will conduct its
operations in a manner which will not subject it to registration as an
"investment company" under the Investment Company Act of 1940.

     Section 11.09. Enforcement of Servicing Agreement, Management Agreement,
Sale Agreements and Funds Transfer Agreement. Each Issuer will take all actions
necessary, and diligently pursue all remedies available to it, to the extent
commercially reasonable, to enforce the obligations of the Servicer under the
Servicing Agreement, the Manager under the Management Agreement, each Seller
under the related Sale Agreement and each party under the Funds Transfer
Agreement and to secure its rights thereunder.

     Section 11.10. Issuers May Not Consolidate. Except as otherwise expressly
permitted hereunder (including without limitation, in accordance with Section
11.06(a)), no Issuer shall consolidate, amalgamate or merge with or into any
other Person or convey or transfer its properties and assets substantially as an
entirety to any Person.

     Section 11.11. Opinions as to Collateral. On or before June 30 in each
calendar year commencing with 2005, each Issuer, with respect to that part of
the Collateral Granted by such Issuer to the Indenture Trustee, shall furnish to
the Indenture Trustee an Opinion of Counsel either stating that, in the opinion
of such counsel, such action has been taken during the immediately preceding
12-month period with respect to the recording, filing, re-recording and refiling
of this Indenture, any indentures supplemental hereto and any other requisite
documents, and with respect to the authorization and filing of any financing
statements and continuation statements as is necessary to maintain the Lien and
security interest created by this Indenture and the Sale Agreements and reciting
the details of such action or stating that in the opinion of such counsel no
such action is necessary to maintain such Lien and security interest. Such
Opinion of Counsel shall also describe the recording, filing, re-recording and
refiling of this Indenture, any indentures supplemental hereto and the Sale
Agreements and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the Lien and security interest of this
Indenture until June 30 in the following calendar year.

     Section 11.12. Performance of Obligations. No Issuer will take any action,
and each Issuer will use its best efforts not to permit any action to be taken
by others, that would release any Person from any of such Person's covenants or
obligations under any instrument included in the Collateral, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any such instrument, except as
expressly provided in this Indenture, the Servicing Agreement, the related Sale
Agreement or the Management Agreement or such other instrument.

     Section 11.13. Pro-Rata Purchases. None of the Issuers will, directly or
indirectly, through any Affiliate or otherwise, purchase or otherwise acquire
(otherwise than by prepayment required or permitted by this Indenture) or
solicit any offers to (a) sell Class A Notes except pursuant to invitation to
tender Class A Notes, at the same price, and the same terms, made concurrently
to all Holders of Outstanding Class A Notes, or (b) sell Class B Notes except

                                      -99-


pursuant to an invitation to tender Class B Notes, at the same price, and the
same terms, made concurrently to all Holders of Outstanding Class B Notes.

     Section 11.14. Insurance. (a) Required Insurance. Each Issuer hereby agrees
that such Issuer will maintain insurance or require each Lessee to maintain
insurance at all times while the Indenture is in effect with insurers or
re-insurers of recognized reputation and responsibility (the "Insurers") as
follows:

                  (i)      Property Insurance. Each Issuer either (A) will
         maintain "all risk" property insurance in respect of the Railcars and
         for an amount not less than $5,000,000 per occurrence and with no
         limits on the maximum number of covered occurrences (such that there
         are no limitations on the number of "occurrences" covered by such
         insurance during the term of any such insurance policy) or (B) where
         the Lessee is required to carry insurance, will cause the Lessee to
         carry insurance in limits as determined in accordance with Rule 107 of
         the Interchange Rules ("Property Insurance"); and

                  (ii)     Liability Insurance. Liability insurance with respect
         to third-party personal injury, death and property damage (including
         contractual liability insurance), Federal Employers Liability Act
         coverage and against risks as are customarily carried in the United
         States, Canada or Mexico by owners or lessors of rolling stock similar
         to the Railcars (and, in any event, covering such risks as are covered
         by each Issuer's liability insurance in effect on the Closing Date) in
         an amount, in the case of each Issuer, not less than $5,000,000 per
         occurrence with no limits on the maximum number of covered occurrences
         (such that there are no limitations on the number of "occurrences"
         covered by such insurance during the term of any such insurance policy)
         and, in the case of any Lessee, not less than such amount per
         occurrence with a deductible per occurrence of not more than such
         amount as the Manager determines, in its reasonable judgment and in
         accordance with the management standards set forth in the Management
         Agreement, to be prudent and, in any event, not less than such amounts
         (with not more than such deductibles) as Lessees are customarily
         required to carry in the United States, Canada or Mexico by owners or
         lessors of rolling stock similar to the Railcars ("Liability
         Insurance").

         (b)      Self-insurance. The Issuers may permit any Lessee, in lieu of
the requirements set forth above, to self-insure Railcars leased thereto with
respect to Property Insurance and, to the extent such failure does not adversely
affect an Issuer's liability insurance, Liability Insurance; provided, however,
that, except with respect to any Railcars leased to a Preferred Lessee, the
aggregate amount of liability which shall be subject to such self-insurance
shall not, in respect of any Lessee, exceed $250,000. "Self-insure" and
"self-insurance" shall mean uninsured risk, deductible and co-insurance.
"Preferred Lessee" shall mean any Lessee having a long-term debt credit rating
(or shadow rating) of BBB- or higher by S&P, BBB- or higher by Fitch or Baa3 or
higher by Moody's.

                                     -100-


         (c)      Terms of Insurance. The insurance policies carried by the
Issuers in accordance with the terms of this Indenture shall:

                  (i)      require 30 days' prior notice to the additional
         insureds of cancellation for any reason or material change in the type
         or limits of coverage and provide that one or more of the additional
         insureds may renew such coverage;

                  (ii)     not require contributions from other policies held by
         the additional insureds;

                  (iii)    waive any right of subrogation of the insurers
         against the additional insureds;

                  (iv)     (A) name the Indenture Trustee and the Class A Note
         Insurer as additional insureds in the case of Liability Insurance, and
         (B) name the Indenture Trustee as loss payee in the case of Property
         Insurance;

                  (v)      continue to insure such additional insured regardless
         of any breach or violation of any warranty, declaration or condition
         contained in such policy by the Issuers or any Person; and

                  (vi)     waive any right to claim any premium or commissions
         against the additional insured.

If any Issuer is in default of its obligation to maintain, or, with respect to
Property Insurance, cause the Lessee to maintain, the insurance coverages
specified herein, the Indenture Trustee may (with the consent of the Controlling
Party), at its option, but shall not be required to (unless directed to do so by
the Controlling Party), obtain such insurance, and in such event, each Issuer
shall, upon demand from time to time, reimburse the Indenture Trustee for the
cost of such insurance which each Issuer shall have failed to maintain and which
the Indenture Trustee shall have obtained in accordance herewith, together with
interest thereon at the Overdue Rate, from the date of payment thereof to but
excluding the date of receipt of such reimbursement.

         (d)      Certificates. From time to time, but not more than once in any
12-month period, upon the request of the Indenture Trustee (acting at the
direction of the Controlling Party), the Issuers shall provide certificates of
insurance to the Indenture Trustee and the Class A Note Insurer evidencing that
the insurance required of the Issuers by this Section 11.14 is in effect.

         (e)      The Issuers' Agreements. The Issuers will not:

                  (i)      make, or permit the making of, any modification to
         any insurance required hereunder without the prior written consent of
         the Indenture Trustee acting at the direction of the Controlling Party;
         or

                                     -101-


                  (ii)     cause or permit any Railcars to be employed in any
         place or in any manner or for any purpose inconsistent with the terms
         of or outside the coverage provided by any required insurance.

         (f)      Change in Industry Practice. In the event that there is a
material change in generally accepted industry-wide practice with regard to the
insurance of Railcars (whether relating to any or all of the types of insurance
required to be effected under the foregoing provisions of this Section 11.14)
such that the insurance required pursuant to the provisions of this Section
11.14 is insufficient to protect the interests of the Indenture Trustee, the
Class A Note Insurer or any Holder hereunder, then, unless such an action would
be contrary to the provisions of any Lease to which the relevant Railcars may
then be subject, the insurance requirements set forth in this Section 11.14
shall be varied so as to include such additional or varied requirements as may
be reasonably necessary to ensure that the insurance as so varied shall provide
comparable protection to that which would have been provided if such change in
generally accepted industry-wide practice had not occurred.

         (g)      Compliance with Legal Requirements. In addition to the
foregoing provisions of this Section 11.14, the Issuers shall comply with all
legal requirements as to the insurance of any Railcars which may from time to
time be imposed by the Laws of the United States, Canada or Mexico, as
applicable, or any jurisdiction to or from which any Railcars shall travel or in
which the same shall be located or by the AAR.

         (h)      No Reliance on and Release of Indenture Trustee. In connection
with the covenants set forth in this Section 11.14, it is understood and agreed
that:

                  (i)      neither the Indenture Trustee nor its agents or
         employees shall be liable for any loss or damage insured by the
         insurance policies required to be maintained under this Section 11.14,
         it being understood that each Issuer shall look solely to its insurance
         companies or any other parties other than the aforesaid parties for the
         recovery of such loss or damage. If any such insurance policy does not
         provide waiver of subrogation rights against the additional insured, as
         required in Section 11.14(c)(iii), then the Issuers hereby agree, to
         the extent permitted by applicable Law, to waive its right of recovery,
         if any, against the Indenture Trustee and its agents and employees in
         respect of any such loss or damage; and

                  (ii)     the designation of any form, type or amount of
         insurance coverage by the Issuers under this Section 11.14 shall in no
         event be deemed a representation, warranty or advice by the Indenture
         Trustee that such insurance is adequate for the purposes of the
         business of the Issuers or the protection of its properties.

     Section 11.15. Leasing of Railcars. (a) No Issuer shall, without the prior
written consent of the Controlling Party, sell, contract to sell, lease, assign,
encumber or otherwise dispose of, transfer or relinquish possession or control
of, any or all Railcars or any interest therein, except as expressly permitted
by, and in accordance with, the provisions hereof (including, without
limitation, Section 6.18 and this Section 11.15). The Railcars shall at all
times be in the possession of or under the control of the Issuers, the Servicer,
the Manager or, to the extent such

                                     -102-


Railcar is then the subject of an unexpired Lease permitted hereby, the Lessee
thereof, a permitted sublessee thereunder or, in addition (in the case of any
Per Diem Lease or Operating Agreement), the Person obligated to make payments of
Railroad Mileage Credits thereunder; provided that, subject to the terms of the
Management Agreement, an Issuer or the Manager may relinquish possession to
parties in the business and capable of repairing Railcars for the limited
purpose of effecting such repairs.

         (b)      The Issuers shall use their best efforts (and shall cause the
Manager to use its best efforts) to cause each Railcar to be subject to, and
maintained under, a Lease. During any period that a Railcar is not then subject
to a Lease (due to being taken out of service for repair or otherwise), the
Issuers shall take (or cause the Manager to take) reasonable care to prevent
deterioration of the condition of such Railcar (solely in the case of a Railcar
being repaired, beyond that attributable to the circumstances necessitating such
repair) and to keep such Railcar otherwise eligible for applicable
manufacturer's warranties, if any.

         (c)      The Issuers shall have the right to enter into a Lease, as
lessor or owner thereof, with respect to a Railcar, without the consent of the
Indenture Trustee or any Holder (each such Lease, a "Subsequent Lease"), and
NARCAT can accept the transfer of the Prefunded Existing Leases and the
Prefunded Railcars from the U.S. Seller on the Prefunded Railcar Acquisition
Date, so long as the following concentration limits (the "Concentration Limits")
are satisfied as of the date on which any Subsequent Lease is originated (or, if
later, the date on which any Subsequent Lease is transferred to an Issuer) or as
of the Prefunded Railcar Acquisition Date, as applicable, unless waived in
writing by the Controlling Party:

                  (i)      not more than 10% of all Railcars may be leased to
         any one Lessee (including all Affiliates thereof), unless such Lessee
         shall both (i) have a long-term unsecured debt rating of "BBB" or
         higher by S&P, "BBB" or higher by Fitch or "Baa" or higher by Moody's
         (the "Minimum Long-Term Rating") and (ii) not have a long-term
         unsecured debt rating of less than the Minimum Long-Term Rating from
         any of S&P, Fitch or Moody's, in which case not more than 20% of all
         Railcars may be leased to any such Lessee (including all Affiliates
         thereof);

                  (ii)     not more than 60% of all Railcars may be leased to
         any set of ten Lessees (including for this purpose any Lessee and all
         Affiliates thereof as a single Lessee);

                  (iii)    Railcars subject to Per Diem Leases may not account
         more than 40% of the Stated Value of all Railcars;

                  (iv)     Railcars subject to Leases with governmental agencies
         or authorities may not account for more than 7.5% of the Stated Value
         of all Railcars; and

                  (v)      not more than 450 of the Railcars are leased to
         Lessees for which a Mexican address is referenced on the Lease;

provided, however, that (a) a Subsequent Lease shall be deemed to have been
originated in compliance with the Concentration Limits notwithstanding the fact
that, at the time of such

                                     -103-


origination, the portfolio of Railcars and associated Leases included in the
Collateral shall not be in compliance with one or more of the Concentration
Limits (each Concentration Limit as to which there shall be non-compliance, a
"Tripped Concentration Limit") so long as such origination shall not (i) cause
said portfolio to fail to be in compliance with any other Concentration Limit,
or (ii) cause said portfolio to be further from compliance with any Tripped
Concentration Limit, and (b) with the consent of the Controlling Party, a
Subsequent Lease with respect to any Lessee shall be deemed to have been
originated in compliance with the Concentration Limits notwithstanding the fact
that a downgrade or withdrawal of a debt rating in respect of such Lessee would
otherwise have resulted in the existence of a Tripped Concentration Limit.

         (d)      The applicable Issuer shall use its best efforts to maintain
in full force and effect all of its rights, as lessor, and all of the Lessee's
obligations, as Lessee, under each Lease and shall take such action as is
necessary to enforce its rights and the Lessee's obligations thereunder. Such
Issuer shall not waive an event of default under a Lease unless no Event of
Default then exists hereunder and such waiver and failure of Lessee to comply
with the relevant obligation (including with respect to the removal of any
Liens) does not affect the then fair market value, utility or remaining useful
life of the relevant Railcars. In no event shall any such waiver alter or
diminish the Issuer's obligations hereunder (including with respect to the
insurance, use or maintenance of the Railcars).

         (e)      The Issuer may consent to the sublease of any Railcar. Any
permitted sublease entered into pursuant to Section 2.01(j) of the Servicing
Agreement shall be treated as a "Lease" for all purposes hereunder.

     Section 11.16. Notice of Defaults, Events of Default, Servicer Events of
Termination, Manager Events of Termination and Rapid Amortization Events. Upon
any Issuer's obtaining knowledge of the occurrence of any Default, Event of
Default, Servicer Event of Termination, Manager Event of Termination or Rapid
Amortization Event, or event that, with the passage of time or the giving of
notice, or both, would constitute such an occurrence, such Issuer shall, within
one Business Day of obtaining such knowledge, notify the Indenture Trustee, the
Class A Note Insurer and the Rating Agencies of such occurrence.

     Section 11.17. Limitation on Liability of Directors, Officers, or Employees
of the Issuers. The directors, officers, or employees of the Issuers shall not
be under any personal liability to the Indenture Trustee, the Holders, the
Servicer, the Manager, the Class A Note Insurer or any other Person hereunder or
pursuant to any documents delivered hereunder, it being expressly understood
that all such liability is expressly waived and released as a condition of, and
as consideration for, the execution of this Indenture and the issuance of the
Notes, except with respect to liability resulting from such person's fraudulent
or willful misconduct. The Issuers and any director or officer or employee or
agent of any Issuer may rely in good faith on the advice of counsel respecting
any matters arising hereunder.

     Section 11.18. Obligations Under Leases. Each Issuer will duly fulfill all
material obligations on its part (as required by any Transaction Document to
which it is a party) to be fulfilled under or in connection with the Leases to
the extent the Lessees under the Leases shall

                                     -104-


continue to make payments therefor and perform thereunder as provided in such
Leases; provided, however, that an adjustment or other modification or amendment
of a Lease pursuant to the Transaction Documents shall not be deemed to be a
violation of this paragraph.

     Section 11.19. Maintenance of Interests. Each Issuer will make, execute or
endorse, acknowledge and file or deliver to the Indenture Trustee from time to
time such schedules, confirmatory assignments, conveyances, reports and other
reassurances or instruments and take such further steps relating to the Leases,
Railcars and other Railcar Assets and the rights covered by this Indenture as
are necessary to maintain the Indenture Trustee's interests in the Collateral,
and as the Indenture Trustee or the Class A Note Insurer may reasonably request.

     Section 11.20. [RESERVED].

     Section 11.21. [RESERVED].

     Section 11.22. UMLER Designations. Immediately following the Closing Date,
except with respect to the reporting marks which are the subject of the Car Mark
Agreement, each Issuer covenants to take all or cause its Affiliates to take all
necessary action to change the UMLER designation associated with the reporting
marks relating to the Railcars so as to reflect such Issuer's ownership of said
marks immediately following Closing Date.

     Section 11.23. Post-Closing Records. On the Closing Date, each Issuer shall
cause its records to be marked to reflect the transfer of the Railcar Assets
thereon. To the extent not already done, on the Closing Date, each Issuer shall
deliver each Lease File for each Railcar Asset to the Servicer together will all
maintenance records related to the Railcar Assets.

     Section 11.24. [RESERVED].

     Section 11.25. Notification of Breaches. Each Issuer will promptly notify
the Indenture Trustee and the Class A Note Insurer promptly following any breach
by such Issuer of any of its representations, warranties, covenants and
agreements contained herein.

     Section 11.26. Non-Consolidation. Each Issuer will take all actions
necessary to ensure that the representations and warranties contained in Section
10.01(p) hereof remain true and correct at all times and that each Issuer would
not be consolidated with any of the Sellers, the Manager, the Servicer, The
Anderson's or any of their Affiliates in the event that any such entity shall
become subject to bankruptcy or insolvency proceedings.

     Section 11.27. Collections Received. Each Issuer shall hold in trust for
the benefit of the Indenture Trustee and the other Secured Parties, and shall
remit (or cause to be remitted) daily to the relevant Collection Account, all
Collections within one Business Day after receipt thereof by each Issuer or any
of its Affiliates.

     Section 11.28. Sale Treatment. No Issuer shall (a) account for (including
for accounting and tax purposes), or otherwise treat, the transactions
contemplated by the Asset Purchase Agreement or any Sale Agreement, as
applicable, in any manner other than as a sale by the

                                     -105-


Railcar Entities of its right, title and interest in, to and under the Railcar
Assets to the Seller, or as a sale by the Seller of its right, title and
interest in, to and under the Railcar Assets to the Issuers, as the case may be,
or (b) account for or otherwise treat the transactions contemplated by this
Indenture in any manner other than as a pledge of the Collateral by each Issuer
to the Indenture Trustee on behalf of the other Secured Parties. In addition,
each Issuer shall disclose (in a footnote or otherwise) in all of its financial
statements (including any such financial statements consolidated with any other
Person's financial statements) the existence and nature of the transactions
contemplated by the Asset Purchase Agreement, the Sale Agreement to which such
Issuer is a party and this Indenture and the ownership interest of the Issuers
and the security interest of the Indenture Trustee, on behalf of the Secured
Parties, in the Railcar Assets.

     Section 11.29. [RESERVED].

     Section 11.30. Ownership Interest. Each Issuer shall, at its own expense,
take all action necessary or desirable to establish and maintain a valid and
enforceable ownership interest in or, solely to the extent that the Sale
Agreement to which such Issuer is a party does not effect a true sale of the
Railcar Assets from the relevant Seller to such Issuer, a valid and enforceable
security interest in, the Non-Mexican Collateral and a first priority perfected
security interest in the relevant Non-Mexican Collateral to the extent a valid
and enforceable ownership interest was not established and maintained in favor
of such Issuer, in each case free and clear of any Lien (other than any
Permitted Lien), in favor of each Issuer, including taking such action to
perfect, protect or more fully evidence the interest of each Issuer, as the
Indenture Trustee or the Class A Note Insurer may reasonably request. If any
Issuer fails to take any action required to establish, protect, or maintain the
rights thereof, the Indenture Trustee may (with the prior written consent of the
Controlling Party) or shall, at the written direction of the Controlling Party,
perform the same and all of the expenses of the Indenture Trustee shall be
payable by the Issuers. In addition, each Issuer shall mark its master data
processing records and other documents describing the conveyances contemplated
by this Indenture and the other Transaction Documents.

     Section 11.31. [RESERVED].

     Section 11.32. No Change in Payment Instructions to Lessees. No Issuer
shall make any change in its instructions to Lessees regarding payments to be
made in respect of the Railcar Assets, unless (i) such instructions are to
deposit such payments to the relevant Collection Account (or to a post office
box or a lock-box covered by a Lockbox Agreement) or (ii) each of the Indenture
Trustee and the Controlling Party shall have provided their prior written
consent to such addition, termination or change at least 15 days prior thereto.

     Section 11.33. No Deposits to Lockbox Accounts or Collection Accounts.
Except as expressly contemplated by this Indenture, no Issuer shall deposit or
otherwise credit, or cause or permit to be so deposited or credited, to any
Lockbox Account or either Collection Account, cash or cash proceeds other than
Collections. No Issuer shall deposit or otherwise credit, or cause or permit to
be so deposited or credited, any Collections to any account or post office boxes
or lock-boxes other than a Lockbox Account, either Collection Account or to post
office boxes or lock-boxes to which only the Lockbox Bank has access.

                                     -106-


     Section 11.34. No Change in Name, Identity or Organizational Documents. No
Issuer shall change its name, identity or structure (including a merger or
consolidation), its form of organization or its jurisdiction of incorporation,
unless at least thirty days prior to the effective date of any such change, each
Issuer delivers to the Indenture Trustee and the Class A Note Insurer such
documents, instruments or agreements, executed by such Issuer as are necessary
to reflect such change and to continue the perfection and priority of the
Indenture Trustee's security interests in the Collateral.

     Section 11.35. No Amendment to Transaction Documents. Except to the extent
otherwise permitted under Article IX, no Issuer shall amend, modify, or
supplement any Transaction Document or waive any provision thereof, except in
any case with the prior written consent of each of the Indenture Trustee and the
Controlling Party; nor shall any Issuer take, or permit any other Person to
take, any other action under any Transaction Document that could have a Material
Adverse Effect or which is inconsistent with the terms of this Indenture or any
other Transaction Document.

     Section 11.36. Compliance with Laws, etc. Each Issuer shall comply with all
applicable Laws applicable to such Issuer or any of its business, properties or
assets, the failure to comply with which could reasonably be expected to cause a
Material Adverse Effect, such compliance to include (i) paying when due all
Taxes imposed upon it or upon its property by any Governmental Entity except to
the extent contested in good faith and for which such Issuer maintains
appropriate cash reserves in accordance with GAAP and (ii) complying with the
rules of the United States Department of Transportation (including the rules and
regulations of the FRA), the Environmental Protection Agency, the STB and the
AAR (including the Interchange Rules) with respect to the ownership, use,
operation and maintenance of each Unit.

     Section 11.37. Authorizations, Approvals and Recordations. Each Issuer
shall promptly take, and maintain the effectiveness of, all action that may,
from time to time, be necessary or appropriate under applicable Law in
connection with the performance by such Issuer of its obligations under this
Indenture, any other Transaction Document or any Lease, or the taking of any
action hereby or thereby contemplated, or necessary for the legality, validity,
binding effect or enforceability of this Indenture, any other Transaction
Document or any Lease, or for the making of any payment or the transfer or
remittance of any funds by such Issuer under this Indenture or any other
Transaction Document.

     Section 11.38. Reporting Requirements. Each Issuer shall furnish, or caused
to be furnished, as the case may be, to the Indenture Trustee and the Class A
Note Insurer:

                  (a)      as soon as available and in any event within 120 days
         after the end of each fiscal year of such Issuer, the Financial
         Statements of such Issuer as of the end of such fiscal year, examined
         by independent certified public accountants of recognized national
         standing whose opinion shall not be qualified as to the scope of audit;

                  (b)      as soon as available and in any event within 60 days
         after the end of each financial quarter of such Issuer, a copy of its
         internally prepared Financial Statements for such quarter;

                                     -107-


                  (c)      if so requested by the Class A Note Insurer, promptly
         after such request (or if later after receipt thereof from the
         applicable Lessee), all material information in relation to the
         financial status of each Lessee, including Financial Statements of each
         Lessee, which is in the possession of each Issuer, the Manager or the
         Servicer, is publicly available or is required to be delivered pursuant
         to the terms of the applicable Lease;

                  (d)      promptly upon receipt from each Issuer's insurance
         carrier or broker, give to the Indenture Trustee and the Class A Note
         Insurer copies of any notice, communication, document or agreement
         related to the Collateral;

                  (e)      prompt written notice of (i) any threatened or
         pending investigation of such Issuer, the Manager, the Servicer, the
         Seller or any of their Affiliates by any Governmental Authority or
         agency, or (ii) any threatened or pending court or administrative
         Proceeding or the institution of any litigation, arbitration proceeding
         or other Proceeding, in any case, which individually or in the
         aggregate involves the possibility of materially and adversely
         affecting the Collateral (including, without limitation, the value of
         the Collateral or the Indenture Trustee's first priority perfected
         security interest in the Collateral) or the business or conditions
         (financial or otherwise) of or would otherwise constitute a Material
         Adverse Effect with respect to any Issuer, the Manager, the Servicer,
         the Seller or any of their Affiliates, in each case, specifying the
         nature of such investigation or proceeding and, if known, what action
         the affected Person is taking or proposes to take with respect thereto
         and evaluating its merits;

                  (f)      any reports filed by any Issuer, the Servicer or the
         Manager with the Securities and Exchange Commission or any Rating
         Agency; and

                  (g)      such other information regarding the condition or
         operations, financial or otherwise, of each Issuer or the Collateral as
         the Indenture Trustee or the Class A Note Insurer may from time to time
         reasonably request.

     Section 11.39. Audit and Inspection Rights. Each Issuer shall allow any
Person acting on behalf of the Indenture Trustee or the Class A Note Insurer (a)
to visit and inspect any of the properties or assets of such Issuer in
whomever's possession (provided that, in the case of any Railcar then subject to
a Lease, such action is taken in accordance with the terms of such Lease) and to
examine such Issuer's books of record and accounts (and make copies of and
abstracts from all such books of record and accounts) and to discuss such
Issuer's affairs, finances and accounts with the Manager, the Servicer, its and
their officers and independent accountants, all at such times during normal
business hours and as often as the Indenture Trustee or the Class A Note Insurer
may reasonably request, and (b) at any time and from time to time and without
notice, to access and retrieve information from the computer networks on which
such Issuer, the Manager and the Servicer maintain data on the portfolio of
Railcars. Any expense incident to the exercise by the Class A Note Insurer or
the Indenture Trustee of any right under this Section 11.39 shall be borne by
the Initial Manager, except that only the first examination in any year by the
Class A Note Insurer or the Indenture Trustee will be at the Initial Manager's
expense (unless there has occurred and is continuing a Manager Event of
Termination, a Servicer Event of Termination (if the Manager is also the
Servicer), an Event of Default or a Rapid

                                     -108-


Amortization Event (or any event which, with the giving of notice or passage of
time, would constitute any such event), in each of which cases each such
examination shall be at the expense of the Manager)), or, if a Successor Manager
other than an Affiliate of the Initial Manager is then acting as Manager, such
expense shall be borne by the party exercising such right of inspection;
provided, however, that in no event shall the Class A Note Insurer or the
Indenture Trustee be entitled to any expenses hereunder for which it has been
previously reimbursed pursuant to Section 8.06 of either the Management
Agreement or Servicing Agreement.

     Section 11.40. Payment of Charges. Each Issuer shall duly pay and discharge
(a) all of its trade bills before the time that any Lien attaches, (b) all Taxes
imposed upon or against it or its property or assets, or upon any property
leased by it, prior to the date on which penalties attach thereto, and (c) all
lawful claims or other obligations, whether for labor, materials, supplies,
services or anything else, which might or could, if unpaid, become a Lien upon
such property or assets, unless and only to the extent that the validity thereof
is being contested in good faith by appropriate proceedings so long as such
proceedings do not involve any material danger of the sale, forfeiture or loss
of any of the Collateral or any interest therein and such Issuer maintains
appropriate cash reserves with respect thereto in accordance with GAAP. The
Issuers shall cooperate to comply with all tax return requirements for such
Taxes, and shall provide such documentation and take such other actions as may
be reasonably necessary to minimize the amount of any such Taxes.

     Section 11.41. Maintenance of Records. Each Issuer shall keep, or, with
respect to the Railcars and other Railcar Assets, cause the Manager or the
Servicer to keep, at all times separate books of record and account in which
full, true and correct entries will be made of all dealings or transactions in
relation to its business and affairs, such entries to be made in accordance with
GAAP consistently applied in the case of financial transactions, and each Issuer
will provide or cause to be provided adequate protection against loss or damage
to such books of record and account.

     Section 11.42. Post-Acquisition Matters. Each Issuer shall provide to the
Indenture Trustee and the Class A Note Insurer, no later than 30 days following
the Closing Date or the Prefunded Railcar Acquisition Date, as applicable, with
respect to the Railcars so acquired on such date, (a) evidence that all
documents necessary to create a first priority security interest in the Railcars
(other than Mexican Railcars) have been recorded in all relevant jurisdictions,
and (b) an original counterpart of each acknowledgment of the applicable Lessee
of, or consent by the applicable Lessee to, the assignment and assumption to the
relevant Issuer to the extent such acknowledgment or consent is required by the
terms of such Lease. Each Issuer shall cause the relevant Seller to notify each
Lessee under a Lease acquired on such date of the purchase and assignment of the
Railcars and the Lease to such Issuer and irrevocably notify such Lessees of the
collateral assignment of such Leases to the Indenture Trustee (and that all
payments thereunder shall thereafter be made to the relevant Lockbox Account
unless otherwise notified by the Indenture Trustee).

     Section 11.43. Use and Maintenance of Railcar Assets. (a) Each Issuer
shall, and shall require and use its best efforts to cause, each Person in
possession of any of the Railcar Assets to, use the Railcar Assets only in the
manner for which they were designed and intended and so as to

                                     -109-


subject it only to ordinary wear and tear. The Railcar Assets shall not be used
in any manner which is in violation of applicable Law or the insurance
maintained under Section 11.14.

         (b)      Each Issuer shall maintain, service and repair each Railcar or
shall cause each Railcar to be maintained, serviced and repaired (in either
case, subject to scheduling in the ordinary course of business), so that each
Railcar and the component parts thereof (i) are in as good order and repair as
when initially subjected to the Lien of this Indenture, ordinary wear and tear
excepted, (ii) are in compliance with all applicable Laws governing the use and
maintenance thereof, (iii) are in compliance with the requirements of any
insurance policies required pursuant to Section 11.14, and (iv) are in material
compliance with manufacturer's maintenance recommendations and eligible under
manufacturer's warranties. Without limiting the foregoing, each Issuer shall
maintain and keep the Railcar Assets (or shall cause the Railcar Assets to be
maintained and kept) suitable for the commercial use as originally designed and
intended in interchange service, in accordance with applicable Interchange Rules
and prudent industry practice. Each Issuer shall also maintain or cause to be
maintained all records, logs and other materials required by the AAR, the
Department of Transportation and any other Governmental Entity having
jurisdiction over the Railcar Assets or each Issuer to be maintained in respect
of the Railcar Assets.

         (c)      (i) No Issuer shall at any time use, assign or permit the
assignment of, or permit any person in possession of a Railcar (whether or not a
permitted Lessee) to use, assign or permit the assignment of, any Railcar for
use in service (including the regular operation or maintenance thereof) outside
the continental United States, Canada and Mexico; (ii) no Railcars shall be
stored (other than temporary storage) in Mexico and (iii) not more than 450 of
the Railcars may be leased to Lessees for which a Mexican address is referenced
on the Lease without the consent of the Controlling Party.

     Section 11.44. Tort Claims. Upon any Issuer obtaining knowledge of the
existence of any tort claim in excess of $100,000 or, after the occurrence and
during the continuance of any Event of Default if so requested by the Indenture
Trustee or the Class A Note Insurer, any Tort Claim (each, an "Additional Tort
Claim"), each Issuer shall promptly advise the Indenture Trustee and the Class A
Note Insurer in writing and take such actions as are reasonably requested by the
Indenture Trustee or the Class A Note Insurer to grant security interests in
such Additional Tort Claims to the Indenture Trustee, for the benefit of the
Secured Parties, and each Issuer's authorization to file, or to amend, such
financing statements as the Indenture Trustee may deem necessary or advisable to
perfect its security interest in such Additional Tort Claim, it being understood
and agreed that any tort claim constituting Proceeds of Collateral shall, as
Proceeds, be subject to the Lien of this Indenture without any action taken on
the part of any Issuer (and no Issuer shall be obligated to take any such action
with respect to such tort claims unless and until requested to do so by the
Indenture Trustee or the Class A Note Insurer).

     Section 11.45. Identification. Each Issuer will cause the placement of
reporting marks or such other marks, legends, or placards on the Railcars as
shall be appropriate or necessary to comply with any regulation imposed by the
STB, the AAR or any equivalent authority. Immediately following the Closing
Date, except with respect to the reporting marks which are the subject of the
Car Marks Agreement or the GNRR Agreement, each Issuer covenants to take

                                     -110-


all, or cause its Affiliates to take all, necessary action to change the UMLER
designation associated with the reporting marks relating to the Railcars so as
to reflect such Issuer's ownership of said marks immediately following the
Closing Date. The Issuer will cause each Railcar owned by such Issuer to be kept
numbered with the road number serial number as shall be set forth on the Lease
and Railcar Schedule. Except as otherwise contemplated in the Car Marks
Agreement or the GNRR Agreement, no Issuer shall allow the name of any other
Person, other than the related Issuer, to be placed on any Railcar as a
designation that might be identified as a claim of any interest therein;
provided, however, that nothing herein contained shall prohibit any Issuer or
its permitted lessees from placing its name, trademarks, initials, customary
colors and other insignia on any Railcar or from naming each Railcar. No Issuer
shall change the identification number of any Railcar unless and until a
statement of a new number or numbers to be substituted therefor shall have been
delivered to the Indenture Trustee and the Class A Note Insurer and filed,
recorded and deposited by each Issuer in all appropriate public offices,
including the public offices where this Indenture shall have been filed,
recorded and deposited.

     Section 11.46. No Amendment to Any Lease. No Issuer shall amend, modify,
consent to any change in the terms or otherwise alter any Lease, except as
expressly permitted hereunder and under the Management Agreement or the
Servicing Agreement.

     Section 11.47. Transfer of Railcars Among Issuers. With the consent of the
Controlling Party, upon satisfaction of the Rating Agency Condition, an Issuer
may transfer or lease one or more Railcars and any related Railcar Assets (or
interests therein) to another Issuer upon such terms as may be agreed upon by
the Controlling Party, the relevant Issuers, the Manager, the Servicer and the
Indenture Trustee.

                                   ARTICLE XII

                            ACCOUNTS AND ACCOUNTINGS

     Section 12.01. Collection of Money. Except as otherwise expressly provided
herein, the Indenture Trustee may demand payment or delivery of, and shall
receive and collect, directly and without intervention or assistance of any
fiscal agent or other intermediary, all money and other property payable to, or
receivable by, the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall, (a) on or prior to the third Business Day following each
Accounting Date (i) provide the Servicer and the Class A Note Insurer with a
written statement or electronic access to account information setting forth (A)
the amount of funds on deposit in the Collection Accounts as of such Accounting
Date and (B) the amount of funds on deposit in the Cash Collateral Accounts as
of such Accounting Date and (ii) provide the Servicer, the Manager and the Class
A Note Insurer with a written statement or electronic access to account
information setting forth the amount of funds on deposit in the Operating
Expense Reserve Account (including the NARCAT OER Subaccount and the CARCAT OER
Subaccount) and the Prefunding Account as of such Accounting Date and (b) upon
request from the Servicer or the Manager, promptly provide the Servicer and/or
the Manager with any additional information necessary to permit the Servicer and
the Manager to perform their respective duties under the Servicing Agreement and
the Management Agreement. The Indenture Trustee shall hold all such money and
property so received by it as Collateral and shall apply it as provided in this

                                     -111-


Indenture. If any Lease becomes a Defaulted Lease, the Indenture Trustee, upon
the request of the Issuers or the Servicer may, and upon the request of the
Controlling Party shall, take such action as may be appropriate to enforce such
payment or performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and to proceed thereafter as
provided in Article VI.

     Section 12.02. Collection Accounts. (a) The Indenture Trustee represents
and warrants that it has established two separate Collection Accounts, the
NARCAT Collection Account and the CARCAT Collection Account, as segregated trust
accounts at its Corporate Trust Office. The NARCAT Collection Account was
established in the name of NARCAT and NARCAT Mexico, for the benefit of the
Indenture Trustee on behalf of the Holders and the Class A Note Insurer, and the
CARCAT Collection Account was established in the name of CARCAT, for the benefit
of the Indenture Trustee on behalf of the Holders and the Class A Note Insurer.
All payments to be made from time to time by the Issuers to the Holders out of
funds in the Collection Accounts pursuant to this Indenture shall be made by the
Indenture Trustee pursuant to the written direction of the Servicer (or, to the
extent not available on a timely basis or if the Controlling Party has notified
the Indenture Trustee that such direction is incorrect, instructions given by
the Controlling Party). All monies deposited from time to time in the Collection
Accounts pursuant to this Indenture shall be held by the Indenture Trustee as
Collateral as herein provided. Deposits to the Collection Accounts shall be as
follows:

                  (i)      The Indenture Trustee shall deposit, pursuant to the
         written direction of the Servicer (or, to the extent not available on a
         timely basis or if the Controlling Party has notified the Indenture
         Trustee that such direction is incorrect, instructions given by the
         Controlling Party) to the NARCAT Collection Account (upon receipt,
         except as otherwise indicated): (i) all Collections received by the
         Indenture Trustee, whether from the Servicer, the Manager, the Issuers
         and through transfers pursuant to the lockbox arrangements set forth in
         the Servicing Agreement and Lockbox Agreements, or otherwise, in
         respect of Railcars owned by NARCAT or NARCAT Mexico and any Leases
         thereof; (ii) all earnings on the NARCAT Collection Account, the NARCAT
         OER Subaccount and the Prefunding Account; (iii) any monies required to
         be transferred from the NARCAT Cash Collateral Account or the
         Prefunding Account to the NARCAT Collection Account; (iv) any
         indemnification amounts paid by any Railcar Entity under the Asset
         Purchase Agreement, or by any guarantor thereof in respect of Railcars
         owned by NARCAT or NARCAT Mexico and any Leases thereof; (v) any monies
         required to be transferred to the NARCAT Collection Account from the
         Policy Payment Account.

                  (ii)     The Indenture Trustee shall deposit, pursuant to the
         written direction of the Servicer (or, to the extent not available on a
         timely basis or if the Controlling Party has notified the Indenture
         Trustee that such direction is incorrect, instructions given by the
         Controlling Party) to the CARCAT Collection Account (upon receipt,
         except as otherwise indicated): (i) all Collections received by the
         Indenture Trustee, whether from the Servicer, the Manager, the Issuers
         and through transfers pursuant to the lockbox arrangements set forth in
         the Servicing Agreement and Lockbox Agreements, or otherwise, in
         respect of Railcars owned by CARCAT and any Leases thereof; (ii) all

                                     -112-


         earnings on the CARCAT Collection Account and the CARCAT OER
         Subaccount; (iii) any monies required to be transferred from the CARCAT
         Cash Collateral Account to the CARCAT Collection Account; (iv) any
         indemnification amounts paid by any Railcar Entity under the Asset
         Purchase Agreement, or by any guarantor thereof in respect of Railcars
         owned by CARCAT and any Leases thereof; and (v) any monies required to
         be transferred to the CARCAT Collection Account from the Policy Payment
         Account.

         (b)      Upon an Issuer Order of NARCAT, with respect to the NARCAT
Collection Account, and CARCAT, with respect to the CARCAT Collection Account,
the Indenture Trustee shall invest the funds in the Collection Accounts in
Eligible Investments. The Issuer Orders shall specify the Eligible Investments
in which the Indenture Trustee shall invest, shall state that the same are
Eligible Investments and shall further specify the percentage of funds to be
invested in each Eligible Investment. No such Eligible Investment shall mature
later than the Business Day preceding the next following Payment Date and shall
not be sold or disposed of prior to its maturity. In the absence of an Issuer
Order, the Indenture Trustee shall invest funds in the Collection Accounts in
Eligible Investments described in clause (f) of the definition thereof. Eligible
Investments shall be made in the name of the Indenture Trustee for the benefit
of the Holders and the Class A Note Insurer.

         (c)      Any income or other gain from investments in Eligible
Investments as outlined in (b) above shall be credited to the applicable
Collection Account and any loss resulting from such investments shall be charged
to such account. Except as otherwise specifically set forth herein or as a
result of its negligence or misconduct, the Indenture Trustee shall not be
liable for any loss incurred on any funds invested in Eligible Investments
pursuant to the provisions of this Section 12.02 (other than in its capacity as
obligor under any Eligible Investment).

         (d)      On each Payment Date, unless the entire unpaid principal
amount of the Notes shall have become due and payable pursuant to Section 6.02,
then on such Payment Date, the Indenture Trustee, after giving effect to the
Source of Funds Requirements and any transfers made pursuant to the Funds
Transfer Agreement, shall withdraw from Available Funds on deposit in the
Collection Accounts and shall make the following disbursements in the following
order (it being understood that if the Notes have been accelerated pursuant to
Section 6.02, then the Available Funds shall be distributed in accordance with
Section 6.08); provided, however, that any Class A Note Insurer Optional
Deposits shall be applied as directed by the Class A Note Insurer:

                  (i) to the Tax Payment Recipients, any Tax Payment Amounts
         then due and owing by any Issuer;

                  (ii)     to the Indenture Trustee, the Backup Manager and the
         Backup Servicer, pari passu, the Trustee Fee, the Backup Manager Fee
         and the Backup Servicer Fee, respectively;

                  (iii)    to the Lessees entitled thereto, any Railroad Mileage
         Credits to which they are entitled under the Leases;

                                     -113-


                  (iv)     to the Class A Note Insurer and the Indenture
         Trustee, pari passu, all out-of-pocket expenses incurred in connection
         with the transition to a successor Manager; provided, however, that the
         aggregate amount payable under this clause, together with any
         corresponding payments paid in accordance with Section 6.08 with
         respect to any one such transition shall not exceed $200,000;

                  (v)      to the Manager, the Manager Fee;

                  (vi)     to the Manager for reimbursement for Operating
         Expenses made by the Manager in excess of amounts available therefor
         which are held in the Operating Expense Reserve Account; provided,
         however, that the aggregate amount payable on any Payment Date pursuant
         to this clause, together with any corresponding payments paid in
         accordance with Section 6.08, shall not exceed the Capped Manager
         Reimbursement;

                  (vii)    to the Class A Note Insurer and the Indenture
         Trustee, pari passu, all out-of-pocket expenses incurred in connection
         with the transition to a successor Servicer; provided, however, that
         the aggregate amount payable under this clause, together with any
         corresponding payments paid in accordance with Section 6.08, with
         respect to any one such transition shall not exceed $100,000;

                  (viii)   to the Servicer, the Servicer Fee;

                  (ix)     to the Indenture Trustee, for deposit in the
         Operating Expense Reserve Account, the applicable Operating Expense
         Deposit Amounts for the CARCAT OER Subaccount and the NARCAT OER
         Subaccount, subject to the provisions of Section 12.04(a);

                  (x)      to the Holders of the Class A Notes, pari passu, an
         amount equal to the Class A Note Interest; provided, however, that,
         notwithstanding the foregoing, the Class A Note Insurer shall be
         entitled to receive, to the extent of Available Funds, all Incremental
         Class A Interest and all Class A Overdue Interest to the extent of any
         interest payments made by the Class A Note Insurer under, and in
         compliance with, the Class A Note Policy and interest thereon accruing
         at the Overdue Rate;

                  (xi)     to the Class A Note Insurer, accrued Premium due with
         respect to the Class A Note Policy, reimbursement of any claims under
         the Class A Note Policy with respect to draws to pay Class A Note
         Interest, including any Class A Overdue Interest owed with respect
         thereto, any Incremental Class A Interest and, in an amount not to
         exceed $50,000 in any calendar year, any other fees, expenses and
         indemnities owing to the Class A Note Insurer, together in each case
         with any interest thereon;

                  (xii)    to the Indenture Trustee, for deposit to the NARCAT
         Cash Collateral Account and the CARCAT Cash Collateral Amount, pari
         passu, such amounts necessary to cause the amounts held therein to
         equal the Required NARCAT Cash Collateral Amount and the Required
         CARCAT Cash Collateral Amount, respectively;

                                     -114-


                  (xiii)   on the May 2004 Payment Date, and on each Payment
         Date thereafter, to the payment of the Basic Principal Payment in the
         following order of priority:

                           (A)      to the Holders of the Class A-1 Notes, pari
                  passu, until the Note Principal Balance of the Class A-1 Notes
                  has been reduced to zero;

                           (B)      to the Holders of the Class A-2 Notes, pari
                  passu, until the Note Principal Balance of the Class A-2 Notes
                  has been reduced to zero; and

                           (C)      to the Holders of the Class A-3 Notes, pari
                  passu, until the Note Principal Balance of the Class A-3 Notes
                  has been reduced to zero;

                  (xiv)    to the payment of the Supplemental Principal Payment
         in the following order or priority:

                           (A)      in the case of any Regular Supplemental
                  Principal Payment:

                                    (I)      to the Holders of the Class A-3
                           Notes, pari passu, until the Note Principal Balance
                           of the Class A-3 Notes has been reduced to zero;

                                    (II)     to the Holders of the Class A-2
                           Notes, pari passu, until the Note Principal Balance
                           of the Class A-2 Notes has been reduced to zero; and

                                    (III)    to the Holders of the Class A-1
                           Notes, pari passu, until the Note Principal Balance
                           of the Class A-1 Notes has been reduced to zero; and

                           (B)      if a Rapid Amortization Event exists, in the
                  case of any Supplemental Principal Payment after payment of
                  the Regular Supplemental Principal Payments:

                                    (I)      to the Holders of the Class A-3
                           Notes, pari passu, in an amount equal to the lesser
                           of (x) the remaining principal balance of the Class
                           A-3 Notes and (y) the amount of Available Funds then
                           on deposit in the CARCAT Collection Account (without
                           giving effect to any deposit of funds in the CARCAT
                           Collection Account pursuant to the Funds Transfer
                           Agreement in respect of this subclause (B));

                                    (II)     to the Holders of the Class A-2
                           Notes, pari passu, in an amount equal to the lesser
                           of (x) the remaining principal balance of the Class
                           A-2 Notes and (y) the sum of (i) the amount of
                           Available Funds then on deposit in the NARCAT
                           Collection Account and (ii) any remaining amount of
                           Available Funds remaining on deposit in the CARCAT
                           Collection Account after giving effect to the
                           distributions under the preceding subclause (B)(I);

                                     -115-


                                    (III)    to the Holders of the Class A-1
                           Notes, pari passu, in an amount equal to the lesser
                           of (x) the remaining principal balance of the Class
                           A-1 Notes and (y) the aggregate amount of Available
                           Funds remaining on deposit in the NARCAT Collection
                           Account and the CARCAT Collection Account after
                           giving effect to the distributions under the
                           preceding subclauses (B)(I) and (II); and

                                    (IV)     to the Holders of the Class A-3
                           Notes, pari passu, in an amount equal to the lesser
                           of (x) the remaining principal balance of the Class
                           A-3 Notes and (y) the aggregate amount of Available
                           Funds remaining on deposit in the NARCAT Collection
                           Account after giving effect to the distributions
                           under the preceding subclauses (B)(II) and (III);

                  (xv)     to the extent not previously paid, the Class A Note
         Insurer, the amount of any unreimbursed claims paid by the Class A Note
         Insurer under the Class A Note Policy with respect to principal on the
         Class A Notes, and any fees, expenses and indemnities owing to the
         Class A Note Insurer, together in each case with any interest owed
         thereon;

                  (xvi)    to the Holders of the Class B Notes, pari passu, an
         amount equal to the accrued but unpaid Class B Note Interest;

                  (xvii)   to the Holders of the Class B Notes, pari passu, in
         the following order of priority, until the Note Principal Balance of
         the Class B Notes has been reduced to zero:

                           (A)      the Scheduled Class B Payment;

                           (B)      on the Payment Date on which the Note
                  Principal Balance of the Class A Notes is reduced to zero, any
                  portion of the Basic Principal Payment for such Payment Date
                  not paid to the Holders of the Class A Notes; and

                           (C)      on each Payment Date thereafter, the Basic
                  Principal Payment;

                  (xviii)  to the Holders of the Class B Notes, pari passu, (i)
         on the Payment Date on which the Note Principal Balance of the Class A
         Notes is reduced to zero, any portion of the Supplemental Principal
         Payment not paid to the Holders of the Class A Notes, and (ii) on each
         Payment Date thereafter, the Supplemental Principal Payment, until the
         Note Principal Balance of the Class B Notes has been reduced to zero;

                  (xix)    to the Indenture Trustee, the Backup Manager, the
         Backup Servicer and the Class A Note Insurer, pari passu, any fees,
         expenses and indemnities owing thereto but not previously paid;

                  (xx)     to the Manager, any expenses, indemnities and
         reimbursement payments owing thereto but not previously paid;

                                     -116-


                  (xxi)    to the Servicer, any expenses, indemnities and
         reimbursement payments owing thereto but not previously paid;

                  (xxii)   to the Manager, the Supplemental Manager Fee; and

                  (xxiii)  to the Issuers.

         Notwithstanding any other provision of this Indenture, funds paid to
the Issuers pursuant to clause (xxiii) above automatically shall be released
from the Lien of the Indenture.

         In making the withdrawals and payments required by this Section
12.02(d), and in making the reports and accounting referred to in Section 12.10,
the Indenture Trustee shall act in accordance with the Monthly Servicer Report,
and shall be fully protected in relying thereon, unless (x) a Responsible
Officer has actual knowledge to the contrary or the Controlling Party has
notified the Indenture Trustee that a Servicer Event of Termination has occurred
and is continuing and has given instructions contrary to those contained in the
Monthly Servicer Report, or (y) no Monthly Servicing Report has been delivered
or the Controlling Party has instructed the Indenture Trustee that the Monthly
Servicer Report is incorrect, in which case the Indenture Trustee shall rely
upon the written instructions of the Controlling Party, and shall be fully
protected in relying thereon.

         (e) In addition, at the direction of the Servicer, and irrespective of
whether a Default or Event of Default shall have occurred and be continuing
(except a Servicer Event of Termination, in which case at the direction of the
Controlling Party unless otherwise directed by the Controlling Party), the
Indenture Trustee shall withdraw from the Collection Accounts and remit to the
Servicer for delivery to the Person(s) entitled thereto prior to any
distributions made in accordance with Section 12.02(d) or Section 6.08 on any
Payment Date: (i) amounts other than Collections received from Lessees or other
parties with respect to the Leases or the Railcars, (ii) amounts received in
respect of Leases and Railcars due on of before (A) the Closing Date, with
respect to Initial Existing Leases, (B) the Prefunded Railcar Acquisition Date,
with respect to Prefunded Existing Leases or (C) the date transferred to any
Issuer, with respect to Subsequent Leases transferred to any Issuer, (iii)
amounts received in respect of Leases and Railcars following the purchase
thereof by the Manager pursuant to the Management Agreement or the Servicer
pursuant to the Servicing Agreement or the sale thereof as contemplated in
Section 8.02 and (iv) indemnification amounts to be remitted to the Initial
Manager pursuant to Section 4.04(f) of the Management Agreement; provided,
however, that no withdrawal or remittance shall be made pursuant to this Section
12.02(e) at any time during which a Default or Event of Default shall have
occurred and be continuing unless the Servicer shall have provided to the
Controlling Party not less than five Business Days' notice thereof.

         (f) With respect to the distributions to be made pursuant to Section
12.02(d) above or Section 6.08(a) (unless otherwise directed by the Controlling
Party after an acceleration of the Notes following an Event of Default), the
term "Source of Funds Requirements" shall mean, as of any Payment Date, the
following:

                                     -117-


                  (i)      any Tax Payment Amounts to be disbursed pursuant to
         Section 12.02(d)(i) or Section 6.08(a)(i) shall be withdrawn by the
         Paying Agent from the NARCAT Collection Account to the extent that such
         Tax Payment Amounts shall be due and owing by NARCAT or NARCAT Mexico
         (or owed by Holdco with respect to the activities of such entities),
         and from the CARCAT Collection Account to the extent that such Tax
         Payment Amounts shall be due and owing by CARCAT (or owed by Holdco
         with respect to the activities of such entity);

                  (ii)     any amounts to be disbursed pursuant to Sections
         12.02(d)(ii), (vii), (viii), (xv), (xix), (xxi) and (xxii) or Sections
         6.08(a)(ii), (vii), (viii), (xiv), (xvii), (xix) and (xx) shall be
         withdrawn by the Paying Agent from the NARCAT Collection Account and
         the CARCAT Collection Account, pro rata, based upon the aggregate Note
         Principal Balance of the Class A-1 Notes, the Class A-2 Notes and the
         Class B Notes, and the aggregate Note Principal Balance of the Class
         A-3 Notes, respectively, which shall be Outstanding on such Payment
         Date prior to giving effect to any payments of principal to be made on
         such Payment Date;

                  (iii)    any amounts to be disbursed pursuant to Section
         12.02(d)(iii) or Section 6.08(a)(iii) shall be withdrawn by the Paying
         Agent from the NARCAT Collection Account and the CARCAT Collection
         Account, pro rata, based upon the aggregate amount of Railroad Mileage
         Credits payable on such Payment Date to Lessees under Leases of
         Railcars owned by the NARCAT Entities and the aggregate amount of
         Railroad Mileage Credits payable on such Payment Date to Lessees under
         Leases of Railcars owned by CARCAT, respectively;

                  (iv)     any amounts to be disbursed pursuant to Section
         12.02(d)(iv) or Section 6.08(a)(iv) shall be withdrawn by the Paying
         Agent from the NARCAT Collection Account and the CARCAT Collection
         Account, pro rata, based upon the Stated Values of all Railcars owned
         by the NARCAT Entities and CARCAT, respectively, as of the related
         Accounting Date;

                  (v)      any amounts to be disbursed pursuant to Section
         12.02(d)(v) or Section 6.08(a)(v) shall be withdrawn by the Paying
         Agent from the NARCAT Collection Account and the CARCAT Collection
         Account, pro rata, based upon the number of Railcars owned by the
         NARCAT Entities and CARCAT, respectively, as of the related Accounting
         Date;

                  (vi)     any amounts to be disbursed pursuant to Sections
         12.02(d)(vi) and (xx) or Sections 6.08(a)(vi) and (xviii) shall be
         withdrawn by the Paying Agent from the NARCAT Collection Account and
         the CARCAT Collection Account, pro rata, based upon the ownership of
         the Railcars in respect of which the subject Operating Expenses or
         other expenses, indemnities or reimbursement payments shall relate;

                  (vii)    any amounts to be disbursed pursuant to Section
         12.02(d)(ix) or Section 6.08(a)(ix) shall be withdrawn by the Paying
         Agent from the NARCAT Collection Account and the CARCAT Collection
         Account, pro rata, based upon the

                                     -118-


         amount required to be deposited into the Operating Expense Reserve
         Account in respect of Railcars owned by the NARCAT Entities and CARCAT,
         respectively;

                  (viii)   any amounts to be disbursed pursuant to Section
         12.02(d)(x), (xi), (xiii) or (xiv) or Sections 6.08(a)(x), (xi) or
         (xiii) in respect of principal, Class A Note Interest, Incremental
         Class A Note Interest and Class A Overdue Interest on the Class A-1
         Notes or the Class A-2 Notes, and any amounts to be disbursed pursuant
         to Sections 12.02(d)(xvi), (xvii) or (xviii) or Sections 6.08(a)(xv) or
         (xvi) in respect of principal of the Class B Notes or Class B Note
         Interest, shall be withdrawn by the Paying Agent from the NARCAT
         Collection Account;

                  (ix)     any amounts to be disbursed pursuant to Section
         12.02(d)(x), (xi), (xiii) or (xiv) or Sections 6.08(a)(x), (xi) or
         (xiii) in respect of principal, Class A Note Interest, Incremental
         Class A Interest and Class A Overdue Interest on the Class A-3 Notes
         shall be withdrawn by the Paying Agent from the CARCAT Collection
         Account;

                  (x)      any amounts to be disbursed pursuant to Section
         12.02(d)(xi) or Section 6.08(a)(xi), in respect of Premium due with
         respect to the Class A Note Policy shall be withdrawn by the Paying
         Agent from the NARCAT Collection Account;

                  (xi)     any amounts to be disbursed pursuant to Section
         12.02(d)(xi) or Section 6.08(a)(xi) in respect of reimbursement of
         claims under the Class A Note Policy with respect to draws to pay
         interest on the Class A-1 Notes or the Class A-2 Notes (including any
         related Class A-1 Overdue Interest and Class A-2 Overdue Interest owed
         with respect thereto) shall be withdrawn by the Paying Agent from the
         NARCAT Collection Account;

                  (xii)    any amounts to be disbursed pursuant to Section
         12.02(d)(xi) or Section 6.08(a)(xi) in respect of reimbursement of
         claims under the Class A Note Policy with respect to draws to pay
         interest on the Class A-3 Notes (including any related Class A-3
         Overdue Interest owed with respect thereto) shall be withdrawn by the
         Paying Agent from the CARCAT Collection Account;

                  (xiii)   any amounts to be disbursed pursuant to Section
         12.02(d)(xi) or Section 6.08(a)(xi) in respect of payments not
         referenced in clauses (x), (xi) or (xii) of this Section 12.02(f) shall
         be drawn from the NARCAT Collection Account and the CARCAT Collection
         Account, pro rata, based upon the aggregate Note Principal Balance of
         the Class A-1 Notes and the Class A-2 Notes, and the aggregate Note
         Principal Balance of the Class A-3 Notes, respectively, which shall be
         outstanding on such Payment Date prior to giving effect to any payments
         of principal to be made on such Payment Date; and

                  (xiv)    any amounts to be disbursed pursuant to Section
         12.02(d)(xii) or Section 6.08(a)(xii) shall be withdrawn by the Paying
         Agent from the NARCAT Collection Account and the CARCAT Collection
         Account, pro rata, based upon the

                                     -119-


         amount required to be deposited in the NARCAT Cash Collateral Account
         and the CARCAT Cash Collateral Account on such Payment Date.

         If the Notes have been accelerated following an Event of Default and
the Controlling Party directs that funds be paid other than in accordance with
the above Source of Funds, then Available Funds may be applied towards the
payment of amounts set forth in Section 6.08(a) in the order of priority set
forth therein without regard to the limitations set forth in this Section
12.02(f).

         Section 12.03. Cash Collateral Accounts. (a) On or prior to the Closing
Date, the Issuers shall cause the Indenture Trustee to establish and maintain
two separate Cash Collateral Accounts, the NARCAT Cash Collateral Account and
the CARCAT Cash Collateral Account, as segregated trust accounts at its
Corporate Trust Office. The NARCAT Cash Collateral Account was established in
the name of NARCAT and NARCAT Mexico, and pledged to the Indenture Trustee for
the benefit of the Holders and the Class A Note Insurer, and the CARCAT Cash
Collateral Account was established in the name of CARCAT, and pledged to the
Indenture Trustee for the benefit of the Holders and the Class A Note Insurer.
On the Closing Date, NARCAT and NARCAT Mexico shall deposit, out of the proceeds
of the issuance of the Class A-1 Notes, Class A-2 Notes and the Class B Notes,
the Initial NARCAT Cash Collateral Deposit to the NARCAT Cash Collateral
Account, and CARCAT shall deposit, out of the proceeds of the issuance of the
Class A-3 Notes, the Initial CARCAT Cash Collateral Deposit to the CARCAT Cash
Collateral Account. On each Payment Date thereafter, the NARCAT Cash Collateral
Account shall be funded up to the Required NARCAT Cash Collateral Amount and the
CARCAT Cash Collateral Account shall be funded up to the Required CARCAT Cash
Collateral Amount from amounts available in the NARCAT Collection Account and
the CARCAT Collection Account, respectively, in accordance with Section 12.02(d)
or Section 6.08, as applicable. On each Payment Date based solely upon the
information contained in the Monthly Servicer Report (or, to the extent not
available on a timely basis or if the Controlling Party has notified the
Indenture Trustee that the Monthly Servicer Report is incorrect, instructions
given by the Controlling Party), (a) the Indenture Trustee will transfer funds
from the NARCAT Cash Collateral Account to the NARCAT Collection Account to the
extent necessary to fund any deficiencies in the amounts to be distributed
pursuant to clause (x) of Section 12.02(d) or clause (x) of Section 6.08(a) in
respect of the Class A-1 Notes or the Class A-2 Notes and pursuant to clause
(xi) of Section 12.02(d) or clause (xi) of Section 6.08(a) to pay accrued
Premiums due with respect to the Class A Note Policy, to reimburse the Class A
Note Insurer with respect to claims made under the Class A Note Policy with
respect to draws to pay Class A Note Interest under the Class A-1 Notes and/or
the Class A-2 Notes and a limited amount of other fees, expenses and indemnities
owing to the Class A Note Insurer, and (b) the Indenture Trustee will transfer
funds from the CARCAT Cash Collateral Account to the CARCAT Collection Account
to the extent necessary to fund any deficiencies in the amounts to be
distributed pursuant to clause (x) of Section 12.02(d) or clause (x) of Section
6.08(a) in respect of the Class A-3 Notes and pursuant to clause (xi) of Section
12.02(d) or clause (xi) of Section 6.08(a) to pay accrued Premiums due with
respect to the Class A Note Policy, to reimburse the Class A Note Insurer with
respect to claims made under the Class A Note Policy with respect to draws to
pay Class A Note Interest under the Class A-3 Notes and a limited amount of
other fees, expenses and indemnities owing to the Class A Note Insurer. Amounts
in

                                     -120-


the Cash Collateral Accounts shall be withdrawn solely to pay such amounts and
shall not be available to the Holders or the Indenture Trustee for any other
purpose; provided, however, that on the Stated Legal Maturity Date, all amounts
on deposit in the NARCAT Cash Collateral Account will be deposited in the NARCAT
Collection Account and all amounts on deposit in the CARCAT Cash Collateral
Account will be deposited in the CARCAT Collection Account.

         (b)      Upon an Issuer Order of NARCAT, with respect to the NARCAT
Cash Collateral Account, and CARCAT, with respect to the CARCAT Cash Collateral
Account, the Indenture Trustee shall invest the funds in the Cash Collateral
Accounts in Eligible Investments that will mature no later than the Business Day
preceding the next Payment Date. In the absence of an Issuer Order, the
Indenture Trustee shall invest funds in the Cash Collateral Account in Eligible
Investments described in clause (f) of the definition thereof. All income or
other gain from such investments shall be credited to such Cash Collateral
Account and any loss resulting from such investments shall be charged to such
Cash Collateral Account. Eligible Investments shall be made in the name of the
Indenture Trustee for the benefit of the Holders and the Class A Note Insurer.

         (c)      If any amounts invested as provided in Section 12.03(b) shall
be needed for disbursement from either Cash Collateral Account as set forth in
Section 12.03(a) or (d), the Indenture Trustee shall cause such investments of
such Cash Collateral Account to be sold or otherwise converted to cash to the
credit of such Cash Collateral Account. The Indenture Trustee shall not be
liable for any investment loss resulting from investment of money in the Cash
Collateral Accounts in any Eligible Investment in accordance with the terms
hereof (other than in its capacity as obligor under any Eligible Investment)
except as a result of its negligence or misconduct.

         (d)      If on any Payment Date the amount in either Cash Collateral
Account, after giving effect to the distributions and withdrawals required
pursuant to this Section 12.03 on the related Payment Date and the deposits into
such account on such Payment Date, is greater than the Required NARCAT Cash
Collateral Amount or Required CARCAT Cash Collateral Amount, as applicable, the
amount of such excess shall be distributed by the Indenture Trustee as Available
Funds in accordance with Section 12.02(d) or Section 6.08, as applicable.

     Section 12.04. Operating Expense Reserve Account. (a) On or prior to the
Closing Date, the Issuers shall cause the Indenture Trustee to establish and
maintain a segregated trust account entitled "Railcar Notes Expense Reserve
Account" at its Corporate Trust Office (the "Operating Expense Reserve Account")
for the benefit of the Indenture Trustee on behalf of the Holders and the Class
A Note Insurer. The Operating Expense Reserve Account shall consist of (a) a
segregated subaccount (the "NARCAT OER Subaccount") in the name of NARCAT and
NARCAT Mexico for the benefit of the Indenture Trustee on behalf of the Class A
Note Insurer and the Holders and (b) a segregated subaccount (the "CARCAT OER
Subaccount") in the name of CARCAT for the benefit of the Indenture Trustee on
behalf of the Class A Note Insurer and the Holders. The Operating Expense
Reserve Account will not be funded at closing. On each Payment Date, the
Indenture Trustee shall, in accordance with instructions in the Monthly Servicer
Report (or, to the extent not available on a timely basis or if the Controlling
Party has notified the Indenture Trustee that the Monthly Servicer Report is
incorrect, instructions given by

                                     -121-


the Controlling Party), transfer from (i) the NARCAT Collection Account to the
NARCAT OER Subaccount the lesser of (x) the Operating Expense Deposit Amount
related to each U.S. Railcar and each Mexican Railcar, and (y) an amount
required to cause the balance of such subaccount (after giving effect to all
amounts disbursed therefrom on such Payment Date) to equal $1,300,000 (the
"NARCAT OER Subaccount Required Balance"), and (b) the CARCAT Collection Account
to the CARCAT OER Subaccount the lesser of (x) the Operating Expense Deposit
Amount related to each Canadian Railcar, and (y) an amount required to cause the
balance of such subaccount (after giving effect to all amounts disbursed
therefrom on such Payment Date) to equal $700,000 (the "CARCAT OER Subaccount
Required Balance"). Any such transfers shall be made in accordance with the
Source of Funds Requirements and to the extent of Available Funds remaining
after the payments having a higher priority in Section 6.08 or Section 12.02(d),
as applicable. Funds will be withdrawn from the NARCAT OER Subaccount and the
CARCAT OER Subaccount to make the distributions described in Section 12.04(d)
and shall not be available to the Holders or the Indenture Trustee for any other
purpose; provided, however, that on the Stated Legal Maturity Date, all amounts
on deposit in the NARCAT OER Subaccount will be deposited in the NARCAT
Collection Account and all amounts on deposit in the CARCAT OER Subaccount will
be deposited in the CARCAT Collection Account and paid as Available Funds
pursuant to Section 12.02(d) or Section 6.08, as applicable. Upon release of the
Lien of this Indenture, any amounts remaining on deposit in the NARCAT OER
Subaccount will be returned to NARCAT and NARCAT Mexico in accordance with their
respective interests therein or their designees and all amounts on deposit in
the CARCAT OER Subaccount will be returned to CARCAT or its designees.

         (b)      Upon an Issuer Order of (i) NARCAT and NARCAT Mexico, in the
case of the NARCAT OER Subaccount, and (b) CARCAT, in the case of the CARCAT OER
Subaccount, all or a portion of the Operating Expense Reserve Account shall be
invested and reinvested at such Issuers' written direction in one or more
Eligible Investments maturing no later than the Business Day prior to any
disbursements made from such account. In the absence of an Issuer Order, the
Indenture Trustee shall invest funds in the Operating Expense Reserve Account in
Eligible Investments described in clause (f) of the definition thereof. Earnings
on amounts on deposit in the (a) NARCAT OER Subaccount shall be retained within
the NARCAT OER Subaccount, except that on any Payment Date, amounts on deposit
in the NARCAT OER Subaccount in excess of the NARCAT OER Subaccount Required
Balance (after all required applications of such amounts on such date) shall be
transferred to the NARCAT Collection Account, and (b) the CARCAT OER Subaccount
shall be retained within the CARCAT OER Subaccount, except that on any Payment
Date, amounts on deposit in the CARCAT OER Subaccount in excess of the CARCAT
OER Subaccount Required Balance (after all required applications of such amounts
on such date) shall be transferred to the CARCAT Collection Account. Any loss
resulting from such investments shall be charged to the applicable subaccount.
Eligible Investments shall be made in the name of the Indenture Trustee for the
benefit of the Holders and the Class A Note Insurer.

         (c)      If any amounts invested as provided in Section 12.04(b) shall
be needed for disbursement from the NARCAT OER Subaccount or the CARCAT OER
Subaccount as set forth in Section 12.04(a) or (d), the Indenture Trustee shall
cause such investments of the applicable subaccount to be sold or otherwise
converted to cash to the credit of such subaccount.

                                     -122-


The Indenture Trustee shall not be liable for any investment loss resulting from
investment of money in the NARCAT OER Subaccount or the CARCAT OER Subaccount in
any Eligible Investment in accordance with the terms hereof (other than in its
capacity as obligor under any Eligible Investment) except as a result of its
negligence or misconduct.

         (d)      Disbursements shall be made from the (a) NARCAT OER Subaccount
for any Operating Expense related to the U.S. Railcars or the Mexican Railcars,
or (b) CARCAT OER Subaccount for any Operating Expenses related to the Canadian
Railcars, as applicable, in accordance with the Management Agreement, to
reimburse the Manager for any actual maintenance expenses incurred in connection
with the Railcars and as to which the Manager shall have delivered to the
Indenture Trustee a Maintenance Expense Reimbursement Request pursuant to
Section 2.06(b) of the Management Agreement; provided, however, that such
disbursements shall be made no more frequently than once per week.

     Section 12.05. Policy Payment Account. (a) On or prior to the Closing Date,
the Indenture Trustee shall establish a segregated trust account entitled
"Policy Payment Account" at its Corporate Trust Office (the "Policy Payment
Account") in the name of the Indenture Trustee for the benefit of the Holders of
the Class A Notes and the Class A Note Insurer. The Policy Payment Account will
contain two segregated subaccounts, one of which (the "CARCAT Policy Payment
Subaccount") will be maintained exclusively for the benefit of the Indenture
Trustee on behalf of the Holders of the Class A-3 Notes and the Class A Note
Insurer and the other of which (the "NARCAT Policy Payment Subaccount") will be
maintained exclusively for the benefit of the Indenture Trustee on behalf of the
Holders of the Class A-1 Notes, the Class A-2 Notes and the Class A Note
Insurer. Upon receipt of a Policy Claim Amount to be distributed to the Holders
of the Class A Notes from the Class A Note Insurer, the Indenture Trustee shall
deposit the amounts of such Policy Claim Amount related to principal of, or
interest on, (a) the Class A-3 Notes to the CARCAT Policy Payment Subaccount of
the Policy Payment Account and (b) the Class A-1 Notes and the Class A-2 Notes
to the NARCAT Policy Payment Subaccount of the Policy Payment Account. To the
extent the Indenture Trustee or the Payment Agent is uncertain as to the
applicable subaccount to which a deposit of a portion of the Policy Claim Amount
applies, the direction of the Class A Note Insurer shall be conclusive. All
amounts on deposit in the Policy Payment Account shall remain uninvested. On
each Payment Date, the Indenture Trustee shall (i) transfer any Policy Claim
Amount then on deposit in the Policy Payment Account directly to the Holders of
the Class A Notes or other Persons entitled to such amounts and (ii) return to
the Class A Note Insurer any money in the Policy Payment Account which does not
constitute a Policy Claim Amount or an amount paid pursuant to Section 13.02.

     Section 12.06. Prefunding Account. (a) On or prior to the Closing Date, the
Indenture Trustee shall establish a segregated trust account entitled "Railcar
Notes Prefunding Account" at its Corporate Trust Office (the "Prefunding
Account") in the name of the Indenture Trustee for the benefit of the Holders
and the Class A Note Insurer. On the Closing Date, NARCAT shall deposit, out of
the proceeds of the issuance of the Class A-1 Notes, Class A-2 Notes and the
Class B Notes, the Prefunded Amount into the Prefunding Account. Funds will be
withdrawn from the Prefunding Account in accordance with Section 12.06(d) and
shall not be available to the Holders or the Indenture Trustee for any other
purpose; provided, however, that any amounts

                                     -123-


which shall for any reason be held in the Prefunding Account on the Payment Date
next succeeding the Prefunded Railcar Expiration Date, together with earnings on
amounts in the Prefunding Account, shall on such Payment Date be withdrawn by
the Indenture Trustee and deposited to the NARCAT Collection Account for
application on such Payment Date as Available Funds pursuant to Section 12.02(d)
or Section 6.08, as applicable.

         (b)      All or a portion of the amounts held in the Prefunding Account
shall be invested and reinvested at NARCAT's written direction in one or more
Eligible Investments maturing no later than the Business Day prior to the
Prefunded Railcar Acquisition Date. In the absence of such written direction,
the Indenture Trustee shall invest funds in the Prefunding Account in Eligible
Investments described in clause (f) of the definition thereof. All income or
other gain from such investments shall be credited to the Prefunding Account and
any loss resulting from such investments shall be charged to the Prefunding
Account. Eligible Investments shall be made in the name of the Indenture Trustee
for the benefit of the Holders and the Class A Note Insurer.

         (c)      If any amounts invested as provided in Section 12.06(b) shall
be needed for disbursement from the Prefunding Account as set forth in Section
12.06(a) or (d), the Indenture Trustee shall cause such investments of such
Prefunding Account to be sold or otherwise converted to cash to the credit of
such Prefunding Account. The Indenture Trustee shall not be liable for any
investment loss resulting from investment of money in the Prefunding Account in
any Eligible Investment in accordance with the terms hereof (other than in its
capacity as obligor under any Eligible Investment) except as a result of its
negligence or misconduct.

         (d)      Upon a written direction executed by NARCAT and the
Controlling Party, on or prior to the Prefunded Railcar Acquisition Date, the
Indenture Trustee shall transfer the Prefunded Amount or such lesser amount
agreed to by such parties by wire transfer, in immediately available funds, to
the account identified in Schedule VI hereto (or such other account located in
the United States as the specified owner of such account shall designate in
writing to the Indenture Trustee) as the payment of the option price payable in
respect of the purchase option related to the Prefunded Railcar Assets contained
in the Asset Purchase Agreement.

     Section 12.07. Redemption Account. Promptly following receipt of notice of
a proposed redemption of Notes in accordance with Section 14.01, the Indenture
Trustee shall establish a segregated trust account entitled "Redemption Account"
at its Corporate Trust Office (the "Redemption Account") for the benefit of the
Indenture Trustee on behalf of the Holders of the Notes and the Class A Note
Insurer for receipt of the Redemption Prices of the Notes to be redeemed. The
Redemption Account will contain two segregated subaccounts, one of which (the
"CARCAT Redemption Subaccount") will be maintained in the name of CARCAT and be
held exclusively for the benefit of the Indenture Trustee on behalf of the
Holders and the Class A Note Insurer and the other of which (the "NARCAT
Redemption Subaccount") will be maintained in the name of NARCAT and NARCAT
Mexico and be held exclusively for the benefit of the Indenture Trustee on
behalf of the Holders and the Class A Note Insurer. The Redemption Price related
to the Class A-3 Notes shall be deposited into the CARCAT Redemption Subaccount
and the Redemption Prices related to the Class A-1 Notes, the Class A-2 Notes
and the Class B Notes shall be deposited into the NARCAT Redemption

                                     -124-


Account. All amounts on deposit in the Redemption Account (including the CARCAT
Redemption Subaccount and the NARCAT Redemption Subaccount) shall remain
uninvested. On any Redemption Date, the Indenture Trustee shall (i) withdraw
from the CARCAT Redemption Subaccount the Redemption Price of all Class A-3
Notes to be redeemed on such Redemption Date and (ii) withdraw from the NARCAT
Redemption Subaccount the Redemption Prices of all Class A-1 Notes, Class A-2
Notes and Class B Notes to be redeemed on such Redemption Date, and the Paying
Agent will remit the Redemption Prices to the applicable Holders.

     Section 12.08. Optional Deposits by the Class A Note Insurer. The Class A
Note Insurer shall at any time, and from time to time, with respect to a Payment
Date, have the option (but shall not be required, except in accordance with the
terms of the Class A Note Policy) to deliver amounts (any such amount, a "Class
A Note Insurer Optional Deposit") to the Indenture Trustee for deposit into one
or both of the Collection Accounts for any of the following purposes: (a) to
provide funds in respect of the payment of fees or expenses of any provider of
services to the Issuers with respect to such Payment Date; (b) to distribute as
a component of the Basic Principal Payments or Supplemental Principal Payments
to the extent necessary to avoid the occurrence of an Event of Default or a
Rapid Amortization Event; or (c) to include such amount as part of the Class A
Note Interest for such Payment Date to the extent that without such amount a
draw would be required to be made on the Class A Note Policy.

     Section 12.09. Securities Account. The Indenture Trustee agrees that any
account held by it hereunder shall be maintained as a "securities account" as
defined in the Uniform Commercial Code as in effect in New York (the "New York
UCC"), and that it shall be acting as a "securities intermediary" for the
Indenture Trustee on behalf of the Secured Parties as the "entitlement holder"
(as such terms are defined in Section 8-102(a) of the New York UCC) with respect
to each such account. The parties hereto agree that each account shall be
governed by the laws of the State of New York, and regardless of any provision
in any other agreement, the "securities intermediary's jurisdiction" (within the
meaning of Section 8-110 of the New York UCC) shall be the State of New York.
The Indenture Trustee acknowledges and agrees that (a) each item of property
(whether investment property, financial asset, security, instrument or cash)
credited to the Accounts shall be treated as a "financial asset" within the
meaning of Section 8-102(a)(9) of the New York UCC and (b) notwithstanding
anything to the contrary, if at any time the Indenture Trustee shall receive any
entitlement order from the Indenture Trustee directing transfer or redemption of
any financial asset relating to the accounts, the Indenture Trustee shall comply
with such entitlement order without further consent by any Person. In the event
of any conflict of any provision of this Section 12.09 with any other provision
of this Indenture or any other agreement or document, the provisions of this
Section 12.09 shall prevail.

     Section 12.10. Reports by Indenture Trustee to Holders. (a) On each Payment
Date, the Indenture Trustee shall account to the Class A Note Insurer and each
Holder to which payments of principal and interest are then being made the
amount which represents principal and the amount which represents interest, and
shall contemporaneously advise the Issuers of all such payments. The Indenture
Trustee may satisfy its obligations under this Section 12.10 by making available
electronically the Monthly Servicer Report to the Class A Note Insurer and each
such Holder of the Notes and the Issuers. The Indenture Trustee may make
available to the Class A

                                     -125-


Note Insurer, the Holders, the Note Owners, the Servicer, the Manager, the
Issuers and the Rating Agencies, via the Indenture Trustee's Internet website,
the Monthly Servicer Report and the Monthly Manager Report available each month;
provided, however, the Indenture Trustee shall have no obligation to provide
such information described in this Section 12.10 until it has received the
requisite information from the Issuers or the Servicer. The Indenture Trustee
will make no representation or warranties as to the accuracy or completeness of
such documents for which it is not the original source and will assume no
responsibility therefor.

         The Indenture Trustee's Internet website shall be initially located at
"www.CTSLink.com" or at such other address as shall be specified by the
Indenture Trustee from time to time in writing to the Class A Note Insurer, the
Holders, the Note Owners, the Servicer, the Manager, the Issuers and the Rating
Agencies. In connection with providing access to the Indenture Trustee's
Internet website, the Indenture Trustee may require registration and the
acceptance of a disclaimer. The Indenture Trustee shall not be liable for the
dissemination of information in accordance with the Servicing Agreement, the
Management Agreement or this Indenture.

         (b)      On or before the 15th day prior to a Final Payment Date with
respect to any Notes, the Indenture Trustee shall provide notice to the Holders
of such Notes of the Final Payment Date for such Notes. Such notice shall
include a statement that interest shall have ceased to accrue as of the last day
of the month preceding the month in which the Final Payment Date occurs and
shall state the address to which any Holder of a Definitive Note must surrender
its Note prior to final payment.

         (c)      At least annually, or as otherwise required by law, the
Indenture Trustee shall distribute to Holders any information returns or other
tax information or statements as are required by applicable tax law to be
distributed to the Holders or as may be requested by any Holder to prepare such
Holder's tax returns. The Issuers shall prepare or cause to be prepared all such
information for distribution by the Indenture Trustee to the Holders.

                                  ARTICLE XIII

                             THE CLASS A NOTE POLICY

     Section 13.01. Claims under the Class A Note Policy. (a) If on any
Determination Date, the Policy Claim Amount is greater than zero, the Indenture
Trustee shall furnish to the Class A Note Insurer no later than 11:00 a.m.
Eastern time on the related Draw Date a completed Notice of Claim (as defined in
Section 13.01(b)) in the amount of the Policy Claim Amount. Amounts paid by the
Class A Note Insurer pursuant to a claim submitted under this Section 13.01
shall be deposited by the Indenture Trustee into the Policy Payment Account for
payment to Holders of the Class A Notes on the related Payment Date (or promptly
following payment by the Class A Note Insurer on a later date as set forth in
the Class A Note Policy).

         (b)      Any notice delivered by the Indenture Trustee to the Class A
Note Insurer pursuant to subsection 13.01(a) shall specify the Policy Claim
Amount claimed under the Class A Note Policy and shall constitute a "Notice of
Claim" under the Class A Note Policy. In accordance

                                     -126-


with the provisions of the Class A Note Policy, the Class A Note Insurer is
required to pay to the Indenture Trustee the Policy Claim Amount properly
claimed thereunder by 12:00 noon, New York, New York time, on the later of (i)
the third Business Day (as defined in the Class A Note Policy) following receipt
on a Business Day (as defined in the Class A Note Policy) of the Notice of
Claim, and (ii) the applicable Payment Date. Any payment made by the Class A
Note Insurer under the Class A Note Policy shall be applied solely to the
payment of the Class A Notes, and for no other purpose.

         (c)      The Indenture Trustee shall (i) receive as attorney-in-fact of
each Holder any Policy Claim Amount from the Class A Note Insurer and (ii)
deposit the same in the Policy Payment Account for distribution to Holders of
the Class A Notes. Any and all Policy Claim Amounts disbursed by the Indenture
Trustee from claims made under the Class A Note Policy shall not be considered
payment by the Issuers with respect to such Class A Notes, and shall not
discharge the obligations of the Issuers with respect thereto. The Insurer
shall, to the extent it makes any payment with respect to the Class A Notes,
become subrogated to the rights of the recipients of such payments to the extent
of such payments and any interest thereon. Subject to and conditioned upon any
payment with respect to the Class A Notes by or on behalf of the Class A Note
Insurer, each Holder of Class A Notes shall be deemed without further action to
have directed the Indenture Trustee to irrevocably assign to the Class A Note
Insurer all rights to the payment of interest or principal with respect to the
Class A Notes which are then due for payment to the extent of all payments made
by the Class A Note Insurer, and any interest owed thereon, and the Class A Note
Insurer may exercise any option, vote, right, power or the like with respect to
the Class A Notes to the extent that it has made payment with respect thereto
pursuant to the Class A Note Policy. To evidence such subrogation, the Note
Registrar shall note the Class A Note Insurer's rights as subrogee upon the
register of Holders upon receipt from the Class A Note Insurer of proof of
payment by the Class A Note Insurer of any Note Interest, Basic Principal
Payment or Supplemental Principal Payment in respect of the Class A Notes, and
the Class A Note Insurer shall be deemed to be a Class A Note Owner and Holder
of Class A Notes to the extent of such rights of subrogation. The foregoing
subrogation shall in all cases be subject to the rights of the Holders to
receive all payments in respect of the Class A Notes.

         (d)      The Indenture Trustee shall keep a complete and accurate
record of all funds deposited by the Class A Note Insurer into the Policy
Payment Account with respect to the Class A Note Policy and the allocation of
such funds to payment of interest and principal paid in respect of any Class A
Note. The Class A Note Insurer shall have the right to inspect such records at
reasonable times upon one Business Day's prior notice to the Indenture Trustee.

         (e)      The Indenture Trustee shall be entitled to enforce on behalf
of the Holders of the Class A Notes the obligations of the Class A Note Insurer
under the Class A Note Policy. Notwithstanding any other provision of this
Indenture or any other Transaction Document, the Holders of the Class A Notes
are not entitled to institute proceedings directly against the Class A Note
Insurer.

     Section 13.02. Preference Claims. (a) In the event that the Indenture
Trustee has received a certified copy of an order of the appropriate court that
any payment of principal or interest (other than Overdue Class A Interest or
Incremental Class A Interest) paid on a Class A Note has

                                     -127-


been avoided in whole or in part as a preference payment under applicable U.S.
or Canadian bankruptcy law, the Indenture Trustee shall so notify the Class A
Note Insurer, shall comply with the provisions of the Class A Note Policy to
obtain payment by the Class A Note Insurer of such avoided payment, and shall,
at the time it provides notice to the Class A Note Insurer, notify Holders of
the Class A Notes by mail that, in the event that any Holder's payment is so
recoverable, such Holder will be entitled to payment pursuant to the terms of
the Class A Note Policy. The Indenture Trustee shall furnish to the Class A Note
Insurer its records evidencing the payments of principal and interest on the
Class A Notes, if any, which have been made by the Indenture Trustee and
subsequently recovered from Holders of Class A Notes, and the dates on which
such payments were made. Pursuant to the terms of the Class A Note Policy, the
Class A Note Insurer will make such payment on behalf of the Holder to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order (as defined in the Class A Note Policy) or to the Indenture Trustee
for distribution to such receiver, conservator, debtor-in-possession or trustee
in bankruptcy and not to any Holder directly (unless a Holder has previously
paid such payment to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy, in which case the Class A Note Insurer will make such payment to
such Holder or to the Indenture Trustee for distribution, in accordance with the
instructions to be provided by the Class A Note Insurer, to such Holder upon
proof of such payment reasonably satisfactory to the Class A Note Insurer).

         (b)      Each Notice of Claim shall provide that the Indenture Trustee,
on its behalf and on behalf of the Holders of Class A Notes, thereby appoints
the Class A Note Insurer as agent and attorney-in-fact for the Indenture Trustee
and each Holder of Class A Notes in any legal proceeding with respect to the
Class A Notes. The Indenture Trustee shall promptly notify the Class A Note
Insurer of any proceeding or the institution of any action (of which a
Responsible Officer of the Indenture Trustee has actual knowledge) seeking the
avoidance as a preferential transfer under applicable bankruptcy, insolvency,
receivership, rehabilitation or similar law (a "Preference Claim") of any
distribution made with respect to the Class A Notes. Each Holder of Class A
Notes, by its purchase thereof, and the Indenture Trustee hereby agree that so
long as an Class A Note Insurer Default shall not have occurred and be
continuing, the Class A Note Insurer may at any time during the continuation of
any proceeding relating to a Preference Claim direct all matters relating to
such Preference Claim, including, without limitation, (i) the direction of any
appeal of any order relating to any Preference Claim and (ii) the posting of any
surety, supersedeas or performance bond pending any such appeal at the expense
of the Class A Note Insurer, but subject to reimbursement as provided in the
Insurance Agreement. In addition, and without limitation of the foregoing, as
set forth in Section 13.01(c), the Class A Note Insurer shall be subrogated to,
and each Holder of Class A Notes and the Indenture Trustee hereby delegate and
assign, to the fullest extent permitted by law, the rights of the Indenture
Trustee and each Holder in the conduct of any proceeding with respect to a
Preference Claim, including, without limitation, all rights of any party to an
adversary proceeding action with respect to any court order issued in connection
with any such Preference Claim.

                                     -128-


     Section 13.03. Surrender of Class A Note Policy. The Indenture Trustee
shall surrender the Class A Note Policy to the Class A Note Insurer for
cancellation upon the expiration of the Class A Note Policy in accordance with
the terms thereof.

     Section 13.04. Class A Note Insurer Deemed Holder for Certain Purposes. So
long as no Class A Note Insurer Default has occurred and is continuing, (a) the
Class A Note Insurer shall be deemed to be the Holder of 100% of the Class A
Notes for the purposes of giving any consents, waivers, approvals, instructions,
directions, declarations, notices and/or taking any other action pursuant to the
Indenture and the other Transaction Documents except for any consents, waivers,
approvals or other actions which, under the terms of Section 9.02, expressly
require the consent of all Holders; and (b) the Class A Note Insurer shall have
the right to exercise all remedies of the Holders of the Class A Notes under
this Indenture without any consent of such Holders, and such Holders may
exercise such remedies only with the prior written consent of the Class A Note
Insurer, except as otherwise expressly provided herein. Any reference in the
Indenture or any other Transaction Document to events or actions which may
materially, adversely, or detrimentally affecting the rights or interests of the
Holders, or words of similar meaning, shall be deemed to refer to the rights or
interests of the Class A Note Insurer as well as of the Holders.

                                   ARTICLE XIV

                               REDEMPTION OF NOTES

     Section 14.01. Redemption at the Option of the Issuers; Election to Redeem.
(a) The Notes may be redeemed in whole, but not in part, at the option of the
Issuers, for the Redemption Prices applicable at such time on any Payment Date
on or after February 15, 2011. Any such redemption shall be made solely out of
the proceeds of the sale by the Issuers of Railcars, Leases and other Railcar
Assets, or a refinancing by the Issuers of Railcars, Leases and other Railcar
Assets (in either case, "Source Payments").

         (b)      In addition, the Notes may be redeemed in whole, but not in
part, for the Redemption Prices applicable at such time on any Payment Date on
which (after giving effect to distributions on such Payment Date) the aggregate
unpaid principal amount of the Notes is less than 10% of the aggregate principal
amount of the Notes as of the Closing Date, such prepayment to be at the option
of NARCAT and NARCAT Mexico, in the case of the Class A-1 Notes, the Class A-2
Notes and the Class B Notes, and at the option of CARCAT, in the case of the
Class A-3 Notes; provided, however, that (i) such options must be exercised
concurrently by each of the Issuers (otherwise, no such option may be exercised
by any of the Issuers) and (ii) concurrently with such redemption, all amounts
higher than clause (xxi) of Section 6.08(a) or clause (xxiii) of Section
12.02(d) shall be paid to the parties entitled to such amounts on such Payment
Date.

         (c)      The Issuers shall set the Redemption Date and the Redemption
Record Date and give notice thereof to the Indenture Trustee pursuant to Section
14.02.

                                     -129-


         (d)      Installments of interest and principal due on or prior to a
Redemption Date shall continue to be payable to the Holders of Notes called for
redemption as of the relevant Record Dates according to their terms and the
provisions of Section 3.01. The election of the Issuers to redeem any Notes
pursuant to this Section 14.01 shall be evidenced by a Board Resolution of each
Issuer directing the Indenture Trustee to make the payment of the Redemption
Prices on all of the Notes to be redeemed from monies deposited with the
Indenture Trustee pursuant to Section 14.04.

     Section 14.02. Notice to Indenture Trustee and Class A Note Insurer. In the
case of any redemption pursuant to Section 14.01, the Issuers shall, at least 20
days prior to the Redemption Date (or such lesser period of time as may be
consented to by the Indenture Trustee and, in the event that any Class A Notes
shall then be Outstanding, the Class A Note Insurer), notify the Indenture
Trustee and, in the event that any Class A Notes shall then be Outstanding, the
Class A Note Insurer of such Redemption Date.

     Section 14.03. Notice of Redemption by the Issuers. Notice of redemption
pursuant to Section 14.01 shall be given by the Issuers (or by the Indenture
Trustee at the Issuers' request) in the name and at the expense of the Issuers
by first-class mail, postage prepaid, mailed not less than 15 days prior to the
applicable Redemption Date, to each Holder of Notes whose Notes are to be
redeemed, at its address in the Note Register.

         All notices of redemption shall state:

                  (a)      the Redemption Date;

                  (b)      the Redemption Prices for all Notes to be redeemed;

                  (c)      that on the Redemption Date, the Redemption Prices
         will become due and payable upon each such Note, and that interest
         thereon shall cease to accrue on such date; and

                  (d)      the place where such Notes are to be surrendered
         prior to payment of the applicable Redemption Price.

         Failure to give notice of redemption, or any defect therein, to any
Holder of any Note selected for redemption shall not impair or affect the
validity of the redemption of any other Note.

     Section 14.04. Deposit of the Redemption Prices. (a) On or before the
Business Day immediately preceding the Redemption Date, the Issuers shall
deliver to the Indenture Trustee, the portion of the Redemption Differential
related to the Class A-1 Notes, the Class A-2 Notes and the Class B Notes for
deposit to the NARCAT Redemption Subaccount and the portion of the Redemption
Differential related to the Class A-3 Notes for deposit to the CARCAT Redemption
Subaccount, if any, which, in the case of an Optional Redemption, shall consist
solely of Source Payments.

                                     -130-


         (b)      On or before the Redemption Date, the Indenture Trustee will,
in accordance with the Monthly Servicer Report (or to the extent not available
on a timely basis or if the Controlling Party has notified the Indenture Trustee
that the Monthly Servicer Report is incorrect, the instructions of the
Controlling Party) transfer from (i) the Cash Collateral Accounts to the
Redemption Account, the Remaining Cash Collateral Amounts, and (ii) the
Collection Accounts to the Redemption Account, the lesser of (a) the amount on
deposit in the Collection Account not needed to pay any amounts higher than
clause (xxi) of Section 6.08(a) or clause (xxiii) of Section 12.02(d) to be paid
on such Redemption Date and (b) the Redemption Price.

         (c)      Notice of redemption having been given as provided in Section
14.03 above, on the applicable Redemption Date, the Indenture Trustee will apply
the amounts on deposit in the NARCAT Redemption Subaccount and the CARCAT
Redemption Subaccount to redemption of the Notes which have not been fully paid
on such Payment Date pursuant to Section 12.02(d) or Section 6.08, as applicable
(provided that Definitive Notes must be surrendered at the Corporate Trust
Office prior to final payment), and (unless the Class A Note Insurer in the case
of the Class A Notes or the Issuers in the case of the Class B Notes shall
default in the payment of the Redemption Price), such Notes shall cease to bear
interest.

     Section 14.05. Notes Payable on Redemption Date. Notice of redemption
having been given as provided in Section 14.03, the Notes to be redeemed shall,
on the applicable Redemption Date, become due and payable at the Redemption
Price and on such Redemption Date (unless the Issuers shall default in the
payment of the Redemption Price) such Notes shall cease to bear interest. The
Holders of such Notes shall be paid the applicable Redemption Price by the
Paying Agent on behalf of the Issuers on the Redemption Date; provided, however,
that installments of principal and interest which are due on or prior to the
Redemption Date shall be payable to the Holders of such Notes registered as such
on the relevant Record Dates according to their terms and the provisions of
Section 3.08.

         If the Holders of any Note called for redemption shall not be so paid
the principal shall, until paid, bear interest from the Redemption Date at the
related Note Interest Rate.

                                   ARTICLE XV

                        PROVISIONS OF GENERAL APPLICATION

     Section 15.01. General Provisions. All of the provisions of this Article XV
shall apply to this Indenture.

     Section 15.02. Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Indenture Trustee, and, where it is hereby expressly
required, to the Issuers. Such instrument or

                                     -131-


instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 7.01) conclusive in favor of the Indenture Trustee and
the Issuers, if made in the manner provided in this Section 15.02.

         (b)      The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Indenture Trustee
deems sufficient.

         (c)      The ownership of Notes shall be proved by the Note Register.

         (d)      Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Note shall bind the Holder
of every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuers in reliance thereon, whether or not notation of
such action is made upon such Note.

     Section 15.03. Notices, Etc, to Indenture Trustee, Issuers, the Class A
Note Insurer and Rating Agencies. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Holders or other document provided or
permitted by this Indenture to be made upon, given or furnished to, or filed
with any Person shall be in writing and shall be delivered personally or mailed
by first-class registered or certified mail, postage prepaid, or by telephonic
facsimile transmission or overnight delivery service, prepaid, at the address
listed below or at any other address previously furnished in writing to the
Indenture Trustee and each of the other entities referred to in this Section
15.03 by the applicable Person. Any such notice shall be deemed delivered upon
its actual receipt; provided, however, that if any such notice is delivered on a
day that is not a Business Day at the place of delivery, such notice shall be
deemed to have been delivered on the immediately following Business Day;
provided further, however, that if tender of any notice is refused by the
addressee, such notice shall be deemed to have been delivered upon such tender.

      To the Indenture Trustee:    Wells Fargo Bank, National Association
                                   MAC N9311-161
                                   Sixth Street and Marquette Avenue
                                   Minneapolis, Minnesota 55479
                                   Attention: Corporate Trust Services -
                                               Asset-Backed Administration
                                   Phone:     (612) 667-8058
                                   Fax:       (612) 667-3464

      To the Issuers:              NARCAT LLC
                                   480 West Dussel Drive
                                   Suite R
                                   Maumee, Ohio 43537
                                   Attention: Betsy Hall, Esq.
                                   Phone:     (419) 893-5050
                                   Fax:       (419) 491-6695

                                  -132-


                                   CARCAT ULC
                                   480 West Dussel Drive
                                   Suite R
                                   Maumee, Ohio 43537
                                   Attention:    Betsy Hall, Esq.
                                   Phone:        (419) 893-5050
                                   Fax:          (419) 491-6695

                                   NARCAT Mexico, S. de R.L. de C.V.
                                   480 West Dussel Drive
                                   Suite R
                                   Maumee, Ohio 43537
                                   Attention:    Betsy Hall, Esq.
                                   Phone:        (419) 893-5050
                                   Fax:          (419) 491-6695

      To S&P:                      Standard & Poor's
                                   55 Water Street
                                   New York, New York 10041
                                   Attention:    Surveillance
                                   Phone:        (212) 438-2385
                                   Fax:          (212) 438-2649

      To Fitch:                    Fitch, Inc.
                                   55 East Monroe Street
                                   Suite 3500
                                   Chicago, Illinois 60603
                                   Attention:    ABS Monitoring Group
                                                 (Equipment)
                                   Fax:          (312) 368-2069

      To the Class A Note Insurer: MBIA Insurance Corporation
                                   113 King Street
                                   Armonk, New York 10504
                                   Attention:    Insured Portfolio Management -
                                                  SF
                                   Phone:        (914) 273-4545
                                   Fax:          (914) 765-3131

     Section 15.04. Notices to Holders; Waiver. Where this Indenture provides
for notice to Holders of any event such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, or by overnight courier, to each Holder affected by
such event, at its address as it appears on the Note Register, not later than
the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders, and any notice which is mailed by certified or
registered mail, with return receipt requested, shall conclusively be presumed
to have been duly given.

                                     -133-


         Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Indenture Trustee,
but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.

         In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a
sufficient giving of such notice.

     Section 15.05. Successors and Assigns. All covenants and agreements in this
Indenture by the Issuers shall bind their respective successors and assigns,
whether so expressed or not.

       Section 15.06. Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

     Section 15.07. Benefits of Indenture. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto, the Holders, the Class A Note Insurer and any Paying Agent which may be
appointed pursuant to the provisions hereof and any of their successors
hereunder, any benefit or any legal or equitable right, remedy or claim under
this Indenture or under the Notes. The Class A Note Insurer is an express
third-party beneficiary of this Indenture and is entitled to rely upon and
enforce the terms hereof as if a party hereto.

     Section 15.08. Legal Holidays. In any case where the date of any Payment
Date, or the Stated Legal Maturity Date of any Note, shall not be a Business
Day, then (notwithstanding any other provision of the Notes or this Indenture)
payment of principal, interest, or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the nominal date of any such Stated Legal Maturity Date
or Payment Date, and interest shall accrue for the period from and after any
such nominal date to the date such payment is actually made.

     SECTION 15.09. GOVERNING LAW. THIS INDENTURE AND EACH NOTE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN (INCLUDING,
WITHOUT LIMITATION, SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS
LAWS, BUT OTHERWISE WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS).

     Section 15.10. Counterparts. This instrument may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument. Delivery by facsimile of

                                     -134-


an executed signature page to this Indenture shall be as effective as delivery
of an executed counterpart hereof.

     Section 15.11. Corporate Obligation. No recourse may be taken, directly or
indirectly, against any incorporator, subscriber to the capital stock,
stockholder, employee, officer or director of any Issuer or of any predecessor
or successor of any Issuer with respect to the Issuer's obligations on the Notes
or under this Indenture or any certificate or other writing delivered in
connection herewith.

     Section 15.12. Compliance Certificates and Opinions. Upon any application,
order or request by the Issuers to the Indenture Trustee and the Class A Note
Insurer to take any action under any provision of this Indenture for which a
specific request is required under this Indenture, the Issuers shall furnish to
the Indenture Trustee an Officer's Certificate of the Issuers stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, except that in the case of any such
application or request as to which the furnishing of other documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate need be furnished.

         Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

                  (a)      a statement that each individual signing such
         certificate or opinion has read or has caused to be read such covenant
         or condition and the definitions herein relating thereto;

                  (b)      a brief statement as to the nature and scope of the
         examination or investigation upon which the statements or opinions
         contained in such certificate or opinion are based;

                  (c)      a statement that, in the opinion of each such
         individual, he has made such examination or investigation as is
         necessary to enable him to express an informed opinion as to whether or
         not such covenant or condition has been complied with; and

                  (d)      a statement as to whether, in the opinion of each
         such individual, such condition or covenant has been complied with.

     Section 15.13. No Bankruptcy Petition Against any Issuer. Notwithstanding
anything herein to the contrary, the Indenture Trustee agrees (and each Holder
by its acceptance of a Note shall be deemed to agree) that, prior to the date
that is one year and one day after the payment in full of all amounts payable
with respect to the Notes, and all other obligations of the Issuers under this
Indenture and the other Transaction Documents, it will not institute against any
Issuer, or join any other Person in instituting against any Issuer, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
or other proceedings under the laws of the United States, any state of the
United States or any foreign jurisdiction. This Section 15.13 shall survive the
termination of this Indenture.

                                     -135-


     SECTION 15.14. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF,
CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN
CONNECTION WITH THIS INDENTURE OR THE OTHER TRANSACTION DOCUMENTS.

     SECTION 15.15. CONSENT TO JURISDICTION. EACH OF THE PARTIES HERETO HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE
CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS INDENTURE, ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING IN THIS SECTION 15.15
SHALL AFFECT THE RIGHT OF ANY PERSON TO BRING ANY ACTION OR PROCEEDING AGAINST
ANY PARTY HERETO OR ANY OF THEIR RESPECTIVE PROPERTY IN THE COURTS OF OTHER
JURISDICTIONS.

     Section 15.16. Integration. This Indenture contains the final and complete
integration of all prior expressions by the parties hereto with respect to the
subject matter hereof and shall (together with the other Transaction Documents)
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof, superseding all prior oral or written understandings.

     Section 15.17. Successors and Assigns; Binding Effect. This Indenture shall
be binding on the parties hereto and their respective successors and assigns;
provided, however, that no Issuer shall assign (or shall permit or cause the
assignment of) any of its rights, duties or obligations related to or in
connection with this Indenture or any of the other Transaction Documents,
without the prior written consent the Indenture Trustee (acting at the direction
of the Controlling Party and the Class A Note Insurer).

     Section 15.18. Further Assurances. Each of the Issuers hereby agrees to do
and perform, from time to time, any and all acts and to execute any and all
further instruments required or reasonably requested by the other party or by
the Controlling Party to more fully to effect the purposes of this Indenture.

     Section 15.19. Expenses. Each of the Issuers hereby jointly and severally
agrees to pay all out-of-pocket costs and expenses incurred by the Indenture
Trustee and the Class A Note Insurer in connection with the development,
negotiation, preparation and execution of this Indenture and the other
Transaction Documents, in connection with any amendments, modifications or
waivers

                                     -136-


of the provisions of this Indenture or any other Transaction Document (whether
or not the transactions thereby contemplated shall be consummated), or in
connection with any actual or proposed sale or replacement of any Railcar Asset
or incurred by the Indenture Trustee and the Class A Note Insurer in connection
with the enforcement or protection of its rights in connection with this
Indenture and the other Transaction Documents or in connection with the
agreements made hereunder and, in connection with any such enforcement or
protection, the fees, charges and disbursements of any counsel for the Indenture
Trustee and the Class A Note Insurer.

     Section 15.20. Survival of Representations and Warranties. All agreements,
representation and warranties made herein shall survive the execution and
delivery of this Indenture, the Notes and the other Transaction Documents and
the making and repayment of the Notes.

     Section 15.21. Interest Calculations. Whenever interest is calculated
pursuant to any provision of this Indenture on the basis of a period other than
a calendar year, the annual rate of interest to which such rate of interest as
determined by such calculation is equivalent, for purposes of the Interest Act
(Canada), is such rate as so calculated multiplied by a fraction, the numerator
of which is the actual number of days in the particular calendar year in respect
of which the calculation is made, and the denominator of which is the number of
days used in the calculation.

                                     -137-


         IN WITNESS WHEREOF, the Issuers and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers thereunto duly
authorized and their respective seals, duly attested, to be hereunto affixed,
all as of the day and year first above written.

                              WELLS FARGO BANK, NATIONAL ASSOCIATION,
                                 as Indenture Trustee

                              By: /s/ Joe Nardi
                                 --------------------
                                 Name: Joe Nardi
                                 Title: Vice President

                              NARCAT LLC, as an Issuer

                              By: /s/ Rasesh H. Shah
                                 --------------------
                                 Name: Rasesh H. Shah
                                 Title: Manager

                              CARCAT ULC, as an Issuer

                              By: /s/ Rasesh H. Shah
                                 --------------------
                                 Name: Rasesh H. Shah
                                 Title: President/Secretary

                              NARCAT MEXICO, S. DE R.L. DE C.V., as an
                                 Issuer

                              By: /s/ Rasesh H. Shah
                                 --------------------
                                 Name: Rasesh H. Shah
                                 Title: Legal Representative

                                     -138-

EX-10.10

                                                                   EXHIBIT 10.10

================================================================================

                                  NARCAT LLC,
                                 CARCAT ULC and
                       NARCAT MEXICO, S. DE R.L. DE C.V.,
                                as the Companies

                              THE ANDERSONS, INC.,
                                 as the Manager

                                      and

                    WELLS FARGO BANK, NATIONAL ASSOCIATION,
               as the Indenture Trustee and as the Backup Manager

                         ------------------------------

                              MANAGEMENT AGREEMENT

                         ------------------------------

                         Dated as of February 12, 2004

================================================================================



                               TABLE OF CONTENTS



    SECTION                                                HEADING                                                 PAGE
                                                                                                             
ARTICLE I                  DEFINITIONS...........................................................................     2
       Section 1.01.       Defined Terms.........................................................................     2
       Section 1.02.       Terms Defined in the Indenture, Sale Agreements or Servicing Agreement................    10

ARTICLE II                 MANAGEMENT OF RAILCARS................................................................    10
       Section 2.01.       The Manager to Act as Manager; Standard of Care;
                               Covenants Concerning Railcars and Leases..........................................    10
       Section 2.02.       Authority of Manager; Delegation of Management........................................    12
       Section 2.03.       Duties of Manager.....................................................................    13
       Section 2.04.       Required Modifications and Optional Modifications.....................................    19
       Section 2.05.       Manager Fee and Supplemental Manager Fee..............................................    20
       Section 2.06.       Authorized Deductions from Earnings...................................................    20
       Section 2.07.       Responsibility for Loss of, Distribution of, or Damage to Railcars....................    22
       Section 2.08.       Denial or Refusal of Insurance........................................................    23
       Section 2.09.       Conflicts of Interest.................................................................    23
       Section 2.10.       Separate Corporate Existence Covenants................................................    23

ARTICLE III                ACCOUNTINGS, STATEMENTS AND REPORTS...................................................    24
       Section 3.01.       Monthly Manager Report................................................................    24
       Section 3.02.       Financial Statements; Certification as to Compliance; Notice of Default...............    24
       Section 3.03.       Annual Accountants' Reports...........................................................    25
       Section 3.04.       Delivery of Accountings, Statements and Reports.......................................    26
       Section 3.05.       Annual Security Interest Opinion......................................................    26

ARTICLE IV                 REPRESENTATIONS AND WARRANTIES........................................................    27
       Section 4.01.       Initial Manager Representations and Warranties........................................    27
       Section 4.02.       Company Representations and Warranties................................................    30
       Section 4.03.       Initial Manager Representations and Warranties with Respect to the Collateral.........    31
       Section 4.04.       Purchase or Substitution Required upon Breach of Certain
                               Representations and Warranties....................................................    37

ARTICLE V                  INITIAL MANAGER COVENANTS.............................................................    38
       Section 5.01.       Corporate Existence; Status as Manager; Merger........................................    38
       Section 5.02.       The Manager Not to Resign; No Assignment..............................................    39
       Section 5.03.       Car Mark Agreement, GNRR Agreement and Railcar Storage Agreement......................    40





                                                                                                               
       Section 5.04.       Manager Indemnification...............................................................    40
       Section 5.05.       Expense Reimbursement.................................................................    41
       Section 5.06.       Agreements with respect to the Car Mark Agreement and the Railcar Storage Agreement...    41

ARTICLE VI                 MANAGER TERMINATION...................................................................    41
       Section 6.01.       Manager Events of Termination.........................................................    41
       Section 6.02.       Backup Manager to Act; Appointment of Successor.......................................    44
       Section 6.03.       Notification to Holders...............................................................    45
       Section 6.04.       Waiver of Breaches and Defaults.......................................................    45
       Section 6.05.       Effects of Termination of Manager.....................................................    45
       Section 6.06.       Rights Cumulative.....................................................................    47

ARTICLE VII                THE BACKUP MANAGER....................................................................    47
       Section 7.01.       Representations of Backup Manager.....................................................    47
       Section 7.02.       Merger or Consolidation of, or Assumption of the Obligations of, Backup Manager.......    48
       Section 7.03.       Backup Manager Resignation............................................................    48
       Section 7.04.       Duties and Responsibilities...........................................................    48
       Section 7.05.       Backup Manager Compensation...........................................................    49

ARTICLE VIII               MISCELLANEOUS PROVISIONS..............................................................    49
       Section 8.01.       Termination of Agreement..............................................................    49
       Section 8.02.       Amendments............................................................................    49
       Section 8.03.       Governing Law.........................................................................    50
       Section 8.04.       Notices...............................................................................    50
       Section 8.05.       Severability of Provisions............................................................    50
       Section 8.06.       Inspection and Examination Rights.....................................................    51
       Section 8.07.       Binding Effect........................................................................    51
       Section 8.08.       Article Headings......................................................................    51
       Section 8.09.       Legal Holidays........................................................................    52
       Section 8.10.       Assignment for Security for the Notes.................................................    52
       Section 8.11.       Third-Party Beneficiaries.............................................................    52
       Section 8.12.       No Bankruptcy Petition................................................................    52



SCHEDULE I         Manager Employee Benefits
SCHEDULE II        Permitted Adjustments
SCHEDULE III       Lease Delivery Exceptions

EXHIBIT A          Form of Monthly Manager Report
EXHIBIT B          Forms of Leases

                                      -ii-



         MANAGEMENT AGREEMENT, dated as of February 12, 2004 (this "Agreement"),
by and among NARCAT LLC ("NARCAT"), a Delaware limited liability company, CARCAT
ULC ("CARCAT"), a Nova Scotia unlimited liability company, and NARCAT MEXICO, S.
DE R.L. DE C.V. ("NARCAT Mexico"), a Mexican limited liability company with
variable capital, (each, a "Company" and collectively, the "Companies"), THE
ANDERSONS, INC. ("The Andersons"), an Ohio corporation, as the manager (the
"Manager"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo"), a
national banking association, as the indenture trustee (the "Indenture Trustee")
and as the backup manager (the "Backup Manager").

                             PRELIMINARY STATEMENT

         The Companies are entering into an Indenture, dated as of February 12,
2004 (as amended or supplemented from time to time, the "Indenture"), among the
Companies and the Indenture Trustee, pursuant to which the Companies will issue,
jointly and severally, $29,000,000 aggregate principal amount of their 2.79%
Class A-1 Railcar Notes due 2019, $21,000,000 aggregate principal amount of
their 4.57% Class A-2 Railcar Notes due 2019, $31,400,000 of their 5.13% Class
A-3 Railcar Notes due 2019 and $5,000,000 aggregate principal amount of their
14.00% Class B Railcar Notes due 2019 (collectively, the "Notes"). The
obligations of the Companies under the Notes and the Indenture will be secured
by the Railcars, Leases and the other Railcar Assets (as such capitalized terms
are defined herein).

         NARCAT is entering into a Sale Agreement, dated as of February 12, 2004
(the "NARCAT Sale Agreement"), with Cap Acquire, LLC (the "NARCAT Seller")
providing for, among other things, the sale by the NARCAT Seller to NARCAT of
certain Railcars, Leases and the other Railcar Assets which NARCAT is and will
be pledging to the Indenture Trustee, and in which NARCAT is granting to the
Indenture Trustee a security interest.

         CARCAT is entering into a Sale Agreement, dated as of February 12, 2004
(the "CARCAT Sale Agreement"), with Cap Acquire Canada ULC (the "CARCAT Seller")
providing for, among other things, the sale by the CARCAT Seller of certain
Railcars, Leases and other Railcar Assets which CARCAT is and will be pledging
to the Indenture Trustee, and in which CARCAT is granting to the Indenture
Trustee a security interest.

         NARCAT Mexico is entering into a Sale Agreement, dated as of February
12, 2004 (the "NARCAT Mexico Sale Agreement" and, together with the NARCAT Sale
Agreement and the CARCAT Sale Agreement, the "Sale Agreements"), with Cap
Acquire Mexico, S. de R.L. de C.V. (the "NARCAT Mexico Seller" and, together
with the NARCAT Seller and the CARCAT Seller, the "Sellers") providing for,
among other things, the sale by the NARCAT Mexico Seller of certain Railcars,
Leases and other Railcar Assets which NARCAT Mexico is and will be pledging to
the Indenture Trustee, and in which NARCAT Mexico is granting to the Indenture
Trustee a security interest.

         It is a condition precedent to the issuance of the Notes under the
Indenture that, on or prior to the Closing Date (as defined in the Indenture),
the Companies enter into this Agreement



with the Manager and the Backup Manager to provide for the management of the
Railcars. In order to further secure each Company's obligations under the
Indenture and the Notes, each Company is granting to the Indenture Trustee a
security interest in, among other things, such Company's rights derived under
this Agreement, and the Manager agrees that all covenants and agreements made by
the Manager herein with respect to the Railcars, Leases and the other Railcar
Assets shall also be for the benefit and security of the Class A Note Insurer
(as defined herein), the Indenture Trustee and all Holders of the Notes. For its
services hereunder, the Manager will receive the Manager Fee and the
Supplemental Manager Fee as set forth in Section 2.05.

         On the date hereof, the Companies, Wells Fargo, as the Indenture
Trustee and as the backup servicer, and The Andersons (the "Servicer") are
entering into a servicing agreement (the "Servicing Agreement") for the purpose
of engaging the Servicer to receive and apply, as required under the Indenture,
all collections received with respect to the Railcars and Leases and to perform
Lessee monitoring, collection and enforcement activities, to perform record
keeping and to prepare servicer reports, among other things, all as described in
the Servicing Agreement.

         The Manager is engaged in the business of owning, leasing, managing and
servicing railcars for itself and for others, and each Company desires to retain
the Manager, on the terms and conditions set forth in this Agreement, to perform
operating, maintenance, insurance and remarketing services on behalf of each
Company in respect of the Railcars and Leases of each such Company.

                                   ARTICLE I

                                  DEFINITIONS

         Section 1.01. Defined Terms. Subject to Section 1.02, except as
otherwise specified or as the context may otherwise require, the following terms
have the respective meanings set forth below for all purposes of this Agreement,
and the definitions of such terms are equally applicable both to the singular
and plural forms of such terms and to the masculine, feminine and neuter genders
of such terms:

         "AAR" shall have the meaning set forth in the Indenture.

         "Action" shall mean any action, claim, suit, litigation, arbitration or
governmental investigation.

         "Advance Rate" shall mean 90% of the Stated Value of any Railcar.

         "Affiliate" shall have the meaning set forth in the Indenture.

         "Agreement" shall mean this Management Agreement as amended, restated
or supplemented from time to time as permitted hereby.



         "Anderson Family" shall mean any of (i) any child or descendant of
Harold Anderson, the founder of The Andersons, Inc., (ii) any spouse or former
spouse of any individual described in the preceding clause (i), and (iii) any
trust, the beneficiaries of which are any one or more of the individuals
described in the preceding clauses (i) or (ii). For purposes of this definition,
an adopted child shall be considered a lineal descendant.

         "APA Seller Documents" shall mean the Asset Purchase Agreement, the Car
Mark Agreement, the GNRR Agreement, the Railcar Storage Agreement and all other
agreements, instruments and/or documents executed by any Railcar Entity in favor
of a Seller or a Company.

         "Asset Purchase Agreement" shall have the meaning set forth in the
Indenture.

         "Authorized Officer" shall have the meaning set forth in the Indenture.

         "Backup Manager" shall have the meaning set forth in the preamble to
this Agreement.

         "Backup Manager Fee" shall mean the fees of the Backup Manager set
forth in that certain fee letter, dated February 12, 2004, and acknowledged on
February 12, 2004 by the Companies.

         "Board of Directors" shall mean the Board of Directors of the Manager
or any duly authorized committee of such Board.

         "Business Day" shall have the meaning set forth in the Indenture.

         "Canadian Registry" shall mean the Office of the Registrar General of
Canada, which maintains the database pursuant to Section 105 of the Canada
Transportation Act.

         "Car Mark Agreement" shall have the meaning set forth in the Indenture.

         "CARCAT" shall have the meaning set forth in the preamble to this
Agreement.

         "CARCAT Collection Account" shall have the meaning set forth in the
Indenture.

         "CARCAT OER Subaccount" shall have the meaning set forth in the
Indenture.

         "CARCAT Sale Agreement" shall have the meaning set forth in the
Preliminary Statement of this Agreement.

         "CARCAT Seller" shall have the meaning set forth in the Preliminary
Statement of this Agreement.

         "Change of Control" shall mean (a) any Person or group (within the
meaning of Rule 13d-5 of the Securities Exchange Act of 1934 as in effect on the
date hereof) shall own directly or indirectly, beneficially or of record, shares
representing more than 25% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of the



Manager; provided, however, that any Person which shall be a member of the
Anderson Family shall be excluded from determinations made under this clause
(a); or (b) a majority of the seats (other than vacant seats) on the Board of
Directors of the Manager shall at any time be occupied by persons who were
neither (i) nominated by the Board of Directors of the Manager, nor (ii)
appointed by directors so nominated.

         "Class A Note Insurer" shall mean MBIA Insurance Corporation, a stock
insurance company incorporated under the laws of the State of New York, or its
successors in interest.

         "Class A Note Insurer Default" shall have the meaning set forth in the
Indenture.

         "Closing Date" shall have the meaning set forth in the Indenture.

         "Collateral" shall have the meaning set forth in the Indenture.

         "Collection Accounts" shall have the meaning set forth in the
Indenture.

         "Collection Period" shall have the meaning set forth in the Indenture.

         "Collections" shall have the meaning set forth in the Indenture.

         "Company" or "Companies" shall have the meaning set forth in the
preamble to this Agreement.

         "Concentration Limits" shall have the meaning set forth in the
Indenture.

         "Continued Errors" shall have the meaning set forth in Section 6.05(d).

         "Controlling Party" shall have the meaning set forth in the Indenture.

         "Determination Date" shall have the meaning set forth in the Indenture.

         "DOT" shall mean the United States Department of Transportation.

         "Eligible Railcar" shall have the meaning set forth in the Indenture.

         "Environmental Law" shall have the meaning set forth in the Indenture.

         "Errors" shall have the meaning set forth in Section 6.05(d).

         "Event of Default" shall have the meaning set forth in the Indenture.

         "Event of Loss" shall have the meaning set forth in the Indenture.

         "FRA" shall mean the Federal Railroad Administration.



         "Full Service Lease" shall have the meaning set forth in the Indenture.

         "GAAP" shall have the meaning set forth in the Indenture.

         "GNRR Agreement" shall have the meaning set forth in the Indenture.

         "Governmental Authority" shall have the meaning set forth in the
Indenture.

         "Hazardous Commodities" shall have the meaning set forth in the
Indenture.

         "Holder" or "Holders" shall have the meaning set forth in the
Indenture.

         "Indemnified Parties" shall have the meaning set forth in Section 5.04.

         "Indenture" shall have the meaning set forth in the Preliminary
Statement of this Agreement.

         "Indenture Trustee" shall have the meaning set forth in the preamble to
this Agreement.

         "Initial Manager" shall mean The Andersons and any of its Affiliates.

         "Insurance Policy" shall have the meaning set forth in the Indenture.

         "Insurance Proceeds" shall have the meaning set forth in the Indenture.

         "Insurers" shall have the meaning set forth in the Indenture.

         "Interchange Rules" shall have the meaning set forth in the Sale
Agreements.

         "Knowledge of the Manager" shall mean the actual knowledge, after due
inquiry, of the officers of the Manager or any Affiliate of the Manager
responsible for matters relating to the Manager's performance of its obligations
hereunder.

         "Law" shall have the meaning set forth in the Indenture.

         "Lease" shall have the meaning set forth in the Indenture.

         "Lease File" and "Lease Files" shall have the meanings set forth in the
Servicing Agreement.

         "Lease and Railcar Schedule" shall have the meaning set forth in the
Indenture.

         "Lessee" shall have the meaning set forth in the Indenture.

         "Lessor" shall mean the lessor under each related Lease, or a successor
or assignee of such lessor.



         "Liens" shall have the meaning set forth in the Indenture.

         "Lockbox Account" shall have the meaning set forth in the Servicing
Agreement.

         "Lockbox Agreements" shall have the meaning set forth in the Servicing
Agreement.

         "Lockbox Bank" shall have the meaning set forth in the Servicing
Agreement.

         "Maintenance Expense Reimbursement Request" shall have the meaning set
forth in Section 2.06(b).

         "Majority Holders" shall have the meaning set forth in the Indenture.

         "Manager" shall have the meaning set forth in the preamble to this
Agreement, or any Successor Manager appointed pursuant to Section 6.01.

         "Manager Events of Termination" shall mean each of the occurrences or
circumstances enumerated in Section 6.01.

         "Manager Fee" shall mean a monthly fee equal to $25.00 per Railcar per
month (whether or not such Railcar is then subject to a Lease); provided,
however, that the Manager Fee, at the direction of the Controlling Party, may be
increased to up to $37.50 per Railcar (whether or not such Railcar is then
subject to a Lease) per month in the event that any Person other than the
Initial Manager shall be the Manager.

         "Manager Standard" shall have the meaning set forth in Section 2.01(b).

         "Manager Termination Notice" shall have the meaning set forth in
Section 6.01(b).

         "Material Adverse Effect" shall have the meaning set forth in the
Indenture.

         "Modified Lease" shall mean any Lease in which the Lessee is
responsible for repairs to specific items such as gates, hatch covers, doors, or
other items specified in the Lease, and the Lessor is responsible for all other
maintenance.

         "Monthly Manager Report" shall have the meaning set forth in Section
3.01.

         "NARCAT" shall have the meaning set forth in the preamble to this
Agreement.

         "NARCAT Collection Account" shall have the meaning set forth in the
Indenture.

         "NARCAT Mexico" shall have the meaning set forth in the preamble to
this Agreement.

         "NARCAT Mexico Sale Agreement" shall have the meaning set forth in the
Preliminary Statement of this Agreement.



         "NARCAT Mexico Seller" shall have the meaning set forth in the
Preliminary Statement of this Agreement.

         "NARCAT OER Subaccount" shall have the meaning set forth in the
Indenture.

         "NARCAT Sale Agreement" shall have the meaning set forth in the
Preliminary Statement of this Agreement.

         "NARCAT Seller" shall have the meaning set forth in the Preliminary
Statement of this Agreement.

         "Note Principal Balance" shall have the meaning set forth in the
Indenture.

         "Note Register" shall have the meaning set forth in the Indenture.

         "Notes" shall have the meaning set forth in the Preliminary Statement
of this Agreement.

         "Officer's Certificate" shall mean a certificate signed by the Chairman
of the Board, the Vice Chairman of the Board, the President, a Vice President,
the Treasurer or the Secretary of the Manager.

         "Operating Expense Reserve Account" shall have the meaning set forth in
the Indenture.

         "Operating Expense Reserve Subaccounts" shall mean, collectively, the
CARCAT OER Subaccount and the NARCAT OER Subaccount.

         "Operating Expenses" shall have the meaning set forth in Section
2.06(a).

         "Opinion of Counsel" shall mean a written opinion of counsel who,
unless otherwise specified, may be in-house counsel employed full time by the
Person (or an affiliate of such Person) required to deliver the opinion.

         "Optional Modification" shall have the meaning set forth in Section
2.04(b).

         "Outstanding" shall have the meaning set forth in the Indenture.

         "Payment Date" shall have the meaning set forth in the Indenture.

         "Permitted Adjustments" shall mean any of the adjustments described on
Schedule II hereto.

         "Permitted Liens" shall have the meaning set forth in the Indenture.

         "Person" shall have the meaning set forth in the Indenture.

         "PPSA" shall mean the Personal Property Security Act (Nova Scotia).



         "Predecessor Manager Work Product" shall have the meaning set forth in
Section 6.05(d).

         "Prefunded Existing Lease" shall have the meaning set forth in the
Indenture.

         "Prefunded Lease and Railcar Schedule" shall have the meaning set forth
in the NARCAT Sale Agreement.

         "Prefunded Railcar" shall have the meaning set forth in the Indenture.

         "Prefunded Railcar Acquisition Date" shall have the meaning set forth
in the Indenture.

         "Prime Rate" shall have the meaning set forth in the Indenture.

         "Purchase" shall mean a purchase by the Manager of a Railcar and any
related Lease and other related Railcar Assets pursuant to Section 4.04.

         "Purchase Price" shall have the meaning set forth in Section 4.04(c).

         "Railcar" or "Railcars" shall have the meaning set forth in the
Indenture.

         "Railcar Assets" shall have the meaning set forth in the Indenture.

         "Railcar Entities" shall have the meaning set forth in the Indenture.

         "Railcar Storage Agreement" shall mean that certain Railcar Storage
Agreement, dated as of February 12, 2004, by and between Progress Rail Services
Corporation, Cap Acquire, LLC, Cap Acquire Canada ULC and Cap Acquire Mexico, S.
de R.L. de C.V. as the same may be amended, restated, supplemented or otherwise
modified from time in accordance with its terms.

         "Railroad Mileage Credits" shall have the meaning set forth in the
Indenture.

         "Rapid Amortization Event" shall have the meaning set forth in the
Indenture.

         "Rating Agencies" shall have the meaning set forth in the Indenture.

         "Rating Agency Condition" shall have the meaning set forth in the
Indenture.

         "Relevant Company" shall have the meaning set forth in the Servicing
Agreement.

         "Relevant Sale Agreement" shall mean (i) with respect to CARCAT, the
CARCAT Sale Agreement, (ii) with respect to NARCAT Mexico, the NARCAT Mexico
Sale Agreement and (iii) with respect to NARCAT, the NARCAT Sale Agreement.



         "Reported Companies" shall mean The Andersons, if the Manager is The
Andersons, or for any Successor Manager appointed pursuant to this Agreement,
such Successor Manager and its parent and its Affiliates on a consolidated
basis.

         "Reported Companies' Financial Statements" shall mean the Reported
Companies' audited, consolidated financial statements (including consolidated
balance sheets, statements of earnings, retained earnings and cash flows)
including all notes to the audited financial statements and auditors opinion
regarding the audited financial statements, all prepared in accordance with
generally accepted accounting principles.

         "Required Modification" shall have the meaning set forth in Section
2.04(a).

         "Sale Agreements" shall have the meaning set forth in the Preliminary
Statement of this Agreement.

         "Scrapped Railcar" shall have the meaning set forth in the Indenture.

         "Secured Parties" shall have the meaning set forth in the Indenture.

         "Sellers" shall have the meaning set forth in the Preliminary Statement
of this Agreement.

         "Separate Person" shall have the meaning set forth in Section 2.10.

         "Servicer" shall have the meaning set forth in the preamble to the
Servicing Agreement, or any Successor Servicer appointed pursuant to Section
6.01 of the Servicing Agreement.

         "Servicing Agreement" shall have the meaning set forth in the
Preliminary Statement of this Agreement.

         "Servicer Event of Termination" shall have the meaning set forth in the
Servicing Agreement.

         "Solvent" shall have the meaning set forth in the Indenture.

         "Stated Value" shall have the meaning set forth in the Indenture.

         "STB" shall have the meaning set forth in the Indenture.

         "Subsequent Lease" shall have the meaning set forth in the Indenture.

         "Substitute Railcar" shall mean any Railcar substituted pursuant to
Section 4.04 which (i) is an Eligible Railcar, (ii) has a Stated Value not less
than the Stated Value of the Railcar for which it is substituted and (iii) is of
a similar type, and has a similar term of service, to the Railcar for which it
is substituted.



         "Successor Manager" shall have the meaning set forth in Section
6.01(b).

         "Supplemental Manager Fee" shall mean a monthly fee equal to $37.50 per
Railcar minus the then-applicable Manager Fee per Railcar per month (whether or
not such Railcar is then subject to a lease).

         "Tangible Net Worth" shall mean with respect to any Person as of any
particular date, (a) consolidated net worth, (b) minus the consolidated book
value of intangible assets, (c) plus the consolidated book amount of long term
deferred income. Additionally, "Tangible Net Worth" shall not include any assets
or liabilities related to The Andersons' investments in special purpose entities
established to facilitate the acquisition of certain rail assets from Progress
Rail Services, Railcar Ltd., or any of their Affiliates.

         "The Andersons" shall have the meaning set forth in the preamble to
this Agreement.

         "TOP CAT" shall have the meaning set forth in the Servicing Agreement.

         "Transaction Documents" shall have the meaning set forth in the
Indenture.

         "Trustee Fee" shall have the meaning set forth in the Indenture.

         "UCC" shall mean Article 9 of the Uniform Commercial Code as in effect
in an applicable jurisdiction within the United States.

         "UMLER" shall have the meaning set forth in the Indenture.

         Section 1.02. Terms Defined in the Indenture, Sale Agreements or
Servicing Agreement. For the purposes of this Agreement, capitalized terms used
but not otherwise defined herein shall have the respective meanings assigned to
such terms in the Indenture or, if not defined therein, in the Sale Agreements
or the Servicing Agreement, as applicable.

                                   ARTICLE II

                             MANAGEMENT OF RAILCARS

         Section 2.01. The Manager to Act as Manager; Standard of Care;
Covenants Concerning Railcars and Leases. (a) Each Company hereby retains The
Andersons as Manager hereunder, as an independent contractor for the purpose of
undertaking and performing the services described in this Agreement, and The
Andersons hereby agrees to act as Manager on the terms and conditions set forth
herein.

         (b)      All of the functions, services, duties and obligations of the
Manager under this Agreement shall be performed by the Manager at a level of
care and diligence consistent with customary commercial practices as would be
used by a prudent Person in the railcar leasing and management industry and the
level of care and diligence utilized by the Manager in its business



and in the management of the Manager's own fleet of railcars, if any, in order
for each Company to be able to perform its obligations under the Leases and the
other applicable Transaction Documents (the "Manager Standard"). The Manager
agrees that management of the Railcars shall be carried out in accordance with
the Manager Standard.

         (c)      The Manager shall not be required to threaten or commence any
legal or other proceedings before any court or Governmental Authority or
nongovernmental organization in connection with its performance or actions
hereunder if, in the Manager's reasonable judgment consistent with the Manager
Standard, the potential expense or risk associated with such exercise or action
is such that the Manager would not undertake such exercise or action with
respect to other railcars owned, leased or managed by the Manager.

         (d)      The Manager shall not create or permit to exist any Lien on
any Railcar, Lease or other Railcar Asset other than a Permitted Lien.

         (e)      The Manager shall, in connection with the performance of the
services provided for herein, comply in all material respects with all Laws
applicable to the Manager, any Company, the Railcars, the Leases and the other
Railcar Assets.

         (f)      The duties and obligations of the Manager will be limited to
those expressly set forth in this Agreement, and the Manager will not have any
fiduciary or other implied duties or obligations, except as provided herein.

         (g)      The Manager shall not take any action, without the consent of
the Indenture Trustee (acting at the direction of the Controlling Party), which
would release any Person from any of its covenants or obligations under any of
the Leases or under any other instrument included in the Collateral, which
action or release would materially and adversely affect the interests of the
Class A Note Insurer, the Holders or the Indenture Trustee in any such Lease or
which would result in the amendment, hypothecation, subordination, termination,
set off or discharge of, or impair the validity or effectiveness of, any of the
Leases or any such instrument, except as expressly provided herein and therein.

         (h)      The parties hereto acknowledge that each Company shall retain
title to, and ownership and exclusive control of, its Collateral (subject to the
Lien of the Indenture). Except as expressly permitted hereunder, the Manager
will not acquire any title to, security interest in, or other rights of any kind
in or to the Railcars, the Leases or any other Railcar Assets. The Manager
agrees not to file any Lien, exercise any right of setoff against, or attach or
assert any claim in, any of the Railcars, the Leases or any other Railcar
Assets, unless authorized pursuant to a judicial or administrative proceeding or
a court order or on behalf of any Company or the Indenture Trustee in accordance
with this Agreement or the Indenture.

         (i)      The Manager shall maintain, at its own expense, an insurance
policy, with coverage appropriate and customary in the industry with responsible
companies on all officers or employees of the Manager, or other persons
authorized by the Manager to act in any capacity with regard to the Railcar
Assets to handle funds, money, documents and papers relating to the Railcar
Assets. Any such insurance policy shall protect and insure the Manager against
losses,



including forgery, theft, embezzlement, and fraudulent acts of such persons and
shall be maintained in a form and amount that would meet the requirements of a
prudent institutional Manager. The requirement to maintain such insurance policy
shall not diminish or relieve the Manager from its duties and obligations as set
forth in this Agreement. Any such insurance policy shall not be cancelled or
modified in a materially adverse manner without ten days' prior written notice
to the Indenture Trustee and the Class A Note Insurer. The Manager shall
promptly, but in any event within five Business Days after receipt, notify the
Indenture Trustee and the Class A Note Insurer upon receipt from the surety of
any termination or cancellation notice or any other notice of a material change
to the terms of such insurance policy.

         (j)      The Manager shall use its best efforts to ensure that new
non-renewal Leases will conform to one of the form leases attached as Exhibit B,
except for such modifications or deviations which will not have a material
adverse effect on the Holders or the Class A Note Insurer, unless otherwise
approved by the Controlling Party.

         (k)      The Successor Manager may perform any duties hereunder either
directly or through agents or attorneys, and the Successor Manager shall not be
responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent or attorney appointed by it with due care
hereunder.

         (l)      The Manager shall not directly perform services in Canada nor
hire non-Canadian residents to perform services in Canada. The Manager, as an
agent for CARCAT, shall engage Canadian residents to perform services in Canada
for CARCAT.

         (m)      The Backup Manager may, both before and after the time, if
any, that it is acting as Successor Manager, share information regarding the
Railcars, Leases and other Railcar Assets with its agents and attorneys;
provided, however, that unless a Manager Event of Termination has occurred and
is continuing or the Class A Note Insurer directs otherwise, the Backup Manager
shall ensure that such shared information has been redacted to remove all
information that, if disclosed, would create a competitive disadvantage for The
Andersons (including but not limited to the names of Lessees).

         (n)      Notwithstanding the proviso appearing in the definition of the
term "Concentration Limits", the Manager shall in its leasing efforts use
reasonable efforts, in compliance with the Manager Standard, to maintain
compliance by the portfolio of Railcars and associated Leases with the
Concentration Limits (such as, all other factors being equal, giving precedence
to a Subsequent Lease that would maintain compliance with the Concentration
Limits over a Subsequent Lease that would not maintain compliance with the
Concentration Limits).

         Section 2.02. Authority of Manager; Delegation of Management. (a) Until
the termination of this Agreement in accordance with Section 8.01, the Manager,
on behalf of each Company, shall have full authority and power to manage the
Railcars and the Leases in all respects, including, but not limited to, the
following authority and powers, in accordance with the Manager Standard:



                  (i)      To contract for the maintenance, storage and release
         of the Railcars and to authorize any repairs or maintenance service
         which, in the exercise of the Manager's business judgment, are
         necessary or appropriate.

                  (ii)     To enter into Subsequent Leases in the name of the
         Relevant Company.

                  (iii)    To settle any claim pertaining to the Railcars or the
         deployment or use thereof.

                  (iv)     To do any and all other things necessary or
         appropriate to fulfill the duties set forth in Section 2.03 below.

         (b)      Notwithstanding the foregoing, the authority granted to the
Manager under this Section 2.02 shall not cover any matters (i) which the
Relevant Company, as owner of the Railcars in question, shall not be entitled to
perform under the Indenture or any other agreement to which any such Company
shall be bound, or (ii) as to which the Servicer shall have been granted
authority under the Servicing Agreement.

         (c)      The Manager may enter into management agreements with one or
more submanagers, with prior written notice to the Class A Note Insurer, each
Company, the Backup Manager and the Indenture Trustee, to perform all or a
portion of the management functions on behalf of the Manager; provided, however,
that the Manager will remain obligated and be liable to the Class A Note
Insurer, the Indenture Trustee, the Backup Manager and each Company for managing
the Railcars in accordance with the provisions of this Agreement, without
diminution of such obligation and liability by virtue of the appointment of such
submanager, to the same extent and under the same terms and conditions as if the
Manager alone were managing the Railcars. The fees and expenses of the
submanager (if any) will be as agreed between the Manager and its submanager and
shall be the liability of the Manager exclusively, and none of the Class A Note
Insurer, the Indenture Trustee, the Backup Manager, any Company or any Holder
will have any responsibility therefor; provided, however, to the extent agreed
to between the Manager and submanager, expenses of the submanager may be
reimbursed by the Manager and treated for all purposes hereof as expenses
incurred by the Manager (which, subject to the terms of the Indenture and the
limitations contained in Section 2.06(b), be reimbursable from the Operating
Expense Reserve Subaccounts or, to the extent that funds in the relevant
Operating Expense Reserve Subaccount are insufficient, the Collection Accounts,
if and to the extent provided herein and in the Indenture). All actions of a
submanager taken pursuant to such a submanager agreement will be taken as an
agent of the Manager with the same force and effect as though performed by the
Manager. For the avoidance of doubt, any maintenance shop which routinely
services or repairs railroad rolling stock, including any of the Railcars, or
does running repairs shall not, solely based upon such custom (and not a written
agreement), be deemed a submanager.

         Section 2.03. Duties of Manager. In consideration of the compensation
to be paid to the Manager pursuant to Section 2.05, and, if applicable, Section
6.02(a), and subject to the provisions of Section 2.02 above, the Manager shall
provide and perform the services on behalf



of each Company set forth below until this Agreement is terminated in accordance
with Section 8.01:

                  (a)      To contract for the maintenance, storage and release
         of the Railcars and to authorize any repairs or maintenance service
         which, in the exercise of the Manager's business judgment, are
         necessary or appropriate.

                  (b)      For any Railcar not subject to a Lease, to take
         possession of such Railcar, as agent for the Relevant Company, for the
         purpose of managing and operating such Railcar as herein provided,
         subject to the Lien of the Indenture.

                  (c)      To exercise the authority granted in Section 2.02
         above and to use its best efforts in accordance with the Manager
         Standard to keep the Railcars under lease for the term of this
         Agreement, subject to the following conditions:

                           (i)      the Manager shall only enter into a
                  Subsequent Lease if each of the representations and warranties
                  set forth in Section 4.03 with respect to such Subsequent
                  Lease are true and correct as of the date of the origination
                  of such Subsequent Lease and the Concentration Limits are
                  satisfied;

                           (ii)     the Manager (A) shall have delivered to the
                  Backup Manager, the Indenture Trustee and the Class A Note
                  Insurer an updated Lease and Railcar Schedule reflecting the
                  addition of such Subsequent Lease and (B) shall maintain a
                  complete and current copy of such Lease and Railcar Schedule
                  in its records for inspection in accordance with the terms
                  hereof; and

                           (iii)    the Manager shall have delivered any items
                  to be included in the Lease File in respect of such Subsequent
                  Lease to the Servicer to be held on behalf of the Indenture
                  Trustee (except that any originals of the Lease not in the
                  possession of the Lessee under such Lease shall be delivered
                  to the Indenture Trustee).

                  (d)      To enter into or accept assignment of, on behalf of
         each Company, lease agreements providing for the lease of the Railcars
         to railroads, shippers or other financially responsible parties for
         that purpose on terms and conditions which are customary in its own
         practice in the industry (including, without limitation, exercising its
         right to cause a railroad to put the Railcars on such railroad's line
         bearing such railroad's reporting marks, if such arrangement appears,
         in the Manager's business judgment, to be either the most effective
         method of remarketing the Railcars or the most effective short-term use
         of the Railcars pending long-term remarketing), taking such steps as
         may be required to ensure that all obligations and duties arising under
         such agreements are performed or complied with in an orderly and timely
         fashion and causing all original copies of the Leases constituting
         chattel paper not in the possession of the Lessee under such Lease to
         be delivered to the Indenture Trustee.



                  (e)      Cause to be taken all steps which may be necessary to
         have the Railcars registered and accepted by all hauling carriers under
         the AAR as required by the terms of any Lease or otherwise.

                  (f)      Maintain, or to enforce the Lessees' obligations to
         maintain, the Railcars in good condition equal to or greater than the
         highest of (i) any standard required or set forth for the Railcars or
         railcars of a similar class by the AAR, STB, or DOT or any equivalent
         authority in Canada or Mexico, (ii) any standard set by a Lessee,
         whether by terms of a Lease or by other understanding or agreement
         between such Lessee and the Manager, on behalf of each Company, (iii)
         any standard set by any Insurance Policy under which the Railcars shall
         from time to time be insured, (iv) in good working order and in
         accordance with the Interchange Rules, (v) any standard recommended by
         the manufacturer, and (vi) the standards used by the Manager in respect
         of railcars owned, leased or managed by the Manager and its Affiliates
         similar in type to the Railcars.

                  (g)      Place and maintain, or enforce the Lessees'
         obligations to maintain, such insurance with respect to the Railcars as
         shall be necessary to comply with the provisions of Section 11.14 of
         the Indenture. During the month of February in each year, beginning
         February, 2005, the Manager shall deliver to each Company, the Class A
         Note Insurer, the Backup Manager and the Indenture Trustee an Officer's
         Certificate confirming the renewal of all Insurance Policies.

                  (h)      Within 10 days after the Closing Date with respect to
         the initial Collateral and as necessary from time to time thereafter
         with respect to any Railcars, Leases (except for Leases which have
         terms of less than one year, including, but not limited to,
         month-to-month Leases) and the other Railcar Assets located in the
         United States or Canada which shall become part of the Collateral, the
         Manager shall make, at the expense of either NARCAT or CARCAT, as
         applicable, such filings, deposits, registers or recordations, in the
         manner required by and in accordance with applicable law, necessary to
         perfect and protect the Lien of the Indenture, including filings with
         the STB pursuant to 49 U.S.C. 11301(a) (and in conformity with 49
         C.F.R. 1177) and with the Canadian Registry and the filing of UCC and
         PPSA financing statements in all applicable filing offices. From time
         to time thereafter, the Manager shall take or cause to be taken such
         actions and execute such documents as are necessary to perfect and, at
         the expense of each Company, preserve and protect each Company's, the
         Indenture Trustee's, and the Holders' interests, as such interests may
         appear, in the Collateral against all other Persons, including the
         filing of financing statements, amendments thereto and continuation
         statements, the execution of transfer instruments and the making of
         notations on or taking possession of all records or documents of title.
         Notwithstanding the foregoing, neither the Manager, any Company or any
         other person is required to take any actions described in this
         paragraph with respect to any Railcars, Leases or other Railcar Assets
         to the extent that such action involves the making of any filings,
         deposits, registrations or recordations in Mexico.

                  (i)      Maintain books and records reflecting transactions
         arising from the operation of the Railcars, including records relating
         to maintenance, repair and service



         contracts and all authorized expenses relating thereto. Such books and
         records shall be available to each Company, the Backup Manager, the
         Class A Note Insurer and the Indenture Trustee upon any Company's, the
         Backup Manager's, the Class A Note Insurer's or the Indenture Trustee's
         reasonable prior request for examination during the normal business
         hours of the Manager.

                  (j)      Monitor movement of the Railcars, including (i)
         keeping records pertaining to the movement of the Railcars, Railcar
         Mileage Credits and other compensation earned and received with respect
         to such Railcars as well as charges from railroads as a result of
         mileage adjustments; (ii) subject to all rules and tariffs of the
         railroad, crediting such Railcar Mileage Credits and other compensation
         as provided for in the related Lease; and (iii) such other matters as
         may be reasonably related thereto.

                  (k)      Place reporting marks or such other marks, legends,
         or placards on the Railcars as shall be appropriate or necessary to
         comply with any regulation imposed by the STB, the AAR or any
         equivalent authority, or as shall be required under the Indenture.
         Immediately following the Closing Date, except with respect to the
         reporting marks which are the subject of the Car Mark Agreement, the
         Manager covenants to take all or cause its Affiliates to take all
         necessary action to change the UMLER designation associated with the
         reporting marks relating to the Railcars so as to reflect such
         Company's ownership of said marks immediately following the Closing
         Date. The Manager will cause each Railcar owned by any Company to be
         kept numbered with the road number serial number as shall be set forth
         on the Lease and Railcar Schedule. Except as otherwise contemplated in
         the Car Mark Agreement, the Manager shall not allow the name of any
         other Person, other than the related Company, to be placed on any
         Railcar as a designation that might be identified as a claim of any
         interest therein; provided, however, that nothing herein contained
         shall prohibit the Manager or any Company or its permitted lessees from
         placing its name, trademarks, initials, customary colors and other
         insignia on any Railcar or from naming any Railcar. The Manager shall
         not change the identification number of any Railcar unless and until a
         statement of a new number or numbers to be substituted therefor shall
         have been delivered to the Indenture Trustee and the Class A Note
         Insurer and filed, recorded and deposited by the Manager in all
         appropriate public offices, including the public offices where the
         Indenture shall have been filed, recorded and deposited.

                  (l)      Furnish factual information reasonably requested by
         any Company in connection with any federal, state, or local tax
         returns.

                  (m)      Prepare or cause to be prepared the necessary returns
         or other filings for all personal property taxes and other taxes,
         charges, assessments, or levies imposed upon or against the Railcars or
         any Company of whatever kind or nature and, where it deems appropriate
         (or as otherwise directed by any Company), protest the application of
         such taxes or the rate or amount of assessment thereunder. The Manager
         shall pay, or enforce the Lessees' obligations to pay, such taxes on
         behalf of each Company. In the Manager's discretion (or as otherwise
         directed by any Company), the Manager shall contest or defend against
         any taxes imposed upon or against the Railcars and seek revision or
         appeal



         from any such taxes deemed improper, all such actions to be in the name
         of the Relevant Company or the Manager on behalf of the Relevant
         Company. Notwithstanding the foregoing, the consent of the Controlling
         Party shall be required prior to any protest, contest, defense or
         appeal in respect of any taxes, rate or amount hereinabove referred to
         in the event that the aggregate liability at issue at any one time
         shall exceed $100,000.

                  (n)      If any Railcar suffers an Event of Loss, the Manager
         shall, promptly after learning of such Event of Loss, (i) investigate
         the facts and circumstances giving rise to such Event of Loss and
         provide such notices and Officer's Certificates with respect thereto on
         behalf of the Relevant Company as may be required under the applicable
         Lease, (ii) collect or arrange for appropriate payment of compensation
         from the relevant railroad, Lessee, third party or other source, or
         combination thereof, and take such other steps, including field
         inspection and investigation, as deemed appropriate by the Manager, and
         (iii) take all steps and actions, including the hiring of attorneys and
         consultants, required with respect to such Event of Loss under the
         applicable Lease. Following such investigation and consideration of
         such other facts and circumstances as the Manager feels are necessary
         or appropriate, the Manager shall terminate such Lease (as to such
         Railcar) and arrange for deposit of the related Lessee's payments,
         railroad payments or insurance proceeds into the Collection Account.
         With respect to any Railcar suffering an Event of Loss, the Manager is
         hereby granted full power and authority, subject to the terms and
         conditions of the Leases, to sell (or dispose as scrap) on the Relevant
         Company's behalf any such Railcar which has been settled for under the
         rules of the AAR or settled with Lessees or any Insurer and, upon
         direction of such Company, the Manager will effect such sale or
         disposition in accordance with the Manager Standard, for no additional
         fee or other compensation. The Manager shall transfer to the relevant
         Lockbox Bank, for deposit into the related Lockbox Account, any amounts
         the Manager receives in respect of such Event of Loss from such
         sources. Each Company hereby agrees to execute all necessary powers of
         attorney and other documents evidencing such power and authority in
         favor of the Manager. Anything herein to the contrary notwithstanding,
         in the event of damage to a Railcar to which Rule 107 of the
         Interchange Rules applies, the Manager shall not, without the prior
         written consent of the Controlling Party, (i) accept any settlement
         offer if the offered Settlement Value (set forth in the related
         "Settlement Value Statement" (as such term is used in Rule 107)) is
         less than the Advance Rate times the Stated Value of such Railcar nor
         (ii) reject any such settlement offer if the offered Settlement Value
         equals or exceeds the Advance Rate times the Stated Value of such
         Railcar.

                  (o)      Upon the expiration of any Lease (or upon the
         acquisition by any Company of any Railcar not then subject to a Lease),
         the Manager shall, (i) until the related Railcars have been leased or
         re-leased in accordance with this Agreement and the Indenture,
         transport and store, or arrange for the transportation and storage of,
         such Railcars on tracks designated by the Manager (whether such tracks
         are owned by the Manager or otherwise), (ii) negotiate appropriate
         renewals thereof or remarket the related Railcars on terms and
         conditions which are in compliance with the terms and provisions of the
         Indenture, as to which each of the representations and warranties
         contained in Section 4.03 shall be correct and which otherwise are
         customary at such time and with



         adequate regard as to credit quality in accordance with the Manager
         Standard; (iii) inspect, clean (to the extent not done by the
         applicable Lessee) and refurbish any Railcar which is to be remarketed
         in a manner consistent with the Manager Standard; and (iv) take such
         steps as may be required to see that all obligations and duties arising
         under the Indenture with respect to the remarketed Railcars are
         performed or complied with to the extent required thereunder.

                  (p)      Terminate any Lease (if permitted by, and in
         accordance with the terms of, such Lease) with respect to any Railcar
         which the Manager believes is obsolete or surplus to the Relevant
         Company's requirements under the terms of such Lease and provide such
         notices with respect thereto as may be required under such Lease to
         effect such a termination; if such election is made, take the necessary
         action on behalf of such Company to arrange for the sale of such
         Railcar and the termination of the Lease of such Railcar.

                  (q)      Cause compliance with the Lessor's obligations, if
         any, under the return provisions of any Lease with respect to any
         Railcar which is being returned to the Relevant Company thereunder.

                  (r)      Enforce, on behalf of the Relevant Company, the
         warranties with respect to all repairs, maintenance and modifications
         made with respect to the Railcars at facilities not owned by the
         Manager or an Affiliate of the Manager.

                  (s)      In the event that any Railcar shall become
         economically obsolete or damaged beyond repair, sell such Railcar in
         compliance with the requirements of the Indenture.

                  (t)      In the event that the Relevant Company (with the
         consent of the Controlling Party) shall so direct, sell such Railcar to
         such purchaser as the Relevant Company shall designate to the Manager.

                  (u)      Enforce the Lessee's obligations to ensure compliance
         of the Railcars and Leases with applicable governing regulations and
         rules, including regulations and rules promulgated by AAR, DOT, STB and
         the FRA, including, but not limited to, maintaining the STB
         registration of the Leases and, in the event that any Lessee is a
         United States Governmental Authority, cause the Relevant Company to
         comply with the Assignment of Claims Act.

                  (v)      Perform on behalf of each Relevant Company all
         maintenance obligations thereof (as Lessor) set forth in any Leases.

                  (w)      Notify the Controlling Party and each Company of any
         breaches of warranties, misrepresentations or defaults of the Railcar
         Entities under the Asset Purchase Agreement or any related APA Seller
         Document.



                  (x)      Enforce all covenants and obligations of the Railcar
         Entities contained in the Asset Purchase Agreement and the other APA
         Seller Documents on behalf of the Companies and deposit any amounts
         recovered into the Collection Account, and take such actions as may be
         reasonably requested from time to time by any Company or the
         Controlling Party on behalf of such Company) in connection with such
         enforcement, and deliver to such Company (with a copy to the Indenture
         Trustee and the Class A Note Insurer) all consents, approvals,
         directions, notices, waivers and take other actions under the Asset
         Purchase Agreement and the other APA Seller Documents.

                  (y)      Without limiting the foregoing, to perform all
         obligations of each Company under the Indenture with respect to the
         Railcars, the Leases and the other Railcar Assets.

                  (z)      Perform for each Company such other services
         incidental to the foregoing as may from time to time be reasonably
         necessary in connection with the leasing, operation and day-to-day
         management of the Railcars.

                  (aa)     On the 15th day of each February, May, August and
         November (or if such day is not a Business Day, then the next Business
         Day), commencing May 17, 2004, the Manager shall deliver to the Backup
         Manager, the Indenture Trustee and the Class A Note Insurer (i) an
         Officer's Certificate identifying any changes in car marks related to a
         Railcar made during the three-month period ending on the last day of
         the immediately preceding calendar month and (ii) in the event that any
         such changes shall have been so made, an Opinion of Counsel (which
         shall be an outside counsel) in form and substance reasonably
         satisfactory to the Indenture Trustee and the Class A Note Insurer to
         the effect that all such changes have been so filed, recorded and
         deposited with the STB pursuant to 49 U.S.C. 11301(a) (and in
         conformity with 49 C.F.R. 1177) and with the Canadian Registry as to
         protect the Indenture Trustee's security interest (on behalf of the
         Secured Parties) in the Railcars located in the United States or
         Canada, and that no other filing, recordation, deposit or giving of
         notice to any Governmental Authority is necessary to protect such
         interests; provided, however, that in the event that, during any
         three-month period ending on the last day of any January or July, there
         shall have been made changes to car marks relating to fewer than 5% of
         Eligible Railcars as of such date, no such Opinion of Counsel shall be
         required to be so delivered on such date and any changes made to car
         marks during such three-month period shall be covered by the Opinion of
         Counsel required to be delivered hereunder on the next succeeding May
         15 or November 15, as the case may be.

         Section 2.04. Required Modifications and Optional Modifications. (a)
Required Modifications. In the event the AAR, DOT or any other Governmental
Authority having jurisdiction over the Railcars or any other applicable Law
requires as a condition of continued use or operation of any such Railcar that
such Railcar be altered or modified (a "Required Modification"), the Manager
agrees to make or have made such Required Modification in accordance with the
applicable Lease, on behalf of the Relevant Company, in a timely manner;
provided, however, that the Manager may, on behalf of any Company, in good faith
and by appropriate proceedings diligently conducted, contest the validity or
application of any such Law,



regulation, requirement or rule in any reasonable manner which does not
materially interfere with the use, possession, operation or return of any
Railcar or materially adversely affect the rights or interests of the Relevant
Company or the Indenture Trustee in the Railcar or subject the Relevant Company,
the Class A Note Insurer or the Indenture Trustee or any Holder to criminal or
material financial sanctions or relieve the Lessee of the obligation to return
the Railcar in compliance with the provisions of such Lease or other related
Transaction Documents (or the obligations of the Manager hereunder in respect of
such return). Promptly after the Manager becomes aware of the requirement to
make a Required Modification, the Manager shall notify the Relevant Company, the
Backup Manager, the Class A Note Insurer and the Indenture Trustee thereof,
which notice shall also set forth the time period for the making of such
Required Modification and the Manager's reasonable estimate of the cost thereof.
If the Manager, on a non-discriminatory basis, believes that any Required
Modification to a Railcar would be economically impractical, it shall so advise
the Relevant Company and, if directed by such Company, in lieu of making the
Required Modifications as provided above, the Manager shall provide written
notice to such Company that such Required Modification is economically
impractical, and shall treat such Railcar as if an Event of Loss had occurred as
of the date of such written notice with respect to such Railcar. In such event,
the provisions of the related Lease and this Agreement with respect to an Event
of Loss shall apply with respect to such Railcar. In reaching any decision as to
whether a Required Modification is economically impractical, the Manager shall
assess the cost and timing of the Required Modification, the anticipated
revenues and other sources of funds which would be available to fund such costs,
the requirements of the applicable Lease and such other factors as the Manager
considers necessary or appropriate and shall provide a report to the Relevant
Company, with copies to the Backup Manager, Class A Note Insurer and the
Indenture Trustee regarding such assessment.

         (b)      Optional Modifications. The Manager is authorized at any time
to modify, alter or improve any Railcar in a manner which is not a Required
Modification, including any Railcar not then under a Lease (an "Optional
Modification"), if the Manager concludes in good faith that the proposed
Optional Modification is likely to enhance the marketability of the Railcar by
more than the cost of such modification (or such Optional Modification is
requested by a Lessee) and that such Optional Modification meets the standards
set forth in the applicable Lease, if any.

         Section 2.05. Manager Fee and Supplemental Manager Fee. As compensation
to the Manager for the performance of services hereunder, the Manager will
receive the Manager Fee and the Supplemental Manager Fee, which shall be paid to
the Manager on each Payment Date in accordance with, and subject to the priority
of payment provisions of, Section 12.02(d) or Section 6.08, as applicable, of
the Indenture. In the event that a Successor Manager is appointed as Manager
hereunder, the Successor Manager will be entitled to receive the Manager Fee and
the Supplemental Manager Fee.

         Section 2.06. Manager Expenses. (a) In addition to the Manager Fee and
the Supplemental Manager Fee, the Manager shall be entitled to reimbursement of
the following out-of-pocket expenses (collectively, "Operating Expenses")
incurred by the Manager, in the manner and to the extent provided for in Section
2.06(b), in connection with the satisfaction of its responsibilities under this
Agreement (it being expressly understood and agreed that the Manager



shall not be entitled to separate reimbursement for any salaries or benefits of
employees of the Manager, overtime wages or any other "overhead" costs or
expenses of the Manager):

                  (i)      repositioning charges;

                  (ii)     repair and maintenance charges;

                  (iii)    fees and expenses incurred in connection with the
         occurrence of any Event of Loss or with enforcing Lease rights or
         repossessing any Railcars;

                  (iv)     insurance premiums and charges with respect to the
         Insurance Policies;

                  (v)      fees and expenses incurred in connection with
         calculation and payment of ad valorem taxes, and in connection with any
         protest, contest, defense or appeal referenced in, and permitted under,
         Section 2.03(m);

                  (vi)     taxes for which the Lessor is responsible under any
         Lease;

                  (vii)    fees and expenses incurred in connection with
         inspections of Railcars;

                  (viii)   fees and expenses of outside counsel in connection
         with the management of the Railcars;

                  (ix)     fees of third-party advisors, consultants and brokers
         relating to the re-letting of any Railcar;

                  (x)      storage and car mark charges;

                  (xi)     charges incurred in connection with tracing and
         registering Railcars;

                  (xii)    reimbursements for prefunded or advance payments;

                  (xiii)   painting and re-stenciling the car mark and number
         for Railcars;

                  (xiv)    making any Required Modifications or Optional
         Modifications to any Railcar;

                  (xv)     making any regulatory filings with respect to the
         Leases or the Railcars;

                  (xvi)    ensuring the maintenance of the security interest of
         the Relevant Company and of the Indenture Trustee in the Leases and the
         Railcars;

                  (xvii)   payment for uninsured losses and for bodily injury or
         property damage caused by any Railcars which are not covered by
         Insurance Policies or which exceed the amount of deductible(s) under
         any Insurance Policy; and



                  (xviii)  all other out-of-pocket expenses properly chargeable
         to the management, operation, leasing or disposition of the Railcars in
         the manner provided herein.

         (b)      The Manager is entitled to be reimbursed upon request out of
the Operating Expense Reserve Account and, if necessary, out of the Collection
Accounts, in accordance with the terms of the Indenture for any Operating
Expenses incurred by the Manager in connection with its obligations hereunder as
set forth in Section 2.06(a) above; provided, however, that any expenses to be
reimbursed for services provided by an Affiliate of the Manager shall be limited
to amounts that are the arm's-length, fair-market-value costs for the services
provided by such Affiliate. On any Business Day, but not more frequently than
once per week, the Manager may deliver to the Indenture Trustee (with a copy to
the Class A Note Insurer) a report (the "Maintenance Expense Reimbursement
Request"), which shall set forth the Operating Expenses then due and owing to
the Manager, and the Indenture Trustee shall withdraw funds from the appropriate
Operating Expense Reserve Subaccount on the following Business Day and pay such
amounts to the Manager in accordance with, and subject to the limitations
contained in, Section 12.02(d) or Section 6.08, as applicable, of the Indenture;
provided, however, that such withdrawal shall be made out of the NARCAT OER
Subaccount and the NARCAT Collection Account only to the extent that the
Operating Expenses in question shall have been incurred in connection with
Railcars owned by NARCAT or NARCAT Mexico, and such withdrawal shall be made out
of the CARCAT OER Subaccount and the CARCAT Collection Account only to the
extent that the Operating Expenses in question shall have been incurred in
connection with Railcars owned by CARCAT. If Operating Expenses incurred by the
Manager in any given calendar month, as set forth in the Maintenance Expense
Reimbursement Requests delivered to the Indenture Trustee during such month,
exceed the funds available for such payment in the Operating Expense Reserve
Subaccounts, the Manager shall be entitled to collect such shortfall in
accordance with the priorities set forth in Section 12.02(d) or Section 6.08, as
applicable, of the Indenture on the next Payment Date; provided, however, that
the Backup Manager, in its role as Manager, shall have no obligation to incur
any out-of-pocket expenses over and above (i) the sum of $50,000 during any
Collection Period plus (ii) the amounts on deposit in the Operating Expense
Reserve Subaccounts at any given time and available for the payment of such
expenses, unless adequate indemnity for such amounts satisfactory to the Backup
Manager has been provided to it.

         Section 2.07. Responsibility for Loss of, Distribution of, or Damage to
Railcars. The responsibilities of each Company and the Manager for loss of,
destruction of, or damage to any Railcar are apportioned as follows:

                  (a)      The Manager shall not be liable for damage to or
         destruction of any Railcar under any circumstances unless such damage
         or destruction is the direct result of the Manager's negligence or
         willful misconduct.

                  (b)      The Manager shall obtain insurance to the extent
         required by Section 2.01(i) and Section 2.03(g).

                  (c)      If any Railcar is damaged, but is not destroyed or
         damaged beyond repair, the Manager shall use its best efforts, in
         accordance with the Manager Standard, to obtain reimbursement of repair
         expenses for the Relevant Company in accordance with AAR



         rules. If any Railcar is damaged beyond repair or destroyed, the
         Manager shall use its best efforts, in accordance with the Manager
         Standard, to obtain the value of such Railcar in accordance with
         appropriate AAR rules and, if applicable, in accordance with provisions
         in the Leases relating to Events of Loss.

         Section 2.08. Denial or Refusal of Insurance. (a) If an Insurer under
an Insurance Policy shall deny coverage (in any such case prior to termination
thereof as a result of the payment by such Insurer of an aggregate amount equal
to its maximum liability under such Insurance Policy), or shall refuse to honor
a claim under any such Insurance Policy with respect to any Railcar, and if such
denial or refusal resulted solely from the Manager's failure to comply with the
requirements of such Insurance Policy or the requirements of such Insurer, or if
the Manager shall have failed to maintain the coverage required by the terms of
the Transaction Documents (including, but not limited to, Section 11.14 of the
Indenture), then the Manager, on behalf of the Relevant Company, shall cause the
amount of any resulting unpaid claim to be deposited into the related Collection
Accounts as a recovery on such Railcar with respect to which such denial or
refusal arose; provided, however, that if the Backup Manager is acting as
Manager, it will not be required to deposit such funds in the Collection
Accounts. The Manager shall not be entitled to seek reimbursement under Section
2.06 for amounts deposited into any Collection Account pursuant to this Section
2.08(a).

         (b)      The Manager shall promptly, but in any event within five days,
notify the Relevant Company, the Class A Note Insurer, the Backup Manager and
the Indenture Trustee of the occurrence of any event described in Section
2.08(a) or the cancellation or termination of any Insurance Policy.

         Section 2.09. Conflicts of Interest. It is expressly understood and
agreed that nothing herein shall be construed to prevent or prohibit the Manager
from providing the same or similar services to any Person or organization not a
party to this Agreement. In particular, the Manager shall be entitled to own and
operate for its own account railroad cars and equipment identical to the
Railcars managed hereunder and/or to manage such railroad cars or equipment
under a similar management agreement with another owner; provided, however, that
if other railroad cars similar to or competitive with the Railcars owned or
managed by the Manager are available for leasing at the same time that any
Railcar is so available, the Manager or its agent or submanager shall give no
preference or priority to either the leasing of such other railroad cars or the
Railcars, subject to the needs of prospective deployers and all applicable
regulations of the AAR, STB and DOT.

         Section 2.10. Separate Corporate Existence Covenants. The Manager
recognizes that the Indenture Trustee, the Holders and the Class A Note Insurer
have entered into the Transaction Documents on the understanding that each of
the Companies, the Seller and TOP CAT (each a "Separate Person") is an entity
intended to have its own separate existence independent from that of the
Manager. In connection therewith, the Manager will (i) maintain separate bank
accounts and books of account from each Separate Person, (ii) not hold itself
out to third parties as liable or responsible for the debts of each Separate
Person (except for performance of such obligations which are assumed by it as
Manager hereunder) and not holding any Separate Person out to third parties as
being liable or responsible for the debts of the Manager, (iii) not conduct



business in the name of any Separate Person except when acting in the name of
such Separate Person in its capacity as Manager and it identifies itself as
such, (iv) not hold itself out as the owner of the Railcar Assets and take
reasonable steps to ensure that Lessees and other parties dealing with the
Railcar Assets are aware of the Separate Person's interests therein and (v) take
such other actions on its part as may be required for each Separate Person to be
in compliance with Section 10.01(p) of the Indenture on the Closing Date. In the
event that the Manager's consolidated financial statements are required under
GAAP to include any Separate Person, the Manager will include footnotes therein
that disclose the separate corporate existence of each such Separate Person and
its assets from the Manager and the Manager's Assets.

                                  ARTICLE III

                      ACCOUNTINGS, STATEMENTS AND REPORTS

         Section 3.01. Monthly Manager Report. With respect to each Payment Date
and the related Collection Period, the Manager will provide to the Backup
Manager, the Class A Note Insurer and the Indenture Trustee, on the
Determination Date immediately prior to such Payment Date, a Monthly Manager
Report (a "Monthly Manager Report") substantially in the form of Exhibit A
hereto with each of the items specified on such form completed as the case may
be, including the amount of Operating Expenses incurred by the Manager in
respect of the Railcars owned by each Company in such immediately preceding
calendar month (as set forth in the Maintenance Expense Reimbursement Requests
delivered to the Indenture Trustee during such month) which exceed the funds
available in the relevant Operating Expense Reserve Subaccount and which are to
be paid pursuant to the priorities set forth in Section 12.02(d) or Section
6.08, as applicable, of the Indenture, together with such supplemental
information reasonably requested by the Controlling Party.

         Section 3.02. Financial Statements; Certification as to Compliance;
Notice of Default. The Manager will deliver to the Indenture Trustee, the Backup
Manager, each Rating Agency and the Class A Note Insurer, except as provided in
subsection (h):

                  (a)      within 90 days after the end of each fiscal year of
         the Reported Companies, a copy of the Reported Companies' Financial
         Statements for such fiscal year certified in a manner acceptable to the
         Controlling Party by the senior financial officer of the Manager or
         such other person as may be acceptable to the Controlling Party, it
         being understood that delivery to the Indenture Trustee, the Backup
         Manager, each Rating Agency and the Class A Note Insurer of the
         Manager's report on Form 10-K filed with the Securities and Exchange
         Commission shall satisfy the requirements of this Section 3.02(a);

                  (b)      with each set of Reported Companies' Financial
         Statements delivered pursuant to subsection (a) above and (d) below, a
         certificate of an officer of the Manager demonstrating compliance with
         all financial covenants or tests calculated by reference to such
         financial statements and containing an additional certification to the
         effect that a review of the activities of the Manager during the period
         covered by the Reported



         Companies' Financial Statements, and of its performance under this
         Agreement has been made under the supervision of the officer executing
         such Officer's Certificate with a view to determining whether during
         such period the Manager had performed and observed all of its
         obligations under this Agreement, and either (i) stating that based on
         such review no default by the Manager under this Agreement has occurred
         and is continuing, or (ii) if such a default has occurred and is
         continuing, specifying such default, the nature and status thereof and
         what steps, if any, the Manager is planning to do or has done to cure
         such default;

                  (c)      promptly upon becoming aware of the existence of any
         condition or event which constitutes a Manager Event of Termination, a
         written notice describing its nature and period of existence and what
         action the Manager is taking or proposes to take with respect thereto;

                  (d)      quarterly, unaudited versions of the Reported
         Companies' consolidated balance sheet, year-to-date income statement,
         retained earnings and cash flows within 45 days after the end of each
         quarter (other than the quarter at the end of each fiscal year), it
         being understood that delivery to the Indenture Trustee, the Backup
         Manager, each Rating Agency and the Class A Note Insurer of the
         Manager's report on Form 10-Q filed with the Securities and Exchange
         Commission shall satisfy the requirements of this Section 3.02(d);

                  (e)      copies of any reports filed by the Manager with the
         SEC or the Rating Agencies concerning the Manager;

                  (f)      in the case of the Initial Manager, copies of any
         certificates required to be furnished by the Initial Manager under any
         credit agreement to which the Initial Manager is a party and which
         addresses compliance by the Initial Manager with the requirements of
         such credit agreement and the absence or existence of defaults
         thereunder;

                  (g)      such other information regarding the Railcars, the
         Leases, the Manager or the transactions contemplated hereby, as the
         Class A Note Insurer may reasonably request; and

                  (h)      with respect to the financial reports described in
         subsections (a) and (d), and the notice described in subsection (c),
         above, the Manager will also deliver such reports to the Holders
         (except that the Manager shall not be obligated to deliver the notice
         described in subsection (c) above to each Holder if the Controlling
         Party has waived such Manager Event of Termination in accordance with
         Section 6.04).

         Section 3.03. Annual Accountants' Reports. (a) On or before 120 days
after the end of each fiscal year of the Manager, the Manager shall deliver to
each Company, the Indenture Trustee, the Backup Manager, the Class A Note
Insurer, each Rating Agency and the Holders a report of a firm of independent
public accountants of recognized national standing selected by the Manager to
the effect that such firm has examined certain documents and records relating to
the management of the Railcars, the Leases and the other Railcar Assets under
this Agreement and



that, on the basis of such examination conducted substantially in compliance
with generally accepted audit standards, nothing came to their attention which
caused them to believe that the Manager has accounted for matters regarding the
Railcars, the Leases and the other Railcar Assets, including deposits in, and
requested withdrawals from, the Operating Expense Reserve Subaccounts or the
Collection Accounts, otherwise than in accordance with this Agreement, except
for such immaterial exceptions or errors on records that, in the opinion of such
firm, it is not required to report.

         (b)      In the event such independent public accountants require the
Indenture Trustee to agree to the procedures to be performed by such firm in any
of the reports required to be prepared pursuant to this Section 3.03, the
Manager shall direct the Indenture Trustee in writing to so agree; it being
understood and agreed that the Indenture Trustee will deliver such letter of
agreement in conclusive reliance upon the direction of the Manager, and the
Indenture Trustee has not made any independent inquiry or investigation as to,
and shall have no obligation or liability in respect of, the sufficiency,
validity or correctness of such procedures.

         Section 3.04. Delivery of Accountings, Statements and Reports. To the
extent that the Manager and the Servicer are the same Person, it may, in its
sole discretion and to the extent practicable, fulfill its obligations under
this Article III and Article III of the Servicing Agreement with the delivery of
one monthly report, one set of financial statements, a single Officer's
Certificate (executed in its capacities as both Manager and Servicer) or a
single accountants' report, as the case may be.

         Section 3.05. Annual Security Interest Opinion. Within 120 days after
the beginning of each calendar year, beginning with the calendar year 2005, the
Manager shall furnish to the Indenture Trustee and the Class A Note Insurer an
Opinion of Counsel (which shall be outside counsel) either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording, filing, re-recording or re-filing of (a) all UCC financing statements
and continuation statements, filings with the STB, filings with the Canadian
Registry and any other requisite filings, deposits, registers or recordations as
are necessary to maintain the ownership interests, security interests and liens,
as applicable, created in favor of (x) each of the NARCAT Seller and the CARCAT
Seller under the Asset Purchase Agreement, (y) each of NARCAT and CARCAT under
its respective Sale Agreement and (z) the Indenture Trustee under the Indenture
and reciting the details of such action or stating that, in the opinion of such
counsel, no such action is necessary to maintain such security interests and
liens. Such Opinion of Counsel shall also describe the recording, filing,
re-recording and re-filing of the Indenture, and any other requisite documents
and the execution and filing of any financing statements and continuation
statements that, in the opinion of such counsel, are or will within the next
twelve months be required to maintain the liens and security interests described
above.



                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

         Section 4.01. Initial Manager Representations and Warranties. The
Initial Manager hereby represents and warrants to each Company, the Indenture
Trustee and the Backup Manager as follows:

                  (a)      Corporate Existence and Power. The Manager has been
         duly organized and is validly existing and in good standing as a
         corporation under the laws of the state of Ohio, with all requisite
         power and authority to own its properties and to transact the business
         in which it is now engaged, and the Manager is duly qualified to do
         business and is in good standing in each state where the nature of its
         business requires it to be so qualified except where failure to so
         qualify would not have a Material Adverse Effect. The Manager has all
         requisite power and authority and has taken all action necessary to
         enter into this Agreement and the other Transaction Documents to which
         it is a party, to consummate the transactions contemplated hereby and
         thereby, and to perform its obligations hereunder and thereunder. The
         execution, delivery and performance by the Manager of this Agreement
         are within the Manager's powers, have been duly authorized by all
         necessary action and do not contravene any applicable Law, the
         Manager's organizational documents or any contractual or other
         obligation binding on or affecting the Manager or any of its assets.
         The Manager has delivered to each Company, the Indenture Trustee and
         the Class A Note Insurer a true and correct copy of its articles of
         incorporation, its code of regulations and other organizational
         documents.

                  (b)      No Conflict. The performance of the Manager's
         obligations under this Agreement and each other Transaction Document to
         which it is a party will not conflict with or result in a breach of any
         of the terms or provisions of, or constitute a default under, or result
         in the creation or imposition of any Lien (other than as contemplated
         by this Agreement and the other Transaction Documents, and other than
         Permitted Liens) upon any of the property or assets of the Manager
         pursuant to the terms of any indenture, mortgage, deed of trust, or
         other agreement or instrument to which it is a party or by which it is
         bound or to which any of its property or assets is subject, nor will
         such action result in any violation of the provisions of any charter
         document of the Manager or any statute or any order, rule or regulation
         of any court or Governmental Authority having jurisdiction over it or
         any of its properties; and no consent, approval, authorization, order,
         registration or qualification of or with any court, or any such
         Governmental Authority is required for the consummation of the other
         transactions contemplated by this Agreement or any other Transaction
         Document to which it is a party except such consents, approvals and
         authorizations which have been obtained or such registrations or
         qualifications which have been made.

                  (c)      Due Authorization, Execution and Delivery. Each
         Transaction Document to which the Manager is a party has been duly
         authorized, executed and delivered by the Manager and each such
         Transaction Document is a valid and legally binding agreement of the
         Manager, enforceable against the Manager in accordance with its terms,
         subject as to



         enforceability to applicable bankruptcy, insolvency, reorganization and
         other similar laws of general applicability relating to or affecting
         creditors' rights generally and to general principles of equity
         regardless of whether enforcement is sought in a court of law or
         equity.

                  (d)      Solvency. Both before and after giving effect to the
         transactions contemplated by this Agreement, the Manager is Solvent.

                  (e)      True and Complete Copies. The Manager has delivered
         to each Company a true, complete and correct copy of the APA Seller
         Documents.

                  (f)      Accuracy of Information. All information heretofore
         furnished (including, but not limited to, the Reported Companies'
         Financial Statements) by the Manager to each Company, the Indenture
         Trustee, the Class A Note Insurer and the Backup Manager for purposes
         of or in connection with this Agreement, the other Transaction
         Documents, or any transaction contemplated hereby or thereby is, and
         all such information hereafter furnished by it hereunder will be, true,
         complete and correct in every material respect, on the date such
         information is stated or certified, and no such item contains or will
         contain any untrue statement of a material fact or omits or will omit
         to state a material fact necessary in order to make the statements
         contained therein, in the light of the circumstances under which they
         were made, not misleading. Without limiting the foregoing, the Manager
         has no knowledge of any facts which would cause it to disbelieve any of
         the representations or warranties made by the Railcar Entities under
         the APA Seller Documents.

                  (g)      Tax Status. It has (i) timely filed all federal,
         state and local tax returns or permitted extensions thereof in the
         United States and all other tax returns or permitted extensions thereof
         in foreign jurisdictions required to be filed and (ii) paid or made
         adequate provision in accordance with GAAP for the payment of all
         taxes, assessments and other governmental charges.

                  (h)      Employee Benefits. With respect to employees that
         primarily work in connection with the Railcars, Leases and other
         Railcar Assets:

                           (i)      Except as set forth on Schedule I, with
                  respect to current or former employees of the Manager, the
                  Manager does not maintain, participate in or contribute to any
                  (A) deferred compensation or retirement plans or arrangements,
                  (B) tax-qualified or nonqualified defined contribution or
                  defined benefit plans or arrangements which are employee
                  pension benefit plans (as defined in Section 3(2) of ERISA),
                  (C) employee welfare benefit plans (as defined in Section 3(1)
                  of ERISA), (D) phantom stock appreciation right, stock option,
                  stock purchase or other stock based plans, or (E) any fringe
                  benefit plans or programs. The Manager does not maintain or
                  contribute to any employee welfare benefit plan that provides
                  health, accident or life insurance benefits to former
                  employees, their spouses or dependents, other than in
                  accordance with Section 4980B of the Code or Part 6 of
                  Subtitle B of Title I of ERISA or other applicable Law.



                           (ii)     The employee pension benefit plans and
                  employee welfare benefit plans (and related trusts and
                  insurance contracts) of the Manager, which plans are described
                  on Schedule I, have been administered in compliance with the
                  requirements of applicable Laws, except where failure thereof
                  would not result in a Material Adverse Effect on the
                  Collateral. Each employee pension benefit plan which is
                  intended to be a "qualified plan" has received an opinion
                  letter from the Internal Revenue Service as to the
                  qualification under the Code of such plan.

                           (iii)    With respect to each of the plans listed on
                  Schedule I, the Manager has made available to each Company and
                  the Class A Note Insurer true and complete copies of (A) the
                  plan documents, summary plan descriptions and summaries of
                  material modifications and other material employee
                  communications about such plan, (B) the opinion letter
                  received from the Internal Revenue Service, (C) the Form 5500
                  Annual Report (including all schedules and other attachments)
                  for the most recent plan year, (D) all related trust
                  agreements, insurance contracts or other funding agreements
                  which implement such plans and (E) all contracts relating to
                  each such plan, including, without limitation, service
                  provider agreements, insurance contracts, investment
                  management agreements and record keeping agreements.

                           (iv)     All contributions and other payments
                  required to have been made by the Manager with respect to any
                  plan described on Schedule I have been or will be made when
                  due.

         To the Knowledge of the Manager, no plan described on Schedule I is
         subject to any ongoing audit, investigation or other administrative
         proceeding of any Governmental Authority nor has any Action been
         commenced against any such plan (other than for benefits in the
         ordinary course), in which the adverse result thereof would result in a
         Material Adverse Effect on the Railcars, Leases or other Railcar
         Assets, or on any Company after the Closing Date.

                  (i)      Employment Matters. The Manager is not party to,
         bound by, or negotiating in respect of any collective bargaining
         agreement or any other agreement with any labor union, association or
         other employee group in connection with its railcar leasing business,
         nor, to the Knowledge of the Manager, is any employee that primarily
         works in connection with its railcar leasing business represented by
         any labor union or similar association. No labor union or employee
         organization has been certified or recognized as the collective
         bargaining representative of any employee of the Manager that primarily
         works in connection with its railcar leasing business. To the Knowledge
         of the Manager, there are no formal union organizing campaigns or
         representation proceedings in process or formally threatened with
         respect to any employee of the Manager that primarily work in
         connection with its railcar leasing business, nor are there any
         existing or, to the Knowledge of the Manager, threatened at large labor
         strikes, work stoppages, organized slowdowns, unfair labor practice
         charges, or labor arbitration proceedings affecting employees of the
         Manager that primarily work in connection with its railcar leasing
         business.



                  (j)      Environmental Matters. Except to the extent such
         matters would not have a Material Adverse Effect:

                           (i)      to the Knowledge of the Manager, the Manager
                  is in compliance with all applicable Environmental Laws
                  related to the Collateral. Except for matters that have been
                  fully resolved, the Manager has not received any written
                  communication from any person or Governmental Authority that
                  alleges that its operations in connection with the Railcars,
                  Leases or other Railcar Assets are not in compliance with
                  applicable Environmental Laws;

                           (ii)     to the Knowledge of the Manager, the Manager
                  has obtained all environmental, health and safety permits and
                  governmental authorizations (collectively, the "Environmental
                  Permits") necessary for the conduct of its railcar leasing
                  business, and all such permits are in good standing or, where
                  applicable, a renewal application has been timely filed and is
                  pending agency approval, and to the Knowledge of the Manager,
                  the Manager is in compliance with all terms and conditions of
                  the Environmental Permits; and

                           (iii)    there is no Environmental Claim pending or,
                  to the Knowledge of the Manager, threatened against or
                  concerning the Railcars, Leases or other Railcar Assets.

         To the Knowledge of the Manager, no release of any Hazardous
         Commodities has occurred on or from any of the Railcars, Leases or
         other Railcar Assets, which requires investigation, assessment,
         monitoring, remediation or cleanup under Environmental Laws.

                  (k)      No Default. To the Knowledge of the Manager, there
         has been no default under the Asset Purchase Agreement or any other
         Transaction Document.

                  (l)      Credit and Collection Policies. The Manager has
         previously delivered to the Class A Note Insurer a true and correct
         copy of its credit and collection policies, and no material amendments
         shall be made to such policies without the consent of the Class A Note
         Insurer.

         Section 4.02. Company Representations and Warranties. Each Company
hereby represents and warrants to the Manager, the Indenture Trustee and the
Backup Manager as follows:

                  (a)      Such Company has been duly organized and is validly
         existing and in good standing under the laws of the jurisdiction of its
         organization, with all requisite power and authority to own its
         properties and to transact the business in which it is now engaged, and
         such Company is duly qualified to do business and is in good standing
         in each jurisdiction where the nature of its business requires it to be
         so qualified except where failure to so qualify would not have a
         Material Adverse Effect. Such Company has all requisite power and
         authority and has taken all action necessary to enter into this



         Agreement and the other Transaction Documents to which it is a party,
         to consummate the transactions contemplated hereby and thereby, and to
         perform its obligations hereunder and thereunder. The execution,
         delivery and performance by such Company of this Agreement and the
         other Transaction Documents are within such Company's powers, have been
         duly authorized by all necessary action and do not contravene any
         applicable Law, such Company's organizational documents or any
         contractual or other obligation binding on or affecting the Company or
         any of its assets.

                  (b)      The performance of such Company's obligations under
         this Agreement and each other Transaction Document to which it is a
         party will not conflict with or result in a breach of any of the terms
         or provisions of, or constitute a default under, or result in the
         creation or imposition of any Lien (other than as contemplated by this
         Agreement and the other Transaction Documents, and other than Permitted
         Liens) upon any of the property or assets of such Company pursuant to
         the terms of any indenture, mortgage, deed of trust, or other agreement
         (including the Leases) or instrument to which it is a party or by which
         it is bound or to which any of its property or assets is subject, nor
         will such action result in any violation of the provisions of any
         charter document of such Company or any statute or any order, rule or
         regulation of any court or Governmental Authority having jurisdiction
         over it or any of its properties; and no consent, approval,
         authorization, order, registration or qualification of or with any
         court, or any such Governmental Authority is required for the
         consummation of the other transactions contemplated by this Agreement
         or any other Transaction Document to which it is a party except such
         consents, approvals and authorizations which have been obtained or such
         registrations or qualifications which have been made.

                  (c)      Each Transaction Document to which such Company is a
         party has been duly authorized, executed and delivered by such Company
         and each such Transaction Document is a valid and legally binding
         agreement of such Company, enforceable against such Company in
         accordance with its terms, subject as to enforceability to applicable
         bankruptcy, insolvency, reorganization and other similar laws of
         general applicability relating to or affecting creditors' rights
         generally and to general principles of equity regardless of whether
         enforcement is sought in a court of law or equity.

                  (d)      Such Company has delivered to the Manager a true,
         complete and correct copy of the Indenture.

         Section 4.03. Initial Manager Representations and Warranties with
Respect to the Collateral. In consideration of the Manager Fee and the
Supplemental Manager Fee, and as a result of its conducting due diligence with
respect to the Railcars, the Leases and the other Railcar Assets, the Initial
Manager hereby represents and warrants, as of the Closing Date or Prefunded
Railcar Acquisition Date, as applicable, with respect to any Railcar, Lease or
other Railcar Asset transferred under the Sale Agreements, and as of the
origination date with respect to any Subsequent Lease originated in accordance
with Section 2.03(c), to each Company, the Indenture Trustee and the Backup
Manager as follows:



                  (a)      Each Company has good and marketable title to all of
         the Leases and Railcars transferred thereto under the Relevant Sale
         Agreement and any Subsequent Lease originated in accordance with
         Section 2.03(c), free and clear of all Liens, other than Permitted
         Liens; provided, however, that, for a period not to exceed 30 days
         after the Closing Date, up to 39 Railcars representing an aggregate
         Stated Value not to exceed $125,000 may be subject to Leases for which
         the Companies have not obtained requisite consents of the Lessee to the
         assignment thereof.

                  (b)      Each Lease sold or, in the case of each Prefunded
         Existing Lease, to be sold under a Sale Agreement is for the Railcar or
         Railcars identified therein, as set forth on the Lease and Railcar
         Schedule or the Prefunded Lease and Railcar Schedule, as applicable, to
         such Sale Agreement. The Lease and Railcar Schedule or the Prefunded
         Lease and Railcar Schedule, as applicable, to each Sale Agreement
         contains a true, correct and complete list of all Leases sold on the
         Closing Date or to be sold on the Prefunded Railcar Acquisition Date,
         if applicable, under such Sale Agreement, and an updated Lease and
         Railcar Schedule delivered thereafter in accordance with Section
         2.03(c) will contain a true, correct and complete list of all
         Subsequent Leases originated in accordance with Section 2.03(c),
         including, in each case, the name of the lessee, deal number (if
         applicable), type of lease (full service, modified, triple net, etc.),
         lease rate, number of lease payments remaining (if applicable), final
         payment due date under lease, number of Railcars under lease and
         commencement date of lease.

                  (c)      The Lease and Railcar Schedule sets forth a true,
         correct and complete list of all Railcars transferred and the Prefunded
         Lease and Railcar Schedule sets forth a true, correct and complete list
         of all Prefunded Railcars to be transferred under the Sale Agreements,
         including, as to each Railcar, the month and year built (and, if
         applicable, rebuilt), car type (by AAR equipment code), car mark and
         number assigned to such Railcar in UMLER, if applicable, volume
         capacity as expressed in cubic feet if a railcar, or in horsepower if a
         locomotive (in each case, if known and if applicable), total (gross)
         weight on rail, the AAR determination of extended life (if applicable),
         whether such Railcar is subject to a Lease (and, if so, the lease or
         deal number, as applicable), whether such Railcar is primarily leased
         to a Lessee for which an address in Canada or in Mexico is referenced
         on the Lease and, if applicable, storage location (including
         description, city and state).

                  (d)      The Manager has not received any notice of the
         occurrence of any Event of Loss, or any event which, with the passage
         of time would constitute an Event of Loss, with respect to any Railcar.

                  (e)      Each Lease (i) is evidenced by a writing, (ii)
         constitutes the legal, valid and binding obligation of the Lessee
         thereunder, (iii) has not been satisfied other than in the ordinary
         course, subordinated, rescinded, or, except for Permitted Adjustments,
         adjusted, (iv) remains in full force and effect and (v) is enforceable
         against such Lessee in accordance with its terms (except to the extent
         that enforcement may be affected by applicable bankruptcy,
         reorganization, insolvency and other Laws affecting creditors'



         rights and remedies generally and by general principles of equity,
         regardless of whether enforcement is sought at law or in equity).

                  (f)      Except as set forth on the Lease and Railcar
         Schedule, (i) no Lessee under any Lease is currently in bankruptcy
         under the bankruptcy laws of the United States, Canada or Mexico, (ii)
         unless consented to by the Relevant Company, no provision of any Lease
         has been waived, amended, or modified in any material respect, except
         by instruments or documents copies of which have been delivered to the
         Relevant Company, the Indenture Trustee and the Class A Note Insurer
         and reflected on the Lease and Railcar Schedule and, in any event, no
         Lease has been waived, amended or modified since its origination to
         cure a payment default or delinquency, (iii) no delinquency or default
         by the Lessee under any Lease has occurred and is continuing and (iv)
         the Lessee is in compliance with the terms of such Lease in all
         material respects.

                  (g)      No Action is pending or, to the Knowledge of the
         Manager, has been threatened asserting the invalidity of any Lease, or
         seeking any determination or ruling that might adversely and materially
         affect the validity or enforceability of any Lease or the value of any
         Railcar.

                  (h)      Each Lease is "chattel paper" (as defined in Section
         9-102(a)(11) of the UCC). Except for the Leases set forth on Schedule
         III, all original, executed copies of Leases are in the possession of
         the Indenture Trustee.

                  (i)      No Lease has been originated in or is subject to the
         laws of any jurisdiction whose laws would make the assignment and
         transfer thereof pursuant to the terms hereof (or any subsequent
         assignment by the Relevant Company) unlawful.

                  (j)      Each Railcar is marked with the railroad equipment
         number (also known as the running number) as noted on the Lease and
         Railcar Schedule.

                  (k)      To the Knowledge of the Manager, the Lessees have
         complied with all applicable Laws in respect of each Lease in all
         material respects and each Lease complies with all applicable Laws of
         the jurisdiction in which it was originated in all material respects.

                  (l)      The Lessee under each Lease is (i) a United States or
         Canadian governmental agency, (ii) a United States common carrier by
         railroad engaged in the transportation of individuals or property or
         owner of trackage facilities leased by such common carrier, (iii) a
         United States or Canadian corporation (provincial or federal), limited
         partnership, limited liability company or other entity, (iv) a Mexican
         entity listed on the Lease and Railcar Schedule, or (v) a "railroad
         company" as defined in the Canadian Transportation Act.

                  (m)      Any guarantees on behalf of an applicable Lessee
         required at the time of origination of a Lease remain in full force and
         effect.



                  (n)      The lease origination practices used by the Manager
         and, to the Knowledge of the Manager, by any Railcar Entity, with
         respect to each Lease have been legal in all material respects.

                  (o)      Each Lessee under a Lease has accepted the related
         Railcar or Railcars and after reasonable opportunity to inspect and
         test, has not notified the Manager of any defects therein.

                  (p)      For those Railcars described on the Lease and Railcar
         Schedule as having an extended life determined by AAR as a result of
         having been refurbished, modified or substantially rebuilt, there is in
         the Lease Files, and there has been filed, the proper documentation
         with AAR to qualify such Railcars for extended life along with updating
         UMLER records.

                  (q)      No correspondence has been received by the Manager
         (nor, to the Knowledge of the Manager, by any Railcar Entity) from the
         AAR or FRA regarding any outstanding general or specific recalls for
         the Railcars or any required modifications, nor, to the Knowledge of
         the Manager, do there exist any such outstanding general or specific
         recalls for any Railcar or any required modifications.

                  (r)      Except for Scrapped Railcars, each Railcar is in good
         working order and is suitable for the use for which it is presently
         engaged. None of the Leases or Railcars are subject to any restrictions
         with respect to the transferability thereof.

                  (s)      Except for (i) one Lease for not more than 100
         Railcars having a Stated Value of not more than $1,502,750.00 expiring
         on March 31, 2004 which is denominated in Canadian dollars, and (ii)
         two Leases, involving not more than five Railcars, for which Rent
         payments are calculated by multiplying mileage by an amount which is
         specified in United States dollars, each Lease is denominated in and
         provides for payment solely in United States dollars.

                  (t)      All Railcars are located in the United States, Canada
         or Mexico.

                  (u)      No more than 450 of Eligible Railcars are leased to
         Lessees for which a Mexican address is referenced on the Lease.

                  (v)      No Lease expressly allows the transport or storage of
         any Hazardous Commodities on the related Railcars.

                  (w)      None of the Railcars are tank cars.

                  (x)      Rental payments under each Lease are billed and
         payable monthly.

                  (y)      Except for locomotives and certain other Railcars
         which the Manager intends to designate as Scrapped Railcars no later
         than January 31, 2005, the total number



         of which locomotives and Railcars will not exceed 630, each Railcar is
         in compliance with all applicable Laws (including applicable
         Interchange Rules of the AAR).

                  (z)      Except for one Lease involving not more than 24
         Railcars which are leased to the Initial Manager, no Lessee is an
         Affiliate of any Seller, the Servicer or the Manager.

                  (aa)     No Lease is a finance lease.

                  (bb)     Except as set forth on the Lease and Railcar
         Schedule, there are no split schedules for any Lease.

                  (cc)     No Lease expressly releases the lessee from liability
         for all of its obligations under such Lease (including with respect to
         the related Railcars) in connection with any sublease and, to the
         Knowledge of the Manager, no Lessee has subleased any of the Railcars
         unless such Lessee remains so liable and all other terms set forth in
         Section 2.01(j) of the Servicing Agreement have been satisfied.

                  (dd)     To the extent such matters are governed by the laws
         of the United States or any state thereof, or Canada or any province
         thereof, the Indenture Trustee has a first priority, perfected security
         interest in the Railcars, the Leases and other Railcar Assets.

                  (ee)     Except for those Leases set forth on Schedule III,
         the Lease File for each Lease is complete in all respects and has been
         delivered to the Servicer on behalf of the Relevant Company (except for
         any original, executed copies of Leases which are in the possession of
         the Indenture Trustee).

                  (ff)     Each Lease other than a Modified Lease or Full
         Service Lease contains provisions requiring the Lessee to pay all
         sales, use, excise, rental, property or similar taxes imposed on or
         with respect to the related Railcar and to assume all risk of loss,
         damage, or destruction of the related Railcar, and each such Lease
         requires the Lessee to maintain the Railcars which are subject thereto
         in good and workable order.

                  (gg)     Except for one Lease permitting not more than two
         Railcars to be returned and storage fees to be paid in lieu of Rent
         therefor, no Lease provides for the replacement, addition or exchange
         of any Railcar subject to such Lease which would result in any
         reduction, or change the timing of, payments due, or modification of,
         the Lessee's obligations under such Lease.

                  (hh)     No Lease is a "consumer lease", as defined in Article
         2A of the UCC.

                  (ii)     Except for certain Leases with Northeast Regional
         Commuter Railroad Corporation (d/b/a Metra) involving not more than 39
         Railcars which have an aggregate Stated Value not exceeding $124,500,
         the obligation of the Lessee under each Lease to make lease payments
         and other amounts is absolute and unconditional and not dependent



         on the future appropriation of funds, and no Lessee is entitled to
         invoke sovereign immunity with respect to the related Lease and its
         obligations thereunder.

                  (jj)     The Relevant Company has the right under each Lease
         owned thereby to exercise appropriate remedies with respect to the
         Railcars without obtaining the consent of any third parties.

                  (kk)     No selection criteria were used in connection with
         the acquisition by the Companies of the Railcars, Leases or other
         Railcar Assets that identified the Railcars, Leases or other Railcar
         Assets as being less desirable or valuable than other comparable
         railcars, leases or other assets owned by any Seller, any Company, the
         Servicer or the Manager.

                  (ll)     Each Lease either (i) provides for the return of the
         related Railcars upon default, or (ii) does not prohibit the Lessor
         from demanding return of the related Railcars and repossessing said
         Railcars after default under, or termination of, such Lease.

                  (mm)     For each Lease other than a Modified Lease or Full
         Service Lease where the Lessee is not a railroad, each Lease requires
         that in the event of a casualty loss that the Lessee must take one of
         the following actions: (a) restore or repair the affected Railcar to
         good repair, condition and working order, (b) replace the Railcar with
         a like Railcar of the same or later model in good repair, condition and
         working order, or (c) pay the Lessor thereunder the "stated value" (as
         defined in such Lease) of such Railcar. For each Lease where the Lessee
         is a railroad, (i) if damage to a Railcar occurs while on the Lessee's
         railroad line, the relevant Lease requires the Lessee to pay the Lessor
         the "stated value" (as defined in such Lease), and (ii) if damage to a
         Railcar occurs while on the lines of another railroad, Interchange
         Rules apply.

                  (nn)     No Lessee under a Lease has made a cash deposit to
         secure its obligation to make future lease payments.

                  (oo)     The Railcars conform, to the Knowledge of the
         Manager, to (i) any applicable standards or requirements of any
         Governmental Authority and (ii) any applicable standards required by
         each national and international standards organization which regulates
         railcars in any relevant jurisdiction.

                  (pp)     On the Closing Date or Prefunded Railcar Acquisition
         Date, as applicable, after giving effect to transfer of the Leases
         transferred under the Sale Agreements, the Companies were in compliance
         with the Concentration Limits, and each Subsequent Lease originated in
         accordance with Section 2.03(c) will be originated in compliance with
         the Concentration Limits.

                  (qq)     On the Closing Date or Prefunded Railcar Acquisition
         Date, as applicable, no set-offs exist under any Lease.



         Section 4.04. Purchase or Substitution Required upon Breach of Certain
Representations and Warranties. (a) The representations, warranties and
agreements of the Initial Manager set forth in Section 4.03 with respect to each
Railcar, Lease and other Railcar Assets shall survive so long as such Railcar,
Lease and other Railcar Assets remains subject to the Lien of the Indenture.
Upon discovery by the Initial Manager or any Company that any of such
representations or warranties was incorrect as of the time made, the party
making such discovery shall give prompt notice to the others, to the Class A
Note Insurer and to the Indenture Trustee. In the event that the failure of any
such representation or warranty (other than the representation and warranty set
forth in Section 4.03(pp)) to be correct at the time as of which it was made
materially and adversely affects the interests of the Holders of the Notes in
any Railcar or Lease which is the subject of such representation or warranty,
the Initial Manager shall eliminate or cure such circumstance or condition
within 45 days of having actual knowledge of, or receiving notice of, such
breach, or the Initial Manager shall take such steps as are necessary to (a) if
a Lease is the subject of such representation or warranty, Purchase all of the
Railcars covered by such Lease (and the related Lease and other Railcar Assets
relating solely to such Railcars) at the Purchase Price in accordance with this
Section 4.04, (b) if a Railcar is the subject of such representation or
warranty, purchase such Railcar at the Purchase Price in accordance with this
Section 4.04 or (c) if a Railcar is the subject of such representation or
warranty, provide a Substitute Railcar meeting all of the requirements of
Section 4.03, complying with the Concentration Limits and having a Stated Value
which, when aggregated with the Stated Values of all other substitute Railcars
then being substituted, shall be no less than the aggregate Stated Value of all
Railcars then being replaced, so that the representations and warranties with
respect to such Railcar or Lease, as applicable, are correct. In the event of
any breach of the representation or warranty set forth in Section 4.03(pp), the
obligation of the Manager to Purchase or provide Substitute Railcars shall apply
to the extent required to cure such breach. For the avoidance of doubt, this
Section 4.04 shall not apply to any Successor Manager.

         (b)      Any Purchase of a Railcar (and any related Lease and other
Railcar Assets) or other payment required of the Initial Manager pursuant to
this Section 4.04 shall be made by the Initial Manager by deposit of the
Purchase Price required by Section 4.04(c) into the Collection Accounts, and any
substitution of a Railcar made in lieu of any such purchase shall be made, in
either case, on or prior to the Determination Date next following the calendar
month in which the Initial Manager's obligation to Purchase such Railcar (and
any related Lease and other Railcar Assets) arose. For purposes of this Section
4.04, the Manager agrees that any Railcar which is not eligible after the
expiration of the 30-day period referenced in Section 4.03(a) shall be deemed a
breach of the representation set forth therein and the repurchase shall occur on
the first Payment Date following the expiration of such 30-day period.

         (c)      Any Railcar (and any related Lease and other Railcar Assets)
to be Purchased by the Initial Manager under this Section 4.04, shall be
Purchased by the Initial Manager at a purchase price (the "Purchase Price")
equal to (i) with respect to Purchases on the first Payment Date, the Stated
Value of such Railcars on the Accounting Date immediately preceding the first
Payment Date and (ii) with respect to any other Purchase, the Stated Value of
such Railcar on the Accounting Date preceding the date on which the obligation
to Purchase first arose, plus accrued interest (calculated at the Prime Rate)
thereon from the Accounting Date preceding the date on



which the obligation to Purchase first arose to the next succeeding Accounting
Date. All Purchases shall be accomplished at the times required in Section
4.04(b).

         (d)      Upon the substitution of any Substitute Railcar, the Initial
Manager hereby agrees that such Substitute Railcar will be subject to all of the
terms and conditions of this Agreement and the other Transaction Documents just
as if such Substitute Railcar has been one of the original Railcars acquired on
the related Closing Date.

         (e)      If the Initial Manager fails to Purchase or substitute any
Railcar (and any related Lease and other Railcar Assets) by the time required in
Section 4.04(c), the Indenture Trustee, provided it has received notice in
accordance with Section 4.04(a), shall be obligated promptly to notify the
Servicer, each Company and the Class A Note Insurer of such failure. The
Servicer shall thereafter pursue any remedies available against the Railcar
Entities under the Asset Purchase Agreement for any breach thereunder and
deposit any amounts received from the Railcar Entities into the Collection
Accounts in accordance with Section 4.03 of the Servicing Agreement.

         (f)      The Companies agree to cause any amounts received from any
Railcar Entity and deposited into the Collection Accounts as a result of a
breach of a representation or warranty under the Asset Purchase Agreement to be
paid to the Initial Manager to the extent that such breach by the Railcar Entity
resulted in a breach by the Initial Manager under this Agreement and the Initial
Manager shall have (i) expended any funds to fully eliminate or cure all
circumstances and conditions causing such breach, (ii) deposited to the relevant
Collection Account the Purchase Price for such Railcar (and any related Lease or
other Railcar Asset) or (iii) provided a substitute Railcar. In the event that
the Indenture Trustee should receive any amounts described in the previous
sentence, the Indenture Trustee shall upon request by the Manager calculating in
reasonable detail the portion of such amounts to which it is entitled, remit
such portions to the Initial Manager. The Companies hereby authorize the Manager
to enforce all provisions of the Asset Purchase Agreement against the Railcar
Entities on behalf of the Companies, including without limitation the indemnity
provisions contained therein and the Manager agrees to enforce said provisions
on behalf of the Companies. All funds collected in connection with this Section
4.04(f) by the Manager shall be, to the extent not used to reimburse the Initial
Manager for any related Purchase of a Railcar (and related Lease and other
Railcar Assets), deposited into the Collection Accounts and distributed in
accordance with the Indenture.

                                   ARTICLE V

                           INITIAL MANAGER COVENANTS

         Section 5.01. Corporate Existence; Status as Manager; Merger. (a) The
Initial Manager shall keep in full effect its existence and good standing as a
corporation in its state of incorporation and will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction in
which such qualification is or shall be necessary to enable the Initial Manager
to perform its duties under this Agreement, except where the failure to so
qualify would not have a Material Adverse Effect on the Initial Manager or its
ability to perform its



duties hereunder; provided, however, that the Initial Manager may reincorporate
in another state, if to do so would be in the best interest of the Initial
Manager and would not have a Material Adverse Effect upon any Company, the Class
A Note Insurer, the Backup Manager, the Indenture Trustee or the Holders, and
the Initial Manager has complied with the requirements set forth in Section
5.01(b).

         (b)      The Initial Manager shall not consolidate with or merge into
any other Person or convey, transfer or lease substantially all of its assets as
an entirety to any Person, unless (i) the entity formed by such consolidation or
into which the Initial Manager has merged or the Person which acquires by
conveyance, transfer or lease substantially all the assets of the Initial
Manager as an entirety, executes and delivers to each Company, the Class A Note
Insurer, the Backup Manager and the Indenture Trustee an agreement, in form and
substance reasonably satisfactory to each Company, the Backup Manager and the
Indenture Trustee (acting at the direction of the Controlling Party), which
contains an assumption by such successor entity of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by the Initial Manager under this Agreement, (ii) such Person at the
time of the execution of such agreement has at least the same Tangible Net Worth
as the Initial Manager at the time of such consolidation, merger or transfer,
but in any event a Tangible Net Worth of at least $75,000,000 (iii) after giving
effect to such merger or consolidation, no Manager Event of Termination shall
have occurred and be continuing, (iv) such Person shall meet the criteria
required of and applicable to a Successor Manager set forth in Section 6.01(b)
and (v) the Manager shall have received the prior written consent of the
Controlling Party.

         Section 5.02. The Manager Not to Resign; No Assignment. (a) The Manager
shall not resign from the duties and obligations hereby imposed on it except (i)
upon a determination by its Board of Directors that by reason of a change in
applicable legal requirements the continued performance by the Manager of its
duties under this Agreement would cause it to be in violation of such legal
requirements, said determination to be evidenced by a resolution of its Board of
Directors to such effect accompanied by an Opinion of Counsel reasonably
satisfactory to the Indenture Trustee, the Backup Manager and the Controlling
Party to such effect, (ii) upon appointment of a Successor Manager by the
Companies, with the approval of the Indenture Trustee (acting at the direction
of the Controlling Party), and (iii) the entering into of amendments to this
Agreement to effect such succession in form reasonably acceptable to each
Company, the Backup Manager and the Indenture Trustee (acting at the direction
of the Controlling Party).

         (b)      The Manager may not assign this Agreement or delegate any of
its rights, powers, duties or obligations hereunder; provided, however, that the
Manager may submanage its duties and obligations hereunder in accordance with
Section 2.02(c) and assign this Agreement in connection with a consolidation,
merger, conveyance, transfer or lease made in compliance with Section 5.01(b).

         (c)      Except as provided in Sections 5.02(a) and 6.01, the duties
and obligations of the Manager under this Agreement shall continue until this
Agreement shall have been terminated as provided in Section 8.01, and shall
survive the exercise by any Company, the Class A Note Insurer, the Backup
Manager or the Indenture Trustee of any right or remedy under this



Agreement, or the enforcement by any Company, the Class A Note Insurer, the
Backup Manager, the Indenture Trustee or any Holder of any provision of the
Indenture, the Notes or this Agreement.

         Section 5.03. Car Mark Agreement, GNRR Agreement and Railcar Storage
Agreement. The Manager shall abide by the terms of the Car Mark Agreement, GNRR
Agreement and the Railcar Storage Agreement and shall provide the benefits
thereof to each Company.

         Section 5.04. Manager Indemnification. The Manager shall indemnify and
hold harmless each Company, the Class A Note Insurer, the Backup Manager, the
Indenture Trustee and the Holders and their respective Affiliates and the
directors, officers, employees and agents of each thereof (the "Indemnified
Parties"), from and against:

                  (a)      any breach of or any inaccuracy in any representation
         or warranty (other than any representation or warranty contained in
         Section 4.03 which has been fully remedied in accordance with Section
         4.04) made by the Manager in this Agreement or in any certificate
         delivered pursuant thereto;

                  (b)      any breach of or failure by the Manager to perform
         any covenant or obligation of the Manager set out or contemplated in
         this Agreement;

                  (c)      the negligence, recklessness or willful misconduct of
         the Manager;

                  (d)      any dispute or claim of any third party related to or
         in connection with the existence of more than one originally executed
         counterpart of a Lease which constitutes "chattel paper" under Article
         9 of the UCC;

                  (e)      any dispute, counterclaim, defense, loss, liability,
         expense, damage or injury suffered or sustained by reason of any acts,
         omissions or alleged acts or omissions arising out of any act or
         failure to act on the part of the Manager with respect to its
         obligations under this Agreement, including but not limited to any
         judgment, award, settlement, reasonable attorneys' fees and other
         reasonable costs or expenses incurred in connection with the defense of
         any actual or threatened action, proceeding or claim;

                  (f)      any failure by the Manager to comply with any
         applicable Law with respect to any Railcar Asset;

                  (g)      the commingling by the Manager of Collections at any
         time with any other funds;

                  (h)      any inability to obtain any judgment in or utilize
         the court or other adjudication system of, any jurisdiction in which a
         Lessee may be located as a result of the failure of the Manager to
         qualify to do business or file any notice of business activity report
         or any similar report; or



                  (i)      any liability arising out of or incurred in
         connection with the failure of 3079936 Nova Scotia Company to comply
         with any and all "bulk sales" laws.

provided, however, that the Manager shall not indemnify the Indemnified Parties
if such acts, omissions or alleged acts or omissions constitute fraud,
negligence, or willful misconduct by such Indemnified Party; and provided,
further, that the Manager shall not indemnify the Indemnified Parties for any
liability, cost or expense of the Collateral with respect to any federal, state
or local income or franchise taxes (or any interest or penalties with respect
thereto) required to be paid by the Holders in connection herewith to any taxing
authority; and provided, further, that in the event that a Successor Manager
(including the Backup Manager) shall succeed to the duties of the Manager, the
provisions of this Section 5.04 shall not apply to such Successor Manager unless
expressly agreed to thereby. The provisions of this Section 5.04 shall survive
any expiration or termination of this Agreement. Any indemnification owed to the
Indemnified Parties under this Section 5.04 shall be due and payable within 30
days of the applicable Indemnified Party's demand therefor.

         Section 5.05. Expense Reimbursement. The Manager shall not request
reimbursement for any expenses incurred on its behalf by an Affiliate of the
Manager unless such expenses are no more than the arm's-length,
fair-market-value costs of the services provided by such Affiliate.

         Section 5.06. Agreements with respect to the Car Mark Agreement and the
Railcar Storage Agreement. The Manager hereby agrees (i) to comply with the
representations, warranties, covenants and agreements of the "Buyer" under the
Car Mark Agreement and the Railcar Storage Agreement and (ii) not to consent or
agree to any amendment, restatement, supplement or other modification to the Car
Mark Agreement or the Railcar Storage Agreement without the prior written
consent of the Controlling Party. Unless otherwise agreed to in writing by the
Controlling Party, the Manager also hereby agrees to cause each Railcar subject
to the Car Mark Agreement to be re-marked (in accordance with the provisions of
the Car Mark Agreement and the Transaction Documents) prior to the expiration of
the "Initial Term" of the Car Mark Agreement.

                                   ARTICLE VI

                              MANAGER TERMINATION

         Section 6.01. Manager Events of Termination. (a) If any of the
following acts or occurrences (each, a "Manager Event of Termination") shall
occur and be continuing:

                  (i)      any failure by the Manager to submit a Monthly
         Manager Report pursuant to Section 3.01 that continues unremedied for a
         period of two Business Days after the earliest of the date upon which
         (A) the Indenture Trustee, the Class A Note Insurer or any Holder
         provides written notification to the Manager of such failure, or (B)
         the date on which an Authorized Officer obtains actual knowledge of
         such failure; or



                  (ii)     any representation or warranty made by the Manager in
         this Agreement (other than any representation or warranty contained in
         Section 4.03 which has been fully remedied in accordance with Section
         4.04), any other Transaction Document to which it is a party or in any
         certificate delivered by the Manager hereunder proves to have been
         untrue or incorrect in any material respect when made and such untruth
         or incorrectness shall continue to be material and unremedied;
         provided, however, solely if such untruth or incorrectness is capable
         of being remedied, no such untruth or incorrectness shall constitute
         cause for termination hereunder for a period of 30 days after the
         earlier of (A) the date on which an Authorized Officer obtains actual
         knowledge of such failure or (B) the Manager's receipt of notice from
         any Company or the Indenture Trustee so long as the Manager is
         diligently proceeding to remedy such untruth or incorrectness and shall
         in fact remedy such untruth or incorrectness within such period;
         provided, however, such untrue or incorrect representation or warranty
         shall be deemed to be remediable or remedied only after all adverse
         consequences thereof, if any, can be and have been remedied as
         applicable; or

                  (iii)    any failure on the part of the Manager duly to
         observe or to perform in any material respect any covenant or agreement
         of the Manager set forth in this Agreement or any other Transaction
         Document to which it is a party (including if the Manager is also
         acting as the Servicer, of its duties as the Servicer), which failure,
         if such failure is curable, continues unremedied for a period of 30
         days after the earlier to occur of (A) the date on which written notice
         of such failure or breach, requiring the situation giving rise to such
         failure or breach to be remedied, shall have been given to the Manager
         by the Indenture Trustee, the Backup Manager, the Class A Note Insurer,
         each Company or any Holder or (B) the date on which an Authorized
         Officer of the Manager obtains actual knowledge of such failure; or

                  (iv)     the entry by a court having jurisdiction in the
         premises of (A) a decree or order for relief in respect of the Manager
         in an involuntary case or proceeding under any applicable federal or
         state bankruptcy, insolvency, reorganization or other similar law, or
         (B) a decree or order adjudging the Manager bankrupt or insolvent, or
         approving as properly filed a petition seeking reorganization,
         arrangement, adjustment or composition of or in respect of the Manager
         under any applicable federal or state law, or appointing a custodian,
         receiver, liquidator, assignee, trustee, sequestrator or other similar
         official of the Manager or of any substantial part of its property, or
         ordering the winding up or liquidation of its affairs, and the
         continuance of any of the foregoing unstayed and in effect for a period
         of 45 consecutive days; or

                  (v)      the commencement by the Manager of a voluntary case
         or proceeding under any applicable federal or state bankruptcy,
         insolvency, reorganization or other similar law or of any other case or
         proceeding to be adjudicated a bankrupt or insolvent, or the consent by
         it to the entry of a decree or order for relief in respect of the
         Manager in an involuntary case or proceeding under any applicable
         federal or state bankruptcy, insolvency, reorganization or other
         similar law or to the commencement of any bankruptcy or insolvency case
         or proceeding against it, or the filing by it of a petition or answer
         or consent seeking reorganization or relief under any applicable
         federal or state



         law, or the consent by it to the filing of such petition or to the
         appointment of or taking possession by a custodian, receiver,
         liquidator, assignee, trustee, sequestrator or similar official of the
         Manager or of any substantial part of its property, or the making by it
         of an assignment for the benefit of creditors, or the admission by it
         in writing of its inability to pay its debts generally as they become
         due, or the taking of corporate action by the Manager in furtherance of
         any such action; or

                  (vi)     any assignment by the Manager to a delegate of its
         duties or rights hereunder, except as specifically permitted hereunder,
         or any attempt to make such an assignment; or

                  (vii)    a final nonappealable judgment of a court of
         competent jurisdiction for more than $1,000,000 shall be entered
         against the Manager and shall not be stayed, vacated, bonded, paid or
         discharged within 45 days; or

                  (viii)   the Manager shall fail to pay, when and as the same
         shall become due and payable (after giving effect to any applicable
         grace period), any principal or interest, regardless of amount, due in
         respect of any indebtedness of the Manager in a principal amount in
         excess of $5,000,000 or any event shall occur with respect to any such
         indebtedness, the effect of which is to cause, or allow the holder
         thereof to cause, such indebtedness to become due before its stated
         maturity; or

                  (ix)     the Manager shall cease to be engaged in the railcar
         management or maintenance business (unless the Backup Manager is acting
         as Manager); or

                  (x)      the existence of a Rapid Amortization Event of the
         nature described in clause (b) of the definition of "Rapid Amortization
         Event" contained in the Indenture; or

                  (xi)     the failure of the Manager (unless the Backup Manager
         is acting as Manager) to maintain a ratio of long term debt minus the
         non-recourse portion of long term debt to Tangible Net Worth of not
         more that 1.25 to 1; or

                  (xii)    so long as the Initial Manager is the Manager, the
         occurrence of a Change of Control; or

                  (xiii)   so long as the Manager or any Affiliate thereof is
         acting as Servicer, the occurrence of a Servicer Event of Termination
         pursuant to Section 6.01 of the Servicing Agreement;

then, and in each and every case, so long as a Manager Event of Termination
shall not have been remedied within any applicable period set forth above, the
Indenture Trustee shall, at the direction of the Controlling Party, or may, with
the consent of the Controlling Party, by notice (the "Manager Termination
Notice") then given in writing to the Manager, terminate all, but not less than
all, of the rights (other than any rights to receive, subject to the priority of
payments set forth in Section 12.02 or Section 6.08 of the Indenture, as
applicable, all amounts owed to the Manager, including but not limited to the
Manager Fee and any Operating Expenses in



accordance with Section 2.06, accrued up to the effective date specified by the
Manager Termination Notice) and obligations of the Manager under this Agreement,
which termination shall be effective as of the date of such Manager Termination
Notice or such later date as such Manager Termination Notice may specify.

         (b)      The Manager may not be terminated in whole or in part, unless
(i) a successor Manager (the "Successor Manager") has been appointed by the
Indenture Trustee (acting at the direction of the Controlling Party) and (ii)
such Successor Manager has accepted such appointment. Any Successor Manager
shall be a located in the United States and be acceptable to the Controlling
Party. Any Successor Manager, however appointed, shall execute and deliver to
the Class A Note Insurer, the Backup Manager (if not the Successor Manager), the
Indenture Trustee, each Company and to the predecessor Manager an instrument
accepting such appointment, including customary confidentiality provisions in
favor of the predecessor Manager and each Company, and thereupon such Successor
Manager, without further act, shall become vested with all the rights, powers,
duties and trusts of the predecessor Manager hereunder with like effect as if
originally named the Manager herein.

         (c)      On and after the time the Manager receives a Manager
Termination Notice pursuant to this Section 6.01, all authority and power of the
Manager under this Agreement shall pass to the Successor Manager appointed
pursuant to Section 6.02, and, without limitation, such Successor Manager is
hereby authorized and empowered to execute and deliver, as Manager and on behalf
of each Company, as attorney-in-fact or otherwise, any and all documents and
other instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such Manager Termination Notice.

         (d)      The terminated Manager shall cooperate with the Indenture
Trustee and the Successor Manager in effecting the termination of the
responsibilities and rights of the terminated Manager hereunder and the
transition of the management to the Successor Manager, including, without
limitation, (i) by transferring, at its own expense, its electronic records
relating to the Railcars to the Successor Manager in such electronic form as the
Successor Manager may reasonably request, (ii) by transferring the current Lease
and Railcar Schedule and all other records, correspondence and documents
relating to the Leases, Railcars and other Railcar Assets that it may possess to
the Successor Manager in the manner and at such times as the Successor Manager
shall reasonably request and (iii) by responding to all reasonable requests of
the Successor Manager.

         Section 6.02. Backup Manager to Act; Appointment of Successor. (a)
Subject to Section 6.01, on and after the time the Manager receives a Manager
Termination Notice pursuant to Section 6.01 hereof, the Backup Manager shall,
unless prevented by law (in which case such other Successor Manager as shall be
appointed by the Indenture Trustee acting at the direction of the Controlling
Party), without further action be the Successor Manager, and, to the extent
provided in Section 6.01, shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Manager by the terms and
provisions hereof; provided, however, that any Successor Manager shall not (i)
be liable for any acts or omissions of the outgoing Manager or for any breach by
the outgoing Manager of any of its representations and warranties contained
herein or in any related document or agreement, (ii) be responsible to perform
any duties under



Section 2.03(u) in respect of the United States Assignment of Claims Act,
Section 2.03(w) or Section 2.03(x). Subject to the consent of the Controlling
Party, the Successor Manager may subcontract with another firm to act as
submanager so long as the Successor Manager remains fully responsible and
accountable for performance of all obligations of the Manager.

         (b)      The Manager, the Backup Manager, the Indenture Trustee and
such Successor Manager shall take such action, consistent with this Agreement,
as shall be necessary to effectuate any such succession. The Successor Manager
and the Indenture Trustee shall be reimbursed for their respective expenses, if
any, incurred in connection with the assumption of responsibilities of the
Successor Manager as provided for in Section 12.02(d) or Section 6.08 of the
Indenture.

         (c)      If the Manager is also acting as Servicer under the Servicing
Agreement, upon any resignation of the Servicer, the Manager will also be
required to resign as Manager. The Manager and Servicer shall at all times be
the same Person.

         Section 6.03. Notification to Holders. Upon any termination of, or
appointment of a successor to, the Manager pursuant to this Article VI, the
Indenture Trustee shall give prompt written notice thereof to the Holders at
their respective addresses appearing in the Note Register.

         Section 6.04. Waiver of Breaches and Defaults. The Indenture Trustee
shall, at the direction of the Controlling Party, (a) waive any breach by the
Manager of any of its representations and warranties set forth in Section 4.03,
and (b) waive any events permitting removal of the Manager under Section 6.01.
Upon any waiver of a past breach or default, such breach or default shall cease
to exist, and any purchase or substitution obligation arising from such breach
shall no longer exist and any Manager Event of Termination arising from such
default shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other breach or
default or impair any right consequent thereto except to the extent expressly so
waived.

         Section 6.05. Effects of Termination of Manager. (a) After the delivery
of a Manager Termination Notice and appointment of a Successor Manager, the
former Manager shall have no further obligations with respect to the management
of the Railcars or the performance of maintenance, insurance, remarketing or any
other services with regard to the Railcars, and the Successor Manager shall have
all of such obligations except as otherwise set forth herein. The former
Manager's indemnification obligations pursuant to Section 5.04 will survive the
termination of the Manager hereunder but will not extend to any acts or
omissions of a Successor Manager.

         (b)      A Manager Event of Termination shall not affect the rights and
duties of the parties hereunder (including, but not limited to, the obligations
and indemnities of the Manager pursuant to Section 5.04) other than those
relating to the management, insuring and remarketing of the Railcars.

         (c)      The predecessor Manager shall defend, indemnify and hold the
Successor Manager and any officers, directors, employees or agents of the
Successor Manager harmless against any



and all claims, losses, penalties, fines, forfeitures, legal fees and related
costs, judgments and any other costs, fees, and expenses that the Successor
Manager may sustain in connection with the claims asserted at any time by third
parties against the Successor Manager which result from (i) any willful or
negligent act taken or omission by the predecessor Manager or (ii) a breach by
the predecessor Manager of an express obligation of the Manager hereunder. The
indemnification provided by this Section 6.05(c) shall survive the termination
of this Agreement.

         (d)      The Successor Manager will not be responsible for delays
attributable to the predecessor Manager's failure to deliver information,
defects in the information supplied by the terminated Manager or other
circumstances beyond the control of the Successor Manager.

         The Successor Manager shall have no responsibility and shall not be in
default hereunder nor incur any liability for any failure, error, malfunction or
any delay in carrying out any of its duties under this Agreement if any such
failure or delay results from the Successor Manager acting reasonably and in
accordance with information prepared or supplied by a Person other than the
Successor Manager or the failure of any such Person to prepare or provide such
information. The Successor Manager shall have no responsibility, shall not be in
default and shall incur no liability (i) for any act or failure to act by any
third party, including the terminated Manager, or for any inaccuracy or omission
in a notice or communication received by the Successor Manager from any third
party or (ii) which is due to or results from the invalidity or unenforceability
of any Lease under applicable law or the breach or the inaccuracy of any
representation or warranty made by the terminated Manager. The Successor Manager
shall not be liable for any acts or omissions of the Manager occurring prior to
such Manager transfer or for any breach by the Manager of any of its
representations and warranties contained herein or in any related document or
agreement.

         Notwithstanding anything contained in this Agreement to the contrary,
the Successor Manager is authorized to accept and rely on all of the accounting,
records (including computer records) and work of the terminated Manager relating
to the Leases, the Railcars and the other Railcar Assets (collectively, the
"Predecessor Manager Work Product") without any audit or other examination
thereof, and the Successor Manager shall have no duty, responsibility,
obligation or liability for the acts and omissions of the prior Manager. If any
error, inaccuracy, omission or incorrect or non-standard practice or procedure
(collectively, "Errors") exist in any Predecessor Manager Work Product and such
Errors make it materially more difficult to service or should cause or
materially contribute to the Successor Manager making or continuing any Errors
(collectively, "Continued Errors"), the Successor Manager shall have no duty,
responsibility, obligation or liability for such Continued Errors; provided,
however, that the Successor Manager agrees to use its best efforts, consistent
with the Manager Standard, to prevent further Continued Errors. In the event
that the Successor Manager becomes aware of Errors or Continued Errors, the
Successor Manager shall, with the prior consent of the Controlling Party, use
its best efforts, consistent with the Manager Standard, to reconstruct and
reconcile such data as is commercially reasonable to correct such Errors and
Continued Errors and to prevent future Continued Errors. The Successor Manager
shall be entitled to recover its costs thereby expended in accordance with
Section 12.02(d) or Section 6.08, as applicable, of the Indenture.



         Section 6.06. Rights Cumulative. All rights and remedies from time to
time enforced upon or reserved to each Company, the Class A Note Insurer, the
Backup Manager, the Indenture Trustee or the Holders or to any or all of the
foregoing are cumulative, and none is intended to be exclusive of another. No
delay or omission in insisting upon the strict observance or performance of any
provision of this Agreement, or in exercising any right or remedy, shall be
construed as a waiver or relinquishment of such provision, nor shall it impair
such right or remedy. Every right and remedy of each Company, the Indenture
Trustee or the Holders may be exercised from time to time and as often as deemed
expedient.

                                  ARTICLE VII

                               THE BACKUP MANAGER

         Section 7.01. Representations of Backup Manager. The Backup Manager
makes the following representations and warranties:

                  (a)      Corporate Existence and Power. The Backup Manager has
         been duly organized and is validly existing and in good standing as a
         national banking association under the laws of the United States of
         America, with all requisite power and authority to own its properties
         and to transact the business in which it is now engaged, and the Backup
         Manager is duly qualified to do business and is in good standing in
         each state where the nature of its business requires it to be so
         qualified except where failure to so qualify would not have a Material
         Adverse Effect on the Backup Manager or its ability to perform its
         obligations under this Agreement. The Backup Manager has all requisite
         power and authority and has taken all action necessary to enter into
         this Agreement and the other Transaction Documents to which it is a
         party, to consummate the transactions contemplated hereby and thereby,
         and to perform its obligations hereunder and thereunder. The execution,
         delivery and performance by the Backup Manager of this Agreement are
         within the Backup Manager's powers, have been duly authorized by all
         necessary action and do not contravene any applicable Law, the Backup
         Manager's organizational documents or any contractual or other
         obligation binding on or affecting the Backup Manager or any of its
         assts.

                  (b)      No Conflict. The performance of the Backup Manager's
         obligations under this Agreement and each other Transaction Document to
         which it is a party will not conflict with or result in a breach of any
         of the terms or provisions of, or constitute a default under, or result
         in the creation or imposition of any Lien (other than as contemplated
         by this Agreement and the other Transaction Documents, and other than
         Permitted Liens) upon any of the property or assets of the Backup
         Manager pursuant to the terms of any indenture, mortgage, deed of
         trust, or other agreement or instrument to which it is a party or by
         which it is bound or to which any of its property or assets is subject,
         nor will such action result in any violation of the provisions of any
         charter document of the Backup Manager or any statute or any order,
         rule or regulation of any court or Governmental Authority having
         jurisdiction over it or any of its properties; and no consent,
         approval, authorization, order, registration or qualification of or
         with any



         court, or any such Governmental Authority is required for the
         consummation of the other transactions contemplated by this Agreement
         or any other Transaction Document to which it is a party except such
         consents, approvals and authorizations which have been obtained or such
         registrations or qualifications which have been made.

                  (c)      Due Authorization, Execution and Delivery. Each
         Transaction Document to which the Backup Manager is a party has been
         duly authorized, executed and delivered by the Backup Manager and each
         such Transaction Document is a valid and legally binding agreement of
         the Backup Manager, enforceable against the Backup Manager in
         accordance with its terms, subject as to enforceability to applicable
         bankruptcy, insolvency, reorganization and other similar laws of
         general applicability relating to or affecting creditors' rights
         generally and to general principles of equity regardless of whether
         enforcement is sought in a court of law or equity.

         Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, Backup Manager. Any Person (a) into which the Backup Manager may
be merged or consolidated, (b) which may result from any merger or consolidation
to which the Backup Manager shall be a party, or (c) which may succeed to the
properties and assets of the Backup Manager substantially as a whole, which
Person in any of the foregoing cases executes an agreement of assumption to
perform every obligation of the Backup Manager hereunder, shall be the successor
to the Backup Manager under this Agreement without any further act on the part
of any of the parties to this Agreement.

         Section 7.03. Backup Manager Resignation. The Backup Manager shall not
resign from its obligations and duties under this Agreement except upon
determination that the performance of its duties shall no longer be permissible
under applicable law (any such determination permitting the resignation of the
Backup Manager shall be evidenced by an Opinion of Counsel to such effect
delivered to the Indenture Trustee and the Class A Note Insurer). Upon the
Backup Manager's resignation pursuant to this Section 7.03, the Backup Manager
shall comply with the provisions of this Agreement until the acceptance of a
successor Backup Manager.

         The Backup Manager shall consult fully with the Manager as may be
necessary from time to time to perform or carry out the Backup Manager's
obligations hereunder, including the obligation to succeed at any time to the
duties and obligations of the Manager under Section 6.02.

         Section 7.04. Duties and Responsibilities. (a) The Backup Manager shall
perform such duties and only such duties as are specifically set forth in this
Agreement, and no implied covenants or obligations shall be read into this
Agreement against the Backup Manager.

         (b)      The Backup Manager may conclusively rely as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Backup Manager and conforming to the
requirements of this Agreement; but in the case of any such certificates or
opinions, which by any provision hereof are specifically required to be
furnished to the Backup Manager, the Backup Manager shall be under a duty to
examine the same and to determine whether or not they conform to the
requirements of this Agreement.



         Section 7.05. Backup Manager Compensation. As compensation to the
Backup Manager for the performance of services hereunder, the Backup Manager
shall be entitled to receive the Backup Manager Fee, which shall be paid to the
Backup Manager on each Payment Date in accordance with, and subject to the
priority of payment provisions of, Section 12.02(d) or Section 6.08, as
applicable, of the Indenture.

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

         Section 8.01. Termination of Agreement. (a) Except where otherwise
expressly noted herein, the respective duties and obligations of the Manager,
each Company, the Backup Manager and the Indenture Trustee created by this
Agreement shall terminate upon the discharge of the Indenture in accordance with
its terms.

         (b)      This Agreement shall not be automatically terminated as a
result of an Event of Default under the Indenture or any action taken by the
Indenture Trustee thereafter with respect thereto, and any liquidation or
preservation of any property held as contemplated in the Indenture by the
Indenture Trustee thereafter shall be subject to the rights of the Manager to
manage the Railcars as provided hereunder. In the event of any sale of
Collateral to a third party following an Event of Default, however, this
Agreement shall not be deemed assigned to such third party.

         Section 8.02. Amendments. (a) This Agreement may be amended by the
parties hereto, without the consent of any Holders but with the consent of the
Class A Note Insurer (so long as no Class A Note Insurer Default shall have
occurred and is continuing), to (i) cure any ambiguity, to correct or supplement
any provisions in this Agreement which are inconsistent with the provisions
herein, or to add any other provisions with respect to matters or questions
arising under this Agreement that shall not be inconsistent with the provisions
of this Agreement or (ii) amend any of the representations or warranties with
respect to the Collateral set forth in Section 4.03; provided, however, that
Section 4.03 may be amended prospectively at any time by the Controlling Party
without the consent of any other party; provided further, however, that if the
Class A Note Insurer is not the Controlling Party, the Rating Agency Condition
shall have been met.

         (b)      This Agreement may also be amended from time to time by the
parties hereto with the prior written consent of the Controlling Party for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Holders.

         (c)      Prior to the execution of any amendment or consent under this
Section 8.02, the Manager shall furnish written notification of the substance of
such amendment or consent, together with a copy thereof, to each Rating Agency.



         (d)      Promptly after the execution of any such amendment, the
Manager shall furnish a written copy of the text of such amendment (and any
consent required with respect thereto) to the other parties hereto, the Class A
Note Insurer and to each Holder.

         (e)      Approval of the particular form of any proposed amendment or
consent shall not be necessary for the consent of any Holders, if required,
under Section 8.02(b), but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by the Holders shall be subject to
such reasonable requirements as the Indenture Trustee may prescribe.

         (f)      The Indenture Trustee may request an Opinion of Counsel, an
Officer's Certificate and such other opinions, certificates and documents as it
deems advisable in connection with any proposed amendment of this Agreement. The
Indenture Trustee may, but shall not be obligated to, execute and deliver any
such amendment which affects that Indenture Trustee's rights, powers, immunities
or indemnifications hereunder.

         Section 8.03. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, INCLUDING SECTIONS
5-1401 AND 1402 OF THE GENERAL OBLIGATIONS LAWS, BUT OTHERWISE WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

         Section 8.04. Notices. All demands, notices and communications
hereunder shall be in writing and shall be delivered or mailed by registered or
certified United States mail, postage prepaid, or by telephonic facsimile
transmission and overnight delivery service, postage prepaid, and addressed, in
each case as follows: (a) if to NARCAT, at 480 W. Dussel Drive, Suite R, Maumee,
Ohio 43537; (b) if to CARCAT, at 480 W. Dussel Drive, Suite R, Maumee, Ohio
43537; (c) if to NARCAT Mexico, at 480 W. Dussel Drive, Suite R, Maumee, Ohio
43537; (d) if to the Manager, at The Andersons Inc., 480 W. Dussel Drive,
Maumee, Ohio 43537, Attention: Betsy Hall, Esq. (facsimile: (419) 491-6695); (e)
if to the Indenture Trustee or the Backup Manager, at Wells Fargo Bank, National
Association, MAC N9311-161, Sixth Street and Marquette Avenue, Minneapolis,
Minnesota 55479, Attention: Corporate Trust Services -- Asset-Backed
Administration (facsimile: (612) 667-3539); (f) if to any Holder, at its address
for notices specified in the Register for the Notes maintained pursuant to the
Indenture and (g) if to the Class A Note Insurer, at the address specified in
the Indenture. Any of the Persons in subclauses (a) through (e) and (g) above
may change the address for notices hereunder by giving notice of such change to
other Persons. Any change of address shown in the Note Register shall, after the
date of such change, be effective to change the address for such Holder
hereunder. The Indenture Trustee shall provide all parties hereto with notice of
any change of address shown in the Note Register. All notices and demands shall
be deemed to have been given either at the time of the delivery thereof to any
officer of the Person entitled to receive such notices and demands at the
address of such Person for notices hereunder.

         Section 8.05. Severability of Provisions. If one or more of the
provisions of this Agreement shall be for any reason whatever held invalid, such
provisions shall be deemed



severable from the remaining provisions of this Agreement and shall in no way
affect the validity or enforceability of such remaining provisions, the rights
of any parties hereto, or the rights of the Class A Note Insurer, the Backup
Manager, the Indenture Trustee or any Holders. To the extent permitted by law,
the parties hereto hereby waive any provision of law which renders any provision
of this Agreement prohibited or unenforceable in any respect.

         Section 8.06. Inspection and Examination Rights. (a) The Manager agrees
that, on reasonable prior notice, it will permit any representative of the Class
A Note Insurer, the Backup Manager, the Indenture Trustee, the Controlling Party
or any Company, during the Manager's normal business hours, to examine all the
books of account, records, reports and other papers of the Manager relating to
the Railcar Assets, to make copies and extracts therefrom, to cause such books
to be examined by independent certified public accountants selected by the Class
A Note Insurer, the Backup Manager, the Indenture Trustee, the Controlling Party
or any Company, as the case may be, and to discuss its affairs, finances and
accounts relating to the Railcar Assets with its officers, employees and
independent public accountants (and by this provision the Manager hereby
authorizes said accountants to discuss with such representatives such affairs,
finances and accounts), all at such reasonable times and as often as may be
reasonably requested. Any expense incident to the exercise by the Class A Note
Insurer, the Backup Manager, the Indenture Trustee or any Company of any right
under this Section 8.06 shall be borne by the Initial Manager, except that only
the first examination in any year by the Class A Note Insurer, the Backup
Manager, the Indenture Trustee or the Controlling Party will be at the Initial
Manager's expense (unless there has occurred and is continuing a Manager Event
of Termination, a Servicer Event of Termination (if the Manager is also the
Servicer) or a Rapid Amortization Event (or any event which, with the giving of
notice or passage of time, would constitute any such event), in each of which
cases each such examination shall be at the expense of the Manager)), or, if a
Successor Manager other than an Affiliate of the Initial Manager is then acting
as Manager, such expense shall be borne by the party exercising such right of
inspection; provided, however, that in no event shall the Class A Note Insurer,
the Backup Manager, the Indenture Trustee, the Controlling Party or any Company
be entitled to any expenses hereunder for which it has been previously
reimbursed pursuant to Section 8.06 of the Servicing Agreement.

         (b)      Upon reasonable prior notice, the Manager shall give, or cause
to be given, to the Railcar Entities, Affiliates of the Railcar Entities and
their respective representatives, during normal business hours, access to the
Leases and the Railcars and all books and records relating to the Leases and the
Railcars, and the Manager shall permit such persons to examine and copy such
books and records and investigate such Leases and Railcars to the extent
requested by the Railcar Entities and at the Railcar Entities' expense in
connection with any reasonable business purpose; provided, however, that such
access does not unreasonably disrupt the normal operations of the Manager.

         Section 8.07. Binding Effect. All provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors and assigns
of the parties hereto.

         Section 8.08. Article Headings. The article headings herein are for
convenience of reference only, and shall not limit or otherwise affect the
meaning hereof.



         Section 8.09. Legal Holidays. In the case where the date on which any
action required to be taken, document required to be delivered or payment
required to be made is not a Business Day, such action, delivery or payment need
not be made on such date, but may be made on the next succeeding Business Day.

         Section 8.10. Assignment for Security for the Notes. The Manager
understands that each Company will assign to, and grant to the Indenture Trustee
under the Indenture a security interest in, all of its right, title and interest
to this Agreement. The Manager consents to such assignment and grant and further
agrees that all representations, warranties, covenants, and agreements of the
Manager made herein shall also be for the benefit of and inure to the Class A
Note Insurer, the Indenture Trustee and the Holders.

         Section 8.11. Third-Party Beneficiaries. The Class A Note Insurer and
its successors and assigns shall be third-party beneficiaries to the provisions
of this Agreement, and shall be entitled to rely upon and directly enforce such
provisions of this Agreement. Nothing in this Agreement, express or implied,
shall give to any Person, other than the Class A Note Insurer, the parties
hereto and their successors hereunder and permitted assigns, any benefit or any
legal or equitable right, remedy or claim under this Agreement.

         Section 8.12. No Bankruptcy Petition. The Manager hereby covenants and
agrees for the benefit of each of the parties hereto, the Indenture Trustee and
each of the other Secured Parties, that, prior to the date which is one year and
one day after the payment in full of all obligations of each of the Companies,
it will not institute against any Company, or join any other Person in
instituting against any Company, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or other proceedings under the laws of the
United States, any state of the United States or any foreign jurisdiction. Each
Company hereby covenants and agrees for the benefit of each of the parties
hereto, the Indenture Trustee and each of the other Secured Parties, that, prior
to the date which is one year and one day after the payment in full of all
obligations of the Manager and each other Company, it will not institute against
the Manager or any other Company, or join any other Person in instituting
against the Manager or any other Company any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other proceedings under
the laws of the United States, any state of the United States or any foreign
jurisdiction. This Section 8.12 shall survive the termination of this Agreement.



         IN WITNESS WHEREOF, each Company, the Manager, the Indenture Trustee
and the Backup Manager have caused this Agreement to be duly executed by their
respective officers thereunto duly authorized as of the date and year first
above written.

                              NARCAT LLC

                              By /s/Rasesh H. Shah
                                 ------------------------------
                                 Name:  Rasesh H. Shah
                                 Title:  Manager

                              CARCAT ULC

                              By Rasesh H. Shah
                                 -------------------------------
                                 Name:  Rasesh H. Shah
                                 Title:  President/Secretary

                              NARCAT MEXICO, S. DE R.L. DE C.V.

                              By /s/Rasesh H. Shah
                                 -------------------------------
                                 Name:  Rasesh H. Shah
                                 Title:  Legal Representative

                              THE ANDERSONS, INC.

                              By /s/Gary Smith
                                 -------------------------------------
                                 Name:  Gary Smith
                                 Title:  Vice President, Finance and Treasurer

                              WELLS FARGO BANK, NATIONAL ASSOCIATION,
                                as Indenture Trustee and as Backup Manager

                              By /s/Joe Nardi
                                 Name: Joe Nardi
                                 Title:  Vice President

EX-10.11

                                                                   Exhibit 10.11

================================================================================

                                   NARCAT LLC,
                                 CARCAT ULC and
                       NARCAT MEXICO, S. DE R.L. DE C.V.,
                                as the Companies

                              THE ANDERSONS, INC.,
                                 as the Servicer

                                       and

                     WELLS FARGO BANK, NATIONAL ASSOCIATION,
               as the Indenture Trustee and as the Backup Servicer

                         ------------------------------

                               SERVICING AGREEMENT

                         ------------------------------

                          Dated as of February 12, 2004

================================================================================


                                TABLE OF CONTENTS



SECTION                                                 HEADING                                                      PAGE
                                                                                                                  
ARTICLE I          DEFINITIONS....................................................................................     2

   Section 1.01.   Defined Terms..................................................................................     2
   Section 1.02.   Terms Defined in the Indenture, Sale Agreements or Management Agreement........................     8

ARTICLE II         ADMINISTRATION AND SERVICING OF LEASE RECEIVABLES..............................................     8

   Section 2.01.   The Servicer to Act as Servicer; Standard of Care; Covenants Concerning Leases.................     8
   Section 2.02.   Credit Monitoring; Collection of Lease Receivables and Remittances; the Lockbox Accounts.......    12
   Section 2.03.   Records Held as Bailee.........................................................................    14
   Section 2.04.   Withdrawals from the Collection Accounts.......................................................    14
   Section 2.05.   No Offset......................................................................................    15
   Section 2.06.   Custody of Lease Files.........................................................................    15
   Section 2.07.   Defaulted Leases...............................................................................    16
   Section 2.08.   Claims Under Insurance Policies; Insurance Policy..............................................    17
   Section 2.09.   Servicing Compensation.........................................................................    17
   Section 2.10.   Conflicts of Interest..........................................................................    17
   Section 2.11.   Separate Corporate Existence Covenants.........................................................    17

ARTICLE III        ACCOUNTINGS, STATEMENTS AND REPORTS............................................................    18

   Section 3.01.   Monthly Servicer Report........................................................................    18
   Section 3.02.   Financial Statements; Certification as to Compliance; Notice of Default........................    18
   Section 3.03.   Annual Accountants' Reports....................................................................    19
   Section 3.04.   Delivery of Accountings, Statements and Reports................................................    20
   Section 3.05.   Data Downloads.................................................................................    20

ARTICLE IV         REPRESENTATIONS AND WARRANTIES.................................................................    20

   Section 4.01.   Initial Servicer Representations and Warranties................................................    20
   Section 4.02.   Company Representations and Warranties.........................................................    24
   Section 4.03.   Requirements upon Breach of Certain Representations and Warranties.............................    25

ARTICLE V          INITIAL SERVICER COVENANTS.....................................................................    25

   Section 5.01.   Corporate Existence; Status as Initial Servicer; Merger........................................    25
   Section 5.02.   The Servicer Not to Resign; No Assignment......................................................    26
   Section 5.03.   Servicer Indemnification.......................................................................    26

ARTICLE VI         SERVICER TERMINATION...........................................................................    28


                                       -i-


                                                                                                                  
   Section 6.01.   Servicer Events of Termination.................................................................    28
   Section 6.02.   Backup Servicer to Act; Appointment of Successor; Acting as Manager............................    31
   Section 6.03.   Notification to Holders........................................................................    32
   Section 6.04.   Waiver of Breaches and Defaults................................................................    32
   Section 6.05.   Effects of Termination of Servicer.............................................................    32
   Section 6.06.   Rights Cumulative..............................................................................    33

ARTICLE VII        THE BACKUP SERVICER............................................................................    34

   Section 7.01.   Representations of Backup Servicer.............................................................    34
   Section 7.02.   Merger or Consolidation of, or Assumption of the Obligations of, Backup Servicer...............    35
   Section 7.03.   Backup Servicer Resignation....................................................................    35
   Section 7.04.   Duties and Responsibilities....................................................................    35
   Section 7.05.   Backup Servicer Compensation...................................................................    35

ARTICLE VIII       MISCELLANEOUS PROVISIONS.......................................................................    36

   Section 8.01.   Termination of Agreement.......................................................................    36
   Section 8.02.   Amendments.....................................................................................    36
   Section 8.03.   Governing Law..................................................................................    37
   Section 8.04.   Notices .......................................................................................    37
   Section 8.05.   Severability of Provisions.....................................................................    37
   Section 8.06.   Inspection and Examination Rights..............................................................    38
   Section 8.07.   Binding Effect.................................................................................    38
   Section 8.08.   Article Headings...............................................................................    38
   Section 8.09.   Legal Holidays.................................................................................    38
   Section 8.10.   Assignment for Security for the Notes..........................................................    38
   Section 8.11.   Servicing Agreement to Control.................................................................    38
   Section 8.12.   Third-Party Beneficiaries......................................................................    39
   Section 8.13.   No Bankruptcy Petition.........................................................................    39



SCHEDULE I  Servicer Employee Benefits

EXHIBIT A   Form of Monthly Servicer Report
EXHIBIT B   Request for Release

                                      -ii-


         SERVICING AGREEMENT, dated as of February 12, 2004 (this "Agreement"),
by and among NARCAT LLC ("NARCAT"), a Delaware limited liability company, CARCAT
ULC ("CARCAT"), a Nova Scotia unlimited liability company, NARCAT MEXICO, S. DE
R.L. DE C.V. ("NARCAT MEXICO"), a Mexican limited liability company with
variable capital, (each, a "Company" and collectively, the "Companies"), THE
ANDERSONS, INC. ("The Andersons"), an Ohio corporation, as the servicer (the
"Servicer"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo"), a
national banking association, as the indenture trustee (the "Indenture Trustee")
and as the backup servicer (the "Backup Servicer").

                              PRELIMINARY STATEMENT

         The Companies are entering into an Indenture, dated as of February 12,
2004 (as amended or supplemented from time to time, the "Indenture"), among the
Companies and the Indenture Trustee, pursuant to which the Companies will issue,
jointly and severally, $29,000,000 aggregate principal amount of their 2.79%
Class A-1 Railcar Notes due 2019, $21,000,000 aggregate principal amount of
their 4.57% Class A-2 Railcar Notes due 2019, $31,400,000 of their 5.13% Class
A-3 Railcar Notes due 2019 and $5,000,000 aggregate principal amount of their
14.00% Class B Railcar Notes due 2019 (collectively, the "Notes"). The
obligations of the Companies under the Notes and the Indenture will be secured
by specified Railcars, Leases and other Railcar Assets (as such capitalized
terms are defined herein) and related assets, in each case as described in the
Indenture.

         NARCAT is entering into a Sale Agreement, dated as of February 12, 2004
(the "NARCAT Sale Agreement"), with Cap Acquire, LLC (the "NARCAT Seller")
providing for, among other things, the sale by the NARCAT Seller to NARCAT of
certain Railcars, Leases and the other Railcar Assets which NARCAT is and will
be pledging to the Indenture Trustee, and in which NARCAT is granting to the
Indenture Trustee a security interest.

         CARCAT is entering into a Sale Agreement, dated as of February 12, 2004
(the "CARCAT Sale Agreement"), with Cap Acquire Canada ULC (the "CARCAT Seller")
providing for, among other things, the sale by the CARCAT Seller of certain
Railcars, Leases and other Railcar Assets which CARCAT is and will be pledging
to the Indenture Trustee, and in which CARCAT is granting to the Indenture
Trustee a security interest.

         NARCAT Mexico is entering into a Sale Agreement, dated as of February
12, 2004 (the "NARCAT Mexico Sale Agreement" and, together with the NARCAT Sale
Agreement and the CARCAT Sale Agreement, the "Sale Agreements"), with Cap
Acquire Mexico, S. de R.L. de C.V. (the "NARCAT Mexico Seller" and, together
with the NARCAT Seller and the CARCAT Seller, the "Sellers") providing for,
among other things, the sale by the NARCAT Mexico Seller of certain Railcars,
Leases and other Railcar Assets which NARCAT Mexico is and will be pledging to
the Indenture Trustee, and in which NARCAT Mexico is granting to the Indenture
Trustee a security interest.



         It is a condition precedent to the issuance of the Notes under the
Indenture that, on or prior to the Closing Date (as defined in the Indenture),
the Companies enter into this Agreement with the Servicer and the Backup
Servicer to provide for the servicing of the Leases. In order to further secure
each Company's obligations under the Indenture and the Notes, each Company is
granting to the Indenture Trustee a security interest in, among other things,
such Company's rights derived under this Agreement, and the Servicer agrees that
all covenants and agreements made by the Servicer herein with respect to the
Leases, Railcars and other Railcar Assets shall also be for the benefit and
security of the Class A Note Insurer (as defined herein), the Indenture Trustee
and all Holders of the Notes. For its services hereunder, the Servicer will
receive the Servicer Fee (as defined herein) as set forth in Section 2.09.

         On the date hereof, the Companies and Wells Fargo, as the Indenture
Trustee and as the backup manager, are entering into a Management Agreement,
dated as of February 12, 2004 (the "Management Agreement"), with The Andersons
(the "Manager") for the purpose of engaging the Manager, on behalf of each
respective Company, to cause such Company's Railcars to be maintained, insured
and marketed in accordance with industry standards, perform all of such
Company's obligations under the Leases with its Lessees and other agreements and
perform other functions, in each case, as set forth therein.

         The Servicer is engaged in the business of owning, leasing, managing
and servicing railcars for itself and for others, and each Company desires to
retain the Servicer, on the terms and conditions set forth in this Agreement, to
receive and apply as required under the Indenture all collections received with
respect to the Leases, Railcars and other Railcar Assets on behalf of each such
Company.

                                    ARTICLE I

                                   DEFINITIONS

         Section 1.01. Defined Terms. Subject to Section 1.02 and except as
otherwise specified or as the context may otherwise require, the following terms
have the respective meanings set forth below for all purposes of this Agreement,
and the definitions of such terms are equally applicable both to the singular
and plural forms of such terms and to the masculine, feminine and neuter genders
of such terms:

         "Action" shall mean any action, claim, suit, litigation, arbitration or
governmental investigation.

         "Affiliate" shall have the meaning set forth in the Indenture.

         "Agreement" shall mean this Servicing Agreement as amended, restated or
supplemented from time to time as permitted hereby.

         "Asset Purchase Agreement" shall have the meaning set forth in the
Indenture.

                                      -2-


         "Authorized Officer" shall have the meaning set forth in the Indenture.

         "Backup Servicer" shall have the meaning set forth in the preamble of
this Agreement.

         "Backup Servicer Fee" shall mean the fees of the Backup Servicer set
forth in that certain fee letter, dated February 12, 2004, and acknowledged on
February 12, 2004 by the Companies.

         "Board of Directors" shall mean the Board of Directors of the Servicer
or any duly authorized committee of such Board.

         "Business Day" shall have the meaning set forth in the Indenture.

         "CARCAT" shall have the meaning set forth in the preamble to this
Agreement.

         "CARCAT Lockbox Account" shall have the meaning set forth in Section
2.02(c).

         "CARCAT Lockbox Agreement" shall mean the Lockbox Agreement, dated as
of February 12, 2004, by and among the CARCAT Lockbox Bank, CARCAT, the Servicer
and the Indenture Trustee, as the same may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof.

         "CARCAT Lockbox Bank" shall mean Bank of Montreal, and its successors
and assigns.

         "CARCAT Sale Agreement" shall have the meaning set forth in the
Preliminary Statement of this Agreement.

         "CARCAT Seller" shall have the meaning set forth in the Preliminary
Statement of this Agreement.

         "Change of Control" shall have the meaning set forth in the Management
Agreement.

         "Class A Note Insurer" shall mean MBIA Insurance Corporation, a stock
insurance company incorporated under the laws of the State of New York, or its
successors in interest.

         "Class A Notes" shall have the meaning set forth in the Indenture.

         "Class B Holders" shall have the meaning set forth in the Indenture.

         "Closing Date" shall have the meaning set forth in the Indenture.

         "Collateral" shall have the meaning set forth in the Indenture.

         "Collection Accounts" shall have the meaning set forth in the
Indenture.

         "Collection Period" shall have the meaning set forth in the Indenture.

                                      -3-


         "Collections" shall have the meaning set forth in the Indenture.

         "Company" or "Companies" shall have the meaning set forth in the
preamble of this Agreement.

         "Concentration Limits" shall have the meaning set forth in the
Indenture.

         "Continued Errors" shall have the meaning set forth in Section 6.05(e).

         "Controlling Party" shall have the meaning set forth in the Indenture.

         "Defaulted Lease" shall mean any Lease that comes into and continues in
default for 90 days.

         "Determination Date" shall have the meaning set forth in the Indenture.

         "Environmental Law" shall have the meaning set forth in the Indenture.

         "Errors" shall have the meaning set forth in Section 6.05(e).

         "Event of Default" shall have the meaning set forth in the Indenture.

         "Existing Leases" shall have the meaning set forth in the Indenture.

         "GAAP" shall have the meaning set forth in the Indenture.

         "Governmental Authority" shall have the meaning set forth in the
Indenture.

         "Hazardous Commodities" shall have the meaning set forth in the
Indenture.

         "Holder" or "Holders" shall have the meaning set forth in the
Indenture.

         "Indemnified Parties" shall have the meaning set forth in Section 5.03.

         "Indenture" shall have the meaning set forth in the Preliminary
Statement of this Agreement.

         "Indenture Trustee" shall have the meaning set forth in the preamble of
this Agreement.

         "Initial Manager" shall have the meaning set forth in the Management
Agreement.

         "Initial Servicer" shall mean The Andersons and any of its Affiliates.

         "Insurance Policy" shall have the meaning set forth in the Indenture.

         "Insurance Proceeds" shall have the meaning set forth in the Indenture.

                                      -4-


         "Knowledge of the Servicer" shall mean the actual knowledge, after due
inquiry, of the officers of the Servicer or its Affiliate responsible for
matters relating to the Servicer's performance of its obligations hereunder.

         "Law" shall have the meaning set forth in the Indenture.

         "Lease" shall have the meaning set forth in the Indenture.

         "Lease File" shall mean, with respect to each Lease, (i) a certified
copy of the Lease, (ii) each executed original counterpart of the Lease that
constitutes "chattel paper" or an "instrument" for purposes of Sections
9-102(a)(11) and (47) of the Uniform Commercial Code, (iii) a guaranty, if any,
(iv) documents evidencing or related to any Insurance Policy, (v) copies of all
statements, memorandums, UCC financing statements and other documents filed with
respect to the Lease in accordance with the filing requirements of this
Agreement, (vi) copies of any additional Lease documents evidencing any waivers,
amendments or modifications of the Lease by the Servicer in accordance with the
terms of this Agreement, and (vii) any other documents relating thereto held by
the Servicer.

         "Lease Receivables" shall have the meaning set forth in the Indenture.

         "Lessee" shall have the meaning set forth in the Indenture.

         "Liens" shall have the meaning set forth in the Indenture.

         "Liquidation Proceeds" shall have the meaning set forth in the
Indenture.

         "Lockbox Account" shall have the meaning set forth in Section 2.02(c).

         "Lockbox Agreements" shall mean, collectively, the NARCAT Lockbox
Agreement, the CARCAT Lockbox Agreement and the NARCAT Mexico Account Agreement.

         "Lockbox Bank" shall mean with respect to the NARCAT Lockbox Agreement,
the NARCAT Lockbox Bank, with respect to the Canadian Lockbox Agreement, the
CARCAT Lockbox Bank, and with respect to the NARCAT Mexico Account Agreement,
the NARCAT Mexico Bank, respectively.

         "Manager" shall have the meaning set forth in the Management Agreement.

         "Management Agreement" shall have the meaning set forth in the
Preliminary Statement of this Agreement.

         "Material Adverse Effect" shall have the meaning set forth in the
Indenture.

         "Monthly Servicer Report" shall have the meaning set forth in Section
3.01.

         "NARCAT" shall have the meaning set forth in the preamble to this
Agreement.

                                      -5-


         "NARCAT Collection Account" shall have the meaning set forth in the
Indenture.

         "NARCAT Lockbox Account" shall have the meaning set forth in Section
2.02(c).

         "NARCAT Lockbox Agreement" shall mean the Lockbox Agreement, dated as
of February 12, 2004, by and among the NARCAT Lockbox Bank, NARCAT, the Servicer
and the Indenture Trustee, as the same may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof.

         "NARCAT Lockbox Bank" shall mean Harris Trust and Savings Bank, and its
successors and assigns.

         "NARCAT Mexico" shall have the meaning set forth in the preamble to
this Agreement.

         "NARCAT Mexico Account" shall have the meaning set forth in Section
2.02(c).

         "NARCAT Mexico Account Agreement" shall mean each Contract for Multiple
Banking and Financial Services, dated as of February 12, 2004, by and between
the NARCAT Mexico Bank and NARCAT Mexico, and any instructions or directions
related to each such account, as the same may be amended, restated, supplemented
or otherwise modified from time to time in accordance with the terms thereof.

         "NARCAT Mexico Bank" shall mean Scotiabank Inverlat, and its successor
and assigns.

         "NARCAT Mexico Sale Agreement" shall have the meaning set forth in the
Preliminary Statement of this Agreement.

         "NARCAT Mexico Seller" shall have the meaning set forth in the
Preliminary Statement of this Agreement.

         "NARCAT Sale Agreement" shall have the meaning set forth in the
Preliminary Statement of this Agreement.

         "NARCAT Seller" shall have the meaning set forth in the Preliminary
Statement of this Agreement.

         "Notes" shall have the meaning set forth in the Preliminary Statement
of this Agreement.

         "Officer's Certificate" shall mean a certificate signed by the Chairman
of the Board, the Vice Chairman of the Board, the President, a Vice President,
the Treasurer or the Secretary of the Servicer.

         "Opinion of Counsel" shall have the meaning set forth in the Management
Agreement.

         "Permitted Liens" shall have the meaning set forth in the Indenture.

                                      -6-


         "Person" shall have the meaning set forth in the Indenture.

         "Predecessor Servicer Work Product" shall have the meaning set forth in
Section 6.05(e).

         "Purchase" shall have the meaning set forth in the Management
Agreement.

         "Purchase Price" shall have the meaning set forth in the Management
Agreement.

         "Railcar" or "Railcars" shall have the meaning set forth in the
Indenture.

         "Railcar Assets" shall have the meaning set forth in the Indenture.

         "Railcar Entities" shall have the meaning set forth in the Indenture.

         "Rapid Amortization Event" shall have the meaning set forth in the
Indenture.

         "Rating Agencies" shall have the meaning set forth in the Indenture.

         "Rating Agency Condition" shall have the meaning set forth in the
Indenture.

         "Relevant Company" shall mean, in respect of any Leases, Railcars or
other Railcar Assets, the Company which is the owner thereof.

         "Relevant Sale Agreement" shall have the meaning set forth in the
Management Agreement.

         "Rent" shall have the meaning set forth in the Indenture.

         "Reported Companies" shall have the meaning set forth in the Management
Agreement.

         "Reported Companies' Financial Statements" shall have the meaning set
forth in the Management Agreement.

         "Seller" or "Sellers" shall have the meaning set forth in the
Preliminary Statement of this Agreement.

         "Separate Person" shall have the meaning set forth in Section 2.11.

         "Servicer" shall have the meaning set forth in the preamble of this
Agreement, or any Successor Servicer appointed pursuant to Section 6.01.

         "Servicer Event of Termination" shall mean each of the occurrences or
circumstances enumerated in Section 6.01.

         "Servicer Fee" shall mean the amounts due to the Servicer pursuant to
Section 2.09.

                                      -7-


         "Servicer Termination Notice" shall have the meaning set forth in
Section 6.01(a).

         "Servicing Officer" means any representative of the Servicer involved
in, or responsible for, the administration and servicing of the Leases whose
name appears on a list of servicing officers furnished to the Class A Note
Insurer, the Indenture Trustee and the Companies by the Servicer, as such list
may from time to time be amended in accordance with Section 2.01(d).

         "Servicing Standard" shall have the meaning set forth in Section
2.01(c).

         "Solvent" shall have the meaning set forth in the Indenture.

         "Stated Value" shall have the meaning set forth in the Indenture.

         "Subsequent Lease" shall have the meaning set forth in the Indenture.

         "Successor Servicer" shall have the meaning set forth in Section
6.01(b).

         "Tangible Net Worth" shall have the meaning set forth in the Management
Agreement.

         "Tax Payment Amount" shall have the meaning set forth in the Indenture.

         "Tax Payment Recipient" shall have the meaning set forth in the
Indenture.

         "The Andersons" shall mean The Andersons, Inc., an Ohio corporation,
and its permitted successors and assigns.

         "TOP CAT" shall mean TOP CAT Holding Co., a Delaware corporation.

         "Transaction Documents" shall have the meaning set forth in the
Indenture.

         "UCC" shall have the meaning set forth in the Management Agreement.

         Section 1.02. Terms Defined in the Indenture, Sale Agreements or
Management Agreement. For the purposes of this Agreement, capitalized terms used
but not otherwise defined herein shall have the respective meanings assigned to
such terms in the Indenture or, if not defined therein, in the Sale Agreements
or the Management Agreement, as applicable.

                                   ARTICLE II

                ADMINISTRATION AND SERVICING OF LEASE RECEIVABLES

         Section 2.01. The Servicer to Act as Servicer; Standard of Care;
Covenants Concerning Leases. (a) Each Company hereby retains The Andersons as
Servicer hereunder, as an independent contractor for the purpose of undertaking
and performing the services described in

                                      -8-


this Agreement, and The Andersons hereby agrees to act as Servicer on the terms
and conditions set forth herein.

         (b)      The Servicer shall administer the Leases, and maintain and
administer the Lease Files, on behalf of the Companies in accordance with the
terms of this Agreement and, subject to the Indenture, the Servicer shall have
the requisite power and authority to do any and all things in connection with
such servicing and administration which it may deem necessary or desirable in
accordance with the standard of care set forth below; provided, however, that
such actions do not infringe upon the duties of the Manager as set forth in the
Management Agreement. Without limiting the generality of the foregoing, subject
to Sections 2.01(f) and 2.01(l), the Servicer is hereby authorized and empowered
by each Company to execute and deliver, on behalf of such Company, any and all
consents, instruments of satisfaction or cancellation, or of partial or full
release or discharge, and all other comparable instruments, with respect to the
Leases (except any consent to be given by such Company pursuant to this Section
2.01).

         (c)      All of the functions, services, duties and obligations of the
Servicer under this Agreement shall be performed by the Servicer at a level of
care and diligence consistent with customary commercial practices as would be
used by a prudent Person in the railcar leasing and servicing industry and the
level of care and diligence utilized by the Servicer in its business and in the
servicing of the Servicer's own fleet of railcars, if any, in order for each
Company to be able to perform its obligations under the Leases and the other
applicable Transaction Documents (the "Servicing Standard"). The Servicer agrees
that servicing of the Leases (including the collection and distribution of any
Liquidation Proceeds) shall be carried out in accordance with the Servicing
Standard.

         (d)      Promptly after the execution and delivery of this Agreement,
the Servicer shall deliver to the Companies, the Class A Note Insurer and the
Indenture Trustee the titles for two employees of the Servicer (which employees
shall have experience and expertise in the railcar leasing industry sufficient
to perform the duties and obligations of the Servicer under this Agreement in
accordance with the Servicing Standard) which shall be involved in, or
responsible for, the administration and servicing of the Leases, which list
shall from time to time be updated by the Servicer, upon reasonable notice to,
and upon the written consent of an Authorized Officer of, each of the Companies.

         (e)      The parties hereto acknowledge that the Companies shall retain
title to, and ownership and exclusive control of, the Collateral (subject to the
Lien of the Indenture). Except as expressly permitted hereunder, the Servicer
will not acquire any title to, security interest in, or other rights of any kind
in or to the Railcars, Leases other Railcar Assets. The Servicer agrees not to
file any Lien, exercise any right of setoff against, or attach or assert any
claim in, any of the Leases, Railcars or other Railcar Assets, unless authorized
pursuant to a judicial or administrative proceeding or a court order or on
behalf of the Companies or the Indenture Trustee in accordance with this
Agreement or the Indenture.

         (f)      In performing its obligations hereunder, the Servicer may,
acting in the name of the Relevant Company and without the necessity of
obtaining the prior consent of the Relevant Company or the Indenture Trustee,
enter into and grant modifications, waivers and amendments

                                      -9-


to the terms of any Lease as it may deem reasonably necessary or advisable to
maximize Collections, except for modifications, waivers or amendments that (i)
are inconsistent with the Servicing Standard, (ii) after giving effect thereto,
would cause such Lease to cease to comply with any of the representations and
warranties of the Manager in Section 4.03 of the Management Agreement, (iii)
after giving effect thereto, would permit the Lessee thereunder to take action
with respect to the Railcars which are subject to such Lease which would cause
the Relevant Company to be in default of its obligations under any of the
Transaction Documents to which it is a party, or (iv) otherwise could reasonably
be expected to materially adversely affect, individually or in the aggregate,
the interests of any Company, the Class A Note Insurer, the Indenture Trustee or
the Holders or otherwise would conflict with Section 2.01(l).

         (g)      Unless otherwise directed by a Company, the Servicer shall not
be required on such Company's behalf to threaten or commence any legal or other
proceedings before any court or Governmental Authority or nongovernmental
organization in connection with its performance or actions hereunder if, in the
Servicer's reasonable judgment consistent with the Servicing Standard, the
potential expense or risk associated with such exercise or action is such that
the Servicer would not undertake such exercise or action with respect to other
railcars owned, managed or serviced by the Servicer. If the Servicer, in
accordance with this Agreement, commences a legal proceeding to enforce a
Defaulted Lease or commences or participates in a legal proceeding relating to
or involving a Lease, the Relevant Company will be deemed to have automatically
assigned such Lease to the Servicer solely for purposes of commencing or
participating in any such proceeding as a party or claimant, and the Servicer is
authorized and empowered by such Company, pursuant to this Section 2.01, to
execute and deliver, on behalf of itself and the Company, any and all
instruments of satisfaction or cancellation, or partial or full release or
discharge, and all other notices, demands, claims, complaints, responses,
affidavits or other documents or instruments, without recourse to the Company,
in connection with any such proceedings. If in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce a Lease on the ground
that is not a real party in interest or a holder entitled to enforce the Lease,
then the Company will, at the Servicer's expense and direction, take steps to
enforce the Lease, including bringing suit in the Company's name.

         (h)      In the event of any modification, waiver or amendment of any
Lease in accordance with this Section 2.01, the Servicer will (i) duly note such
modification, waiver or amendment in the next succeeding Monthly Servicer Report
(and certify therein that such modification, waiver or amendment is not
prohibited by the provisions of this Section 2.01), (ii) prior to the end of the
calendar month in which such Monthly Servicer Report is delivered (or sooner if
so requested by the Indenture Trustee), furnish the Indenture Trustee with a
copy thereof, and (iii) shall take such other action, if any, as is necessary to
preserve and maintain the perfection and priority of the Lien of the Indenture
with respect to such Lease as so modified or amended (including, if necessary,
delivering all originals thereof not in the possession of the Lessee under the
related Lease to the Indenture Trustee).

         (i)      At the request of a Lessee, the Servicer may, in its sole
discretion, consent to the assignment of any Lease (or Lessee's leasehold
interest in Railcars leased thereunder); provided, however, that (i) such Lessee
will remain liable for all of its obligations under such Lease prior to such
assignment, (ii) such assignee satisfies the credit criteria set forth in the
Servicer's credit

                                      -10-


policies and procedures, (iii) after giving effect thereto, the Companies will
be in compliance with the Concentration Limits, and (iv) such assignment will
not cause the relevant Leases, Railcars or other Railcar Assets to cease to
comply with any of the representations and warranties of the Manager contained
in Section 4.03 of the Management Agreement.

         (j)      At the request of a Lessee, the Servicer may, in its sole
discretion, consent to the sublease of any Railcars under a Lease; provided,
however, that unless each Lessee will remain liable for all of its obligations
under such Lease (including with respect to the related Railcars) and such
sublease shall be subject and subordinate to the Lessee's obligations under such
Lease, then (i) such sub-lessee satisfies the credit criteria set forth in the
Servicer's credit policies and procedures and (ii) the original copies of such
sub-lease which constitute chattel paper are delivered to the Indenture Trustee,
and the Servicer instructs that all payments thereunder are to be sent directly
to the related Lockbox Bank for deposit into the related Lockbox Account.

         (k)      The Servicer may enter into servicing agreements with one or
more subservicers, with prior written notice to the Class A Note Insurer, the
Companies, the Backup Servicer and the Indenture Trustee, to perform all or a
portion of the servicing functions on behalf of the Servicer; provided, however,
that the Servicer will remain obligated and be liable to the Class A Note
Insurer, the Indenture Trustee, the Backup Servicer and the Relevant Company for
servicing and administering the Leases in accordance with the provisions of this
Agreement, without diminution of such obligation and liability by virtue of the
appointment of such subservicer, to the same extent and under the same terms and
conditions as if the Servicer alone were servicing and administering the Leases.
The fees and expenses of the subservicer (if any) will be as agreed between the
Servicer and its subservicer and shall be the liability of the Servicer
exclusively, and none of the Class A Note Insurer, the Indenture Trustee, the
Backup Servicer, the Companies or any Holder will have any responsibility
therefor; provided, however, to the extent agreed to between the Servicer and
subservicer, expenses of the subservicer may be reimbursed by the Servicer and
treated for all purposes hereof as expenses incurred by the Servicer (which
shall be reimbursable by the Relevant Company if and to the extent provided
herein and subject to the availability of funds therefor under the Indenture).
All actions of a subservicer taken pursuant to such a subservicer agreement will
be taken as an agent of the Servicer with the same force and effect as though
performed by the Servicer. The Successor Servicer may in the course of
performing its duties hereunder employ agents or attorneys, and the Successor
Servicer shall not be responsible for any misconduct or negligence on the part
of, or for the supervision of, any such agent or attorney appointed by it with
due care hereunder.

         (l)      The Servicer shall not take any action, without the consent of
the Relevant Company and the Indenture Trustee (acting at the direction of the
Controlling Party) which would release any Person from any of its covenants or
obligations under any of the Leases or under any other instrument included in
the Collateral, which action or release would materially and adversely affect
the interests of the Holders, the Class A Note Insurer or the Indenture Trustee
in any such Lease or which would result in the amendment, hypothecation,
subordination, termination, set off or discharge of, or impair the validity or
effectiveness of, any of the Leases or any such instrument, except as expressly
provided herein and therein.

                                      -11-


         (m)      The Backup Servicer may, both before and after the time, if
any, that it is acting as Successor Servicer, share information regarding the
Railcars, Leases and other Railcar Assets with subservicers and its agents and
attorneys; provided, however, that, unless a Servicer Event of Termination has
occurred and is continuing or the Class A Note Insurer directs otherwise, the
Backup Servicer shall ensure that such shared information has been redacted to
remove all information that, if disclosed, would create a competitive
disadvantage for The Andersons (including but not limited to the names of
Lessees).

         (n)      The Servicer shall not directly perform services in Canada nor
hire non-Canadian residents to perform services in Canada. The Servicer, as an
agent for CARCAT, shall engage Canadian residents to perform services in Canada
for CARCAT.

         Section 2.02. Credit Monitoring; Collection of Lease Receivables and
Remittances; the Lockbox Accounts. (a) The Servicer shall monitor the
creditworthiness and performance of the Lessees and use its best efforts
consistent with the Servicing Standard to collect all payments of Rents and all
other amounts required under the terms and provisions of the Leases to be paid
as and when the same shall become due, and shall use collection procedures
consistent with the Servicing Standard.

         (b)      In addition, the Servicer shall use its best efforts
consistent with the Servicing Standard to collect all amounts due and owing, and
to enforce all of the Relevant Company's rights to collect such amounts, from
any and all other Persons and sources (other than Lessees to the extent provided
elsewhere in this Section 2.02) with respect to the Leases, Railcars and other
Railcar Assets, including any Insurance Proceeds, warranty payments, and
overpayments and refunds with respect to taxes, maintenance or other services
provided to or for the benefit of the Relevant Company or the Leases, Railcars
or other Railcar Assets, and hourly fees and Railroad Mileage Credits.

         (c)      NARCAT will establish a lockbox account in the United States
(the "NARCAT Lockbox Account"), CARCAT will establish a lockbox account in
Canada (the "CARCAT Lockbox Account") and NARCAT Mexico will establish a
segregated account in Mexico (the "NARCAT Mexico Account") (each a "Lockbox
Account") for payments under the Leases to be maintained at the related Lockbox
Bank in the name of Indenture Trustee pursuant to the related Lockbox Agreement.
The Servicer shall not create or permit to exist any Lien, charge or encumbrance
on any Lockbox Account.

         (d)      The Servicer will bill each Lessee (at least monthly,
quarterly, semi-annually or annually, as applicable for Rent payable under such
Lease) as agent for the Companies, in invoices, separate from invoices for any
leases or railcars not owned by the Companies, for the amount of rent or other
amounts (including the Rent) owed with respect to the Railcars by the Lessee.
Each invoice will provide a detailed listing of such Railcars, and the
applicable amounts due and owing (including the Rent) with respect to each such
Railcar, to which the invoice relates. For certain Lessees, invoices may be sent
electronically. The Railcars will be sufficiently identified in the detail of
the invoice, by serial or other identification number, to allow the parties to
specifically identify the amounts which are due to the Relevant Company. All
invoices will

                                      -12-


instruct the obligor thereunder to make payment of such invoice directly to the
related Lockbox Bank for deposit into the related Lockbox Account.

         (e)      The Servicer shall arrange with each Lockbox Bank that by 1:00
p.m. on each Business Day (or as soon thereafter as practicable), such Lockbox
Bank will make available to the Servicer a computer file of customer checks and
related documentation containing information with respect to all payments
received in such Lockbox Account from 12:00 noon of the previous Business Day
through 12:00 noon of such Business Day.

         (f)      If the payment information made available by any Lockbox Bank
to the Servicer under Section 2.01(e) is insufficient to determine the proper
allocation of a payment (or any portion thereof) between The Andersons and the
Companies, the Servicer will use such other information as is available and
conduct such procedures as are appropriate to determine the proper allocation of
such payment, including a review of original Lease and invoice information and
contacting Lessees, to the extent necessary.

         (g)      By the close of business on each Business Day, the Servicer
will cause all funds held in the NARCAT Lockbox Account or in the CARCAT Lockbox
Account to be transferred to the applicable Collection Account maintained under
the Indenture. By the close of business on the second Business Day after deposit
of any payment into the NARCAT Mexico Account, the Servicer will cause all funds
held in the NARCAT Mexico Account to be transferred to the NARCAT Collection
Account.

         (h)      If, notwithstanding the payment instructions given by the
Servicer in its invoices under Section 2.01(d), Lease payments or other amounts
in respect of the Railcars are received directly by the Servicer, the Servicer
agrees to hold any such Lease payments or other amounts in trust and forthwith,
promptly and in any event with the time set forth in Section 2.01(g), to
transmit and deliver to the related Lockbox Bank (for transfer pursuant to
Section 2.01(g) to the Collection Accounts maintained under the Indenture), in
the form received, all cash, checks and other instruments or writings for the
payment of money so received by the Servicer.

         (i)      Each Lockbox Account will be titled in the name of the
Indenture Trustee as trustee (the "Lockbox Trustee") on behalf of the related
Company, the Class A Note Insurer and the Holders. As to the Companies' billings
following the appointment of a Successor Servicer, the Successor Servicer shall
re-caption the invoices to refer to the Successor Servicer, as agent for the
Companies. Effective as of the date of termination of the initial Servicer, the
Successor Servicer will submit reports, as needed, to the Lockbox Trustee
indicating the amount billed to Lessees in respect of the Railcars. In instances
where a customer of more than one of The Andersons and the Companies pays with a
single check that is not in the full amount owed to all such parties, unless it
is manifestly clear that the deduction is allocable to the Companies, the
Successor Lockbox Trustee will be instructed to assume that the deduction is
allocable to The Andersons and to the extent that such deduction exceeds the
amount due to The Andersons, any such excess shall be allocated pro-rata (based
upon reported billings) among the Companies.

         (j)      The Servicer may not allow an offset of the amount of any
security deposit against any payment under any Lease.

                                      -13-


         Section 2.03. Records Held as Bailee. With respect to Leases serviced
by the Servicer, the Servicer shall retain all data and records relating
directly to, or maintained in connection with, the servicing of such Leases at
the offices of the Servicer, and shall give the Companies and the Indenture
Trustee, or such other Person as the Indenture Trustee shall direct, access to
all such data and records at all reasonable times, and, while a Servicer Event
of Termination shall be continuing, the Servicer shall, on demand of the
Indenture Trustee, deliver to or at the direction of the Indenture Trustee all
data and records necessary for the servicing of such Lease Receivables. If the
rights of the Servicer shall have been terminated pursuant to Section 6.01, the
Servicer shall, in accordance with Section 6.01(e), deliver to the Indenture
Trustee or the Successor Servicer all data and records necessary for the
servicing of such Leases and shall otherwise cooperate with the Indenture
Trustee and the Successor Servicer as set forth in Section 6.01(e).

         Section 2.04. Withdrawals from the Collection Accounts. (a) The
Servicer is entitled to make requests to the Indenture Trustee for withdrawals
from the Collection Accounts, and the Indenture Trustee shall pay to the
Servicer from the Collection Accounts, to the extent there are available funds
in the Collection Accounts, at the Servicer's written direction:

                  (i) any amounts received from the Lessees or other parties
         which the Servicer has reasonably identified as amounts not
         constituting payments made with respect to the Leases, the Railcars or
         other Railcar Assets;

                  (ii) all amounts received in respect of Leases, Railcars and
         other Railcar Assets on or before the Closing Date with respect to
         Existing Leases or the date of transfer to any Company with respect to
         Subsequent Leases; and

                  (iii) all amounts received in respect of Leases following the
         Purchase thereof by the Manager or the Servicer;

provided, however, that the Servicer shall hold any amounts under this Section
2.04 in trust for the relevant appropriate person and payable to such
appropriate person (except with respect to amounts received in respect of
Leases, Railcars or other Railcar Assets following the Purchase thereof by the
Manager, in which case in trust for the Manager and payable to the Manager) upon
receipt by the Servicer.

         (b)      For purposes of determining whether payments received from
Lessees are attributable to the Leases transferred, sold and assigned to one of
the Companies, all payments received from Lessees and all deficiencies in such
payments will be allocated in accordance with the Servicer's records and the
further provisions of this paragraph. If any deficiency in any payment from any
Lessee shall occur and such Lessee shall have identified the source of the
deficiency in its payment, the payments received shall be allocated in
accordance with the Servicing Standard (including, where appropriate, the
allocation specified by the Lessee). If any deficiency shall occur and no such
identification is made by the Lessee, the payment received shall be allocated on
a pro rata basis.

                                      -14-


         Section 2.05. No Offset. The obligations of the Servicer under this
Agreement shall not be subject to any defense, counterclaim or right of offset
which the Servicer has or may have against any Company, the Class A Note
Insurer, the Backup Servicer, the Indenture Trustee or any Holder whether in
respect of this Agreement, any Lease, Railcar or other Railcar Asset or
otherwise.

         Section 2.06. Custody of Lease Files. (a) Pursuant to the Indenture,
the Companies have pledged the Collateral to the Indenture Trustee and the
Indenture Trustee will hold such Collateral, including the Lease Files, for the
benefit of all Holders and the Class A Note Insurer, as their interests may
appear, subject to the terms and provisions thereof.

         (b)      The Servicer, as agent of the Indenture Trustee and the
Relevant Company, shall hold and hereby acknowledges that it shall hold the
Lease Files (exclusive of any original counterpart of the Lease constituting
chattel paper held by the Indenture Trustee or in the possession of the Lessee
under such Lease) and any other Collateral that it may from time to time receive
hereunder as custodian for the Indenture Trustee, in accordance with the
Servicing Standard as such Servicing Standard applies to servicers acting as
custodial agents. So long as the Backup Servicer is not acting as Servicer, the
Indenture Trustee will not be responsible for any actions of the Servicer in its
role of custodian of the Lease Files. The Servicer shall promptly report to the
Indenture Trustee any failure by it to hold the complete Lease Files previously
provided on behalf of the Indenture Trustee as herein provided and shall
promptly take appropriate action to remedy any such failure. As custodian, the
Servicer shall have and perform the following powers and duties:

                  (i) hold the Lease Files (exclusive of any original
         counterpart of the Lease constituting chattel paper held by the
         Indenture Trustee or in the possession of the Lessee under such Lease)
         that it may from time to time receive hereunder on behalf of the
         Indenture Trustee and the Holders, maintain accurate records pertaining
         to each Lease to enable it to comply with the terms and conditions of
         this Agreement and the Transaction Documents, and maintain a current
         inventory thereof;

                  (ii) with respect to the handling and custody of such Lease
         Files, implement policies and procedures in accordance with the
         Servicing Standard so that the integrity and physical possession of
         such Lease Files will be maintained; and

                  (iii) attend to all details in connection with maintaining
         custody of such Lease Files on behalf of the Indenture Trustee.

         (c)      In so acting as custodian of such Lease Files, the Servicer
agrees further that it does not and will not have or assert any beneficial
ownership interest in the Leases, Railcars or other Railcar Assets. Promptly
upon the Relevant Company's acquisition thereof, the Servicer, on behalf of the
Indenture Trustee, shall note in its computer records relating to the Leases and
the Railcars that the Relevant Company has acquired the Lease and the related
Railcars and all right and title thereto and interest therein and that the
Relevant Company has pledged the Railcars and the Leases to the Indenture
Trustee as part of the Collateral.

                                      -15-


         (d)      The Servicer agrees to maintain any Lease Files that it may
from time to time receive on behalf the Indenture Trustee at the Servicer's
office located in Atlanta, Georgia; provided, however, the Servicer will be
permitted to transfer all such Lease Files to its office located in Maumee, Ohio
or to such other offices of the Servicer as shall from time to time be
identified by prior written notice to the Indenture Trustee and the Class A Note
Insurer. Subject to the foregoing, the Servicer may temporarily move individual
Lease Files (up to an aggregate number of 18 Lease Files at any given time) or
any portion thereof without notice as necessary to conduct collection and other
servicing activities in accordance with the Servicing Standard; provided,
however, that the Servicer will take all action necessary to maintain the
perfection of the Indenture Trustee's security interest in the Lease Files and
the proceeds thereof. It is intended that by the Servicer's agreement pursuant
to this Section 2.06, the Indenture Trustee shall be deemed to have possession
of the Lease Files (to the extent not already held by the Indenture Trustee
pursuant to the Indenture) for purposes of Section 9-305 of the Uniform
Commercial Code of the state in which the Lease Files are located.

         (e)      If, in order to conduct collection and other servicing
activities in accordance with the Servicing Standard, it is necessary for the
Servicer to possess the original counterpart of any Lease which is held by the
Indenture Trustee, the Servicer will submit a request for release to the
Indenture Trustee substantially in the form attached as Exhibit B. Upon receipt
of such request for release, the Indenture Trustee shall release to the Servicer
the original counterpart of such Lease within 7 days; provided, however, that
without the written consent of the Controlling Party, the Indenture Trustee
shall not have released more than 18 Lease Files to the Servicer that have not
been returned. The Servicer shall return all such original counterparts to the
Indenture Trustee when the Servicer's need therefor no longer exists.

         Section 2.07. Defaulted Leases. (a) The Servicer shall use its best
efforts consistent with the Servicing Standard to terminate any Lease that it
has reasonably determined should be terminated following a default thereunder,
and at the Relevant Company's expense, to repossess the Railcars subject to such
Lease, to accelerate any deferred payments thereunder and to enforce all rights
of the Relevant Company with respect thereto. The Servicer shall follow such
practices and procedures as are consistent with the Servicing Standard and
otherwise as it shall deem necessary or advisable and as shall be customary and
usual in its servicing of railcar leases and other actions by the Servicer in
order to realize upon such a Lease, which may include its best efforts
consistent with the Servicing Standard to enforce any recourse obligations of
Lessees. If in any enforcement suit or legal proceeding it shall be held that
the Servicer may not enforce a Lease on the ground that it shall not be a real
party in interest or a holder entitled to enforce the Lease, the Relevant
Company shall, at the Servicer's direction and at the Relevant Company's
expense, take steps to enforce the Lease, including bringing suit in its name or
the name of the Indenture Trustee (prior written notice of which shall be given
to the Indenture Trustee).

         (b)      Notwithstanding the foregoing, the Servicer shall take action
to terminate any Lease, and use its best efforts, at the Relevant Company's
expense, to repossess the Railcars under such Lease, immediately after such
Lease becomes a Defaulted Lease and shall, in accordance with its credit
policies and procedures, bring an action against the Lessee for all amounts due
under such Lease and institute proceedings to repossess the Railcars leased
thereunder; provided, however, that the Servicer may delay, for a period not to
exceed 180 days, taking any such action with

                                      -16-


respect to Railcars comprising not more than 5% of the aggregate Stated Value of
all Railcars at any one time under all Defaulted Leases, if it determines, in
its reasonable judgment and in accordance with the Servicing Standard, that such
delay is advisable.

         Section 2.08. Claims Under Insurance Policies; Insurance Policy. (a) In
connection with its activities as Servicer, the Servicer agrees to present to,
on behalf of itself, the Indenture Trustee, the Class A Note Insurer, the
Companies and the Holders, any claims to the Insurer under the applicable
Insurance Policy (but in no event to settle, adjust or compromise such claims
without such insured's prior written consent).

         (b)      The Servicer shall maintain, at its own expense, an insurance
policy, with coverage appropriate and customary in the industry with responsible
companies on all officers or employees of the Servicer, or other persons
authorized by the Servicer to act in any capacity with regard to the Collateral
to handle funds, money, documents and papers relating to the Leases, and shall
deliver to the Indenture Trustee and the Class A Note Insurer evidence of such
insurance policy by the Closing Date and once every twelve months thereafter.
Any such insurance policy shall protect and insure the Servicer against losses,
including forgery, theft, embezzlement, and fraudulent acts of such persons and
shall be maintained in a form and amount that would meet the requirements of a
prudent institutional servicer. No provision of this Section 2.08 requiring such
insurance policy shall diminish or relieve the Servicer from its duties and
obligations as set forth in this Agreement. Any such insurance policy shall not
be cancelled or modified without ten days' prior written notice to the Indenture
Trustee and the Class A Note Insurer. The Servicer shall promptly, but in any
event within five days after receipt, notify the Indenture Trustee and the Class
A Note Insurer upon receipt from the surety of any termination, cancellation
notice or any other notice of a material change to the terms of such insurance
policy.

         Section 2.09. Servicing Compensation. As compensation to the Servicer
for the performance of services hereunder, the Servicer shall be entitled to
receive a monthly fee equal to 1/10 of 1% per annum of the Note Principal
Balance as of the related Accounting Date (the "Servicer Fee"), which shall be
paid to the Servicer on each Payment Date in accordance with, and subject to the
priority of payment provisions of, Section 12.02(d) or Section 6.08, as
applicable, of the Indenture.

         Section 2.10. Conflicts of Interest. It is expressly understood and
agreed that nothing herein shall be construed to prevent or prohibit the
Servicer from providing the same or similar services to any Person or
organization not a party to this Agreement. In particular, the Servicer shall be
entitled to own, lease and operate for its own account railroad cars and
equipment identical to the Railcars serviced hereunder and/or to service such
railroad cars or equipment, and any leases thereof, under a similar servicing
agreement with another owner.

         Section 2.11. Separate Corporate Existence Covenants. The Servicer
recognizes that the Indenture Trustee, the Holders and the Class A Note Insurer
have entered into the Transaction Documents on the understanding that each of
the Companies, the Sellers and TOP CAT (each, a "Separate Person") is an entity
intended to have its own separate existence independent from that of the
Servicer. In connection therewith, the Servicer will (i) maintain separate bank
accounts and books of account from each Separate Person, (ii) not hold itself
out to third parties

                                      -17-


as liable or responsible for the debts of each Separate Person (except for
performance of such obligations which are assumed by it as Servicer hereunder)
and not hold any Separate Person out to third parties as being liable or
responsible for the debts of the Servicer, (iii) not conduct business in the
name of any Separate Person except when acting in the name of such Separate
Person in its capacity as Servicer and it identifies itself as such, (iv) not
hold itself out as the owner of the Railcar Assets and take reasonable steps to
ensure that Lessees and other parties dealing with the Railcar Assets are aware
of the Separate Person's interests therein and (v) take such other actions on
its part as may be required for each Separate Person to be in compliance with
Sections 4.01(g) and 10.01(p) of the Indenture on the Closing Date. In the event
that the Servicer's consolidated financial statements are required under GAAP to
include any Separate Person, the Servicer will include footnotes therein that
disclose the separate existence of each such Separate Person and its assets from
the Servicer and the Servicer's assets.

                                   ARTICLE III

                       ACCOUNTINGS, STATEMENTS AND REPORTS

         Section 3.01. Monthly Servicer Report. With respect to each Payment
Date and the related Collection Period, the Servicer will provide to the Backup
Servicer, the Class A Note Insurer and the Indenture Trustee, on the
Determination Date immediately prior to such Payment Date, a Monthly Servicer
Report (a "Monthly Servicer Report"), substantially in the form of Exhibit A
hereto with each of the items specified on such form completed as the case may
be, together with such supplemental information reasonably requested by the
Controlling Party.

         Section 3.02. Financial Statements; Certification as to Compliance;
Notice of Default. The Servicer will deliver to the Indenture Trustee, the
Backup Servicer, each Rating Agency and the Class A Note Insurer, except as
provided in subsection (h):

                  (a)      within 90 days after the end of each fiscal year of
         the Reported Companies, a copy of the Reported Companies' Financial
         Statements for such fiscal year certified in a manner acceptable to the
         Controlling Party by the senior financial officer of the Servicer or
         such other person as may be acceptable to the Controlling Party, it
         being understood that delivery to the Indenture Trustee, the Backup
         Servicer, each Rating Agency and the Class A Note Insurer of the
         Servicer's report on Form 10-K filed with the Securities and Exchange
         Commission shall satisfy the requirements of this Section 3.02(a);

                  (b)      with each set of Reported Companies' Financial
         Statements delivered pursuant to subsection (a) above and (d) below,
         the Servicer will deliver an Officer's Certificate demonstrating
         compliance with all financial covenants or tests calculated by
         reference to such financial statements and containing an additional
         certification to the effect that a review of the activities of the
         Servicer during the period covered by the Reported Companies' Financial
         Statements, and of its performance under this Agreement has been made
         under the supervision of the officer executing such Officer's
         Certificate with a view to determining whether during such period the
         Servicer had performed and

                                      -18-


         observed all of its obligations under this Agreement, and either (i)
         stating that based on such review no default by the Servicer under this
         Agreement has occurred and is continuing, or (ii) if such a default has
         occurred and is continuing, specifying such default, the nature and
         status thereof and what steps, if any, the Servicer is planning to do
         or has done to cure such default;

                  (c)      promptly upon becoming aware of the existence of any
         condition or event which constitutes a Servicer Event of Termination, a
         written notice describing its nature and period of existence and what
         action the Servicer is taking or proposes to take with respect thereto;

                  (d)      quarterly, unaudited versions of the Reported
         Companies' consolidated balance sheet, year-to-date income statement,
         retained earnings and cash flows within 45 days after the end of each
         quarter (other than the quarter at the end of each fiscal year), it
         being understood that delivery to the Indenture Trustee, the Backup
         Servicer, each Rating Agency and the Class A Note Insurer of the
         Servicer's report on Form 10-Q filed with the Securities and Exchange
         Commission shall satisfy the requirements of this Section 3.02(d);

                  (e)      copies of any reports filed by the Servicer with the
         SEC or the Rating Agencies concerning the Servicer;

                  (f)      in the case of the Initial Servicer, copies of any
         certificates required to be furnished by the Initial Servicer under any
         credit agreement to which the Initial Servicer shall be a party and
         which address compliance by the Initial Servicer with the requirements
         of such credit agreement and the absence or existence of defaults
         thereunder;

                  (g)      such other information regarding the Railcars, the
         Leases, the Servicer or the transactions contemplated hereby as the
         Class A Note Insurer may reasonably request; and

                  (h)      with respect to the financial reports described in
         subsections (a) and (d), and the notice described in subsection (c),
         above, the Servicer will also deliver such reports to the Holders
         (except that the Servicer shall not be obligated to deliver the notice
         described in subsection (c) above to each Holder if the Controlling
         Party has waived such Servicer Event of Termination in accordance with
         Section 6.04).

         Section 3.03. Annual Accountants' Reports. (a) On or before 120 days
after the end of each fiscal year of the Servicer, the Servicer shall deliver to
each Company, the Indenture Trustee, the Backup Servicer, the Class A Note
Insurer (or, in the event that a Class A Note Insurer Default shall have
occurred and is continuing, the Holders of the Class A Notes), each Rating
Agency and the Class B Holders a report of a firm of independent public
accountants of recognized national standing selected by the Servicer to the
effect that such firm has examined certain documents and records relating to the
servicing of the Railcars, the Leases and the other Railcar Assets under this
Agreement and that, on the basis of such examination conducted

                                      -19-


substantially in compliance with generally accepted audit standards, nothing
came to their attention which caused them to believe that the Servicer has
accounted for matters regarding the Railcars, the Leases and the other Railcar
Assets, including deposits in, and requested withdrawals from, the Collection
Accounts, otherwise than in accordance with this Agreement, except for such
immaterial exceptions or errors on records that, in the opinion of such firm, it
is not required to report.

         (b)      In the event such independent public accountants require the
Indenture Trustee to agree to the procedures to be performed by such firm in any
of the reports required to be prepared pursuant to this Section 3.03, the
Servicer shall direct the Indenture Trustee in writing to so agree; it being
understood and agreed that the Indenture Trustee will deliver such letter of
agreement in conclusive reliance upon the direction of the Servicer, and the
Indenture Trustee has not made any independent inquiry or investigation as to,
and shall have no obligation or liability in respect of, the sufficiency,
validity or correctness of such procedures.

         Section 3.04. Delivery of Accountings, Statements and Reports. To the
extent that the Servicer and the Manager are the same Person, it may, in its
sole discretion and to the extent practicable, fulfill its obligations under
this Article III and Article III of the Management Agreement with the delivery
of one monthly report, one set of financial statements, a single Officer's
Certificate (executed in its capacities as both Servicer and Manager) or a
single accountants' report, as the case may be.

         Section 3.05. Data Downloads. The Initial Servicer shall provide to the
Backup Servicer, upon the request of the Backup Servicer from time to time, data
downloads in a format reasonably acceptable to the Backup Servicer, for the
purpose of ensuring that the Backup Servicer will be able to act as Successor
Servicer.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

         Section 4.01. Initial Servicer Representations and Warranties. The
Initial Servicer hereby represents and warrants to each Company, the Indenture
Trustee and the Backup Servicer as follows:

                  (a)      Corporate Existence and Power. The Servicer has been
         duly organized and is validly existing and in good standing as a
         corporation under the laws of the state of Ohio, with all requisite
         power and authority to own its properties and to transact the business
         in which it is now engaged, and the Servicer is duly qualified to do
         business and is in good standing in each state where the nature of its
         business requires it to be so qualified except where failure to so
         qualify would not have a Material Adverse Effect. The Servicer has all
         requisite power and authority and has taken all action necessary to
         enter into this Agreement and the other Transaction Documents to which
         it is a party, to consummate the transactions contemplated hereby and
         thereby, and to perform its obligations hereunder and thereunder. The
         execution, delivery and performance by the

                                      -20-


         Servicer of this Agreement are within the Servicer's powers, have been
         duly authorized by all necessary action and do not contravene any
         applicable Law, the Servicer's organizational documents or any
         contractual or other obligation binding on or affecting the Servicer or
         any of its assets. The Servicer has delivered to each Company, the
         Indenture Trustee and the Class A Note Insurer a true and correct copy
         of its articles of incorporation, its code of regulations and other
         organizational documents.

                  (b)      No Conflict. The performance of the Servicer's
         obligations under this Agreement and each other Transaction Document to
         which it is a party will not conflict with or result in a breach of any
         of the terms or provisions of, or constitute a default under, or result
         in the creation or imposition of any Lien (other than as contemplated
         by this Agreement and the other Transaction Documents, and other than
         Permitted Liens) upon any of the property or assets of the Servicer
         pursuant to the terms of any indenture, mortgage, deed of trust, or
         other agreement or instrument to which it is a party or by which it is
         bound or to which any of its property or assets is subject, nor will
         such action result in any violation of the provisions of any charter
         document of the Servicer or any statute or any order, rule or
         regulation of any court or Governmental Authority having jurisdiction
         over it or any of its properties; and no consent, approval,
         authorization, order, registration or qualification of or with any
         court, or any such Governmental Authority is required for the
         consummation of the other transactions contemplated by this Agreement
         or any other Transaction Document to which it is a party except such
         consents, approvals and authorizations which have been obtained or such
         registrations or qualifications which have been made.

                  (c)      Due Authorization, Execution and Delivery. Each
         Transaction Document to which the Servicer is a party has been duly
         authorized, executed and delivered by the Servicer and each such
         Transaction Document is a valid and legally binding agreement of the
         Servicer, enforceable against the Servicer in accordance with its
         terms, subject as to enforceability to applicable bankruptcy,
         insolvency, reorganization and other similar laws of general
         applicability relating to or affecting creditors' rights generally and
         to general principles of equity regardless of whether enforcement is
         sought in a court of law or equity.

                  (d)      Solvency. Both before and after giving effect to the
         transactions contemplated by this Agreement, the Servicer is Solvent.

                  (e)      Accuracy of Information. All information heretofore
         furnished (including, but not limited to, the Reported Companies'
         Financial Statements) by the Servicer to each Company, the Indenture
         Trustee, the Class A Note Insurer and the Backup Servicer for purposes
         of or in connection with this Agreement, the other Transaction
         Documents, or any transaction contemplated hereby or thereby is, and
         all such information hereafter furnished by it hereunder will be, true,
         complete and correct in every material respect, on the date such
         information is stated or certified, and no such item contains or will
         contain any untrue statement of a material fact or omits or will omit
         to state a material fact necessary in order to make the statements
         contained therein, in the light of the circumstances under which they
         were made, not misleading.

                                      -21-


                  (f)      Tax Status. It has (i) timely filed all federal,
         state and local tax returns or permitted extensions thereof in the
         United States and all other tax returns or permitted extensions thereof
         in foreign jurisdictions required to be filed and (ii) paid or made
         adequate provision in accordance with GAAP for the payment of all
         taxes, assessments and other governmental charges.

                  (g)      Employee Benefits. With respect to employees that
         primarily work in connection with the Railcar Assets:

                           (i) Except as set forth on Schedule I, with respect
                  to current or former employees of the Servicer, the Servicer
                  does not maintain, participate in or contribute to any (A)
                  deferred compensation or retirement plans or arrangements, (B)
                  tax-qualified or nonqualified defined contribution or defined
                  benefit plans or arrangements which are employee pension
                  benefit plans (as defined in Section 3(2) of ERISA), (C)
                  employee welfare benefit plans (as defined in Section 3(1) of
                  ERISA), (D) phantom stock appreciation right, stock option,
                  stock purchase or other stock based plans, or (E) any fringe
                  benefit plans or programs. The Servicer does not maintain or
                  contribute to any employee welfare benefit plan that provides
                  health, accident or life insurance benefits to former
                  employees, their spouses or dependents, other than in
                  accordance with Section 4980B of the Code or Part 6 of
                  Subtitle B of Title I of ERISA or other applicable Law.

                           (ii) The employee pension benefit plans and employee
                  welfare benefit plans (and related trusts and insurance
                  contracts) of the Servicer, which plans are described on
                  Schedule I, have been administered in compliance with the
                  requirements of applicable Laws, except where failure thereof
                  would not result in a Material Adverse Effect on the
                  Collateral. Each employee pension benefit plan which is
                  intended to be a "qualified plan" has received an opinion
                  letter from the Internal Revenue Service as to the
                  qualification under the Code of such plan.

                           (iii) With respect to each of the plans listed on
                  Schedule I, the Servicer has made available to each Company
                  and the Class A Note Insurer true and complete copies of (A)
                  the plan documents, summary plan descriptions and summaries of
                  material modifications and other material employee
                  communications about such plan, (B) the opinion letter
                  received from the Internal Revenue Service, (C) the Form 5500
                  Annual Report (including all schedules and other attachments)
                  for the most recent plan year, (D) all related trust
                  agreements, insurance contracts or other funding agreements
                  which implement such plans and (E) all contracts relating to
                  each such plan, including, without limitation, service
                  provider agreements, insurance contracts, investment
                  management agreements and record keeping agreements.

                           (iv) All contributions and other payments required to
                  have been made by the Servicer with respect to any plan
                  described on Schedule I have been or will be made when due.

                                      -22-


         To the Knowledge of the Servicer, no plan described on Schedule I is
         subject to any ongoing audit, investigation or other administrative
         proceeding of any Governmental Authority nor has any Action been
         commenced against any such plan (other than for benefits in the
         ordinary course), in which the adverse result thereof would result in a
         Material Adverse Effect on the Railcar Assets, or on any Company after
         the Closing Date.

                  (h)      Employment Matters. The Servicer is not party to,
         bound by, or negotiating in respect of any collective bargaining
         agreement or any other agreement with any labor union, association or
         other employee group in connection with its railcar leasing business,
         nor, to the Knowledge of the Servicer, is any employee that primarily
         works in connection with its railcar leasing business represented by
         any labor union or similar association. No labor union or employee
         organization has been certified or recognized as the collective
         bargaining representative of any employee of the Servicer that
         primarily works in connection with its railcar leasing business. To the
         Knowledge of the Servicer, there are no formal union organizing
         campaigns or representation proceedings in process or formally
         threatened with respect to any employee of the Servicer that primarily
         work in connection with its railcar leasing business, nor are there any
         existing or, to the Knowledge of the Servicer, threatened at large
         labor strikes, work stoppages, organized slowdowns, unfair labor
         practice charges, or labor arbitration proceedings affecting employees
         of the Servicer that primarily work in connection with its railcar
         leasing business.

                  (i)      Environmental Matters. Except to the extent such
         matters would not have a Material Adverse Effect:

                           (i) to the Knowledge of the Servicer, the Servicer is
                  in compliance with all applicable Environmental Laws related
                  to the Collateral. Except for matters that have been fully
                  resolved, the Servicer has not received any written
                  communication from any person or Governmental Authority that
                  alleges that its operations in connection with the Railcar
                  Assets are not in compliance with applicable Environmental
                  Laws;

                           (ii) to the Knowledge of the Servicer, the Servicer
                  has obtained all environmental, health and safety permits and
                  governmental authorizations (collectively, the "Environmental
                  Permits") necessary for the conduct of its railcar leasing
                  business, and all such permits are in good standing or, where
                  applicable, a renewal application has been timely filed and is
                  pending agency approval, and to the Knowledge of the Servicer,
                  the Servicer is in compliance with all terms and conditions of
                  the Environmental Permits; and

                           (iii) there is no Environmental Claim pending or, to
                  the Knowledge of the Servicer, threatened against or
                  concerning the Railcar Assets.

         To the Knowledge of the Servicer, no release of any Hazardous
         Commodities has occurred on or from any of the Railcar Assets, which
         requires investigation, assessment, monitoring, remediation or cleanup
         under Environmental Laws.

                                      -23-


                  (j)      Credit and Collection Policies. The Servicer has
         previously delivered to the Class A Note Insurer a true and correct
         copy of its credit and collection policies, and no material amendments
         shall be made to such policies without the consent of the Class A Note
         Insurer.

         Section 4.02. Company Representations and Warranties. Each Company
hereby represents and warrants to the Servicer, the Indenture Trustee and the
Backup Servicer as follows:

                  (a)      Such Company has been duly organized and is validly
         existing and in good standing under the laws of the jurisdiction of its
         organization, with all requisite power and authority to own its
         properties and to transact the business in which it is now engaged, and
         such Company is duly qualified to do business and is in good standing
         in each jurisdiction where the nature of its business requires it to be
         so qualified except where failure to so qualify would not have a
         Material Adverse Effect. Such Company has all requisite power and
         authority and has taken all action necessary to enter into this
         Agreement and the other Transaction Documents to which it is a party,
         to consummate the transactions contemplated hereby and thereby, and to
         perform its obligations hereunder and thereunder. The execution,
         delivery and performance by such Company of this Agreement and the
         other Transaction Documents are within such Company's powers, have been
         duly authorized by all necessary action and do not contravene any
         applicable Law, such Company's organizational documents or any
         contractual or other obligation binding on or affecting the Company or
         any of its assets.

                  (b)      The performance of such Company's obligations under
         this Agreement and each other Transaction Document to which it is a
         party will not conflict with or result in a breach of any of the terms
         or provisions of, or constitute a default under, or result in the
         creation or imposition of any Lien (other than as contemplated by this
         Agreement and the other Transaction Documents, and other than Permitted
         Liens) upon any of the property or assets of such Company pursuant to
         the terms of any indenture, mortgage, deed of trust, or other agreement
         (including the Leases) or instrument to which it is a party or by which
         it is bound or to which any of its property or assets is subject, nor
         will such action result in any violation of the provisions of any
         charter document of such Company or any statute or any order, rule or
         regulation of any court or Governmental Authority having jurisdiction
         over it or any of its properties; and no consent, approval,
         authorization, order, registration or qualification of or with any
         court, or any such Governmental Authority is required for the
         consummation of the other transactions contemplated by this Agreement
         or any other Transaction Document to which it is a party except such
         consents, approvals and authorizations which have been obtained or such
         registrations or qualifications which have been made.

                  (c)      Each Transaction Document to which such Company is a
         party has been duly authorized, executed and delivered by such Company
         and each such Transaction Document is a valid and legally binding
         agreement of such Company, enforceable against such Company in
         accordance with its terms, subject as to enforceability to applicable
         bankruptcy, insolvency, reorganization and other similar laws of
         general applicability

                                      -24-


         relating to or affecting creditors' rights generally and to general
         principles of equity regardless of whether enforcement is sought in a
         court of law or equity.

                  (d)      Each Company has delivered to the Servicer a true,
         complete and correct copy of the Indenture.

         Section 4.03. Requirements upon Breach of Certain Representations and
Warranties. (a) Upon discovery by any Company or the Servicer that any of the
representations or warranties of the Initial Manager set forth in the Management
Agreement with respect to each Railcar, Lease and other Railcar Asset was
incorrect as of the time made, the party making such discovery shall give prompt
notice to the others, to the Class A Note Insurer and to the Indenture Trustee,
and the Servicer shall take such steps as are necessary to cause the Initial
Manager to comply with its obligations set forth in Section 4.04 of the
Management Agreement. If the Initial Manager fails to comply with such
obligations by the date required under the Management Agreement, the Servicer
shall pursue any remedies available against the Railcar Entities under the Asset
Purchase Agreement for any breach thereunder and deposit any amounts received
from the Railcar Entities into the Collection Accounts.

         (b)      If, as a result of any act or failure to act of the Initial
Servicer (other than actions taken as a result of a default on the part of the
Lessee), any Lease shall be terminated in whole or in part by the Lessee or
amounts due under any Lease shall be reduced or impaired, other than by reason
of a short-term credit granted or allowed by the Initial Servicer in the
ordinary course of business which does not reduce the amount of Rent relating to
the relevant Lease, the Initial Servicer shall be required to Purchase all of
the Railcars related to such Lease and any related Railcar Assets by deposit of
the Purchase Price into the Collection Accounts on or prior to the Determination
Date next following the calendar month in which the Initial Servicer's
obligation to purchase such Railcars and any related Railcar Assets arose.

                                    ARTICLE V

                           INITIAL SERVICER COVENANTS

         Section 5.01. Corporate Existence; Status as Initial Servicer; Merger.
(a) The Initial Servicer shall keep in full effect its existence and good
standing as a corporation in its state of incorporation and will obtain and
preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to enable the
Initial Servicer to perform its duties under this Agreement, except where the
failure to so qualify would not have a Material Adverse Effect on the Initial
Servicer or its ability to perform its duties hereunder; provided, however, that
the Initial Servicer may reincorporate in another state, if to do so would be in
the best interest of the Initial Servicer and would not have a Material Adverse
Effect upon any Company, the Class A Note Insurer, the Backup Servicer, the
Indenture Trustee or the Holders, and the Initial Servicer has complied with the
requirements set forth in Section 5.01(b).

                                      -25-


         (b)      The Initial Servicer shall not consolidate with or merge into
any other Person or convey, transfer or lease substantially all of its assets as
an entirety to any Person, unless (i) the entity formed by such consolidation or
into which the Initial Servicer has merged or the Person which acquires by
conveyance, transfer or lease substantially all the assets of the Initial
Servicer as an entirety, executes and delivers to each Company, the Class A Note
Insurer, the Backup Servicer and the Indenture Trustee an agreement, in form and
substance reasonably satisfactory to each Company, the Backup Servicer and the
Indenture Trustee (acting at the direction of the Controlling Party), which
contains an assumption by such successor entity of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by the Initial Servicer under this Agreement, (ii) such Person at the
time of the execution of such agreement has at least the same Tangible Net Worth
as the Initial Servicer at the time of such consolidation, merger or transfer
but in any event a Tangible Net Worth of at least $75,000,000, (iii) after
giving effect to such merger or consolidation, no Servicer Event of Termination
shall have occurred and be continuing, (iv) such Person shall meet the criteria
required of and applicable to a Successor Servicer set forth in Section 6.01(b)
and (v) the Initial Servicer shall have received the prior written consent of
the Controlling Party.

         Section 5.02. The Servicer Not to Resign; No Assignment. (a) The
Servicer shall not resign from the duties and obligations hereby imposed on it
except (i) upon a determination by its Board of Directors that by reason of a
change in applicable legal requirements the continued performance by the
Servicer of its duties under this Agreement would cause it to be in violation of
such legal requirements, said determination to be evidenced by a resolution of
its Board of Directors to such effect accompanied by an Opinion of Counsel
reasonably satisfactory to the Indenture Trustee, the Backup Servicer and the
Controlling Party to such effect, (ii) upon appointment of a Successor Servicer
by the Companies, with the approval of the Indenture Trustee (acting at the
direction of the Controlling Party), and (iii) upon the entering into of
amendments to this Agreement to effect such succession in form reasonably
acceptable to each Company, the Backup Servicer and the Indenture Trustee
(acting at the direction of the Controlling Party).

         (b)      The Servicer may not assign this Agreement or delegate any of
its rights, powers, duties or obligations hereunder, provided, however, that the
Servicer may subservice its duties and obligations hereunder in accordance with
Section 2.01(k) and assign this Agreement in connection with a consolidation,
merger, conveyance, transfer or lease made in compliance with Section 5.01(b).

         (c)      Except as provided in Sections 5.02(a) and 6.01, the duties
and obligations of the Servicer under this Agreement shall continue until this
Agreement shall have been terminated as provided in Section 8.01, and shall
survive the exercise by the any Company, the Class A Note Insurer, the Backup
Servicer or the Indenture Trustee of any right or remedy under this Agreement,
or the enforcement by any Company, the Class A Note Insurer, the Backup
Servicer, the Indenture Trustee or any Holder of any provision of the Indenture,
the Notes or this Agreement.

         Section 5.03. Servicer Indemnification. The Servicer shall indemnify
and hold harmless each of the Companies, the Class A Note Insurer, the Backup
Servicer, the Indenture Trustee and

                                      -26-


the Holders and their respective Affiliates and the directors, officers,
employees and agents of each thereof (the "Indemnified Parties"), from and
against:

                  (a)      any breach of or any inaccuracy in any representation
         or warranty made by the Servicer in this Agreement or in any
         certificate delivered pursuant thereto;

                  (b)      any breach of or failure by the Servicer to perform
         any covenant or obligation of the Servicer set out or contemplated in
         this Agreement (except for any such breach or failure which has been
         fully remedied in accordance with Section 4.03);

                  (c)      the negligence, recklessness or willful misconduct of
         the Servicer;

                  (d)      any dispute, counterclaim, defense, loss, liability,
         expense, damage or injury suffered or sustained by reason of any acts,
         omissions or alleged acts or omissions arising out of any act or
         failure to act on the part of the Servicer with respect to its
         obligations under this Agreement, including but not limited to any
         judgment, award, settlement, reasonable attorneys' fees and other
         reasonable costs or expenses incurred in connection with the defense of
         any actual or threatened action, proceeding or claim;

                  (e)      any failure by the Servicer to comply with any
         applicable Law with respect to any Railcar Asset;

                  (f)      the commingling by the Servicer of Collections at any
         time with any other funds; or

                  (g)      any inability to obtain any judgment in or utilize
         the court or other adjudication system of, any jurisdiction in which a
         Lessee may be located as a result of the failure of the Servicer to
         qualify to do business or file any notice of business activity report
         or any similar report;

provided, however, that (i) the Servicer shall not indemnify the Indemnified
Parties if such acts, omissions or alleged acts or omissions constitute fraud,
negligence, or willful misconduct by such Indemnified Party, (ii) the Servicer
shall not indemnify the Indemnified Parties for any liability, cost or expense
of the Collateral with respect to any federal, state or local income or
franchise taxes (or any interest or penalties with respect thereto) required to
be paid by the Holders in connection herewith to any taxing authority, (iii) the
Servicer shall not indemnify the Indemnified Parties in respect of any Tax
Payment Amount owing by any Company, except to the extent that (A) the Servicer
shall have failed to include in the Monthly Servicer Report complete and correct
information in respect of such Tax Payment Amount and the Tax Payment Recipient
thereof and (B) amounts shall have been paid to or at the direction of the
Companies under Section 12.02(d) or Section 6.08 of the Indenture, as
applicable, which would not have been so paid but for such failure, and (iv) in
the event that a Successor Servicer (including the Backup Servicer) shall
succeed to the duties of the Servicer, the provisions of this Section 5.03 shall
not apply to such Successor Servicer unless expressly agreed to thereby. The
provisions of this Section 5.03 shall survive any expiration or termination of
this Agreement. Any

                                      -27-


indemnification owed to the Indemnified Parties under this Section 5.03 shall be
due and payable within 30 days of the applicable Indemnified Party's demand
therefor.

                                   ARTICLE VI

                              SERVICER TERMINATION

         Section 6.01. Servicer Events of Termination. (a) If any of the
following acts or occurrences (each, a "Servicer Event of Termination") shall
occur and be continuing:

                  (i) any failure by the Servicer to deposit into any Lockbox
         Account or any Collection Account any payment, transfer or deposit, any
         Insurance Proceeds or any other amounts paid under or with respect to
         any Lease, Railcar or other Railcar Asset to the Servicer or the
         Relevant Company pursuant to this Agreement, or any failure to deliver
         any original of any Lease constituting chattel paper to the Indenture
         Trustee (or to such other Person as the Indenture Trustee may direct),
         in each case required to be made hereunder that continues unremedied
         for a period of two Business Days after the date such deposit or
         delivery is required to be made; or

                  (ii) any failure by the Servicer to submit a Monthly Servicer
         Report pursuant to Section 3.01 that continues unremedied for a period
         of two Business Days after the earliest of the date upon which (A) the
         Indenture Trustee, the Class A Note Insurer or any Holder provides
         written notification to the Servicer of such failure, or (B) the date
         on which an Authorized Officer obtains actual knowledge of such
         failure; or

                  (iii) any representation or warranty made by the Servicer in
         this Agreement, any other Transaction Document to which it is a party
         or in any certificate delivered by the Servicer hereunder proves to
         have been untrue or incorrect in any material respect when made and
         such untruth or incorrectness shall continue to be material and
         unremedied; provided, however, solely if such untruth or incorrectness
         is capable of being remedied, no such untruth or incorrectness shall
         constitute cause for termination hereunder for a period of 30 days
         after the earlier of (A) the date on which an Authorized Officer
         obtains actual knowledge of such failure or (B) the Servicer's receipt
         of notice from any Company or the Indenture Trustee so long as the
         Servicer is diligently proceeding to remedy such untruth or
         incorrectness and shall in fact remedy such untruth or incorrectness
         within such period; provided, however, such untrue or incorrect
         representation or warranty shall be deemed to be remediable or remedied
         only after all adverse consequences thereof, if any, can be and have
         been remedied as applicable; or

                  (iv) any failure on the part of the Servicer duly to observe
         or to perform in any material respect any covenant or agreement of the
         Servicer (including the furnishing of documents) set forth in this
         Agreement or any other Transaction Document to which it is a party
         (including if the Servicer is also acting as the Manager, of its duties
         as the Manager), which failure, if such failure is curable, continues
         unremedied for a period of 30 days after the earlier to occur of (A)
         the date on which written notice of such failure or

                                      -28-


         breach, requiring the situation giving rise to such failure or
         breach to be remedied, shall have been given to the Servicer by the
         Indenture Trustee, the Backup Servicer, the Class A Note Insurer, each
         Company or any Holder or (B) the date on which an Authorized Officer of
         the Servicer obtains actual knowledge of such failure; or

                  (v) the entry by a court having jurisdiction in the premises
         of (A) a decree or order for relief in respect of the Servicer in an
         involuntary case or proceeding under any applicable federal or state
         bankruptcy, insolvency, reorganization or other similar law, or (B) a
         decree or order adjudging the Servicer a bankrupt or insolvent, or
         approving as properly filed a petition seeking reorganization,
         arrangement, adjustment or composition of or in respect of the Servicer
         under any applicable federal or state law, or appointing a custodian,
         receiver, liquidator, assignee, trustee, sequestrator or other similar
         official of the Servicer or of any substantial part of its property, or
         ordering the winding up or liquidation of its affairs, and the
         continuance of any of the foregoing unstayed and in effect for a period
         of 45 consecutive days; or

                  (vi) the commencement by the Servicer of a voluntary case or
         proceeding under any applicable federal or state bankruptcy,
         insolvency, reorganization or other similar law or of any other case or
         proceeding to be adjudicated a bankrupt or insolvent, or the consent by
         it to the entry of a decree or order for relief in respect of the
         Servicer in an involuntary case or proceeding under any applicable
         federal or state bankruptcy, insolvency, reorganization or other
         similar law or to the commencement of any bankruptcy or insolvency case
         or proceeding against it, or the filing by it of a petition or answer
         or consent seeking reorganization or relief under any applicable
         federal or state law, or the consent by it to the filing of such
         petition or to the appointment of or taking possession by a custodian,
         receiver, liquidator, assignee, trustee, sequestrator or similar
         official of the Servicer or of any substantial part of its property, or
         the making by it of an assignment for the benefit of creditors, or the
         admission by it in writing of its inability to pay its debts generally
         as they become due, or the taking of corporate action by the Servicer
         in furtherance of any such action; or

                  (vii) any assignment by the Servicer to a delegate of its
         duties or rights hereunder, except as specifically permitted hereunder,
         or any attempt to make such an assignment; or

                  (viii) a final nonappealable judgment of a court of competent
         jurisdiction for more than $1,000,000 shall be entered against the
         Servicer and shall not be stayed, vacated, bonded, paid or discharged
         within 45 days; or

                  (ix) the Servicer shall fail to pay, when and as the same
         shall become due and payable (after giving effect to any applicable
         grace period), any principal or interest, regardless of amount, due in
         respect of any indebtedness of the Servicer in a principal amount in
         excess of $5,000,000 or any event shall occur with respect to any such
         indebtedness, the effect of which is to cause, or allow the holder
         thereof to cause, such indebtedness to become due before its stated
         maturity; or

                                      -29-


                  (x) the Servicer shall cease to be engaged in the railcar
         servicing business (unless the Backup Servicer is acting as Servicer);
         or

                  (xi) the existence of a Rapid Amortization Event of the nature
         described in clause (b) of the definition of "Rapid Amortization Event"
         contained in the Indenture; or

                  (xii) the failure of the Initial Servicer to maintain a ratio
         of long term debt minus the non-recourse portion of long term debt to
         Tangible Net Worth of not more that 1.25 to 1; or

                  (xiii) so long as the Initial Servicer is the Servicer, the
         occurrence of a Change of Control; or

                  (xiv) so long as the Servicer or any Affiliate thereof is
         acting as Manager, the occurrence of a Manager Event of Termination
         pursuant to Section 6.01 of the Management Agreement;

then, and in each and every case, so long as a Servicer Event of Termination
shall not have been remedied within any applicable period set forth above, the
Indenture Trustee shall, at the direction of the Controlling Party, or may, with
the consent of the Controlling Party, by notice (the "Servicer Termination
Notice") then given in writing to the Servicer, terminate all, but not less than
all, of the rights (other than any rights to receive, subject to the priority of
payments set forth in Section 12.02(d) or Section 6.08 of the Indenture, as
applicable, all amounts owed to the Servicer, including but not limited to the
Servicer Fee accrued up to the effective date specified by the Servicer
Termination Notice) and obligations of the Servicer under this Agreement, which
termination shall be effective as of the date of such Servicer Termination
Notice or such later date as such Servicer Termination Notice may specify.

         (b)      The Servicer may not be terminated in whole or in part, unless
(i) a successor Servicer (the "Successor Servicer") has been appointed by the
Indenture Trustee (acting at the direction of the Controlling Party) and (ii)
such Successor Servicer has accepted such appointment. Any Successor Servicer
shall be located in the United States and be acceptable to the Controlling
Party. Any Successor Servicer, however appointed, shall execute and deliver to
the Class A Note Insurer, the Backup Servicer (if not the Successor Servicer),
the Indenture Trustee, each Company and to the predecessor Servicer an
instrument accepting such appointment, including customary confidentiality
provisions in favor of the predecessor Servicer and each Company, and thereupon
such Successor Servicer, without further act, shall become vested with all the
rights, powers, duties and trusts of the predecessor Servicer hereunder with
like effect as if originally named the Servicer herein.

         (c)      On and after the time the Servicer receives a Servicer
Termination Notice pursuant to this Section 6.01, all authority and power of the
Servicer under this Agreement shall pass to the Successor Servicer appointed
pursuant to Section 6.02, and, without limitation, such Successor Servicer is
hereby authorized and empowered to execute and deliver, as Servicer and on
behalf of each Company, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the

                                      -30-


purposes of such Servicer Termination Notice, whether to complete the transfer
of the Lease Files and related documents or otherwise.

         (d)      Upon becoming Successor Servicer, the Successor Servicer will
make arrangements for the prompt and safe transfer of all Lease Files to it from
the terminated Servicer and any other relevant parties, at the expense of the
terminated Servicer.

         (e)      The terminated Servicer shall cooperate with the Indenture
Trustee and the Successor Servicer in effecting the termination of the
responsibilities and rights of the terminated Servicer hereunder and the
transition of the servicing to the Successor Servicer, including, without
limitation, (i) by transferring to the Successor Servicer for administration by
it of all cash amounts that shall at the time be held by the Servicer for
deposit, or have been deposited by the Servicer, in any Collection Account or
any Lockbox Account or thereafter received with respect to Leases (and in
accordance therewith, the Indenture Trustee shall have the right to access
amounts on deposit in any Lockbox Account), (ii) by assisting the Successor
Servicer in enforcing all rights under Insurance Policies to the extent that
they relate to the Leases, the Railcars and the other Railcar Assets, (iii) by
transferring, at its own expense, its electronic records relating to such
Leases, Railcars and other Railcar Assets to the Successor Servicer in such
electronic form as the Successor Servicer may reasonably request, (iv) by
transferring the related Lease Files and all other records, correspondence and
documents relating to the Leases, Railcars and other Railcar Assets that it may
possess to the Successor Servicer in the manner and at such times as the
Successor Servicer shall reasonably request and (v) by responding to all
reasonable requests of the Successor Servicer.

         Section 6.02. Backup Servicer to Act; Appointment of Successor; Acting
as Manager. (a) Subject to Section 6.01, on and after the time the Servicer
receives a Servicer Termination Notice pursuant to Section 6.01, the Backup
Servicer shall, unless prevented by law (in which case such other Successor
Servicer as shall be appointed by the Indenture Trustee acting at the direction
of the Controlling Party), without further action be the Successor Servicer,
and, to the extent provided in Section 6.01, shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof; provided, however, that any Successor
Servicer shall not (i) be liable for any acts or omissions of the outgoing
Servicer or for any breach by the outgoing Servicer of any of its
representations and warranties contained herein or in any related document or
agreement, or (ii) be required to deliver financial reports pursuant to Section
3.02(h). Subject to the consent of the Controlling Party, the Successor Servicer
may subcontract with another firm to act as subservicer so long as the Successor
Servicer remains fully responsible and accountable for performance of all
obligations of the Servicer. The Successor Servicer shall be entitled to the
Servicer Fee in connection with acting as Servicer hereunder.

         (b)      The Servicer, the Backup Servicer, the Indenture Trustee and
such Successor Servicer shall take such action, consistent with this Agreement,
as shall be necessary to effectuate any such succession. The Successor Servicer
and the Indenture Trustee shall be reimbursed for their respective expenses, if
any, incurred in connection with the assumption of responsibilities of the
Successor Servicer as provided for in Section 12.02(d) or Section 6.08 of the
Indenture. In addition, the Successor Servicer shall be reimbursed for any fees
and expenses paid to any third

                                      -31-


party legal or other advisors incurred in connection with the performance of its
duties under this Agreement, as provided for in Section 12.02(d) or Section 6.08
of the Indenture.

         (c)      If the Servicer is also acting as Manager under the Management
Agreement, upon any resignation of the Manager, the Servicer will also be
required to resign as Servicer. The Manager and Servicer shall at all times be
the same Person.

         Section 6.03. Notification to Holders. Upon any termination of, or
appointment of a successor to, the Servicer pursuant to this Article VI, the
Indenture Trustee shall give prompt written notice thereof to the Holders at
their respective addresses appearing in the Note Register.

         Section 6.04. Waiver of Breaches and Defaults. The Indenture Trustee
shall, at the direction of the Controlling Party, waive any events permitting
removal of the Servicer under Section 6.01. Upon any waiver of a past default,
such default shall cease to exist, and any Servicer Event of Termination arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto except to the extent expressly so waived.

         Section 6.05. Effects of Termination of Servicer. (a) Upon the
appointment of the Successor Servicer, the Servicer shall immediately remit any
Rents or other payments that it has received or receives pursuant to any Lease
or otherwise to the Successor Servicer for the benefit of the Holders and the
Relevant Company after such date of appointment.

         (b)      After the delivery of a Servicer Termination Notice and
appointment of a Successor Servicer, the former Servicer shall have no further
obligations with respect to the servicing of the Leases or the enforcement,
custody or collection of the Leases, and the Successor Servicer shall have all
of such obligations, except that the former Servicer will transmit or cause to
be transmitted directly to the Successor Servicer for the benefit of the
Holders, promptly upon receipt and in the same form in which received, any
amounts held by the former Servicer (properly endorsed where required for the
Successor Servicer to collect them) received as payments upon or otherwise in
connection with the Leases, the Railcars or the other Railcar Assets. The former
Servicer's indemnification obligations pursuant to Section 5.03 will survive the
termination of the Servicer hereunder but will not extend to any acts or
omissions of a Successor Servicer.

         (c)      A Servicer Event of Termination shall not affect the rights
and duties of the parties hereunder (including, but not limited to, the
obligations and indemnities of the Servicer pursuant to Section 5.03) other than
those relating to the servicing, custody or collection of the Leases, the
Railcars and the other Railcar Assets.

         (d)      The predecessor Servicer shall defend, indemnify and hold the
Successor Servicer and any officers, directors, employees or agents of the
Successor Servicer harmless against any and all claims, losses, penalties,
fines, forfeitures, legal fees and related costs, judgments and any other costs,
fees, and expenses that the Successor Servicer may sustain in connection with
the claims asserted at any time by third parties against the Successor Servicer
which result from (i) any willful, bad faith or grossly negligent act taken or
omission by the predecessor Servicer or

                                      -32-


(ii) a breach by the predecessor Servicer of an express obligation of the
Servicer hereunder. The indemnification provided by this Section 6.05(d) shall
survive the termination of this Agreement.

         (e)      The Successor Servicer will not be responsible for delays
attributable to the predecessor Servicer's failure to deliver information,
defects in the information supplied by the terminated Servicer or other
circumstances beyond the control of the Successor Servicer.

         The Successor Servicer shall have no responsibility and shall not be in
default hereunder nor incur any liability for any failure, error, malfunction or
any delay in carrying out any of its duties under this Agreement if any such
failure or delay results from the Successor Servicer acting reasonably and in
accordance with information prepared or supplied by a Person other than the
Successor Servicer or the failure of any such Person to prepare or provide such
information. The Successor Servicer shall have no responsibility, shall not be
in default and shall incur no liability (i) for any act or failure to act by any
third party, including the terminated Servicer, or for any inaccuracy or
omission in a notice or communication received by the Successor Servicer from
any third party or (ii) which is due to or results from the invalidity or
unenforceability of any Lease under applicable law or the breach or the
inaccuracy of any representation or warranty made by the terminated Servicer.
The Successor Servicer shall not be liable for any acts or omissions of the
Servicer occurring prior to such Servicer transfer or for any breach by the
Servicer of any of its representations and warranties contained herein or in any
related document or agreement.

         Notwithstanding anything contained in this Agreement to the contrary,
the Successor Servicer is authorized to accept and rely on all of the
accounting, records (including computer records) and work of the terminated
Servicer relating to the Leases, the Railcars and the other Railcar Assets
(collectively, the "Predecessor Servicer Work Product") without any audit or
other examination thereof, and the Successor Servicer shall have no duty,
responsibility, obligation or liability for the acts and omissions of the prior
Servicer. If any error, inaccuracy, omission or incorrect or non-standard
practice or procedure (collectively, "Errors") exist in any Predecessor Servicer
Work Product and such Errors make it materially more difficult to service or
should cause or materially contribute to the Successor Servicer making or
continuing any Errors (collectively, "Continued Errors"), the Successor Servicer
shall have no duty, responsibility, obligation or liability for such Continued
Errors; provided, however, that the Successor Servicer agrees to use its best
efforts to prevent further Continued Errors. In the event that the Successor
Servicer becomes aware of Errors or Continued Errors, the Successor Servicer
shall, with the prior consent of the Controlling Party, use its best efforts to
reconstruct and reconcile such data as is commercially reasonable to correct
such Errors and Continued Errors and to prevent future Continued Errors. The
Successor Servicer shall be entitled to recover its costs thereby expended in
accordance with Section 12.02(d) or Section 6.08, as applicable, of the
Indenture.

         Section 6.06. Rights Cumulative. All rights and remedies from time to
time enforced upon or reserved to each Company, the Class A Note Insurer, the
Backup Servicer, the Indenture Trustee or the Holders or to any or all of the
foregoing are cumulative, and none is intended to be exclusive of another. No
delay or omission in insisting upon the strict observance or performance of any
provision of this Agreement, or in exercising any right or remedy, shall be

                                      -33-


construed as a waiver or relinquishment of such provision, nor shall it impair
such right or remedy. Every right and remedy of each Company, the Indenture
Trustee or the Holders may be exercised from time to time and as often as deemed
expedient.

                                   ARTICLE VII

                               THE BACKUP SERVICER

         Section 7.01. Representations of Backup Servicer. The Backup Servicer
makes the following representations and warranties:

                  (a)      Corporate Existence and Power. The Backup Servicer
         has been duly organized and is validly existing and in good standing as
         a national banking association under the laws of the United States of
         America, with all requisite power and authority to own its properties
         and to transact the business in which it is now engaged, and the Backup
         Servicer is duly qualified to do business and is in good standing in
         each state where the nature of its business requires it to be so
         qualified except where failure to so qualify would not have a Material
         Adverse Effect on the Backup Servicer or its ability to perform its
         obligations under this Agreement. The Backup Servicer has all requisite
         power and authority and has taken all action necessary to enter into
         this Agreement and the other Transaction Documents to which it is a
         party, to consummate the transactions contemplated hereby and thereby,
         and to perform its obligations hereunder and thereunder. The execution,
         delivery and performance by the Backup Servicer of this Agreement are
         within the Backup Servicer's powers, have been duly authorized by all
         necessary action and do not contravene any applicable Law, the Backup
         Servicer's organizational documents or any contractual or other
         obligation binding on or affecting the Backup Servicer or any of its
         assts.

                  (b)      No Conflict. The performance of the Backup Servicer's
         obligations under this Agreement and each other Transaction Document to
         which it is a party will not conflict with or result in a breach of any
         of the terms or provisions of, or constitute a default under, or result
         in the creation or imposition of any Lien (other than as contemplated
         by this Agreement and the other Transaction Documents, and other than
         Permitted Liens) upon any of the property or assets of the Backup
         Servicer pursuant to the terms of any indenture, mortgage, deed of
         trust, or other agreement or instrument to which it is a party or by
         which it is bound or to which any of its property or assets is subject,
         nor will such action result in any violation of the provisions of any
         charter document of the Backup Servicer or any statute or any order,
         rule or regulation of any court or Governmental Authority having
         jurisdiction over it or any of its properties; and no consent,
         approval, authorization, order, registration or qualification of or
         with any court, or any such Governmental Authority is required for the
         consummation of the other transactions contemplated by this Agreement
         or any other Transaction Document to which it is a party except such
         consents, approvals and authorizations which have been obtained or such
         registrations or qualifications which have been made.

                                      -34-


                  (c)      Due Authorization, Execution and Delivery. Each
         Transaction Document to which the Backup Servicer is a party has been
         duly authorized, executed and delivered by the Backup Servicer and each
         such Transaction Document is a valid and legally binding agreement of
         the Backup Servicer, enforceable against the Backup Servicer in
         accordance with its terms, subject as to enforceability to applicable
         bankruptcy, insolvency, reorganization and other similar laws of
         general applicability relating to or affecting creditors' rights
         generally and to general principles of equity regardless of whether
         enforcement is sought in a court of law or equity.

         Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, Backup Servicer. Any Person (a) into which the Backup Servicer
may be merged or consolidated, (b) which may result from any merger or
consolidation to which the Backup Servicer shall be a party, or (c) which may
succeed to the properties and assets of the Backup Servicer substantially as a
whole, which Person in any of the foregoing cases executes an agreement of
assumption to perform every obligation of the Backup Servicer hereunder, shall
be the successor to the Backup Servicer under this Agreement without any further
act on the part of any of the parties to this Agreement.

         Section 7.03. Backup Servicer Resignation. The Backup Servicer shall
not resign from its obligations and duties under this Agreement except upon
determination that the performance of its duties shall no longer be permissible
under applicable law (any such determination permitting the resignation of the
Backup Servicer shall be evidenced by an Opinion of Counsel to such effect
delivered to the Indenture Trustee and the Class A Note Insurer). Upon the
Backup Servicer's resignation pursuant to this Section 7.03, the Backup Servicer
shall comply with the provisions of this Agreement until the acceptance of a
successor Backup Servicer.

         The Backup Servicer shall consult fully with the Servicer as may be
necessary from time to time to perform or carry out the Backup Servicer's
obligations hereunder, including the obligation to succeed at any time to the
duties and obligations of the Servicer under Section 6.02.

         Section 7.04. Duties and Responsibilities. (a) The Backup Servicer
shall perform such duties and only such duties as are specifically set forth in
this Agreement, and no implied covenants or obligations shall be read into this
Agreement against the Backup Servicer.

         (b)      In the absence of bad faith, willful misconduct or negligence
on its part, the Backup Servicer may conclusively rely as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Backup Servicer and conforming to the
requirements of this Agreement; but in the case of any such certificates or
opinions, which by any provision hereof are specifically required to be
furnished to the Backup Servicer, the Backup Servicer shall be under a duty to
examine the same and to determine whether or not they conform to the
requirements of this Agreement.

         Section 7.05. Backup Servicer Compensation. As compensation to the
Backup Servicer for the performance of services hereunder, the Backup Servicer
shall be entitled to receive the Backup Servicer Fee, which shall be paid to the
Backup Servicer on each Payment Date in

                                      -35-


accordance with, and subject to the priority of payment provisions of, Section
12.02(d) or Section 6.08, as applicable, of the Indenture.

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

         Section 8.01. Termination of Agreement. (a) Except where otherwise
expressly noted herein, the respective duties and obligations of the Servicer,
each Company, the Backup Servicer and the Indenture Trustee created by this
Agreement shall terminate upon the discharge of the Indenture in accordance with
its terms. Upon the termination of this Agreement pursuant to this Section
8.01(a), the Servicer shall pay all monies with respect to the Leases, the Lease
Receivables and the Railcars held by the Servicer and to which the Servicer is
not entitled to the Successor Servicer or upon the Successor Servicer's order.

         (b)      This Agreement shall not be automatically terminated as a
result of an Event of Default under the Indenture or any action taken by the
Indenture Trustee thereafter with respect thereto, and any liquidation or
preservation of any property held as contemplated in the Indenture by the
Indenture Trustee thereafter shall be subject to the rights of the Servicer to
manage the Railcars as provided hereunder.

         Section 8.02. Amendments. (a) This Agreement may be amended by the
parties hereto, without the consent of any Holders but with the consent of the
Class A Note Insurer (so long as no Class A Note Insurer Default shall have
occurred and is continuing), to cure any ambiguity, to correct or supplement any
provisions in this Agreement which are inconsistent with the provisions herein,
or to add any other provisions with respect to matters or questions arising
under this Agreement that shall not be inconsistent with the provisions of this
Agreement; provided, however, that the Rating Agency Condition shall have been
met.

         (b)      This Agreement may also be amended from time to time by the
parties hereto with the prior written consent of the Controlling Party for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Holders.

         (c)      Prior to the execution of any amendment or consent under this
Section 8.02, the Servicer shall furnish written notification of the substance
of such amendment or consent, together with a copy thereof, to each Rating
Agency.

         (d)      Promptly after the execution of any such amendment, the
Servicer shall furnish a written copy of the text of such amendment (and any
consent required with respect thereto) to the other parties hereto, the Class A
Note Insurer and to each Holder.

         (e)      Approval of the particular form of any proposed amendment or
consent shall not be necessary for the consent of any Holders, if required under
Section 8.02(b), but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such

                                      -36-


consents and of evidencing the authorization of the execution thereof by the
Holders shall be subject to such reasonable requirements as the Indenture
Trustee may prescribe.

         (f)      The Indenture Trustee may request an Opinion of Counsel, an
Officer's Certificate and such other opinions, certificates and documents as it
deems advisable in connection with any proposed amendment of this Agreement. The
Indenture Trustee may, but shall not be obligated to, execute and deliver any
such amendment which affects that Indenture Trustee's rights, powers, immunities
or indemnifications hereunder.

         Section 8.03. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, INCLUDING SECTIONS
5-1401 AND 1402 OF THE GENERAL OBLIGATIONS LAWS, BUT OTHERWISE WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

         Section 8.04. Notices. All demands, notices and communications
hereunder shall be in writing and shall be delivered or mailed by registered or
certified United States mail, postage prepaid, or by telephonic facsimile
transmission and overnight delivery service, postage prepaid, and addressed, in
each case as follows: (a) if to NARCAT, at 480 W. Dussel Drive, Suite R, Maumee,
Ohio 43537; (b) if to CARCAT, at 480 W. Dussel Drive, Suite R, Maumee, Ohio
43537; (c) if to NARCAT Mexico, at 480 W. Dussel Drive, Suite R, Maumee, Ohio
43537; (d) if to the Servicer, at The Andersons Inc., 480 W. Dussel Drive,
Maumee, Ohio 43537, Attention: Betsy Hall, Esq. (facsimile: (419) 491-6695); (e)
if to the Indenture Trustee or the Backup Servicer, at Wells Fargo Bank,
National Association, MAC N9311-161, Sixth Street and Marquette Avenue,
Minneapolis, Minnesota 55479, Attention: Corporate Trust Services --
Asset-Backed Administration (facsimile: (612) 667-3539); (f) if to any Holder,
at its address for notices specified in the Register for the Notes maintained
pursuant to the Indenture and (g) if to the Class A Note Insurer, at the address
specified in the Indenture. Any of the Persons in subclauses (a) through (e) and
(g) above may change the address for notices hereunder by giving notice of such
change to other Persons. Any change of address shown in the Note Register shall,
after the date of such change, be effective to change the address for such
Holder hereunder. The Indenture Trustee shall provide all parties hereto with
notice of any change of address shown in the Note Register. All notices and
demands shall be deemed to have been given either at the time of the delivery
thereof to any officer of the Person entitled to receive such notices and
demands at the address of such Person for notices hereunder.

         Section 8.05. Severability of Provisions. If one or more of the
provisions of this Agreement shall be for any reason whatever held invalid, such
provisions shall be deemed severable from the remaining provisions of this
Agreement and shall in no way affect the validity or enforceability of such
remaining provisions, the rights of any parties hereto, or the rights of the
Class A Note Insurer, the Backup Servicer, the Indenture Trustee or any Holders.
To the extent permitted by law, the parties hereto hereby waive any provision of
law which renders any provision of this Agreement prohibited or unenforceable in
any respect.

                                      -37-


         Section 8.06. Inspection and Examination Rights. The Servicer agrees
that, on reasonable prior notice, it will permit any representative of the Class
A Note Insurer, the Backup Servicer, the Indenture Trustee, the Controlling
Party or any Company, during the Servicer's normal business hours, to examine
all the Lease Files, books of account, records, reports and other papers of the
Servicer relating to the Railcar Assets and related documents, to make copies
and extracts therefrom, to cause such books to be examined by independent
certified public accountants selected by the Class A Note Insurer, the Backup
Servicer, the Indenture Trustee, the Controlling Party or any Company, as the
case may be, and to discuss its affairs, finances and accounts relating to the
Railcar Assets with its officers, employees and independent public accountants
(and by this provision the Servicer hereby authorizes said accountants to
discuss with such representatives such affairs, finances and accounts), all at
such reasonable times and as often as may be reasonably requested. Any expense
incident to the exercise by the Class A Note Insurer, the Backup Servicer, the
Indenture Trustee or any Company of any right under this Section 8.06 shall be
borne by the Initial Servicer, except that only the first examination in any
year by the Class A Note Insurer, the Backup Servicer, the Indenture Trustee or
the Controlling Party will be at the Initial Manager's expense (unless there has
occurred and is continuing a Manager Event of Termination (if the Manager is
also the Servicer), a Servicer Event of Termination or a Rapid Amortization
Event (or any event which, with the giving of notice or passage of time, would
constitute any such event), in each of which cases each such examination shall
be at the expense of the Manager)), or if a Successor Servicer other than an
Affiliate of the Initial Servicer is then acting as Servicer, such expense shall
be borne by the party exercising such right of inspection; provided, however,
that in no event shall the Class A Note Insurer, the Backup Servicer, the
Indenture Trustee, the Controlling Party or any Company be entitled to any
expenses hereunder for which it has been previously reimbursed pursuant to
Section 8.06 of the Management Agreement.

         Section 8.07. Binding Effect. All provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors and assigns
of the parties hereto.

         Section 8.08. Article Headings. The article headings herein are for
convenience of reference only, and shall not limit or otherwise affect the
meaning hereof.

         Section 8.09. Legal Holidays. In the case where the date on which any
action required to be taken, document required to be delivered or payment
required to be made is not a Business Day, such action, delivery or payment need
not be made on such date, but may be made on the next succeeding Business Day.

         Section 8.10. Assignment for Security for the Notes. The Servicer
understands that each Company will assign to, and grant to the Indenture Trustee
under the Indenture a security interest in, all of its right, title and interest
to this Agreement. The Servicer consents to such assignment and grant and
further agrees that all representations, warranties, covenants, and agreements
of the Servicer made herein shall also be for the benefit of and inure to the
Class A Note Insurer, the Indenture Trustee and the Holders.

         Section 8.11. Servicing Agreement to Control. To the extent of any
inconsistency between the provisions of this Servicing Agreement and the
Management Agreement as to the

                                      -38-


obligations or responsibilities of the Servicer to service or administer the
Leases, the provisions of this Servicing Agreement shall control.

         Section 8.12. Third-Party Beneficiaries. The Class A Note Insurer and
its successors and assigns shall be third-party beneficiaries to the provisions
of this Agreement, and shall be entitled to rely upon and directly enforce such
provisions of this Agreement. Nothing in this Agreement, express or implied,
shall give to any Person, other than the Class A Note Insurer, the parties
hereto and their successors hereunder and permitted assigns, any benefit or any
legal or equitable right, remedy or claim under this Agreement.

         Section 8.13. No Bankruptcy Petition. The Servicer hereby covenants and
agrees for the benefit of each of the parties hereto, the Indenture Trustee and
each of the other Secured Parties, that, prior to the date which is one year and
one day after the payment in full of all obligations of each of the Companies,
it will not institute against any Company, or join any other Person in
instituting against any Company, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or other proceedings under the laws of the
United States, any state of the United States or any foreign jurisdiction. Each
Company hereby covenants and agrees for the benefit of each of the parties
hereto, the Indenture Trustee and each of the other Secured Parties, that, prior
to the date which is one year and one day after the payment in full of all
obligations of the Servicer and each other Company, it will not institute
against the Servicer or any other Company, or join any other Person in
instituting against the Servicer or any other Company any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
proceedings under the laws of the United States, any state of the United States
or any foreign jurisdiction. This Section 8.13 shall survive the termination of
this Agreement.

                                      -39-


         IN WITNESS WHEREOF, each Company, the Servicer, the Indenture Trustee
and the Backup Servicer have caused this Agreement to be duly executed by their
respective officers thereunto duly authorized as of the date and year first
above written.

                                     NARCAT LLC

                                     By /s/Rasesh H. Shah
                                        -------------------------------------
                                        Name: Rasesh H. Shah
                                        Title: Manager

                                     CARCAT ULC

                                     By /s/Rasesh H. Shah
                                        -------------------------------------
                                        Name: Rasesh H. Shah
                                        Title:  President/Secretary

                                     NARCAT MEXICO, S. DE R.L. DE C.V.

                                     By /s/Rasesh H. Shah
                                        -------------------------------------
                                        Name: Rasesh H. Shah
                                        Title:  Legal Representative

                                     THE ANDERSONS, INC.

                                     By /s/Gary Smith
                                        -------------------------------------
                                        Name: Gary Smith
                                        Title:  Vice President,
                                                Finance and Treasurer

                                     WELLS FARGO BANK, NATIONAL ASSOCIATION,
                                        as Indenture Trustee and as Backup
                                        Servicer

                                     By /s/Joe Nardi
                                        Name: Joe Nardi
                                        Title: Vice President

                                      -40-

EX-21

                                                                               .
                                                                               .
                                                                               .
                                                                      Exhibit 21

                          SUBSIDIARIES OF THE ANDERSONS



                                                                                                 PLACE OF
                                         SUBSIDIARY                                            ORGANIZATION
- --------------------------------------------------------------------------------               ------------
                                                                                            
The Andersons Ag Software, Inc.                                                                Ohio
(a corporation owned 100% by Metamora Commodity Company, Incorporated)

The Andersons Agriculture Group, LP (a limited partnership owned 99% by The                    Ohio
Andersons, Inc. and owned 1% by TAI Holdings, Inc.)

The Andersons Agriservices, Inc.                                                               Illinois
(a corporation owned 100% by The Andersons, Inc.)

The Andersons AgVantage Agency, LLC                                                            Ohio
(a limited liability company owned 100% by Metamora
         Commodity Company, Incorporated)

The Andersons ALACO Lawn, Inc.                                                                 Alabama
(a corporation owned 100% by The Andersons, Inc.)

The Andersons Lawn Fertilizer Division, Inc.                                                   Ohio
(a corporation owned 100% by The Andersons, Inc.)

The Andersons Mower Center, Inc.                                                               Ohio
(a corporation owned 100% by The Andersons, Inc.)

The Andersons Technologies, Inc.                                                               Michigan
(a corporation owned 100% by The Andersons Lawn Fertilizer
         Division, Inc.)

Cap Acquire LLC                                                                                Delaware
(a limited liability company owned 100% by TOP CAT Holding Co.)

Cap Acquire Canada ULC                                                                         Nova Scotia
(an unlimited liability company owned 100% by TOP CAT Holding Co.)

Cap Acquire Mexico S. de R.L. de C.V.                                                          Mexico
(a Mexican SRL owned 99.97% by TOP CAT Holding Co. and 0.03% by Cap Acquire LLC)

CARCAT ULC                                                                                     Nova Scotia
(an unlimited liability company owned 100% by Cap Acquire Canada ULC)




                                                                      Exhibit 21



                                                                                                 PLACE OF
                                         SUBSIDIARY                                            ORGANIZATION
- --------------------------------------------------------------------------------               ------------
                                                                                            
Crop & Soil Service, Inc.                                                                      Ohio
(a corporation owned 100% by The Andersons, Inc.)

Metamora Commodity Company Incorporated                                                        Ohio
(a corporation owned 100% by The Andersons, Inc.)

NARCAT LLC                                                                                     Delaware
(a limited liability company owned 100% by Cap Acquire LLC)

NARCAT Mexico S. de R.L. de C.V.                                                               Mexico
(a Mexican SRL owned 99.97% by Cap Acquire Mexico S. de R.L. de C. V.
         and 0.03% by Cap Acquire LLC

NuRail USA LLC                                                                                 Ohio
(a limited liability company owned 100% by TAI Holdins, Inc.)

NuRail Canada ULC

(an unlimited liability company owned 100% by TAI Holdings, Inc.)                              Nova Scotia

TAI Holdings, Inc.                                                                             Michigan
(a corporation owned 100% by The Andersons, Inc.)

TOP CAT Holding Co.                                                                            Delaware
(a corporation owned 100% by The Andersons, Inc.)

EX-23

                                                                      Exhibit 23

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-101770, 333-00233 and 333-53137) and
Registration Statement on Form S-3 (No. 333-103996) of The Andersons, Inc. of
our report dated March 8, 2004 relating to the financial statements and
financial statement schedule, which appears in this Form 10-K.

/s/PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Toledo, Ohio
March 11, 2004

EX-31.1

                                                                    EXHIBIT 31.1

                                 CERTIFICATIONS

I, Michael J. Anderson, certify that:

         1.       I have reviewed this annual report on Form 10-K of The
                  Andersons, Inc.;

         2.       Based on my knowledge, this report does not contain any untrue
                  statement of a material fact or omit to state a material fact
                  necessary to make the statements made, in light of the
                  circumstances under which such statements were made, not
                  misleading with respect to the period covered by this report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this report, fairly present
                  in all material respects the financial condition, results of
                  operations and cash flows of the registrant as of, and for,
                  the periods presented in this report;

         4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-15(e) and 15d-15(e)) for the registrant and have:

                  a)       Designed such disclosure controls and procedures, or
                           caused such disclosure controls and procedures to be
                           designed under our supervision, to ensure that
                           material information relating to the registrant,
                           including its consolidated subsidiaries, is made
                           known to us by others within those entities,
                           particularly during the period in which this annual
                           report is being prepared;

                  b)       Evaluated the effectiveness of the registrant's
                           disclosure controls and procedures and presented in
                           this report our conclusions about the effectiveness
                           of the disclosure controls and procedures, as of the
                           end of the period covered by this report based on
                           such evaluation; and

                  c)       Disclosed in this report any change in the
                           registrant's internal control over financial
                           reporting that occurred during the registrant's most
                           recent fourth fiscal quarter that has materially
                           affected, or is reasonable likely to materially
                           affect, the registrant's internal control over
                           financial reporting; and

         5.       The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation of internal
                  control over financial reporting, to the registrant's auditors
                  and the audit committee of registrant's board of directors (or
                  persons performing the equivalent functions):

                  a)       All significant deficiencies and material weaknesses
                           in the design or operation of internal control over
                           financial reporting which are reasonably likely to



                           adversely affect the registrant's ability to record,
                           process, summarize and report financial information;
                           and

                  b)       Any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal control over
                           financial reporting.

March 11, 2004

                                           /s/Michael J. Anderson
                                           ------------------------------
                                           Michael J. Anderson
                                           President and Chief Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2

                                 CERTIFICATIONS

I, Richard R. George, certify that:

         1.       I have reviewed this annual report on Form 10-K of The
                  Andersons, Inc.;

         2.       Based on my knowledge, this report does not contain any untrue
                  statement of a material fact or omit to state a material fact
                  necessary to make the statements made, in light of the
                  circumstances under which such statements were made, not
                  misleading with respect to the period covered by this report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this report, fairly present
                  in all material respects the financial condition, results of
                  operations and cash flows of the registrant as of, and for,
                  the periods presented in this report;

         4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-15(e) and 15d-15(e)) for the registrant and have:

                  a)       Designed such disclosure controls and procedures, or
                           caused such disclosure controls and procedures to be
                           designed under our supervision, to ensure that
                           material information relating to the registrant,
                           including its consolidated subsidiaries, is made
                           known to us by others within those entities,
                           particularly during the period in which this annual
                           report is being prepared;

                  b)       Evaluated the effectiveness of the registrant's
                           disclosure controls and procedures and presented in
                           this report our conclusions about the effectiveness
                           of the disclosure controls and procedures, as of the
                           end of the period covered by this report based on
                           such evaluation; and

                  c)       Disclosed in this report any change in the
                           registrant's internal control over financial
                           reporting that occurred during the registrant's most
                           recent fourth fiscal quarter that has materially
                           affected, or is reasonable likely to materially
                           affect, the registrant's internal control over
                           financial reporting; and

         5.       The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation of internal
                  control over financial reporting, to the registrant's auditors
                  and the audit committee of registrant's board of directors (or
                  persons performing the equivalent functions):

                  a)       All significant deficiencies and material weaknesses
                           in the design or operation of internal control over
                           financial reporting which are reasonably likely to



                           adversely affect the registrant's ability to record,
                           process, summarize and report financial information;
                           and

                  b)       Any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal control over
                           financial reporting.

March 11, 2004

                                           /s/Richard R. George
                                           -----------------------------
                                           Richard R. George
                                           Vice President, Controller and CIO

EX-31.3

                                                                    EXHIBIT 31.3

                                 CERTIFICATIONS

I, Gary L. Smith, certify that:

         1.       I have reviewed this annual report on Form 10-K of The
                  Andersons, Inc.;

         2.       Based on my knowledge, this report does not contain any untrue
                  statement of a material fact or omit to state a material fact
                  necessary to make the statements made, in light of the
                  circumstances under which such statements were made, not
                  misleading with respect to the period covered by this report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this report, fairly present
                  in all material respects the financial condition, results of
                  operations and cash flows of the registrant as of, and for,
                  the periods presented in this report;

         4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-15(e) and 15d-15(e)) for the registrant and have:

                  a)       Designed such disclosure controls and procedures, or
                           caused such disclosure controls and procedures to be
                           designed under our supervision, to ensure that
                           material information relating to the registrant,
                           including its consolidated subsidiaries, is made
                           known to us by others within those entities,
                           particularly during the period in which this annual
                           report is being prepared;

                  b)       Evaluated the effectiveness of the registrant's
                           disclosure controls and procedures and presented in
                           this report our conclusions about the effectiveness
                           of the disclosure controls and procedures, as of the
                           end of the period covered by this report based on
                           such evaluation; and

                  c)       Disclosed in this report any change in the
                           registrant's internal control over financial
                           reporting that occurred during the registrant's most
                           recent fourth fiscal quarter that has materially
                           affected, or is reasonable likely to materially
                           affect, the registrant's internal control over
                           financial reporting; and

         5.       The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation of internal
                  control over financial reporting, to the registrant's auditors
                  and the audit committee of registrant's board of directors (or
                  persons performing the equivalent functions):

                  a)       All significant deficiencies and material weaknesses
                           in the design or operation of internal control over
                           financial reporting which are reasonably likely to



                           adversely affect the registrant's ability to record,
                           process, summarize and report financial information;
                           and

                  b)       Any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal control over
                           financial reporting.

March 11, 2004

                                           /s/Gary L. Smith
                                           ----------------------------
                                           Gary L. Smith
                                           Vice President, Finance and Treasurer

EX-32.1

                                                                    Exhibit 32.1

                               THE ANDERSONS, INC.
                CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350

         In connection with the Annual Report of The Andersons, Inc. (the
"Company") on Form 10-K for the year ended December 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), each of
the undersigned officers of the Company certifies pursuant to 18 W.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003, that
to such officer's knowledge:

         (1)      The Report fully complies with the requirements of Section
                  13(a) or 15(d) of the Securities Exchange Act of 1934, and

         (2)      The information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company as of the dates and for the periods
                  expressed in the Report.

March 11, 2004

                                          /s/Michael J. Anderson
                                          --------------------------------------
                                          Michael J. Anderson
                                          President and Chief Executive Officer

                                          /s/Richard R. George
                                          --------------------------------------
                                          Richard R. George
                                          Vice President, Controller and CIO

                                          /s/Gary L. Smith
                                          --------------------------------------
                                          Gary L. Smith
                                          Vice President, Finance and Treasurer