<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
RULE 424(B)(2)
REGISTRATION NO. 33-51623
SUBJECT TO COMPLETION, DATED FEBRUARY 23, 1994
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 23, 1994
$380,000,000
[LOGO]
1994 PASS THROUGH TRUSTS
1994 PASS THROUGH CERTIFICATES, SERIES A310-A1
1994 PASS THROUGH CERTIFICATES, SERIES A310-A2
--------------
The Pass Through Certificates offered hereby consist of Federal Express
Corporation 1994 Pass Through Certificates, Series A310-A1 in the aggregate
amount of $ and Federal Express Corporation 1994 Pass Through Certificates,
Series A310-A2 in the aggregate amount of $ , which will represent
fractional undivided interests in the Federal Express Corporation Pass Through
Trust, 1994-A310-A1 and the Federal Express Corporation Pass Through Trust,
1994-A310-A2, respectively. Each Pass Through Trust will be formed pursuant to
the Pass Through Agreement and a related Series Supplement, in each case between
Federal Express Corporation (the "Corporation") and NationsBank of South
Carolina, National Association, not in its individual capacity but solely as the
Pass Through Trustee under such Pass Through Trust. The property of each Pass
Through Trust will consist of Equipment Trust Certificates from each of 13
separate series of Equipment Trust Certificates being issued by the Owner
Trustee on behalf of the Owner Trust to fund a portion of the total amount to be
paid by the Owner Trustee to acquire one of 13 Airbus A310-203 aircraft (each,
and collectively, the "Aircraft"). The Aircraft were delivered new to Deutsche
Lufthansa Aktiengesellschaft ("Lufthansa") between 1983 and 1986 and have been
operated in Lufthansa's commercial passenger transportation service. Each
Aircraft is being converted from passenger configuration to freighter
configuration and, upon the acceptance by the Corporation of such Aircraft when
such conversion has been completed and upon the satisfaction of certain other
conditions, will be leased to the Corporation by the Owner Trustee on the
related Lease Commencement Date, as described herein. For each of the 13
Aircraft, two Equipment Trust Certificates, each of which
(CONTINUED ON FOLLOWING PAGE)
NO EMPLOYEE BENEFIT PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR INDIVIDUAL RETIREMENT
ACCOUNT OR PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"; SUCH PLANS ARE HEREINAFTER COLLECTIVELY REFERRED TO AS AN
"ERISA PLAN"), MAY ACQUIRE OR HOLD THE PASS THROUGH CERTIFICATES. CERTAIN
GOVERNMENTAL AND NON-ELECTING CHURCH PLANS, HOWEVER, ARE NOT SUBJECT TO TITLE I
OF ERISA OR SECTION 4975 OF THE CODE AND, THEREFORE, MAY INVEST IN THE PASS
THROUGH CERTIFICATES. THE PURCHASE BY ANY PERSON OF ANY PASS THROUGH CERTIFICATE
CONSTITUTES A REPRESENTATION BY SUCH PERSON TO THE CORPORATION, THE OWNER
PARTICIPANT, THE OWNER TRUSTEE, THE INDENTURE TRUSTEE AND THE PASS THROUGH
TRUSTEE THAT SUCH PERSON IS NOT AN ERISA PLAN AND THAT SUCH PERSON IS NOT
ACQUIRING, AND HAS NOT ACQUIRED, SUCH PASS THROUGH CERTIFICATE WITH ASSETS OF AN
ERISA PLAN.
Prior to their issuance there has been no market for the Pass Through
Certificates and there can be no assurance that one will develop. See
"Underwriting" in this Prospectus Supplement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
AGGREGATE APPLICABLE FINAL INITIAL PUBLIC OFFERING
PASS THROUGH CERTIFICATES AMOUNT INTEREST RATE DISTRIBUTION DATE PRICE(1)(2)
- ----------------------------------------------- ------------- --------------- ----------------- -----------------------
<S> <C> <C> <C> <C>
Series A310-A1................................. $ %
Series A310-A2.................................
Total.......................................... $ $
<FN>
- --------------------------
(1) Plus accrued interest, if any, at the applicable rate from the date of
issuance of such Pass Through Certificates.
(2) All of the proceeds from the sale of the Pass Through Certificates will be
used to purchase the Equipment Trust Certificates from the Owner Trustee
on behalf of the Owner Trust. The underwriting commission, consisting of
$ with respect to Series A310-A1 and $ with respect to Series
A310-A2, aggregates $ , which constitutes % of the amount of the
Pass Through Certificates. The underwriting commission and certain other
expenses relating to the offering, estimated at $ , will be paid on
behalf of the Owner Participant by the Owner Trustee from the proceeds of
the sale of the Equipment Trust Certificates to the Pass Through Trustee,
while certain other expenses relating to the offering, estimated at
$ , will be paid by the Corporation. The Corporation has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
</TABLE>
----------------
The Pass Through Certificates are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to accept any order in whole or in part. It is expected that the Pass
Through Certificates will be ready for delivery at the offices of Goldman, Sachs
& Co., New York, New York, on or about March , 1994 against payment therefor
in immediately available funds.
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
---------
The date of this Prospectus Supplement is March , 1994.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
will have a different principal amount, interest rate, maturity date and
schedule of principal payments, will be issued under the related Indenture as
nonrecourse obligations of First Security Bank of Utah, National Association,
acting not in its individual capacity but solely as Owner Trustee of the Owner
Trust, and will be purchased from the Owner Trustee by the Pass Through Trustee.
The aggregate principal amount of the Equipment Trust Certificates relating to
each Aircraft will not exceed approximately 94% of the Aircraft Cost (as defined
herein) for such Aircraft.
For each Pass Through Trust, all of the Equipment Trust Certificates
purchased by the Pass Through Trustee will have identical interest rates, in
each case equal to the rate applicable to the Pass Through Certificates of such
Pass Through Trust set forth on the cover of this Prospectus Supplement, and
will have a maturity date on or before the final distribution date for such Pass
Through Trust. Interest paid on the Equipment Trust Certificates held in each
Pass Through Trust will be passed through to the related Certificateholders on
each and , commencing on , 1994, at the rate per
annum set forth on the front cover hereof for the related Pass Through
Certificates until the final distribution date for such Pass Through Trust.
Principal paid on the Equipment Trust Certificates held in each Pass Through
Trust will be passed through to the related Certificateholders in scheduled
amounts on or , or both, of each specified year, commencing
on , for the Series A310-A1 Pass Through Certificates and
commencing on , for the Series A310-A2 Pass Through Certificates,
until the final distribution date for such Pass Through Trust.
Each Aircraft is to be converted from passenger configuration to freighter
configuration. The period from the Closing Date to the date (the "Scheduled
Lease Commencement Date") scheduled for the commencement of the Lease relating
to such Aircraft after such conversion is referred to as the "Scheduled
Pre-Funding Period" for such Aircraft. If, on the Scheduled Lease Commencement
Date for an Aircraft, the related Lease does not commence or the Indenture
Trustee does not release the portion of the related Aircraft Cost payable by the
Indenture Trustee (the "Collateral Account Release Amount"), then the period
from such Scheduled Lease Commencment Date to the date (the "Exchange Date")
that the Indenture Trustee does release the related Collateral Account Release
Amount shall be referred to as the "Extended Pre-Funding Period" for such
Aircraft. The Scheduled Pre-Funding Period, together with the Extended
Pre-Funding Period, if any, for an Aircraft shall be referred to as the
"Pre-Funding Period" for such Aircraft. For each Aircraft, during the related
Pre-Funding Period, the related Equipment Trust Certificates will be secured by
(i) a collateral account (each, a "Collateral Account") funded by proceeds of
the sale of such Equipment Trust Certificates, after deducting certain expenses
of the offering made hereby; (ii) an assignment of certain of the Owner
Trustee's rights under the Agreement to Lease with respect to such Aircraft;
(iii) one of 13 irrevocable Letters of Credit to be issued by Westdeutsche
Landesbank Girozentrale, New York Branch ("WestLB"), in the amount specified
herein; and (iv) one or more promissory notes issued by Lufthansa, payable on
demand, in the principal amount specified herein (each, a "Demand Note"), which
will be contributed by the Owner Participant to the trust estate of the Owner
Trustee and assigned to the Indenture Trustee.
Funds deposited in the Collateral Account relating to an Aircraft will be
invested in obligations of, or guaranteed by, the United States of America and,
together with the anticipated income from such Specified Investments, will be
used to pay the interest accrued on the related Equipment Trust Certificates
during the Scheduled Pre-Funding Period for such Aircraft and, unless there is a
mandatory prepayment of such Equipment Trust Certificates during the related
Pre-Funding Period, will be available to fund the Collateral Account Release
Amount on the related Exchange Date. Amounts drawn under each Letter of Credit
will be available to make scheduled payments of principal, if any, and interest
on the related Equipment Trust Certificates during the Extended Pre-Funding
Period, if any, relating to an Aircraft and, unless there is a mandatory
prepayment of such Equipment Trust Certificates during the related Pre-Funding
Period, will be available to pay the excess, if any, of principal and interest
due on the first payment date after the related Pre-Funding Period over the sum
of the amount of rent payable by the Corporation on such payment date pursuant
to the related Lease and any amount then in the related Collateral Account. If
there is a mandatory prepayment of the related Equipment Trust Certificates
during the Pre-Funding Period, the amount in the related Collateral Account,
together with amounts drawn pursuant to the related Letter of Credit, will be
available to fund such mandatory prepayment. See "Description of the Equipment
Trust Certificates --Security -- Pre-Funding Period" below for a discussion of
the availability of the Demand Notes to fund payment shortfalls, if any, during
the Pre-Funding Periods.
For each Aircraft, after the related Pre-Funding Period, the related
Equipment Trust Certificates will be secured by a security interest in such
Aircraft and by an assignment to the Indenture Trustee of certain of the Owner
Trustee's rights under the related Lease, including the right to receive rental
payments payable by the Corporation thereunder. For each Aircraft, after the
related Pre-Funding Period, the Corporation will be obligated to make rental
payments thereunder that will be sufficient to pay the principal of and interest
on the related Equipment Trust Certificates when and as due and payable, except
that on the first scheduled payment date after the related Exchange Date, the
difference between the rental payment due on such payment date by the
Corporation and the scheduled payment of principal, if any, and interest then
due on such Equipment Trust Certificates will be payable from the amount
available in the related Collateral Account and, if such payment date occurs
after an Extended Pre-Funding Period under the related Collateral Agreement,
funds available under the related Letter of Credit.
For any Aircraft, prior to the commencement of the related Lease, the
Corporation will not be required to make any rental payments with respect to
such Aircraft, and during the Pre-Funding Period, even if such Lease has
commenced, the Equipment Trust Certificates will not be secured by such Aircraft
or the related Lease, including any rental payments under such Lease. Only upon
commencement of such Lease and the release by the Indenture Trustee to the Owner
Trustee of the related Collateral Account Release Amount will the Equipment
Trust Certificates issued under the Indenture relating to such Aircraft be
secured by such Aircraft and Lease. Since the commencement of each Lease is
subject to certain conditions, including the acceptance of the related Aircraft
by the Corporation upon completion of the conversion of such Aircraft from
passenger to freighter configuration, there can be no assurance that the Lease
for such Aircraft will commence prior to the related Cut-off Date (as defined
below). See "Description of the Equipment Trust Certificates--
Prepayment--Prepayment without Premium" in this Prospectus Supplement for a
discussion of the prepayment of the related Equipment Trust Certificates in such
circumstances.
Prior to the maturity thereof, the Equipment Trust Certificates relating to
any Aircraft may be purchased at the direction of the Owner Participant and such
Equipment Trust Certificates may be prepaid by the Owner Trustee, under the
circumstances and at the prices described in this Prospectus Supplement under
"Description of the Equipment Trust Certificates--Prepayment." Any such purchase
or prepayment would result in an early distribution of principal paid in respect
of the Pass Through Certificates.
THE PASS THROUGH CERTIFICATES REPRESENT INTERESTS IN THE RELATED PASS
THROUGH TRUST ONLY AND ALL PAYMENTS AND DISTRIBUTIONS SHALL BE MADE ONLY FROM
THE PROPERTY OF SUCH PASS THROUGH TRUST. THE PASS THROUGH CERTIFICATES DO NOT
REPRESENT AN INTEREST IN, OBLIGATION OF, OR GUARANTEE BY THE CORPORATION.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PASS THROUGH
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN ANY OVER-THE-COUNTER MARKET OR
OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF MORE DETAILED INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
THE OFFERING
<TABLE>
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Glossary.................... A glossary of certain of the significant defined terms used in
this Prospectus Supplement is included as Appendix A to this
Prospectus Supplement.
Diagram of Payments......... A diagram of payments illustrating certain of the payment
flows in the Pass Through Trust structure for Aircraft to be
leased by the Corporation appears on page 6 of the Prospectus.
The Offering................ The Pass Through Certificates offered hereby consist of
Federal Express Corporation 1994 Pass Through Certificates,
Series A310-A1 (the "Series A310-A1 Pass Through
Certificates") in the aggregate amount of $ , and Federal
Express Corporation 1994 Pass Through Certificates, Series
A310-A2 (the "Series A310-A2 Pass Through Certificates") in
the aggregate amount of $ . Each such series of Pass
Through Certificates is a "Series" and the Pass Through
Certificates of each Series and of all such Series,
collectively, are the "Pass Through Certificates." The Series
A310-A1 Pass Through Certificates and the Series A310-A2 Pass
Through Certificates will be issued by Federal Express
Corporation Pass Through Trust, 1994-A310-A1, and Federal
Express Corporation Pass Through Trust, 1994-A310-A2,
respectively (each a "Pass Through Trust"), to be formed
pursuant to the Pass Through Trust Agreement dated as of
, 1994 (the "Pass Through Agreement") and Series
Supplement 1994-A310-A1 or Series Supplement 1994-A310-A2
(each a "Series Supplement"), as the case may be, in each case
between the Corporation and NationsBank of South Carolina,
National Association ("NationsBank of South Carolina"), not in
its individual capacity but solely as pass through trustee
under each such Pass Through Trust (the "Pass Through
Trustee") for the benefit of the registered holders (the
"Certificateholders") of the related Series of Pass Through
Certificates. Each Pass Through Certificate will represent a
fractional undivided interest in the related Pass Through
Trust.
Trust Property.............. The property held in each Pass Through Trust (the "Trust
Property") will consist of equipment trust certificates (the
"Equipment Trust Certificates") from each of 13 separate
series of Equipment Trust Certificates being issued as
nonrecourse obligations by First Security Bank of Utah,
National Association ("First Security"), not in its individual
capacity but solely as Owner Trustee (the "Owner Trustee") in
connection with the financing on behalf of an owner trust (the
"Owner Trust") of a portion of the total amount to be paid by
the Owner Trustee to acquire 13 Airbus A310-203 Aircraft, each
equipped with two General Electric CF6-80A3 Engines, which are
to be leased to the Corporation in 13 separate leveraged lease
transactions.
Each Pass Through Trust will include Equipment Trust
Certificates with identical interest rates, in each case equal
to the rate applicable to the Pass Through Certificates of
such Pass Through Trust as set
</TABLE>
S-3
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<TABLE>
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forth on the cover of this Prospectus Supplement, and will
have maturity dates on or before the final distribution date
for such Pass Through Trust. For each Pass Through Trust, the
aggregate principal amount of the Equipment Trust Certificates
held in such Pass Through Trust will equal the aggregate
amount of the related Series of Pass Through Certificates.
Denominations............... The Pass Through Certificates of each Pass Through Trust will
be issued in fully registered form without coupons in minimum
denominations of $1,000 or any integral multiple thereof.
Regular Distribution
Dates...................... and , commencing on , 1994.
Special Distribution
Dates...................... The th day of any month, except in certain circumstances, in
which case it will be the date of receipt of proceeds by the
Pass Through Trustee.
Record Dates................ and for the and Regular
Distribution Dates, respectively, and for any Special
Distribution Date, the th day preceding such Special Dis-
tribution Date.
Distributions of Scheduled
Payments................... Payments of interest on the Equipment Trust Certificates held
in each Pass Through Trust are scheduled to be received by the
Pass Through Trustee on each and ,
commencing on , 1994, and are to be distributed to
the related Certificateholders on the corresponding Regular
Distribution Dates. Interest on the Equipment Trust
Certificates will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
Payments of principal on such Equipment Trust Certificates are
scheduled to be received in specified amounts on
or , or both, of each specified year, commencing
on , , in the case of the Pass Through Trust
relating to the Series A310-A1 Pass Through Certificates, and
commencing on , , in the case of the Pass
Through Trust relating to the Series A310-A2 Pass Through
Certificates, and are to be distributed to the related
Certificateholders on the corresponding Regular Distribution
Dates. Such scheduled payments of principal of, and interest
on, the Equipment Trust Certificates are referred to herein as
"Scheduled Payments." See "Description of the Pass Through
Certificates -- Payments and Distributions" in the Prospectus.
Distributions of Special
Payments................... For any Pass Through Trust, any payments of principal, premium
or interest, other than Scheduled Payments, received by the
Pass Through Trustee on any of the Equipment Trust
Certificates held in such Pass Through Trust will be
distributed on a Special Distribution Date after not less than
20 days' notice (or prompt notice in the case of a Deemed
Event of Loss, a Pre-Funding Event of Loss or an Event of Loss
(as such terms are defined below) with respect to the related
Aircraft).
Method of Distributions..... Distributions by the Pass Through Trustee to the related
Certificateholders, other than the final distribution, will be
made at the office of the Pass Through Trustee or, at the
option of the Pass Through Trustee, by check mailed to each
such Certificateholder of record on the applicable record date
at its address appearing on the related register. The final
distribution with respect to the Pass Through Certificates
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<TABLE>
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of any Pass Through Trust will be made only upon presentation
and surrender thereof at the office or agency of the Pass
Through Trustee. See "Description of the Pass Through
Certificates -- Payments and Distributions" in the Prospectus.
Equipment Trust
Certificates:
Security and Payments
During The Pre-Funding
Period.................... For each Aircraft, the period from the Closing Date to the
date that the Indenture Trustee releases the portion of the
related Aircraft Cost payable by the Indenture Trustee (the
"Collateral Account Release Amount") is referred to as the
"Pre-Funding Period." During the Pre-Funding Period for each
Aircraft the principal amount of the related Equipment Trust
Certificates and interest thereon will be secured by (i) the
related Collateral Account, which will be funded by the pro-
ceeds of the sale of such Equipment Trust Certificates, after
deducting certain expenses of the offering made hereby, (ii)
an assignment of certain of the Owner Trustee's rights under
the Agreement to Lease with respect to such Aircraft, (iii)
the related Letter of Credit issued by WestLB and (iv) the
related Demand Notes. Funds deposited in the Collateral
Account relating to an Aircraft will be invested in Specified
Investments, which are obligations of, or guaranteed by, the
United States of America, and, together with the anticipated
income from such Specified Investments, will be used to pay
the interest accrued on the related Equipment Trust
Certificates during the Scheduled Pre-Funding Period for such
Aircraft and, unless there is a mandatory prepayment of such
Equipment Trust Certificates during the related Pre-Funding
Period, will be available to fund the related Collateral
Account Release Amount on the related Exchange Date (as
defined below). Amounts drawn under each Letter of Credit will
be available to make scheduled payments of principal, if any,
and interest on the related Equipment Trust Certificates
during the Extended Pre-Funding Period, if any, relating to an
Aircraft and, unless there is a mandatory prepayment of such
Equipment Trust Certificates during the related Pre-Funding
Period, will be available to pay the excess, if any, of
principal and interest due on the first payment date after the
related Pre-Funding Period over the sum of the amount of rent
payable by the Corporation on such payment date pursuant to
the related Lease and any amount then held in the related
Collateral Account. If there is a mandatory prepayment of the
related Equipment Trust Certificates during the Pre-Funding
Period, the amount in the related Collateral Account, together
with amounts drawn pursuant to the related Letter of Credit,
will be available to fund such mandatory prepayment. See "The
Pre-Funding Periods" and "Description of the Equipment Trust
Certificates -- Security -- Pre-Funding Period" and
"Description of the Letters of Credit" in this Prospectus
Supplement.
See "Description of the Equipment Trust Certificates --
Security -- Pre-Funding Period" for a discussion of the
availability of the Demand Notes to fund payment shortfalls,
if any, during the Pre-Funding
Periods.
For each Aircraft, the aggregate principal amount of the
Equipment Trust Certificates issued under the related
Indenture will not exceed approximately 94% of the Aircraft
Cost for such Aircraft. On the Lease Commencement Date for
such Aircraft, the Owner Participant will
</TABLE>
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provide, from sources other than the related Collateral
Account and Equipment Trust Certificates, the difference
between the Aircraft Cost for such Aircraft and the amount
provided from the related Collateral Account on the related
Lease Commencement Date.
During the Pre-Funding Period for each Aircraft, the related
Equipment Trust Certificates will not be secured by such
Aircraft or the related Lease, nor will the Corporation be
required to pay rent with respect to such Aircraft which would
service the related Equipment Trust Certificates.
There will be no cross-collateralization provisions in the
Indentures and, consequently, the Equipment Trust Certificates
issued in respect of one of the Aircraft will not be secured
by the Collateral Account, Letter of Credit or Demand Notes
relating to any other Aircraft.
Equipment Trust
Certificates:
Security and Payments
After the Pre-Funding
Period.................... For each Aircraft, after the related Pre-Funding Period, the
principal amount of the related Equipment Trust Certificates,
premium, if any, and interest thereon will be secured by a
security interest in such Aircraft and by an assignment to the
Indenture Trustee of certain of the Owner Trustee's rights
under the related Lease, including the right to receive rental
payments payable by the Corporation thereunder. For each
Aircraft, after the related Pre-Funding Period, the
Corporation will be obligated to make rental payments
thereunder that will be sufficient to pay the principal of and
interest on the related Equipment Trust Certificates when and
as due and payable, except that on the first scheduled payment
date after the related Exchange Date, the difference between
the rental payment due on such payment date by the Corporation
and the scheduled payment of principal, if any, and interest
then due on such Equipment Trust Certificates will be payable
from the amount available in the related Collateral Account
and, if such payment date occurs after an Extended Pre-Funding
Period under the related Collateral Agreement, funds available
under the related Letter of Credit.
Unless and until an Indenture Event of Default has occurred
and is continuing under an Indenture, the Indenture Trustee
generally may not exercise any of the rights of the Owner
Trustee under the related Lease, except the right to receive
rental payments due under such Lease. Even when an Indenture
Event of Default has occurred and is continuing, certain
rights under such Lease may be exercised by the Owner Trustee
and the Owner Participant. There will be no cross-
collateralization provisions in the Indentures and,
consequently, the Equipment Trust Certificates issued in
respect of one of the Aircraft will not be secured by any
other Aircraft or the Lease relating thereto. There will be no
cross-default provisions in the Indentures and, consequently,
events resulting in an Indenture Event of Default under one
Indenture may not result in an Indenture Event of Default
under any other Indenture. If the Equipment Trust Certificates
issued in respect of one Aircraft are in default, the
Equipment Trust Certificates issued in respect of any other
Aircraft may not be in default and, if not in default, no
remedies will be exercisable under the Indenture with respect
to such other Aircraft. See "Description of the Equipment
Certificates-- Security" in the Prospectus.
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Equipment Trust
Certificates:
Prepayment or Purchase
with Premium............. For any Aircraft, the related Equipment Trust Certificates
will be prepaid in whole, but not in part, on any scheduled
rent payment date under the related Lease on or after the
seventh anniversary of the last day of the taxable year of the
Owner Participant in which the related Lease Commencement Date
occurs (which anniversary date for the Aircraft with the
earliest Scheduled Lease Commencement Date is expected to be
December 31, 2001), in connection with a voluntary termination
of such Lease because such Aircraft has become obsolete or
surplus to the Corporation's needs at a prepayment price equal
to the aggregate principal amount of such Equipment Trust
Certificates plus accrued but unpaid interest thereon and a
premium, if any. Such premium, if any, with respect to each
Equipment Trust Certificate will be in an amount sufficient,
when added to the principal repaid, to provide an amount upon
prepayment that, if invested in United States Treasury
securities with maturities comparable to the remaining
weighted average life of such Equipment Trust Certificate,
would preserve the pretax coupon yield of such Equipment Trust
Certificate. In any such case, such prepayment price shall
include all other amounts due the Indenture Trustee or any
holder of such Equipment Trust Certificates.
For each Aircraft, the related Equipment Trust Certificates
will be prepaid in whole, but not in part, at any time if such
Aircraft loses its airworthiness certification under certain
circumstances and such loss is not curable or, if curable, is
not cured within 12 months of the date of such loss. Such
prepayment shall be at a prepayment price equal to the
aggregate principal amount of such Equipment Trust
Certificates plus accrued but unpaid interest thereon and
premium, if any, calculated as described above.
In addition, the Equipment Trust Certificates relating to any
Aircraft will be subject to prepayment or purchase at the
direction of the Owner Participant in whole, but not in part,
prior to the maturity thereof at a price equal to the
aggregate principal amount of such Equipment Trust
Certificates plus accrued but unpaid interest thereon and
premium, if any (calculated as described above), if (i) a
Lease Event of Default under the related Lease has occurred
and has continued (x) for 120 days or more but less than one
year or (y) in the event of a Lease Event of Default relating
to a failure by the Corporation to make any scheduled rental
payment or any payment of applicable stipulated loss value or
termination value, for less than 120 days, and (ii) such
Equipment Trust Certificates have not been accelerated. In any
such case, such prepayment price shall include all other
amounts due the Indenture Trustee or any holder of such
Equipment Trust Certificates.
See "Description of the Equipment Trust Certificates--The
Leases-- Purchase Options" in this Prospectus Supplement for a
discussion of prepayments with a premium in connection with
the Corporation's exercise of certain options or elections
relating to the purchase of the Aircraft under certain
circumstances.
</TABLE>
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Equipment Trust
Certificates:
Prepayment or Purchase
without Premium.......... For any Aircraft, the related Equipment Trust Certificates
will be prepaid in whole, but not in part, if a Deemed Event
of Loss occurs or if an Event of Loss or Pre-Funding Event of
Loss occurs, unless the Event of Loss or Pre-Funding Event of
Loss relates only to the Engine(s) and replacement engine(s)
are substituted therefor. In any such case, such prepayment
shall be at a prepayment price equal to the aggregate
principal amount of such Equipment Trust Certificates plus ac-
crued but unpaid interest thereon to the prepayment date and
all other amounts due the Indenture Trustee or any holder of
such Equipment Trust Certificates, but without premium.
In addition, the Equipment Trust Certificates relating to any
Aircraft will be subject to prepayment or purchase at the
direction of the Owner Participant in whole, but not in part,
prior to the maturity thereof at a price equal to the
principal amount of such Equipment Trust Certificates plus
accrued but unpaid interest thereon, but without premium, if
(i) a Lease Event of Default under the related Lease has
occurred and has continued (x) for one year or more or (y) in
the event of a Lease Event of Default relating to a failure by
the Corporation to make any scheduled rental payment or any
payment of applicable stipulated loss value or termination
value, for 120 days or more, or (ii) such Equipment Trust
Certificates have been accelerated. In any such case, such
prepayment price shall include all other amounts due the
Indenture Trustee or any holder of such Equipment Trust
Certificates.
The Pass Through Trustee;
the Indenture Trustee...... NationsBank of South Carolina will be the Pass Through Trustee
for each Pass Through Trust. NationsBank of Georgia, National
Association ("NationsBank of Georgia"), an affiliate of
NationsBank of South Carolina, will be the Paying Agent,
Authenticating Agent and Registrar for the Pass Through
Certificates. In addition, NationsBank of Georgia will be the
Indenture Trustee under the Indentures pursuant to which the
Equipment Trust Certificates will be issued. See "Description
of the Pass Through Certificates--The Pass Through Trustee;
the Indenture Trustee" in the Prospectus.
Federal Income Tax
Consequences............... The Pass Through Trusts will not be classified as associations
taxable as corporations, but, rather, will be classified as
grantor trusts under subpart E, Part I of Subchapter J of the
Internal Revenue Code of 1986, as amended (the "Code"), and
each Certificateholder will be treated as the owner of a pro
rata undivided interest in each of the Equipment Trust
Certificates and any other property held in the related Pass
Through Trust. Each Certificateholder should report on its
federal income tax return its pro rata share of the entire
income from each of the Equipment Trust Certificates and other
property held in the related Pass Through Trust, in accordance
with such Certificateholder's method of accounting. See
"Federal Income Tax Consequences" in the Prospectus.
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
ERISA Considerations........ No employee benefit plan subject to Title I of ERISA, or
individual retirement account or plan subject to Section 4975
of the Code (hereinafter collectively referred to as an "ERISA
Plan"), may acquire or hold the Pass Through Certificates.
Certain governmental and non-electing church plans, however,
are not subject to Title I of ERISA or Section 4975 of the
Code and, therefore, may invest in the Pass Through
Certificates. The purchase by any person of any Pass Through
Certificate constitutes a representation by such person to the
Corporation, the Owner Participant, the Owner Trustee, the
Indenture Trustee and the Pass Through Trustee that such
person is not an ERISA Plan and that such person is not
acquiring, and has not acquired, such Pass Through Certificate
with assets of an ERISA Plan.
</TABLE>
S-9
<PAGE>
FEDERAL EXPRESS CORPORATION
The Corporation offers a wide range of express services for the
time-definite transportation of goods and documents throughout the world using
an extensive fleet of aircraft and vehicles and leading-edge information
technologies. Corporate headquarters are located at 2005 Corporate Avenue,
Memphis, Tennessee 38132, telephone (901) 369-3600.
USE OF PROCEEDS
The proceeds from the sale of the Pass Through Certificates will be used by
the Pass Through Trustee to purchase at par all of the Equipment Trust
Certificates to be issued by the Owner Trustee with respect to each Aircraft
under a separate trust indenture and security agreement (each, an "Indenture")
between NationsBank of Georgia, not in its individual capacity but solely as the
indenture trustee (the "Indenture Trustee"), and the Owner Trustee. For each
Aircraft, the proceeds from the sale of the related Equipment Trust Certificates
will be used by the Owner Trustee to pay certain expenses relating to the
offering of the Pass Through Certificates, as discussed below, and to fund the
related Collateral Account. A portion of such Collateral Account and the
earnings thereon will be used by the Indenture Trustee to fund payments on the
related Equipment Trust Certificates during the related Pre-Funding Period (as
defined below), and a portion will be retained by the Indenture Trustee in such
Collateral Account (the "Collateral Account Release Amount") to be applied to
the payment of part of the Aircraft Cost for such Aircraft on the date on which
certain conditions to the release of such Collateral Account Release Amount are
satisfied and the Indenture Trustee releases such Collateral Account Release
Amount (the date of such release, the "Exchange Date"). See "Description of the
Equipment Trust Certificates -- Prepayment -- Prepayment without Premium" for a
discussion of the prepayment of the related Equipment Trust Certificates if such
release is not made by the related Cut-off Date (as defined below).
For each Aircraft, the aggregate principal amount of the Equipment Trust
Certificates issued under the related Indenture will not exceed approximately
94% of the Aircraft Cost for such Aircraft. On the Lease Commencement Date for
such Aircraft, the Owner Participant will provide, from sources other than the
related Collateral Account and Equipment Trust Certificates, the difference
between the Aircraft Cost for such Aircraft and the amount provided from the
related Collateral Account on such Lease Commencement Date.
The underwriting commission and certain other expenses relating to the
offering of the Pass Through Certificates will be paid on behalf of the Owner
Participant by the Owner Trustee, while certain other expenses relating to the
offering will be paid by the Corporation, as set forth on the cover of this
Prospectus Supplement. The expenses to be paid by the Owner Trustee on behalf of
the Owner Participant will be payable from the proceeds of the sale of the
Equipment Trust Certificates, prior to deposit of such proceeds in the related
Collateral Accounts, in the aggregate up to approximately % of the proceeds of
such sale. Certain expenses in excess of such amount will be paid by the Owner
Participant from sources other than the proceeds of the sale of the Equipment
Trust Certificates.
THE LEVERAGED LEASE TRANSACTIONS
The Corporation, the Owner Trustee and Deutsche Lufthansa Aktiengesellschaft
("Lufthansa") have entered into an agreement to lease (the "Agreement to Lease")
pursuant to which, among other things, (i) Lufthansa agreed to convey 13 Airbus
A310-203 Aircraft to the Owner Trustee, each such Aircraft equipped with two
General Electric CF6-80A3 Engines, (ii) the Owner Trustee agreed to enter into
an agreement with the modification service provider for the conversion of each
Aircraft from passenger configuration to freighter configuration, (iii) the
Owner Trustee agreed to lease each Aircraft to the Corporation pursuant to a
lease (each, a "Lease") commencing on the date (for each Aircraft, the "Lease
Commencement Date") on which certain conditions are satisfied with respect to
such Aircraft and (iv) the Corporation agreed to lease each Aircraft from the
Owner Trustee subject to the satisfaction of certain conditions, including, but
not limited to, acceptance of the Aircraft by the Corporation upon completion of
the conversion with respect thereto and certification of such Aircraft by the
United States Federal Aviation Administration (the "FAA"). The Aircraft were
delivered new to Lufthansa between 1983
S-10
<PAGE>
and 1986 and have been operated in the Lufthansa's commercial passenger
transportation service. On November 15, 1993 Lufthansa conveyed title to each
Aircraft to the Owner Trustee in consideration of the Owner Trustee's agreement
to pay the purchase price (each, a "Purchase Price") for each Aircraft to
Lufthansa on the related Lease Commencement Date.
In accordance with the Agreement to Lease, the Owner Trustee has agreed to
pay the modification service provider on the Lease Commencement Date for each
Aircraft, a specified amount for the conversion of such Aircraft to freighter
configuration (the "Modification Cost") and to pay Lufthansa for certain parts
and services provided in connection with such conversion (the "Parts Cost"). For
each Aircraft, the sum of the applicable Purchase Price, Modification Cost and
Parts Cost is referred to herein as the "Aircraft Cost." There can be no
assurance that the proceeds from any sale of such Aircraft on the related Lease
Commencement Date, even after the completion of the conversion of an Aircraft
from passenger to freighter configuration, would be equal to the Aircraft Cost
of such Aircraft.
If certain additional services are required or requested in connection with
the conversion of an Aircraft, the cost of such services will be paid by the
Owner Trustee on behalf of the Owner Participant or by the Corporation, as the
case may be. The Aircraft are scheduled to be converted in sequence with a date
specified for the completion of the conversion for each Aircraft, the acceptance
of the Aircraft and the related Scheduled Lease Commencement Date.
The Aircraft Designation, Scheduled Lease Commencement Date and Aircraft
Cost for each Aircraft are set forth below.
<TABLE>
<CAPTION>
AIRCRAFT SCHEDULED LEASE
AIRCRAFT NUMBER(1) DESIGNATION(2) COMMENCEMENT DATE(3) AIRCRAFT COST
- ------------------ -------------- ------------------------ ----------------
<S> <C> <C> <C>
1. D-AICH $ 31,294,185
2. D-AICR 33,364,185
3. D-AICL 33,569,185
4. D-AICS 33,364,185
5. D-AICP 32,952,185
6. D-AICN 32,952,185
7. D-AICA 29,841,952
8. D-AICB 29,841,952
9. D-AICC 29,841,952
10. D-AICD 29,841,952
11. D-AICM 32,952,185
12. D-AICF 29,841,952
13. D-AICK 29,841,952
----------------
$ 409,500,007
<FN>
- ------------------------
(1) Each Aircraft is an Airbus A310-203 and is equipped with two General
Electric CF6-80A3 engines (the "Engines"). Each Aircraft and the Engines
installed thereon have been used as described above.
(2) Until the Lease Commencement Date with respect to an Aircraft, such
Aircraft will be registered with the aviation authority of the Federal
Republic of Germany.
(3) The Scheduled Lease Commencement Dates are currently expected to occur
between July 1994 and August 1995, inclusive.
</TABLE>
It is anticipated that the Lease Commencement Date for each Aircraft will be
the Scheduled Lease Commencement Date for such Aircraft set forth above, but no
assurance can be given that the conditions for the commencement of the Lease for
any such Aircraft will be satisfied or waived on the related Scheduled Lease
Commencement Date. Prior to the commencement of the Lease relating to an
Aircraft, the Corporation will not be required to make any rental payments under
such Lease and will have no
S-11
<PAGE>
other obligations with respect to such Aircraft except to lease such Aircraft,
subject to the satisfaction or waiver of the conditions discussed above. During
the Pre-Funding Period, however, the Equipment Trust Certificates for each
Aircraft will be secured as discussed below in "The Pre-Funding Period" and
"Description of the Equipment Trust Certificates--Security--Pre-Funding Period."
For each Aircraft, it is anticipated that the related Lease Commencement
Date and the related Exchange Date will occur on the same day. It is not,
however, a condition to the commencement of the Lease relating to an Aircraft
that the Indenture Trustee release the Collateral Account Release Amount from
the related Collateral Account. If the Exchange Date relating to an Aircraft
does not occur on the corresponding Lease Commencement Date, then the related
Equipment Trust Certificates will not be secured by such Aircraft or the related
Lease, including any rental payments under such Lease, until such Exchange Date
occurs. See "The Pre-Funding Periods" for a discussion of payments of principal
of and interest on the Equipment Trust Certificates relating to an Aircraft
prior to the related Lease Commencement Date and prior to the related Exchange
Date.
For each Aircraft, in order to effect the payments and transactions
contemplated to occur on the Lease Commencement Date for such Aircraft, the
Corporation, the Owner Trustee, the Owner Participant, the Indenture Trustee,
the Pass Through Trustee and WestLB will enter into a participation agreement (a
"Participation Agreement") which will provide, among other things, for the
issuance by the Owner Trustee of the Equipment Trust Certificates under the
related Indenture, the purchase of such Equipment Trust Certificates by the Pass
Through Trustee for each Pass Through Trust on the date designated for the
closing of the sale of the Pass Through Certificates offered hereby (the
"Closing Date"), the application of the proceeds of such sale and purchase to
the uses described above under "Use of Proceeds," the conditions to the
commencement of the related Lease and the conditions to the release by the
Indenture Trustee of the related Collateral Account Release Amount to the Owner
Trustee for the payment, in part, of the applicable Aircraft Cost.
The Trust Agreement provides that, subject to certain restrictions, the
Owner Participant may convey all of its right, title and interest relating to
any Aircraft. Upon such conveyance, the transferee would become the Owner
Participant with respect to such Aircraft and any reference herein to the "Owner
Participant" in connection with any Aircraft should be read to refer to the
"related Owner Participant" with respect to such Aircraft.
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The following description of the particular terms of the Pass Through
Certificates offered hereby supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
Pass Through Certificates set forth in the Prospectus, reference to which is
hereby made.
The statements set forth under this caption are summaries and do not purport
to be complete. The summaries make use of terms defined in, and are qualified in
their entirety by reference to, the provisions of the Pass Through Agreement,
the form of which has been filed as an exhibit to the Registration Statement of
which the Prospectus is a part, and to the provisions of each Series Supplement.
Each Series Supplement, together with the forms of the related Indentures and
other related documents to be used in connection with the transactions described
herein, will be filed as exhibits to a post-effective amendment to the
Registration Statement or a Current Report on Form 8-K to be filed by the
Corporation with the Securities and Exchange Commission (the "Commission") in
connection with this offering.
The Pass Through Certificates offered hereby will be issued by Federal
Express Corporation Pass Through Trust, 1994-A310-A1, and Federal Express
Corporation Pass Through Trust, 1994-A310-A2, to be formed pursuant to the Pass
Through Agreement and Series Supplement 1994-A310-A1 or Series Supplement
1994-A310-A2, as the case may be, to be entered into between the Corporation and
the Pass Through Trustee on the date of issuance of the related Pass Through
Certificates. Each Series Supplement will contain substantially the same terms
and conditions, except that the interest rate,
S-12
<PAGE>
scheduled repayments of principal, and maturity date applicable to the Equipment
Trust Certificates held in each Pass Through Trust, the aggregate principal
amount of such Equipment Trust Certificates, and the final distribution date
applicable to each Pass Through Trust will differ.
The Pass Through Agreement does not, and the Series Supplements and the
Indentures will not, include covenants that would afford Certificateholders
protection in the event of a highly leveraged transaction involving the
Corporation.
PAYMENTS AND DISTRIBUTIONS
The Regular Distribution Dates for each Pass Through Trust are and
. Payments of interest on the Equipment Trust Certificates held in each Pass
Through Trust are scheduled to be received by the Pass Through Trustee on each
and , commencing on , 1994, and are to be distributed to the related
Certificateholders on the corresponding Regular Distribution Dates. For each
Pass Through Trust, the Equipment Trust Certificates held in such Pass Through
Trust will accrue interest on the unpaid principal amount thereof at the rate
per annum set forth on the cover of this Prospectus Supplement applicable to the
related Pass Through Certificates, which is calculated on the basis of a 360-day
year consisting of twelve 30-day months.
Payments of principal on the Equipment Trust Certificates held in each Pass
Through Trust are scheduled to be received in specified amounts on or
, or both, of each specified year, commencing on , , in the case of
the Pass Through Trust relating to the Series A310-A1 Pass Through Certificates,
and commencing on , , in the case of the Pass Through Trust relating to
the Series A310-A2 Pass Through Certificates, and are to be distributed to the
related Certificateholders on the corresponding Regular Distribution Dates. The
record dates for the respective Regular Distribution Dates are and . For
each Pass Through Trust, the Equipment Trust Certificates that will be held in
such Pass Through Trust and the dates for, and the corresponding amounts of, the
Scheduled Payments of principal on such Equipment Trust Certificates are set
forth under "Description of the Equipment Trust Certificates--General" in this
Prospectus Supplement.
For each Pass Through Trust, the Special Distribution Dates will be the th
day of any month, except that the Special Distribution Date will correspond to
the date of the receipt of proceeds by the Pass Through Trustee in the case of a
Deemed Event of Loss, a Pre-Funding Event of Loss with respect to an Aircraft or
an Event of Loss with respect to an Aircraft. The record date for any Special
Distribution Date will be the th day preceding such Special Distribution Date.
If any Regular Distribution Date or Special Distribution Date is not a
Business Day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date may be made on the next succeeding Business
Day without additional interest. (Pass Through Agreement, Section 13.15)
For each Pass Through Trust, any Scheduled Payment or Special Payment to be
distributed by such Pass Through Trust will be payable at the corporate trust
office of the Paying Agent in Atlanta, Georgia, or at such other office or
agency in the United States maintained for the payment of the related Pass
Through Certificates. All amounts payable by the Paying Agent on behalf of the
Pass Through Trustee may, however, at the option of the Paying Agent or the Pass
Through Trustee, be paid by check mailed to the person entitled thereto at the
address shown in the Register for the applicable Series of Pass Through
Certificates. (Pass Through Agreement, Section 5.02(d))
THE PAYING AGENT, AUTHENTICATING AGENT AND REGISTRAR
NationsBank of Georgia, an affiliate of the Pass Through Trustee, will be
the Paying Agent, Authenticating Agent and Registrar for each Pass Through
Trust. NationsBank of Georgia is also the Indenture Trustee under each of the
Indentures pursuant to which the Equipment Trust Certificates will be issued.
POOL FACTORS
As of the date of issuance of the Pass Through Certificates by the Pass
Through Trustee, and assuming that no prepayment or default in respect of any
Equipment Trust Certificates shall occur, the
S-13
<PAGE>
aggregate scheduled repayments of principal on such Equipment Trust Certificates
for each Pass Through Trust, and the resulting Pool Factors for such Pass
Through Trusts after taking into account each repayment, are set forth below:
<TABLE>
<CAPTION>
PASS THROUGH TRUST, 1994-A310-A1 PASS THROUGH TRUST, 1994-A310-A2
-------------------------------- --------------------------------
SCHEDULED SCHEDULED
PRINCIPAL PRINCIPAL
REGULAR PAYMENTS PAYMENTS
DISTRIBUTION ON EQUIPMENT TRUST ON EQUIPMENT TRUST
DATES CERTIFICATES POOL FACTOR CERTIFICATES POOL FACTOR
- ------------ ------------------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
</TABLE>
THE PRE-FUNDING PERIODS
For any Aircraft, prior to the commencement of the related Lease, the
Corporation will not be required to make any rental payments with respect to
such Aircraft, and during the related Pre-Funding Period, even if such Lease has
commenced, the related Equipment Trust Certificates will not be secured by such
Aircraft or such Lease, including any rental payments under such Lease. Only
upon commencement of such Lease and the release by the Indenture Trustee to the
Owner Trustee of funds from the related Collateral Account on the Exchange Date
will the Equipment Trust Certificates issued under the Indenture relating to
such Aircraft be secured by such Aircraft and Lease. Since the commencement of
each Lease is subject to certain conditions, including the acceptance of the
related Aircraft by the Corporation upon completion of the conversion of such
Aircraft from passenger to freighter configuration, there can be no assurance
that the Lease for such Aircraft will commence prior to the related Cut-off
Date. During the related Pre-Funding Period, the related Equipment Trust
Certificates will be secured by (i) the related Collateral Account, which will
be funded by proceeds of the sale of such Equipment Trust Certificates, after
deducting certain expenses of the offering made hereby, (ii) an assignment of
certain of the Owner Trustee's rights under the Agreement to Lease with respect
to such Aircraft, (iii) the related Letter of Credit to be issued by WestLB in
the amount specified herein and (iv) the related Demand Notes in the principal
amount specified herein. See "Description of the Letters of Credit" and
"Description of the Equipment Trust Certificates -- Security -- Pre-Funding
Period" below.
S-14
<PAGE>
During the Scheduled Pre-Funding Period for each Aircraft, amounts in the
Collateral Account in excess of the related Collateral Account Release Amount
will be available to pay the interest accrued on the related Equipment Trust
Certificates. During the Extended Pre-Funding Period, if any, funds in the
related Collateral Account in excess of the related Collateral Account Release
Amount and amounts drawn under each Letter of Credit will be available to make
scheduled payments of principal, if any, and interest on the related Equipment
Trust Certificates. On the first scheduled payment date for the related
Equipment Trust Certificates after the applicable Exchange Date, the difference
between the rental payment due on such payment date by the Corporation under the
related Lease and the payment of principal, if any, and interest then due on
such Equipment Trust Certificates will be payable from the amount available in
the related Collateral Account and funds available pursuant to the related
Letter of Credit. If there is a mandatory prepayment of the related Equipment
Trust Certificates during the Pre-Funding Period, the amount in the related
Collateral Account, together with amounts drawn pursuant to the related Letter
of Credit, will be available to fund such mandatory prepayment. See "Description
of the Equipment Trust Certificates--Security--Pre-Funding Period" below for a
discussion of the availability of the Demand Notes to fund payment shortfalls,
if any, during the Pre-Funding Periods.
At the beginning of the Pre-Funding Period with respect to each Aircraft,
the related Collateral Account will be funded by proceeds from the sale of the
related series of Equipment Trust Certificates, after deducting certain expenses
of the offering made hereby. During the Scheduled Pre-Funding Period and, to the
extent funds in the Collateral Account exceed the Collateral Account Release
Amount, during the Extended Pre-Funding Period, each Collateral Account will
fund payments of interest accrued on the related Equipment Trust Certificates,
and, to the extent of the funds in such Collateral Account, any mandatory
prepayment of such Equipment Trust Certificates. On the Lease Commencement Date
(or, if later, on the Exchange Date) for the related Aircraft, the related
Collateral Account Release Amount will be used to fund not more than
approximately 94% of the Aircraft Cost paid for such Aircraft by the Owner
Trustee, and on such Lease Commencement Date the Owner Participant will provide,
from sources other than the related Collateral Account and Equipment Trust
Certificates, the difference between the Aircraft Cost for such Aircraft and the
amount provided by such Collateral Account on such Lease Commencement Date.
The Collateral Account Release Amount for each Aircraft and the approximate
percentage of the Aircraft Cost for the related Aircraft which such Collateral
Account Release Amount represents are set forth below.
<TABLE>
<CAPTION>
COLLATERAL
ACCOUNT
RELEASE
COLLATERAL AMOUNT AS
AIRCRAFT AIRCRAFT ACCOUNT PERCENTAGE OF
NUMBER DESIGNATION RELEASE AMOUNT AIRCRAFT COST
--------- ---------------- ---------------- ---------------------
<S> <C> <C> <C>
1. D-AICH
2. D-AICR
3. D-AICL
4. D-AICS
5. D-AICP
6. D-AICN
7. D-AICA
8. D-AICB
9. D-AICC
10. D-AICD
11. D-AICM
12. D-AICF
13. D-AICK
</TABLE>
S-15
<PAGE>
DESCRIPTION OF THE EQUIPMENT TRUST CERTIFICATES
The following description of the particular terms of the Equipment Trust
Certificates supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Equipment Trust
Certificates set forth in the Prospectus, reference to which is hereby made.
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in their
entirety by reference to, the provisions of the Indentures, the Equipment Trust
Certificates, the Leases, the Participation Agreements, the Trust Agreement, the
Collateral Agreements, the Letters of Credit and other related documents to be
used in connection with the transactions described herein, the forms of which
will be filed as exhibits to a post-effective amendment to the Registration
Statement or a Current Report on Form 8-K to be filed by the Corporation with
the Commission in connection with this offering. The provisions of the
Indentures, the Equipment Trust Certificates, the Leases, the Participation
Agreements, the Collateral Agreements and the Letters of Credit which relate to
each of the Aircraft and that are summarized below are substantially the same,
except where otherwise indicated.
GENERAL
The Equipment Trust Certificates will be nonrecourse obligations of the
Owner Trustee, in each case acting for the Owner Trust for the benefit of the
Owner Participant, and will be authenticated under an Indenture by the Indenture
Trustee. The Equipment Trust Certificates are not obligations of, or guaranteed
by, the Corporation.
For each of the Aircraft, two Equipment Trust Certificates, each of which
will have a different interest rate, maturity date and schedule of principal
payments, will be issued under the related Indenture. The aggregate principal
amounts of the Equipment Trust Certificates to be issued with respect to each
Aircraft, as such Equipment Trust Certificates will be held in each of the Pass
Through Trusts, are as follows:
<TABLE>
<CAPTION>
PASS THROUGH TRUST PASS THROUGH TRUST
1994-A310-A1 % 1994-A310-A2 %
AIRCRAFT AIRCRAFT EQUIPMENT TRUST EQUIPMENT TRUST TOTAL PER
NUMBER DESIGNATION CERTIFICATES CERTIFICATES AIRCRAFT
- --------- --------------------------------- ------------------- ------------------- -----------
<S> <C> <C> <C> <C>
1. D-AICH...........................
2. D-AICR...........................
3. D-AICL...........................
4. D-AICS...........................
5. D-AICP...........................
6. D-AICN...........................
7. D-AICA...........................
8. D-AICB...........................
9. D-AICC...........................
10. D-AICD...........................
11. D-AICM...........................
12. D-AICF...........................
13. D-AICK...........................
---------- ---------- -----
Total...................................
</TABLE>
S-16
<PAGE>
For each Pass Through Trust, the Equipment Trust Certificates held in such
Pass Through Trust will accrue interest on the unpaid principal amount thereof
at the rate per annum set forth on the cover of this Prospectus Supplement
applicable to the related Pass Through Certificates, which will be payable to
the Pass Through Trustee on each and , commencing on
, 1994, until the final distribution date for such Pass Through
Trust. Interest on the Equipment Trust Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. For any Equipment
Trust Certificate, any overdue payment of principal, interest or any other
amount payable thereon will accrue interest from the due date for such amount to
the date such amount is paid in full at a rate per annum equal to 2.5% plus the
interest rate otherwise applicable to such Equipment Trust Certificate.
(Indentures, Section 2.04)
Each Pass Through Trust will hold Equipment Trust Certificates upon which
principal is payable through mandatory sinking fund redemptions on
or , or both, of each year, commencing on , , in the
case of Equipment Trust Certificates held in the Pass Through Trust relating to
the Series A310-A1 Pass Through Certificates, and commencing on ,
, in the case of Equipment Trust Certificates held in the Pass Through Trust
relating to the Series A310-A2 Pass Through Certificates, in each case according
to the schedule of principal amounts to be redeemed on each sinking fund
redemption date set forth below.
S-17
<PAGE>
PASS THROUGH TRUST, 1994-A310-A1
% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR AIRCRAFT
DISTRIBUTION ------------------------------------------------------------------------------------------------------------
DATES NO. 1 NO. 2 NO. 3 NO. 4 NO. 5 NO. 6 NO. 7 NO. 8 NO. 9 NO. 10
- ------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
REGULAR
DISTRIBUTION AGGREGATE
DATES NO. 11 NO. 12 NO. 13 TOTAL
- ------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C>
</TABLE>
S-18
<PAGE>
PASS THROUGH TRUST, 1994-A310-A2
% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR AIRCRAFT
DISTRIBUTION ------------------------------------------------------------------------------------------------------------
DATES NO. 1 NO. 2 NO. 3 NO. 4 NO. 5 NO. 6 NO. 7 NO. 8 NO. 9 NO. 10
- ------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
REGULAR
DISTRIBUTION AGGREGATE
DATES NO. 11 NO. 12 NO. 13 TOTAL
- ------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C>
</TABLE>
S-19
<PAGE>
For each series of Equipment Trust Certificates, the mandatory sinking fund
redemptions will retire the full principal amount of such Equipment Trust
Certificates. (Indentures, Section 6.06)
If any amount payable under any Equipment Trust Certificate or the related
Indenture falls due on a day that is not a Business Day, then such amount may be
paid on the next succeeding Business Day without additional interest.
(Indentures, Section 3.01)
SECURITY
PRE-FUNDING PERIOD. During the Pre-Funding Period for each Aircraft, the
principal amount of the related Equipment Trust Certificates and interest
thereon will not be secured by such Aircraft or the related Lease, but will be
secured by an assignment of certain rights of the Owner Trustee with respect to
the related Aircraft under the Agreement to Lease and by the additional
collateral described below. As security for amounts payable under the Equipment
Trust Certificates relating to an Aircraft during the related Pre-Funding
Period, the Owner Trustee and the Indenture Trustee will enter into a Collateral
Agreement, pursuant to which the Owner Trustee will deposit the proceeds from
the sale of the related series of Equipment Trust Certificates, after deducting
certain expenses of the offering made hereby, into the related Collateral
Account for the benefit of the Indenture Trustee. Sums deposited in the
Collateral Account will be invested in Specified Investments, which are direct
obligations of the United States of America or obligations fully guaranteed by
the United States of America. As further security for the amounts payable under
the Equipment Trust Certificates during the Pre-Funding Period for each
Aircraft, WestLB will issue to the Indenture Trustee one of 13 Letters of Credit
in the amount set forth under "Description of the Letters of Credit" below. In
addition, as security for the amounts payable under the Equipment Trust
Certificates during the Pre-Funding Period for each Aircraft, the Owner
Participant will contribute to the trust estate of the Owner Trustee one or more
Demand Notes issued by Lufthansa. The Demand Notes with respect to each Aircraft
will be in a total principal amount of approximately $1.1 million.
Under each Collateral Agreement, prior to each scheduled payment date for
the related Equipment Trust Certificates during the related Scheduled
Pre-Funding Period, the Indenture Trustee will determine the lower of (x) the
amount of cash expected to be in the Collateral Account on such payment date
(giving effect to any income from or proceeds of any then-existing Specified
Investments scheduled to mature on or prior to such payment date) and (y) the
excess of the amount of cash expected to be in the Collateral Account on such
payment date (giving effect to (1) any income from or proceeds of any then-
existing Specified Investments scheduled to mature on or prior to the related
Scheduled Lease Commencement Date and (2) any payment to be made on any other
payment date prior to such Scheduled Lease Commencement Date) over the related
Collateral Account Release Amount. The Indenture Trustee will notify the Owner
Trustee of (i) such lower amount of (x) and (y) above and (ii) the aggregate
amount of interest due with respect to the related Equipment Trust Certificates
as of such payment date. If the amount of clause (ii) above exceeds the amount
of clause (i) above, the Indenture Trustee shall demand the amount of such
excess under the related Demand Notes. On such payment date, the Indenture
Trustee will withdraw any funds realized as a result of the demand, if any,
under the related Demand Notes and then from the Collateral Account, and shall
pay to the holders of the related Equipment Trust Certificates an amount equal
to the aggregate amount of interest then due with respect to the related
Equipment Trust Certificates. (Collateral Agreements, Sections 6(a) and 7(a))
Prior to each scheduled payment date for the Equipment Trust Certificates
relating to an Aircraft during the related Extended Pre-Funding Period, if any,
the Indenture Trustee will determine the excess of the amount of cash expected
to be in the related Collateral Account on such payment date (giving effect to
any income from or proceeds of any then-existing Specified Investments scheduled
to mature on or prior to such payment date) over the related Collateral Account
Release Amount. The Indenture Trustee will notify the Owner Trustee of (i) such
excess of such expected amount over such Collateral Account Release Amount and
(ii) the aggregate amount of interest and any principal amount due with respect
to the related Equipment Trust Certificates as of such payment date. If the
amount of clause (ii) above exceeds the amount of clause (i) above, the
Indenture Trustee shall draw the amount of the
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shortfall pursuant to the related Letter of Credit. If the shortfall exceeds the
amount then available under such Letter of Credit, the Indenture Trustee shall
demand the amount of such excess under the related Demand Notes. On such payment
date the Indenture Trustee (i) will pay to the holders any amount received by
the Indenture Trustee pursuant to any such draw under the related Letter of
Credit and (ii) will withdraw any funds realized as a result of the demand, if
any, under the related Demand Notes and then from the Collateral Account, and
shall pay to the holders of such Equipment Trust Certificates an amount equal to
the excess of (A) the aggregate amount of interest and any principal then due
with respect to such Equipment Trust Certificates over (B) the amount drawn
under the related Letter of Credit. (Collateral Agreements, Sections 6(b) and
7(b), Letters of Credit, Section 3)
Prior to any mandatory prepayment date for the Equipment Trust Certificates
relating to an Aircraft during the related Pre-Funding Period, the Indenture
Trustee will determine the amount of cash expected to be in the related
Collateral Account on such prepayment date (giving effect to any income from or
proceeds of any then-existing Specified Investments scheduled to mature on or
prior to such prepayment date). The Indenture Trustee will notify the Owner
Trustee of (i) such expected amount and (ii) the aggregate prepayment price due
with respect to such Equipment Trust Certificates as of such prepayment date. If
the amount of clause (ii) above exceeds the amount of clause (i) above, the
Indenture Trustee will draw the amount of such shortfall pursuant to the related
Letter of Credit. If such shortfall exceeds the amount then available under such
Letter of Credit, the Indenture Trustee shall demand the amount of such excess
under the related Demand Notes. On such prepayment date, the Indenture Trustee
(i) will pay to the holders of the related Equipment Trust Certificates any
amount received by the Indenture Trustee pursuant to the draw under the related
Letter of Credit and (ii) will withdraw any amount realized as a result of the
demand, if any, under the related Demand Notes and then from the Collateral
Account, and shall pay to the holders of such Equipment Trust Certificates an
amount equal to the excess of (A) the aggregate prepayment price then due with
respect to such Equipment Trust Certificates over (B) the amount received
pursuant to such draw under such Letter of Credit. (Collateral Agreements,
Sections 6(c) and 7(c), Letters of Credit, Section 3)
Prior to the first scheduled payment date after the Exchange Date relating
to an Aircraft, the Indenture Trustee will determine the amount of cash expected
to be in the related Collateral Account on such payment date (giving effect to
any income from or proceeds of any then-existing Specified Investments scheduled
to mature on or prior to such payment date). The Indenture Trustee will notify
the Owner Trustee of (i) such expected amount and (ii) the excess of (A) the sum
of the interest and any principal due with respect to the related Equipment
Trust Certificates as of such payment date over (B) the amount of the rental
payment due from the Corporation on such payment date pursuant to the related
Lease. If the amount of clause (ii) above exceeds the amount of clause (i)
above, the Indenture Trustee shall draw the amount of the shortfall pursuant to
the related Letter of Credit. On such payment date, the Indenture Trustee (i)
will pay to the holders of the related Equipment Trust Certificates any amount
received by the Indenture Trustee pursuant to the draw under the related Letter
of Credit and (ii) shall withdraw from the related Collateral Account, and shall
pay to the holders of such Equipment Trust Certificates, an amount an equal to
the excess of (i) the aggregate amount of interest and any principal then due
with respect to such Equipment Trust Certificates over (ii) any rental payment
then due from the Corporation pursuant to the related Lease. (Collateral
Agreements, Sections 6(d) and 7(d), Letters of Credit, Section 3)
Upon the satisfaction or waiver of the conditions to the Indenture Trustee's
release of the Collateral Account Release Amount relating to an Aircraft, on the
related Exchange Date the Indenture Trustee will release from the Collateral
Account (i) the related Demand Notes and any proceeds from such Demand Notes
then held by the Indenture Trustee and (ii) an amount of cash proceeds from the
related Specified Investments equal to the lesser of (A) the Collateral Account
Release Amount and (B) the amount actually in the Collateral Account on such
Exchange Date. Such amount shall be applied by the Indenture Trustee in
accordance with the related Participation Agreement to pay a portion of the
Aircraft Cost for the related Aircraft. (Collateral Agreements, Section 7(e))
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LEASE PERIOD. For each Aircraft, upon the commencement of the related Lease
and after the related Pre-Funding Period, the principal amount of the related
Equipment Trust Certificates, premium, if any, and interest thereon will be
secured by (i) an assignment by the Owner Trustee to the Indenture Trustee of
the Owner Trustee's rights (except for certain limited rights described below)
under the applicable Lease, including the right to receive rent and other
payments thereunder, (ii) a security interest granted to the Indenture Trustee
in the related Aircraft, subject to the rights of the Corporation under such
Lease and to certain other liens and encumbrances and (iii) an assignment to the
Indenture Trustee of the Owner Trustee's rights related to such Aircraft under
the agreement for the purchase thereof. (Indentures, Granting Clause) See
"Registration of the Aircraft" below. The assignment by the Owner Trustee to the
Indenture Trustee of its rights under each Lease will exclude rights of the
Owner Trustee and the Owner Participant relating to (i) indemnification by the
Corporation for certain matters, (ii) proceeds of public liability insurance
payable to the Owner Trustee and the Indenture Trustee in their respective
individual capacities and to the Owner Participant under insurance maintained by
the Corporation under such Lease and (iii) proceeds of any insurance policies
separately maintained by such Owner Trustee in its individual capacity or by the
Owner Participant.
PREPAYMENT
PREPAYMENT WITH PREMIUM. For any Aircraft, the related Equipment Trust
Certificates will be prepaid in whole, but not in part, on any scheduled rent
payment date under the related Lease on or after the seventh anniversary of the
last day of the taxable year of the Owner Participant in which the related Lease
Commencement Date occurs (which anniversary date for the Aircraft with the
earliest Scheduled Lease Commencement Date is expected to be December 31, 2001),
in connection with a voluntary termination of such Lease because such Aircraft
has become obsolete or surplus to the Corporation's needs. (Indentures, Article
VI; Leases, Article 10) For a discussion of prepayments with a premium in
connection with the Corporation's exercise of certain options or elections
relating to the purchase of the Aircraft under certain circumstances, see "The
Leases--Purchase Options." Such prepayment shall be at a prepayment price for
each such Equipment Trust Certificate equal to the principal amount of such
Equipment Trust Certificate, together with accrued but unpaid interest thereon
to the prepayment date, plus an additional amount, if any, which, when added to
such principal and interest would, if invested at such time in United States
Treasury securities with maturities comparable to the Remaining Weighted Average
Life (as defined below) of such Equipment Trust Certificate, yield the holder
thereof a pretax yield equivalent to the yield the holder would have realized
had such holder held such Equipment Trust Certificate to its maturity date (the
"Make-Whole Premium").
The Make-Whole Premium for any Equipment Trust Certificate to be prepaid
will be calculated by an independent investment banking institution of national
standing appointed by the Corporation or, under certain circumstances, appointed
by the Indenture Trustee (an "Independent Investment Banker"). In calculating
the Make-Whole Premium, the Independent Investment Banker will first determine
the Treasury Yield (as defined below) applicable to such Equipment Trust
Certificate. The Independent Investment Banker then will determine the present
values of (i) the remaining payments of interest on such Equipment Trust
Certificate and (ii) the principal payable on such Equipment Trust Certificate
by discounting such payments in accordance with generally accepted financial
practices on the basis of a 360-day year consisting of twelve 30-day months on a
semiannual basis at a discount rate equal to the Treasury Yield. If the sum of
these present values exceeds the unpaid principal amount of the Equipment Trust
Certificate to be prepaid, the difference will be the Make-Whole Premium payable
upon prepayment. If the sum is equal to or less than such principal amount,
there will be no Make-Whole Premium payable upon prepayment of such Equipment
Trust Certificate. In addition to the amounts described above, the aggregate
prepayment price to be paid on such prepayment date will include all other
amounts due the Indenture Trustee or any holder of the applicable Equipment
Trust Certificates under the related Indenture, Participation Agreement and
Lease. (Indentures, Article I)
For purposes of determining the Make-Whole Premium, for an Equipment Trust
Certificate having a maturity date less than one year after the applicable
prepayment date, "Treasury Yield" means the average yield to maturity on a
government bond equivalent basis of the applicable United States
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Treasury Bill due the week of the maturity date of such Equipment Trust
Certificate. In the case of an Equipment Trust Certificate having a maturity
date one year or more after the applicable prepayment date, "Treasury Yield"
means the average yield of the most actively traded United States Treasury Note
(as reported by Cantor Fitzgerald Securities Corp. on page 5 of Telerate
Systems, Inc., a financial news service, or if such report is not available, a
source deemed comparable by the Independent Investment Banker and reasonably
acceptable to the Corporation) corresponding in maturity to the Remaining
Weighted Average Life of such Equipment Trust Certificate (or if there is no
corresponding maturity, an interpolation of maturities determined by the
Independent Investment Banker) in each case determined by the Independent
Investment Banker based on the average of the yields to stated maturity
determined from the bid prices as of 10 a.m. and 2 p.m., New York time, on the
second Business Day preceding the prepayment date. "Remaining Weighted Average
Life" means, for any Equipment Trust Certificate, as of any determination date,
the number of years obtained by dividing (a) the sum of the products obtained by
multiplying (i) the amount of each then remaining mandatory sinking fund
redemption payment of principal on such Equipment Certificate, including the
payment due on the maturity date of such Equipment Trust Certificate, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such determination date and the date on which such payment is scheduled
to be made, by (b) the then outstanding principal amount of such Equipment Trust
Certificate. (Indentures, Articles I and VI)
For any Aircraft, if (i) a Lease Event of Default under the related Lease
has occurred and has continued (x) for 120 days or more but less than one year
or (y) in the event of a Lease Event of Default described below in clause (a) of
"The Leases--Lease Events of Default," for less than 120 days, and (ii) the
related Equipment Trust Certificates have not become due and payable pursuant to
the remedies provisions of the related Indenture, then such Equipment Trust
Certificates will be subject to prepayment or purchase, in whole but not in
part, at the direction of the Owner Participant on the day of any month upon
not less than 30 days irrevocable notice. Such prepayment or purchase shall be
at a price equal to the aggregate principal amount of such Equipment Trust
Certificates, together with accrued but unpaid interest thereon to the date
designated for such prepayment or purchase, plus the Make-Whole Premium, if any,
calculated for each such Equipment Trust Certificate as set forth above, and all
other amounts due the Indenture Trustee or any holder of such Equipment Trust
Certificates under the related Indenture, Participation Agreement or Lease.
(Indentures, Article VI, Section 8.02)
PREPAYMENT WITHOUT PREMIUM. For any Aircraft, the related Equipment Trust
Certificates will be prepaid in whole, but not in part, if a Deemed Event of
Loss occurs or if an Event of Loss or Pre-Funding Event of Loss occurs, unless
the Event of Loss or Pre-Funding Event of Loss relates only to an Engine or
Engines and a replacement engine or engines are substituted therefor. See
"Prepayment--Deemed Events of Loss and Pre-Funding Events of Loss" and "The
Leases--Events of Loss" below. Any such prepayment shall be at a prepayment
price equal to the aggregate principal amount of such Equipment Trust
Certificates together with accrued but unpaid interest thereon to the prepayment
date and all other amounts due the Indenture Trustee or any holder of such
Equipment Trust Certificates under the related Indenture, Participation
Agreement or Lease, but without Make-Whole Premium. (Indentures, Article VI)
If (i) a Lease Event of Default under the related Lease has occurred and has
continued for (x) one year or more or (y) in the event of a Lease Event of
Default described below in clause (a) of "The Leases--Lease Events of Default,"
for 120 days or more or (ii) the related Equipment Trust Certificates have
become due and payable pursuant to the remedies provisions of the related
Indenture, the Owner Trustee, at the direction of the Owner Participant, may
prepay or purchase all of such Equipment Trust Certificates on the th day of
any month and upon not less than 30 days' irrevocable notice of such prepayment
or purchase. In any such case, the Owner Trustee must deposit with the Indenture
Trustee on the date designated for such prepayment or purchase an amount equal
to the aggregate principal amount of such Equipment Trust Certificates, together
with accrued but unpaid interest thereon to the date designated for such
prepayment or purchase and all other amounts due any holder of such Equipment
Trust Certificates or the Indenture Trustee under such Indenture, the related
Participation Agreement or the related Lease, but without Make-Whole Premium.
(Indentures, Article VI, Section 8.02)
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DEEMED EVENTS OF LOSS AND PRE-FUNDING EVENTS OF LOSS. The related Equipment
Trust Certificates will be prepaid if a Deemed Event of Loss occurs. A "Deemed
Event of Loss" with respect to an Aircraft will occur if the related Exchange
Date does not occur on or prior to the Cut-off Date. The "Cut-off Date" with
respect to any Aircraft is the earlier of (i) the date which is 365 days after
the Scheduled Lease Commencement Date for such Aircraft, or any earlier Business
Day (but in no event earlier than the related Scheduled Lease Commencement Date)
specified as the Cut-off Date by the Owner Trustee in an irrevocable written
notice given to the Indenture Trustee not less than 30 days prior thereto, and
(ii) 30 days after the date of any notice of termination given in accordance
with the Agreement to Lease. If a Deemed Event of Loss occurs with respect to an
Aircraft, the related Equipment Trust Certificates will be prepaid on the fourth
Frankfurt business day following the applicable Cut-off Date. Such prepayment
shall be at a price equal to the aggregate principal amount of the related
Equipment Trust Certificates, together with accrued but unpaid interest thereon
to the prepayment date and all other amounts due the Indenture Trustee or any
holder of such Equipment Trust Certificates under the related Indenture or
Participation Agreement, but without Make-Whole Premium. (Indentures, Article
VI). The amount in the related Collateral Account, together with amounts drawn
pursuant to the related Letter of Credit, will be available to fund such
prepayment as discussed below in "Description of the Equipment Trust
Certificates -- Security -- Pre-Funding Period."
"Pre-Funding Events of Loss" means any of the following events prior to the
Exchange Date with respect to an Aircraft, an Airframe or any Engine:
(i) loss of such property or its use (A) for a period in excess of 120
days or to the Cut-off Date, if less, due to theft or disappearance, or (B)
for a period in excess of 60 days or to the Cut-off Date, if less, due to
the destruction, damage beyond economic repair or rendition of such property
permanently unfit for normal use by the Corporation for any reason
whatsoever, except a failure to properly complete any work contemplated by
the agreement providing for the conversion of the Aircraft from passenger to
freighter configuration;
(ii) any damage to such property which results in an insurance
settlement with respect to such property on the basis of a total loss, or
constructive or compromised total loss;
(iii) (1) condemnation, confiscation or seizure of, or requisition of
title to such property by any government or purported government or any
agency or instrumentality thereof, or (2) requisition of use of such
property (A) by a foreign government or instrumentality or agency thereof,
or any purported government or instrumentality or agency thereof, for a
period in excess of 180 days (or such shorter period ending on the earlier
of the Cut-off Date or on the date on which an insurance settlement with
respect to such property on the basis of a total loss or constructive or
compromised total loss shall occur), or (B) by the U.S. government for a
period extending beyond the Cut-off Date; and
(iv) as a result of any law, rule, regulation, order or other action by
the FAA or other governmental body having jurisdiction, the use of the
Aircraft or Airframe in the normal course of air transportation of cargo
shall have been prohibited by virtue of a condition affecting all Airbus
Model A310-203 aircraft equipped with engines of the same make and model as
the Engines for a period ending on or after the Cut-off Date.
The date of such Pre-Funding Event of Loss shall be the date of (i) loss of
such property or its use thereof for a period in excess of 120 days, or to the
Cut-off Date, if less, due to theft or disappearance; or loss for a period in
excess of 60 days, or to the Cut-off Date, if less, due to damage beyond
economic repair; or loss of use of the Airframe because of requisition for use
for a period in excess of 180 days (or shorter period due to insurance
settlement or as otherwise contemplated by clause (iii)(2)(A) above), (ii) an
insurance settlement on the basis of total loss with respect to such property,
(iii) condemnation, confiscation, seizure or requisition of title, or (iv)
prohibition from usage for the periods described in clause (iv) above. A
Pre-Funding Event of Loss with respect to an Aircraft shall be deemed to have
occurred if any Pre-Funding Event of Loss occurs with respect to the Airframe
prior to the Exchange Date. (Indentures, Article I)
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If a Pre-Funding Event of Loss occurs with respect to an Aircraft, the Owner
Trustee will notify the Indenture Trustee of such occurrence. If the Indenture
Trustee is notified of a Pre-Funding Event of Loss at least five Frankfurt
business days prior to the Scheduled Lease Commencement Date for such Aircraft,
the related Equipment Trust Certificates will be prepaid on such Scheduled Lease
Commencement Date. The prepayment date for any other Pre-Funding Event of Loss
relating to the Aircraft will be the fourth Frankfurt business day following the
applicable Cut-off Date. In each case, such prepayment shall be at a price equal
to the aggregate principal amount of the related Equipment Trust Certificates,
together with accrued but unpaid interest thereon to the prepayment date and all
other amounts due the Indenture Trustee or any holder of such Equipment Trust
Certificates under the related Indenture or Participation Agreement, but without
Make-Whole Premium. (Indentures, Article VI). The amount in the related
Collateral Account, together with amounts drawn pursuant to the related Letter
of Credit, will be available to fund such prepayment as discussed below in
"Description of the Equipment Trust Certificates -- Security -- Pre-Funding
Period."
INVESTMENT OF FUNDS
The proceeds from the sale of Equipment Trust Certificates deposited in the
related Collateral Account will be invested in Specified Investments. "Specified
Investments" means any of the following: (a) direct obligations of the United
States of America and (b) obligations fully guaranteed by the United States of
America. Such Specified Investments will be held through maturity and shall
mature no later than the related Scheduled Lease Commencement Date, or if made
after the Scheduled Lease Commencement Date, no later than the earliest to occur
of the related Cut-off Date, the next subsequent payment or prepayment date and
the date then scheduled for commencement of the related Lease. (Collateral
Agreements, Section 5)
Funds, if any, held from time to time by the Indenture Trustee with respect
to any Aircraft (other than funds in the related Collateral Account) will be
invested, except under certain circumstances, in direct obligations of, or
obligations fully guaranteed by, the United States of America; certificates of
deposit, bankers' acceptances, time deposits or deposit accounts with certain
banks, trust companies or national banking associations; or commercial paper
rated A-I/P-I by Standard & Poor's Corporation and Moody's Investors Service,
Inc., respectively, or, if such ratings are unavailable, rated by any nationally
recognized rating organization in the United States equal to the highest rating
assigned by such rating organization. The Corporation will be responsible for
any loss realized upon maturity, sale or other disposition of any such
investment. (Indentures, Section 5.08; Leases, Section 23.01)
INDENTURE EVENTS OF DEFAULT, NOTICE AND WAIVER
Events of default under each Indenture (each, an "Indenture Event of
Default") include:
(a) after the related Lease Commencement Date, any Lease Event of
Default under the Lease related to such Indenture shall have occurred and be
continuing (see "The Leases--Lease Events of Default" below);
(b) any failure by the Owner Trustee to observe or perform any covenant
or obligation of the Owner Trustee in such Indenture (other than any such
failure arising by reason of a Lease Event of Default), continued for a
period of 30 days or, if such covenant is capable of cure and the Owner
Trustee is diligently proceeding to effect such a cure, 120 days after
written notice of such failure is given to the Owner Trustee and the Owner
Participant by the Indenture Trustee or by holders of not less than 25% in
aggregate amount of related outstanding Equipment Trust Certificates;
(c) to the extent not resulting from a Lease Event of Default, (i)(A)
any failure by the Owner Trustee to pay principal, interest or Make-Whole
Premium, if any, with respect to any related Equipment Trust Certificate
when due, or (B) any failure of WestLB to make any payment under the related
Letter of Credit when such payment is due, or (C) any failure of the Airline
to make any payment under the related Demand Notes when such payment is due,
in any such case continued for five Business Days or (ii) to the extent not
resulting from an Event of Default, any failure to pay any other amounts
when due under such Indenture or the Equipment Trust Certificates issued
thereunder, continued for 30 days;
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(d) any representation or warranty made by First Security, the Owner
Trustee, the Owner Participant or any Person guaranteeing the obligations of
the Owner Participant in specified articles of the related Participation
Agreement or the related Lease or in any document or certificate furnished
to the Indenture Trustee or any holder of the related Equipment Trust
Certificates, proves to have been incorrect when made and was and remains
material in any respect to the rights and remedies of the holders of the
related Equipment Trust Certificates under such Indenture or Equipment Trust
Certificates, or under the related Collateral Agreement, Participation
Agreement or Lease or any other agreement specified in the Granting Clause
of such Indenture and if such misrepresentation is capable of being
corrected and if such correction is being sought diligently, such
misrepresentation is not corrected within 30 days after notice thereof is
given to First Security, the Owner Trustee and the Owner Participant by the
Indenture Trustee or by holders of not less than 25% in aggregate principal
amount of outstanding Equipment Trust Certificates;
(e) any covenant made by First Security, the Owner Trustee, the Owner
Participant or any Person guaranteeing the obligation of the Owner
Participant in the specified articles of the related Participation Agreement
is breached in any respect and was and remains material to the rights and
remedies of the holders of the Equipment Trust Certificates under such
Indenture or Equipment Trust Certificates, or under the related
Participation Agreement or Lease, and such breach remains unremedied for a
period of 30 days after the Owner Trustee and the Owner Participant have
been given a written notice by the Indenture Trustee or by the holders of
not less than 25% in aggregate principal amount of outstanding Equipment
Trust Certificates specifying such breach and requiring it to be remedied;
(f) the occurrence of certain specified events of bankruptcy,
insolvency or reorganization of the Owner Trustee, the Owner Participant or
any Person guaranteeing the obligations of the Owner Participant; or
(g) at any time on or after the related Exchange Date while the Aircraft
is registered in the United States, the Owner Trustee, First Security, the
Owner Participant or any Person guaranteeing the obligations of the Owner
Participant shall do or fail to do any act expressly required by the
Operative Agreements to be performed by the Owner Trustee or the Owner
Participant as the case may be, or shall meet or fail to meet any condition
expressly required by the Operative Agreements to be satisfied by the Owner
Trustee or the Owner Participant, as the case may be, and as a result
thereof the Lien of the Indenture shall cease to be a valid first priority
perfected Lien on the related trust estate under such Indenture.
(Indentures, Section 7.01)
Each Indenture provides that, unless and until an Indenture Event of Default
has occurred and is continuing, the Indenture Trustee generally may not exercise
any of the rights of the Owner Trustee under the related Lease assigned to the
Indenture Trustee under such Indenture, except the right to receive rental
payments due under such Lease. Whether or not an Indenture Event of Default has
occurred and is continuing, the Owner Trustee and the Owner Participant may
exercise certain rights under such Lease. (Indentures, Section 8.01) See
"Description of the Equipment Certificates--Security" in the Prospectus.
There are no cross-default provisions in the Indentures and any event
resulting in an Indenture Event of Default under one Indenture will not
necessarily result in the occurrence of an Indenture Event of Default under the
other Indentures.
If a Lease Event of Default occurs under the related Lease as a result of
the Corporation's failure to make any scheduled rental payment under such Lease
and the Owner Trustee pays all principal and interest on the related Equipment
Trust Certificates then due (as well as any interest on overdue principal and
interest), but not including any principal or interest becoming due on account
of such Lease Event of Default, prior to the later of the eleventh day
subsequent to notice of such failure by the Indenture Trustee to the Owner
Trustee or the Owner Participant and the sixth day subsequent to the expiration
of the five Business Day grace period applicable to such failure under such
Lease, then (i) the failure of the Corporation to make such payment shall not
constitute an Indenture Event of Default under such
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Indenture, (ii) any declaration based solely thereon shall be deemed to be
automatically rescinded and (iii) the Owner Trustee may not declare the Lease to
be in default or exercise any remedies available to it under the related Lease
or otherwise. The Owner Participant and the Owner Trustee, collectively, may not
cure more than three consecutive such Lease Events of Default or more than six
such Lease Events of Default in total, except in the circumstances described in
clause (v) of the second paragraph under "Remedies" below. (Indentures, Sections
7.02(a) and 8.03(a))
If (i) a Lease Event of Default under the related Lease occurs for any
reason other than the Corporation's failure to make any scheduled rental payment
under such Lease, (ii) such Lease Event of Default is curable by the payment of
money and (iii) the Owner Trustee shall have cured such Lease Event of Default
prior to the later of the eleventh day subsequent to notice of such failure by
the Indenture Trustee to the Owner Trustee or the Owner Participant and the
sixth day subsequent to the expiration of the grace period, if any, applicable
to such failure under such Lease, then the failure under such Lease, the failure
of the Corporation to perform such covenant, condition or agreement which is
cured by the Owner Trustee shall not constitute an Indenture Event of Default
under such Indenture and any declaration based solely thereon will be deemed to
be automatically rescinded and the Owner Trustee may not declare the Lease to be
in default or exercise any remedies available to it under the Lease or
otherwise. (Indentures, Section 8.03(b))
Each Indenture provides that the Indenture Trustee must, within 90 days
after the occurrence of any event that is a default under such Indenture and is
actually known to a responsible officer of the Indenture Trustee, notify the
holders of the related Equipment Trust Certificates of such default, PROVIDED
that under no circumstances may the Indenture Trustee give such notice until the
expiration of a period of 60 days from the occurrence of such default, and
PROVIDED FURTHER that the Indenture Trustee will be protected in withholding
such notice, except in the case of a default in the payment of the principal of
or interest on any related Equipment Trust Certificate, if it in good faith
determines that the withholding of such notice is in the interest of the holders
of such Equipment Trust Certificates. (Indentures, Section 7.12)
The holders of not less than a majority in aggregate principal amount of
outstanding Equipment Trust Certificates issued under an Indenture to which an
Indenture Event of Default relates may on behalf of all holders thereof waive
any past Indenture Event of Default thereunder and its consequences, except that
consent from each holder of Equipment Trust Certificates issued under such
Indenture is required with respect to a waiver of such a default in the payment
of the principal of, Make-Whole Premium, if any, or interest on any such
Equipment Trust Certificate or in respect of any covenant or provision of such
Indenture that, pursuant to the provisions of such Indenture, cannot be modified
or amended without the consent of each such holder. (Indentures, Section 7.11)
The Corporation is required under each Participation Agreement to furnish to
the Pass Through Trustee, the Owner Participant, the Owner Trustee and the
Indenture Trustee promptly upon any officer of the Corporation obtaining
knowledge of any condition or event that constitutes a Lease Event of Default,
an officer's certificate specifying the nature and period of existence of such
event and what action the Corporation has taken or is taking or proposes to take
with respect thereto. (Participation Agreements, Section 6.02(i)(E))
REMEDIES
Each Indenture provides that, subject to the Owner Trustee's right to cure
certain defaults and to prepay or purchase the related Equipment Trust
Certificates, if an Indenture Event of Default has occurred and is continuing
unremedied thereunder, the Indenture Trustee may exercise certain specified
rights or remedies available to it under applicable law, including, if a Lease
Event of Default under the related Lease has occurred, one or more of the
remedies with respect to the related Aircraft afforded to the Owner Trustee by
the related Lease for Lease Events of Default thereunder. (See "The Leases --
Lease Events of Default" below.) Such remedies may be exercised by the Indenture
Trustee to the exclusion of the Owner Trustee and the Owner Participant. Any
aircraft sold in the exercise of such remedies will be free and clear of any
rights of those parties (other than, in certain cases, rights of
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redemption provided by law and rights to certain proceeds as described in the
next paragraph), including the rights of the Corporation under the applicable
Lease. No exercise of any remedies by the Indenture Trustee, however, may affect
the rights of the Corporation under a Lease unless a Lease Event of Default
under such Lease has occurred and is continuing, and the Indenture Trustee may
not sell any part of the related trust estate under such Indenture unless the
related Equipment Trust Certificates have been accelerated. (Indentures, Article
7)
Notwithstanding the rights and powers of the Indenture Trustee described
above, the Indenture Trustee may not exercise any remedy under an Indenture as a
result of an Indenture Event of Default under such Indenture occurring solely by
virtue of one or more Lease Events of Default under the related Lease unless the
Indenture Trustee, as assignee of the Owner Trustee's rights under such Lease,
simultaneously commences the exercise of one or more of the remedies under such
Lease; PROVIDED that the requirement to exercise such remedies under such Lease
will not apply in circumstances where the Indenture Trustee is, and has been,
involuntarily stayed or prohibited by applicable law or court order from
exercising such remedies for a continuous period in excess of the period of such
stay specified under Section 1110(a)(1) of the Bankruptcy Code (the "Section
1110 Period"); and PROVIDED FURTHER that the requirement to exercise such
remedies under such Lease will nonetheless apply during the continuation of such
stay or prohibition subsequent to the expiration of the Section 1110 Period (i)
so long as the Corporation, during the Section 1110 Period, has agreed with the
approval of the relevant court to perform such Lease in accordance with Section
1110(a) of the Bankruptcy Code, (ii) during an extension with the consent of the
Indenture Trustee of such Section 1110 Period pursuant to Section 1110(b) of the
Bankruptcy Code, (iii) so long as the Corporation, during the Section 1110
Period, has assumed such Lease with the approval of the relevant court pursuant
to Section 365 of the Bankruptcy Code, (iv) during any period during which the
Indenture Trustee is so stayed or prohibited by applicable law or court order by
reason of the Indenture Trustee's own failure to give any required notice to any
person or (v) during any period (not to exceed in any event 120 days) during
which the Indenture Trustee is so stayed pursuant to a judicial stay pending the
resolution of litigation with respect to the applicability of Section 1110 of
the Bankruptcy Code and there is no uncured Lease Event of Default other than
the one arising solely from the Corporation's bankruptcy. The Indenture Trustee
may continue to take the necessary actions to foreclose on the Lien of the
Indenture, but may not complete a foreclosure during the Continuous Stay Period.
If, after the expiration of the period described in clause (v) above and during
the continuation of the involuntary stay or prohibition under applicable law or
court order, the Indenture Trustee acquires titles to the related Aircraft
through foreclosure without having exercised remedies under the related Lease,
and the Indenture Trustee receives, within 183 days after its acquisition of
such Aircraft, proceeds from its sale of the Aircraft, then to the extent that
such proceeds (net of any costs or expenses of the Indenture Trustee relating to
such foreclosure and sale or exercise of remedies) exceed the principal amount
of the unpaid interest accrued on the related Equipment Trust Certificates to
such date of foreclosure plus interest on such principal to the date of
distribution thereof by the Indenture Trustee, such excess amount will be
distributed to the Owner Trustee. (Indentures, Section 7.02(a))
If an Indenture Event of Default occurs under an Indenture as a result of
certain specified events of bankruptcy, insolvency or reorganization of the
Owner Trustee, the Owner Participant or the Corporation, then the unpaid
principal of the related Equipment Trust Certificates, together with interest
accrued but unpaid thereon and all other amounts due thereunder and under such
Indenture, immediately and without further act shall become due and payable. If
any other Indenture Event of Default occurs and is continuing under an
Indenture, the Indenture Trustee, acting on its own or at the direction of the
holders of not less than 25% in aggregate principal amount of outstanding
Equipment Trust Certificates issued under such Indenture, may declare the
principal of all such Equipment Trust Certificates immediately due and payable,
together with all accrued but unpaid interest thereon and all other amounts due
and payable thereunder and under such Indenture, by written notice or notices to
the Owner Trustee and, if after the Lease Commencement Date, the Corporation.
The holders of more than 50% in aggregate principal amount of all such
outstanding Equipment Trust Certificates may rescind any such declaration by
written notice or notices to the Owner Trustee, the Indenture Trustee and, if
after the related Lease Commencement Date, the Corporation, at any time prior to
the sale or disposition of the property subject
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to the Lien of the Indenture if (i) there has been paid to or deposited with the
Indenture Trustee (other than pursuant to the Collateral Agreement) an amount
sufficient to pay all overdue installments of interest on all such Equipment
Trust Certificates (together with interest on such overdue installments of
interest), the principal on any Equipment Trust Certificates that has become due
otherwise than by such declaration, all sums paid or advanced by the Indenture
Trustee under such Indenture and certain other expenses or (ii) all Indenture
Events of Default under such Indenture (other than the nonpayment of principal
that has become due solely because of such declaration) have been cured or
waived. (Indentures, Sections 7.02(b) and (c))
In the event of the bankruptcy of the Owner Participant, it is possible
that, notwithstanding the fact that the applicable Aircraft is owned by the
Owner Trustee in trust, such Aircraft and the related Lease and Equipment Trust
Certificates might become part of the bankruptcy proceeding. In such event,
payments under such Lease or Equipment Trust Certificates might be interrupted
and the ability of the Indenture Trustee to exercise its remedies under such
Indenture might be restricted, although the Indenture Trustee would retain its
status as a secured creditor in respect of such Lease and Aircraft.
At any time while any Equipment Trust Certificates have become due and
payable pursuant to the remedies provisions in the related Indenture, the Owner
Participant may direct the Owner Trustee to pay to the Indenture Trustee for
distribution to the holders of such Equipment Trust Certificates an amount equal
to the aggregate unpaid principal amount of all such Equipment Trust
Certificates plus all accrued and unpaid interest thereon to the date of payment
and all other amounts due to such holders or the Indenture Trustee under such
Indenture, but without Make-Whole Premium. If such payment by the Owner Trustee
to the Indenture Trustee is made, the Equipment Trust Certificates will cease to
accrue interest from and after the date of payment, and after such payment to
the holders of the Equipment Trust Certificates, the Indenture Trustee shall
release the property subject to the Lien of the applicable Indenture from such
Lien. (Indentures, Sections 7.02(c) and 14.01) See "Prepayment--Prepayment
without Premium" above.
The right of any holder of an Equipment Trust Certificate to institute an
action for any remedy under the Indenture pursuant to which such Equipment Trust
Certificate was issued (including the right to enforce payment of the principal
of, Make-Whole Premium, if any, and interest on such Equipment Trust
Certificates when due) is subject to certain conditions precedent, including a
written request to the Indenture Trustee by the holders of not less than 25% in
aggregate principal amount of outstanding Equipment Trust Certificates issued
under such Indenture to take action, and an offer to the Indenture Trustee of
reasonable indemnification against costs, expenses and liabilities incurred by
it in doing so. (Indentures, Sections 7.08 and 7.09)
The holders of not less than a majority in aggregate principal amount of
outstanding Equipment Trust Certificates issued under any Indenture may direct
the time, method and place of conducting any proceeding for any remedy available
to the Indenture Trustee or of exercising any trust or power conferred on the
Indenture Trustee. The Indenture Trustee is entitled to be indemnified by the
holders of Equipment Trust Certificates issued under such Indenture before
proceeding so to act and the Indenture Trustee may not be held liable for acting
in good faith. (Indentures, Section 7.10 and Article XI)
If an Indenture Event of Default occurs and continues, any sums held or
received by the Indenture Trustee under the related Indenture may be applied to
reimburse the Indenture Trustee for any tax, expense, charge or other loss
incurred by it and to pay any other amounts due the Indenture Trustee prior to
any payments to holders of the Certificates with respect to which such Indenture
Event of Default relates. (Indentures, Section 5.03)
SECTION 1110 OF THE BANKRUPTCY CODE. Section 1110 of the Bankruptcy Code
provides that the right of lessors, conditional vendors and holders of purchase
money equipment security interests with respect to aircraft used by air carriers
operating under certificates issued under Section 401 or 418 of the Aviation Act
to take possession of such aircraft in compliance with provisions of the lease,
conditional sale contract or purchase money equipment security agreement, as the
case may be, is not affected by (i) the automatic stay provision of the
Bankruptcy Code, which provision enjoins the taking of any action
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against a debtor by a creditor, (ii) the provision of the Bankruptcy Code
allowing the trustee in reorganization to use, sell or lease property of the
debtor and (iii) any power of the bankruptcy court to enjoin a repossession.
Section 1110 provides, however, that the right of a lessor, conditional vendor
or holder of a purchase money equipment security interest to take possession of
any aircraft in the event of a default may not be exercised for 60 days
following the date of commencement of the reorganization proceedings (unless
specifically permitted by the bankruptcy court) and may not be exercised at all
if, within such 60-day period, the trustee in reorganization agrees to perform
the debtor's obligations that become due on or after such date and cures all
existing defaults (other than defaults resulting solely from the financial
condition, bankruptcy, insolvency or reorganization of the debtor). The
Corporation has been advised by its special counsel that, for each Aircraft, on
and after the Lease Commencement Date for such Aircraft, the provisions of
Section 1110 of the Bankruptcy Code will apply to such Aircraft for the benefit
of the Owner Trustee as Lessor under and by reason of the related Lease and, on
and after the related Exchange Date, such Lease, including the rights under
Section 1110 of the Bankruptcy Code, will be assigned to the Indenture Trustee
pursuant to the related Indenture as part of the security for the Equipment
Trust Certificates issued under such Indenture.
MARKETABILITY OF AIRCRAFT. It is impossible to predict the resale value for
any Aircraft to be sold upon the exercise of the Indenture Trustee's remedies
under the related Indenture. The market for aircraft, whether new or used, is
and will be affected by many factors including, among other things, the supply
of similarly equipped aircraft of the same make and model, the demand for such
aircraft by air carriers and the cost and availability of financing to potential
purchasers of such aircraft. Each of these factors, in turn, will be affected by
various circumstances including, among other things, current and anticipated
demand for passenger and cargo air services, the relative capacity of air
carriers to provide such services, the current and projected profitability of
providing such services, the economic condition of the domestic and
international airline industries and global economic and financial developments
generally. In addition, the marketability of a particular aircraft will be
affected by factors such as the reputation and actual performance record of the
air carrier with respect to maintenance, the compliance of the aircraft with
federal noise and other environmental standards and the degree of technical and
other support available from the manufacturer of the aircraft. Since the market
for aircraft will fluctuate over time to reflect changes in these and other
circumstances, and because of the unique factors that would affect market value
in a forced disposition of an aircraft, there can be no assurance that the net
proceeds realized from the sale or other disposition of any Aircraft in the
exercise of such remedies will be sufficient to satisfy in full amounts due and
payable on the related Equipment Trust Certificates.
MODIFICATION OF AGREEMENTS
Without the consent of the holders of more than 50% in aggregate principal
amount of the outstanding Equipment Trust Certificates under an Indenture, the
provisions of such Indenture, the related Lease (or the form of such Lease prior
to the related Lease Commencement Date), the related Participation Agreement,
certain other documents relating to the acquisition or conversion of the
Aircraft and the related Trust Agreement may not be amended or modified, except
to the extent indicated below. (Indentures, Sections 8.01 and 13.01)
Certain provisions of the Indentures, the Leases, or the forms thereof prior
to the Lease Commencement Dates (including provisions relating to maintenance,
insurance and possession of the Aircraft), the Participation Agreements, the
Trust Agreements, the Agreement to Lease and certain other documents relating to
the acquisition or conversion of the Aircraft may be amended or modified without
the consent of the Indenture Trustee or any of the holders of the Equipment
Trust Certificates related thereto. Without the consent of each holder of an
Equipment Trust Certificate affected thereby, no amendment or modification of
the Indenture pursuant to which such Equipment Trust Certificate was issued or
the related Lease or Participation Agreement may (i) reduce the principal amount
of or Make-Whole Premium, if any, or interest payment payable on such Equipment
Trust Certificate or change the date on which any such principal, Make-Whole
Premium, if any, or interest payment is due and payable or otherwise affect the
terms of payment of such Equipment Trust Certificate, (ii) reduce, modify or
amend any indemnities payable by the Owner Participant in favor of such holder,
(iii) reduce the amount of any
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rental payment payable by the Corporation below the amount required and payable,
(iv) to the extent payable to such holder, extend the time of, or reduce the
aggregate amount of, or release the Corporation from its obligation to pay,
rent, stipulated loss value or any other amounts payable under, or as provided
in, such Lease upon the occurrence of an Event of Loss or termination value and
any other amounts payable with respect to the applicable Aircraft, (v) create
any security interest with respect to the property subject to the Lien of such
Indenture ranking prior to or on a parity with the security interest created by
such Indenture or deprive the holder of any such Equipment Trust Certificate of
the Lien of such Indenture upon the property subject thereto, or (vi) reduce the
percentage of the aggregate principal amount of such Equipment Trust
Certificates necessary to modify or amend any provision of such Indenture or to
waive compliance therewith. (Indentures, Section 8.01, Article XIII)
THE INDENTURE TRUSTEE
Each Indenture provides that in the case of any Indenture Event of Default
thereunder, the Indenture Trustee shall exercise such of the rights and powers
vested in it by such Indenture, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs. Generally, the
Indenture Trustee will not be liable for any error of judgment made in good
faith, unless the Indenture Trustee was negligent in ascertaining the pertinent
facts, or for any action taken or omitted to be taken by it in good faith in
accordance with the direction of the holders of not less than a majority in
aggregate principal amount of the outstanding Equipment Trust Certificates
issued under such Indenture. Subject to such provisions, the Indenture Trustee
is under no obligation to exercise any of its rights or powers under such
Indenture at the request of any holders of Equipment Trust Certificates issued
thereunder unless they shall have offered to the Indenture Trustee reasonable
security or indemnity. Each Indenture provides that the Indenture Trustee may
acquire and hold Equipment Trust Certificates issued thereunder and the
Indenture Trustee may otherwise deal with the Owner Trustee with the same rights
it would have if it were not the Indenture Trustee. (Indentures, Sections 9.02,
9.03, 9.05 and 15.12)
THE LEASES
GENERAL. Upon the satisfaction of certain conditions relating to an
Aircraft under the Agreement to Lease and in the related Participation Agreement
(including, but not limited to, acceptance of such Aircraft upon completion of
the conversion of the Aircraft from passenger to freighter configuration,
certification of the Aircraft by the FAA as to type and airworthiness and
registration of the Aircraft in the name of the Owner Trustee), the Owner
Trustee will lease such Aircraft to the Corporation and the Corporation will
take possession of such Aircraft and lease such Aircraft from the Owner Trustee
under the related Lease.
TERMS AND RENTALS. Each Aircraft will be leased separately by the Owner
Trustee to the Corporation for a term commencing on the related Lease
Commencement Date and expiring on a date not earlier than the latest maturity
date of the Equipment Trust Certificates issued with respect to such Aircraft,
unless previously terminated or extended, as permitted by the related Lease. The
scheduled rental payments by the Corporation under each Lease are payable on
each and , commencing on the first such date to occur
after the related Lease Commencment Date, and, from and after the Exchange Date,
will be assigned under the related Indenture by the Owner Trustee to the
Indenture Trustee. (Leases, Article 3; Indentures, Granting Clause)
Upon the commencement of each Lease and after the related Exchange Date, the
Corporation will be obligated to make rental payments thereunder that will be
sufficient to pay the principal of and interest on the related Equipment Trust
Certificates when and as due and payable, except that on the first scheduled
payment date after the related Exchange Date the difference between the rental
payment due on such payment date by the Corporation and the scheduled payment of
principal, if any, and interest then due on such Equipment Trust Certificates
will be payable from the amount available in the related Collateral Account and,
if such payment date occurs after an Extended Pre-Funding Period under the
related Collateral Agreement, funds available under the related Letter of
Credit. See "Security--Pre-
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Funding Period" above for a discussion of the availability of funds under the
Collateral Accounts and Letters of Credit. The Corporation's obligations to make
rental payments and to cause other payments to be made under each Lease are
general obligations of the Corporation.
NET LEASE. The Corporation's obligations in respect of each of the
Aircraft, upon commencement of the respective Lease, will be those of a lessee
under a "net lease." Accordingly, the Corporation will be obligated to pay all
costs of operating the Aircraft and, at its expense, to maintain, inspect,
service, repair, test and overhaul the Aircraft so as to keep the aircraft in as
good operating condition as when delivered, ordinary wear and tear excepted, and
to enable the airworthiness certification thereof to be maintained in good
standing at all times under the Aviation Act or, under certain circumstances,
under the applicable requirements of the aeronautical authority of another
country of registry (see "Description of the Equipment
Certificates--Registration of the Aircraft" in the Prospectus). If an Aircraft
loses its airworthiness certification, such loss is curable and the Corporation,
using its best efforts, undertakes such cure promptly, diligently and
continuously, and such loss does not constitute an Event of Loss or otherwise
require termination of the related Lease as described in the fifth paragraph
under "Termination" below, then the Corporation will not be in default with
respect to such obligation. (Leases, Section 7.01)
Except as set forth below, the Corporation is obligated to replace or cause
to be replaced all parts that may from time to time be incorporated or installed
in or attached to any Aircraft and that may become worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use. Any such replacement part becomes subject to the related Lease
and the Lien of the related Indenture in lieu of the part replaced. (Leases,
Section 8.01; Indentures, Granting Clause) The Corporation must make all
alterations, modifications and additions to each Aircraft necessary to meet the
applicable requirements of the FAA or any other governmental authority with
jurisdiction over the Corporation's operations and aircraft. The Corporation may
in good faith contest the validity or application of any such requirement in any
manner that does not involve any risk of liabilities or civil or criminal
penalties being imposed on or against the Indenture Trustee, the Owner
Participant or the Owner Trustee or any material risk of loss or forfeiture of
an Aircraft, and that does not materially adversely affect the Owner Trustee,
its title or interest in such Aircraft or the interests of the Indenture Trustee
or the Owner Participant. (Leases, Section 9.01)
The Corporation may make other alterations, modifications and additions to
any Aircraft, including the removal of parts deemed by the Corporation to be
obsolete or no longer available or appropriate for use on such Aircraft, so long
as such alterations, modifications, additions or removals, individually or in
the aggregate, do not diminish the value, useful life (in the case of the
Airframe only), or utility of such Aircraft or impair its condition or
airworthiness below its value, useful life (in the case of the Airframe only),
utility, condition and airworthiness immediately prior to such alteration,
modification or addition, assuming that such Aircraft was then in the condition
and airworthiness required by the related Lease. Also, in certain circumstances,
the Corporation is permitted to remove parts (without replacement) from an
Aircraft (and therefore from the Lien of the applicable Indenture) if the
Corporation deems them to be obsolete or no longer suitable or appropriate for
use on such Aircraft. (Leases, Section 9.02)
SUBLEASING AND POSSESSION. In certain circumstances, the Corporation is
permitted (i) to sublease any Aircraft or Engine at any time to certain United
States air carriers or (ii) to sublease any Aircraft after the seventh
anniversary of the last day of the tax year of the Owner Participant in which
the related Lease shall commence (which anniversary date for the Aircraft with
the earliest Scheduled Lease Commencement Date is expected to be December 31,
2001) (x) to certain air carriers principally based in and domiciled in certain
specified foreign countries or (y) to any other air carrier that is reasonably
acceptable to the Owner Trustee as evidenced by its prior written consent,
PROVIDED that, at the time of any such sublease the United States maintains
normal and full diplomatic relations with such country and any such air carrier
shall operate such Aircraft under a maintenance program where standards are at
least equal to those specified for similar aircraft with similar engines by one
of the FAA, or the applicable aviation authorities of the French Republic, the
Federal Republic of Germany or the United Kingdom. The term of any such sublease
must expire prior to the expiration of the term of the related Lease, and a
permitted sublessee may not further transfer possession of such Aircraft or
Engine without the prior
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written consent of the Owner Trustee except as provided in such Lease. Any such
sublease will be subject and subordinate to the related Lease and the
Corporation will remain primarily liable for the performance of all the terms of
such Lease to the same extent as if such sublease had not occurred. (Leases,
Section 7.02)
In addition, subject to certain limitations, the Corporation is permitted to
transfer possession of any Aircraft or Engine other than by lease, including
transfers of possession by the Corporation or any permitted sublessee in
connection with normal interchange or pooling arrangements with certain vendors
or air carriers, transfers of possession in connection with maintenance or
modifications, and transfers of possession in connection with the Civil Reserve
Air Fleet Program. The Corporation may enter into a "wet" lease under which it
has effective control of the Aircraft in the ordinary course of its business,
which shall not be considered a transfer of possession under the related Lease.
The Corporation's obligations under the related Lease will continue in full
force and effect notwithstanding any such wet lease. (Leases, Section 7.02)
Generally, the Corporation may install an Engine on another aircraft. Such
Engine, however, will remain subject to the applicable Lease and to the Lien of
the related Indenture. (Leases, Section 7.02)
LIENS. Each Aircraft is required to be maintained free of any Liens, other
than the respective rights of the Owner Participant, the Owner Trustee,
Indenture Trustee, the holders of the related Equipment Trust Certificates and
the Corporation arising under the related Indenture, Lease, Participation
Agreement and Trust Agreement, and other than certain limited liens permitted
under the Lease relating thereto including: (i) Liens for taxes either not yet
due or being contested in good faith by appropriate proceedings, so long as such
Liens or proceedings do not involve any danger of the sale, forfeiture or loss
of the trust estate of the Owner Trustee, the Aircraft, the Airframe, any
Engine, or any interest therein; (ii) materialmen's, mechanics', workmen's,
repairmen's, employees' or other like Liens arising against the Corporation in
the ordinary course of business for amounts the payment of which is either not
yet due or is being contested in good faith by appropriate proceedings, so long
as such Liens or proceedings do not involve any danger of the sale, forfeiture
or loss of the trust estate of the Owner Trustee, the Aircraft, the Airframe,
any Engine, or any interest therein; (iii) Liens arising from judgments or
awards against the Corporation with respect to which (x) at the time an appeal
or proceeding for review is being prosecuted in good faith and with respect to
which there shall have been secured a stay of execution pending such appeal or
proceeding for review and then only for the period of such stay and (y) there is
not, and such proceedings do not involve, any danger of the sale, forfeiture or
loss of the trust estate of the Owner Trustee, the Aircraft, the Airframe, any
Engine, or any interest therein; and (iv) Liens with respect to the related
Collateral Accounts and Demand Notes. (Leases, Section 6.01)
INSURANCE. For each Aircraft, the Corporation will be obligated to carry
insurance with insurers of recognized responsibility, at its own cost and
expense, in such amounts, against such risks, with such retentions (i) in the
case of hull insurance, as the Corporation customarily maintains with respect to
other aircraft in the Corporation's fleet of the same type and model and
operating on the same routes as the Aircraft and (ii) in the case of liability
insurance, as the Corporation customarily maintains with respect to similar
aircraft and engines which comprise its fleet, and insurance against such other
risks as is usually carried by similar corporations engaged in the same or
similar business and similarly situated as the Corporation, owning or operating
aircraft similar to the Aircraft. (Leases, Article 13) See "Description of the
Equipment Trust Certificates--The Leases--Insurance" in the Prospectus.
SELF-INSURANCE. Each Lease provides that the Corporation may self-insure
with respect to comprehensive aircraft liability insurance and ground and flight
aircraft hull insurance required to be provided under such Lease, in such
reasonable amounts as are then applicable to other aircraft or engines of the
Corporation of value comparable to the Aircraft. Such self-insurance with
respect to all aircraft in the Corporation's fleet may not in aggregate exceed
for any 12-month year an amount equal to the lesser of (x) 50% of the highest
insured value of any single aircraft in the Corporation's fleet and (y) 1.5% of
the average aggregate insured value from time to time of the Corporation's
entire aircraft fleet. A standard deductible per occurrence per aircraft, as
customary in the industry, is permitted in addition to such self-
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insurance. The Corporation shall not discriminate as between insurance coverage
on the Aircraft and insurance which the Corporation maintains with respect to
similar aircraft owned or operated by the Corporation operating on similar
routes in similar locations. (Leases, Section 13.06)
OPERATION. The Corporation may not operate or locate an Aircraft, or allow
such Aircraft to be operated or located (i) in any area excluded from coverage
by any insurance policy required by the related Lease, unless the Aircraft is
requisitioned by the United States government and the Corporation has obtained,
prior to the operation or location of the Aircraft in such area, indemnification
from the United States government, or other insurance, against the risks and in
the amounts required by the related Lease covering such area, or (ii) in any war
zone or recognized or, in the Corporation's reasonable judgment, threatened area
of hostilities, unless fully covered by international war-risk and allied perils
insurance coverage or unless the Aircraft is operated by the United States
government and the government assumes liability for any damage, loss or
destruction. (Leases, Section 7.01(f))
TERMINATION. So long as no Event of Default or payment default under the
related Lease shall have occurred and be continuing, the Corporation may on any
scheduled rent payment date under such Lease on or after the seventh anniversary
of the last day of the tax year of the Owner Participant in which such Lease
shall commence (which anniversary date for the Aircraft with the earliest
Scheduled Lease Commencement Date is expected to be December 31, 2001) on at
least 180 days' prior written notice to the Owner Trustee, the Indenture Trustee
and the Owner Participant terminate such Lease if a designated officer of the
Corporation certifies to the Owner Trustee, the Owner Participant and the
Indenture Trustee that the related Aircraft has become obsolete or surplus to
the Corporation's needs. The Corporation, as non-exclusive agent for the Owner
Trustee, is then required to use its reasonable efforts to obtain bids for the
cash purchase of the Aircraft on the proposed termination date. The Owner
Trustee may seek bids, but the Owner Participant may not inspect any bids
obtained by the Corporation unless the Owner Participant has agreed that neither
it nor any of its affiliates nor any party acting for it or any such affiliate
will submit a bid. No bid may be submitted by the Corporation, any person, firm
or corporation affiliated with the Corporation (or with whom or with which there
is any arrangement or understanding as to the subsequent use of the Aircraft by
the Corporation or any of its affiliates) or any agent or person acting on
behalf of the Corporation. (Leases, Article 10)
On the termination date (or such earlier date of sale as shall be consented
to in writing by the Owner Trustee), the Owner Trustee is required to sell the
Aircraft to the party submitting the highest cash bid, subject, however, to the
Corporation's right to reject any bid that is less than the applicable
termination value (which is an amount at least sufficient to pay in full the
aggregate unpaid principal amount of the related Equipment Trust Certificates
plus accrued but unpaid interest thereon). The proceeds of such sale, net of all
expenses of the sale, will be paid to the Indenture Trustee. If the net proceeds
received from such sale are less than the applicable termination value, the
Corporation is required to pay to the Indenture Trustee an amount equal to that
deficiency, together with certain other amounts, which under any circumstance
will be sufficient to satisfy all amounts due to the holders of the related
Equipment Trust Certificates under the related Indenture and Participation
Agreement. Upon such payment, the Equipment Trust Certificates will be prepaid
in full. (See "Description of the Equipment Trust Certificates--Prepayment.")
The Lien of the related Indenture will terminate when the related Equipment
Trust Certificates and all other amounts secured by such Lien have been paid in
full and, if all amounts due to the Owner Participant in respect of such
Aircraft have also been paid, the related Lease will terminate and the
obligation of the Corporation thereafter to make rental payments with respect
thereto will cease. If the Aircraft is not sold on or before the proposed
termination date, the Lease relating thereto, including all of the Corporation's
obligations thereunder, will continue in full force and effect and the related
Equipment Trust Certificates will remain outstanding.
If, after receiving a termination notice from the Corporation, the Owner
Participant pays to the holders of the related Equipment Trust Certificates the
aggregate principal amount of such Equipment Trust Certificates together with
accrued but unpaid interest thereon and any other sums due and payable
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<PAGE>
to the Indenture Trustee or the holders of such Equipment Trust Certificates
under such Lease, the related Indenture or Participation Agreement (other than
the Make-Whole Premium, if any, which in connection with such election the
Corporation is required to pay to the Indenture Trustee), the Owner Participant
may retain the Aircraft with respect to which the Corporation has given a notice
of termination. Unless the Owner Participant elects to retain the Aircraft or a
cash bid at least equal to the applicable termination value is received, the
Corporation may revoke its notice of termination with respect to such Aircraft
(but only once) not less than ten Business Days prior to the proposed
termination date, but may not deliver another such notice with respect to such
Aircraft within one year after such revocation. (Leases, Article 10; Indentures,
Sections 6.02, 8.02 and 14.01)
If an Aircraft loses its airworthiness certification, such loss is not a
loss of the character described in clause (d) of the third paragraph under
"Events of Loss" below, and such loss is not curable or, if curable, is not
cured within twelve months of the date of the loss of the airworthiness
certification, then the affected Aircraft must be sold (unless the Owner
Participant elects to retain such Aircraft) in accordance with the procedures
described above for a termination in the case of obsolescence or surplusage and
the related Lease shall terminate, except that the Corporation may not rescind
the termination procedure (unless such loss is cured) and the highest bid for
such Aircraft must be accepted without regard to whether such bid is less than
the applicable termination value. Such sale must occur within 90 days after the
earliest of (i) the date it is determined that the loss of the airworthiness
certification is not curable, (ii) the date twelve months after such loss and
(iii) 90 days prior to the end of the term of the related Lease. (Leases,
Section 7.01(b) and Article 10)
So long as no Lease Event of Default under the related Lease shall have
occurred and be continuing, at any time upon 60 days' prior notice, the
Corporation is permitted to substitute for any Engine not then installed or held
for use on the related Aircraft another engine of the same make and model and
having a value and utility at least equal to, and being in as good operating
condition as, such Engine, assuming such Engine was of the value and utility and
in the condition and repair required by the related Lease immediately prior to
such substitution, provided that after any replacement, all Engines on such
Aircraft are of identical make and model. (Leases, Sections 10.03 and 11.04)
PURCHASE OPTIONS. With respect to any Aircraft, the Corporation may elect
to purchase such Aircraft and terminate the related Lease (i) under certain
circumstances, if the Corporation is required at any time on or after the
seventh anniversary of the last day of the tax year of the Owner Participant in
which such Lease shall commence (which anniversary date for the Aircraft with
the earliest Scheduled Lease Commencement Date is expected to be December 31,
2001) to make non-severable improvements to such Aircraft in excess of a certain
designated amount or (ii) under certain circumstances, if the Corporation would
be required at any time on or after the seventh anniversary of the last day of
the tax year of the Owner Participant in which such Lease shall commence (which
anniversary date for the Aircraft with the earliest Scheduled Lease Commencement
Date is expected to be December 31, 2001) to make certain indemnity payments
with respect to such Aircraft in excess of a certain designated amount, which
indemnity payments could be avoided through a purchase by the Corporation of
such Aircraft. In connection with any such purchase, the Corporation is required
with respect to the Equipment Trust Certificates relating to the Aircraft being
purchased either (x) to pay any principal of, Make-Whole Premium, if any, and
interest on such Equipment Trust Certificates or (y) if the related Exchange
Date has occurred, to assume the obligations of the Owner Trustee under such
Equipment Trust Certificates, the related Indenture, the related Participation
Agreement and the related Operative Agreements. If the Corporation elects to
purchase the Aircraft and pay the amount described in clause (x) above, then
upon payment to the Owner Trustee of the full purchase price for such Aircraft
determined in accordance with such Lease and all other amounts owing to the
parties to the related Participation Agreement, the Owner Trustee will transfer
all of its right, title and interest in and to such Aircraft to the Corporation
and the related Lease and the Lien of the related Indenture will terminate. If
the Corporation elects to purchase the Aircraft and assume the obligations of
the Owner Trustee described in clause (y) above, then the related Operative
Agreements will be amended to provide for the assumption of such obligations on
a full recourse basis by the Corporation, maintaining for the benefit of the
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<PAGE>
holders of such Equipment Trust Certificates the security interest in such
Aircraft created by the related Indenture, and upon payment to the Owner Trustee
of the full purchase price for such Aircraft determined in accordance with such
Lease and all other amounts owing to the parties to the Participation Agreement,
the Owner Trustee will transfer all of its right, title and interest in and to
such Aircraft to the Corporation and the related Lease will terminate. See
"Federal Income Tax Consequences--General" in the Prospectus. (Leases, Section
4.02, Participation Agreements, Article 7.12)
At the end of the term of each Lease, after the final maturity of the
related Equipment Trust Certificates, the Corporation has certain options to
renew such Lease or purchase the related Aircraft. (Leases, Article 4)
EVENTS OF LOSS. If an Event of Loss (as defined below) occurs with respect
to an Aircraft, the Corporation is obligated to pay to the Owner Trustee the
applicable stipulated loss value (which is an amount at least sufficient to pay
in full the aggregate unpaid principal amount of the related Equipment Trust
Certificates plus accrued but unpaid interest thereon) together with, in the
case of any Event of Loss after the related Exchange Date, certain other amounts
which under any circumstances will be sufficient to satisfy all amounts due to
the holders of such Equipment Trust Certificates under the related Indenture and
Participation Agreement, and any other amounts owed by the Corporation to the
Owner Trustee or the Owner Participant under the related Lease or Participation
Agreement on the earlier of (x) the fifth Business Day following receipt in full
of insurance proceeds or requisition proceeds in connection with such Event of
Loss or (y) the 90th day following the occurrence of the Event of Loss, and such
payments, in the case of any Event of Loss after the related Exchange Date, will
be applied, among other things, to prepay the outstanding Equipment Trust
Certificates under the related Indenture, whereupon the Lien of such Indenture
and the related Lease will terminate, title to such Aircraft will be transferred
to the Corporation and the Corporation's obligation to make rental payments with
respect thereto will cease. (Lease, Article 11; Indentures, Sections 5.02 and
6.02)
If an Event of Loss occurs with respect to an Engine alone, the Corporation
is required, as soon as practicable but in any event within 60 days after the
occurrence of such Event of Loss, to replace such Engine with another engine of
the same make and model and having a value and utility at least equal to, and
being in as good operating condition as, such Engine, assuming such Engine was
of the value and utility and in the condition and repair required by the related
Lease immediately prior to such Event of Loss, provided that after any
replacement, all Engines on such Aircraft are of identical make and model.
(Leases, Section 11.04)
An "Event of Loss" with respect to an Aircraft or Engine includes any of the
following events on or after the Lease Commencement Date with respect to the
Aircraft:
(a) loss of such property or its use (i) for a period in excess of 120
days due to theft or disappearance, or (ii) for a period in excess of 60
days due to the destruction, damage beyond economic repair or rendition of
such property permanently unfit for normal use by the Corporation for any
reason whatsoever;
(b) any damage to such property which results in an insurance settlement
with respect to such property on the basis of a total loss, or constructive
or compromised total loss;
(c) (i) condemnation, confiscation or seizure of, or requisition of
title to such property, by any governmental authority or purported foreign
governmental authority, (ii) requisition of use of such property (x) by any
foreign governmental authority or purported governmental authority, for a
period in excess of 180 days or (y) by the United States or an agency or
instrumentality thereof for a period extending beyond the term of the
related Lease (subject to extension under certain circumstances for six
months);
(d) as a result of any law, rule, regulation, order or other action by
the FAA or other governmental body having jurisdiction, the use of such
property in the normal course of air transportation of cargo shall have been
prohibited by virtue of a condition affecting all Airbus A310-203 aircraft
equipped with engines of the same make and model as the Engines, and such
loss of use shall
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<PAGE>
continue for certain specified periods which could extend for up to one year
or, under certain circumstances, such longer period during which the
Corporation shall be diligently carrying forward all steps necessary or
desirable to permit the normal use of the Aircraft by the Corporation;
(e) with respect to an Engine, if such Engine is subjected to an
interchange or pooling agreement that divests the Owner Trustee of title to
such Engine; and
(f) with respect to an Engine, if such Engine is installed on an
airframe in circumstances where such installation is deemed to be an Event
of Loss under the provisions of the applicable Lease.
On or after the Commencement Date, an Event of Loss with respect to an Aircraft
is deemed to have occurred if an Event of Loss occurs with respect to the
Airframe of such Aircraft. (Leases, Article 1 and Section 7.02)
LEASE EVENTS OF DEFAULT. Events of default under each Lease (each, a "Lease
Event of Default") include, among other things:
(a) failure by the Corporation to make any scheduled rental payment or
any payment of applicable stipulated loss value or termination value within
five Business Days after the Corporation has been notified by the Owner
Trustee that such payment is overdue;
(b) failure by the Corporation to pay any supplemental rent under such
Lease or the related Participation Agreement or certain other agreements
entered into by the Corporation within 10 days after the Corporation has
received written demand therefor from the person entitled to receive such
payment (except that failure to make certain payments to the Owner
Participant or the Owner Trustee which are excluded from the Lien of the
related Indenture will constitute a default under such Lease at the
discretion of the Owner Participant);
(c) (i) failure by the Corporation to provide insurance on the related
Aircraft as required under such Lease at any time, or the lapse or
cancellation of such insurance continued for the earlier of 30 days (or with
respect to war risk coverage, seven days or such shorter time as may be
standard in the industry) after receipt by the Owner Trustee of notice of
such lapse or cancellation and the date that such lapse or cancellation is
effective as to the Owner Trustee, PROVIDED that such failure shall not
constitute a Lease Event of Default for up to 30 days if such failure occurs
when such Aircraft is not operated and appropriate insurance for such
Aircraft on the ground is being maintained or (ii) the related Aircraft is
operated at any time when any public liability insurance required to be
maintained by such Lease is not in effect;
(d) failure by the Corporation to perform or observe any other covenant,
condition or agreement to be performed or observed by it under any related
Operative Agreement, continued unremedied for a period of 30 days from the
date the Corporation has knowledge of the failure or has received written
notice of such failure from the Owner Trustee, the Indenture Trustee or the
Owner Participant, PROVIDED that generally no such failure shall constitute
a Lease Event of Default so long as such failure is curable and the
Corporation is diligently proceeding to remedy such failure, but in no event
shall such failure continue unremedied for more than 150 days after such
30-day period, and PROVIDED FURTHER that failure by the Corporation to
perform its covenant to maintain the registration of the related Aircraft
under the Aviation Act solely because the Owner Trustee or the Owner
Participant has ceased to be a citizen of the United States will not
constitute a default under such Lease;
(e) the occurrence of certain events of bankruptcy, reorganization or
insolvency of the Corporation or similar events; or
(f) any representation or warranty made by the Corporation in such
Lease or the related Participation Agreement or made pursuant thereto proves
at any time to have been incorrect when made in any respect material to the
transactions contemplated by such Lease and, if originally
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<PAGE>
made by the Corporation in good faith, remains material and unremedied for a
period of 30 days after a specified officer of the Corporation has actual
knowledge of, or receipt by the Corporation of written notice of, such
misstatement. (Leases, Article 16)
There are no cross-default provisions in the Leases and any event resulting
in a Lease Event of Default under any particular Lease will not necessarily
result in the occurrence of a Lease Event of Default under the other Lease.
If a Lease Event of Default under a Lease has occurred and is continuing,
the Indenture Trustee, as assignee of the Owner Trustee's rights under such
Lease, may, subject to certain rights of the Owner Trustee and the Owner
Participant under the related Indenture, exercise one or more of the remedies
provided in such Lease with respect to the Aircraft subject thereto. Those
remedies include the right to repossess the Aircraft, to sell the Aircraft free
and clear of the Corporation's rights, and to require the Corporation to pay as
liquidated damages any unpaid rent plus an amount equal to the excess of the
stipulated loss value for the Aircraft specified in such Lease (which is an
amount at least sufficient to pay in full the aggregate unpaid principal amount
of the outstanding related Equipment Trust Certificates plus accrued but unpaid
interest thereon) over either (i) the actual fair market value of such Aircraft
(taking into account, among other things, any sale or new lease of the Aircraft
arranged by the Owner Trustee and scheduled to be completed or to commence
within the following twelve months) or (ii) if such Aircraft has been sold, the
net sale proceeds. (Leases, Section 17.01; Indentures, Section 7.02)
None of the events described above, including, without limitation, the
occurrence of events of bankruptcy, reorganization or insolvency of the
Corporation, will constitute a Lease Event of Default under a Lease with respect
to an Aircraft prior to the related Lease Commencement Date, and none of the
remedies described in the previous paragraph will be available. Since such
events prior to such Lease Commencement Date will not constitute a Lease Event
of Default, such events also will not give rise to an Indenture Event of Default
under the related Indenture which would otherwise permit acceleration of the
related Equipment Trust Certificates.
REGISTRATION OF THE AIRCRAFT
As a condition precedent to commencement of each Lease, the related Aircraft
must be registered under the Aviation Act in the name of the Owner Trustee. Each
of the Owner Trustee in its individual capacity and the Corporation has
represented and warranted that it is a United States citizen. (Participation
Agreements, Sections 6.01 and 7.02) For any Aircraft, the Owner Trustee has
agreed that if it has actual knowledge that it has ceased to be a United States
citizen at a time when citizenship is necessary for the registration of such
Aircraft in the United States, or if lack thereof would adversely affect the
Corporation or the Owner Participant, it will immediately resign as Owner
Trustee and the Owner Participant then may appoint a successor Owner Trustee
that, among other things, is a United States citizen. The Owner Participant has
not represented that it is a United States citizen but has agreed to execute a
control rights arrangement whereby the Owner Participant will transfer to the
Owner Trustee the power to manage and control the Owner Participant's beneficial
interest in the Aircraft, to ensure that such beneficial interest will be
controlled by a citizen of the United States and that the Owner Participant
shall have no power to influence or limit the exercise of the Owner Trustee's
authority in respect thereof or revoke such arrangements without the Indenture
Trustee's consent. (Participation Agreements, Section 7.02; Trust Agreement,
Sections 3.11 and 3.12 and Article 7)
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<PAGE>
DESCRIPTION OF THE LETTERS OF CREDIT
Pursuant to the Participation Agreement with respect to each Aircraft,
WestLB will issue to the Indenture Trustee an irrevocable letter of credit
(each, a "Letter of Credit") in the stated amount specified below (each, a
"Letter of Credit Stated Amount"). The aggregate Letter of Credit Stated Amount
for all Letters of Credit is expected to be approximately $45 million.
Each Letter of Credit will permit the Indenture Trustee to draw funds to pay
(i) amounts of principal and interest payable on the related Equipment Trust
Certificates on any payment date during the related Extended Pre-Funding Period
to the extent such amounts exceed the excess of the amount of cash in such
Collateral Account over the related Collateral Account Release Amount, (ii)
amounts of principal and interest payable on such Equipment Trust Certificates
on the first payment date after such Exchange Date to the extent exceeding the
sum of (A) the rent then payable by the Corporation pursuant to the related
Lease and (B) the amount of cash in such Collateral Account on such payment date
and (iii) the applicable prepayment price with respect to such Equipment Trust
Certificates if a Pre-Funding Event of Loss or Deemed Event of Loss occurs with
respect to such Aircraft and such Equipment Trust Certificates must be prepaid,
to the extent that such prepayment price exceeds the amount of cash in such
Collateral Account as of the applicable prepayment date. For a discussion of
drawings under the Letters of Credit to pay amounts described above, see
"Description of the Equipment Trust Certificates -- Security -- Pre-Funding
Period" in this Prospectus Supplement. Each drawing under a Letter of Credit
will reduce the available amount thereof by the amount of such drawing.
The term of each Letter of Credit will commence on the Closing Date and will
terminate at 5:00 p.m., New York City time, on the Business Day after the first
payment date following the latest possible Cut-off Date with respect to the
related Aircraft (each, a "Letter of Credit Expiration Date"), unless terminated
earlier as described in the following sentence. Each Letter of Credit is subject
to automatic termination upon the earliest of (i) any drawing relating to a
mandatory prepayment of the related Equipment Trust Certificates, (ii) any
drawing made on the first payment date after the related Exchange Date and (iii)
the date the available amount pursuant to such Letter of Credit is reduced to
zero. The Letters of Credit may not otherwise be cancelled by WestLB for any
reason. The Letter of Credit Stated Amount and Letter of Credit Expiration Date
for each Letter of Credit are set forth below.
<TABLE>
<CAPTION>
AIRCRAFT LETTER OF LETTER OF CREDIT
DESIGNATION CREDIT STATED AMOUNT EXPIRATION DATE
------------------ ---------------------- ----------------
<C> <C> <S> <C>
1. D-AICH
2. D-AICR
3. D-AICL
4. D-AICS
5. D-AICP
6. D-AICN
7. D-AICA
8. D-AICB
9. D-AICC
10. D-AICD
11. D-AICM
12. D-AICF
13. D-AICK
</TABLE>
For information regarding WestLB, see Appendix B to this Prospectus
Supplement.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") among the Corporation and Goldman, Sachs & Co.
and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriters")
relating to the Pass Through Certificates, the Corporation has agreed to cause
each Pass Through Trust to sell to each of such Underwriters, and each of such
Underwriters has severally agreed to purchase, the approximate percentage of the
aggregate amount of Pass Through Certificates of each Series, and the aggregate
amounts of Pass Through Certificates, set forth opposite its name below.
<TABLE>
<CAPTION>
TOTAL
PERCENTAGE AGGREGATE
OF AGGREGATE AMOUNT OF
AMOUNT OF PASS THROUGH
UNDERWRITER EACH SERIES CERTIFICATES
- -------------------------------------------- ------------- ---------------
<S> <C> <C>
Goldman, Sachs & Co......................... % $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................
--- ---------------
Total............................. 100 % $ 380,000,000
--- ---------------
--- ---------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Pass Through
Certificates, if any are taken. In the event of a default by any Underwriter,
the Underwriting Agreement provides that, in certain circumstances, the purchase
commitment of the nondefaulting Underwriter may be increased or the Underwriting
Agreement may be terminated.
The Underwriters propose to offer the Pass Through Certificates of each
Series to the public at the initial public offering price for such Series set
forth on the cover page of this Prospectus Supplement, and to certain dealers at
such price less a concession not in excess of the amounts for the respective
Series set forth below. The Underwriters may allow, and such dealers may
reallow, a concession to certain other dealers not in excess of the amounts for
the respective Series set forth below. After the initial public offering, the
public offering prices and such concessions may be changed.
<TABLE>
<CAPTION>
SERIES OF PASS CONCESSION REALLOWANCE
THROUGH CERTIFICATES TO DEALERS CONCESSION
- -------------------------------------------- ------------ ------------
<S> <C> <C>
Series A310-A1.............................. . % . %
Series A310-A2.............................. . % . %
</TABLE>
The Pass Through Certificates are a new issue of securities with no
established trading market and the Corporation does not intend to apply for the
listing of the Pass Through Certificates on a national securities exchange. The
Corporation has been advised by the representatives of the Underwriters that the
representatives intend to make a market in the Pass Through Certificates but are
not obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the Pass Through Certificates.
The Corporation and Lufthansa have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
Each of the Underwriters performs investment banking services for the
Corporation in the ordinary course of business.
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<PAGE>
VALIDITY OF PASS THROUGH CERTIFICATES
The validity of the Pass Through Certificates offered hereby is being passed
upon for the Corporation by Davis Polk & Wardwell, 450 Lexington Avenue, New
York, New York 10017, special counsel for the Corporation, and for the
Underwriters by Sullivan & Cromwell, 125 Broad Street, New York, New York 10004.
Both Davis Polk & Wardwell and Sullivan & Cromwell may rely on the opinion of
Kenneth R. Masterson, Senior Vice President and General Counsel of the
Corporation, as to the Corporation's authorization, execution and delivery of
the Pass Through Agreement and each Series Supplement, and on the opinion of
Powell, Goldstein, Frazer & Murphy, counsel for NationsBank of South Carolina,
individually and as Pass Through Trustee, as to the authorization, execution and
delivery of the Pass Through Agreement, each Series Supplement and the Pass
Through Certificates by NationsBank of South Carolina. At February 21, 1994, Mr.
Masterson owned 2,500 shares of the Corporation's common stock and held options
to purchase 69,000 shares of such common stock. Of the options granted, 34,400
were vested at such date.
S-41
<PAGE>
APPENDIX A
GLOSSARY OF CERTAIN TERMS
The following is a glossary of certain terms used in this Prospectus
Supplement. The definitions of terms used in this glossary that are also used in
the Pass Through Agreement, the Series Supplements, the Indentures, the
Collateral Agreements or the Leases are qualified in their entirety by reference
to the definitions of such terms contained therein.
"AGREEMENT TO LEASE" means the Agreement to Lease among the Corporation,
the Owner Trustee and Lufthansa described in "The Leveraged Lease Transactions."
"AIRCRAFT" means each of the 13 Airbus A310-203 aircraft, including the
Engines relating thereto, to be leased by the Owner Trustee to the Corporation
pursuant to one of 13 separate Leases, and, collectively, means all of the
foregoing.
"AIRCRAFT COST" means, for each Aircraft, the sum of the Purchase Price,
Modification Cost and Parts Cost (as such terms are defined in "The Leveraged
Lease Transactions") with respect to such Aircraft.
"AUTHENTICATING AGENT" means, for each Pass Through Trust, NationsBank of
Georgia, National Association.
"AVIATION ACT" means the Federal Aviation Act of 1958, as amended, and the
applicable regulations thereunder.
"BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C. et
seq.), as amended, or any successor provisions thereto.
"BUSINESS DAY" means any day other than a Saturday, a Sunday, or other day
on which commercial banks in New York City, Atlanta, Georgia, Columbia, South
Carolina, Salt Lake City, Utah or Memphis, Tennessee are authorized or required
by law to close.
"CERTIFICATEHOLDER" means, for any Pass Through Trust, the registered
holder of any Pass Through Certificate issued by such Pass Through Trust.
"CLOSING DATE" means the Business Day on which the sale of the Pass Through
Certificates to the Underwriters occurs pursuant to the Underwriting Agreement.
"CODE" means the United States Internal Revenue Code of 1986, as amended.
"COLLATERAL ACCOUNT" means, for each Aircraft, the Collateral Account
established pursuant to the related Collateral Agreement, into which the
proceeds of the sale of the related Equipment Trust Certificates, after
deducting certain expenses of the offering made hereby, will be deposited.
"COLLATERAL ACCOUNT RELEASE AMOUNT" means, for each Aircraft, the portion
of the Aircraft Cost payable by the Indenture Trustee, set forth in the table
under "The Pre-Funding Periods."
"COMMISSION" means the United States Securities and Exchange Commission.
"CUT-OFF DATE" means, for any Aircraft, the earlier of (i) the date which
is 365 days after the Scheduled Lease Commencement Date for such Aircraft, or
any earlier Business Day (but in no event earlier than the Scheduled Lease
Commencement Date) specified as the Cut-off Date by the Owner Trustee in an
irrevocable written notice given to the Indenture Trustee not less than 30 days
prior thereto and (ii) 30 days after the date of any notice of termination given
in accordance with the Agreement to Lease.
"DEEMED EVENT OF LOSS" means, with respect to an Aircraft, the failure of
the related Exchange Date to occur on or prior to the related Cut-off Date.
A-1
<PAGE>
"DEMAND NOTE" means each of the promissory notes to be issued by Lufthansa
and contributed by the Owner Participant to the trust estate of the Owner
Trustee.
"ENGINE" means, for each Aircraft, each of two General Electric CF6--80A3
engines as specified in the related Lease and any replacement engine therefor
pursuant to such Lease.
"EQUIPMENT TRUST CERTIFICATES" means, for any Aircraft, the equipment trust
certificates issued by the Owner Trustee pursuant to the related Indenture and
any certificate issued in exchange therefor or replacement thereof pursuant to
the related Indenture.
"EVENT OF DEFAULT" means, for each Pass Through Trust, the occurrence and
continuance of an Indenture Event of Default under one or the other of the
Indentures pursuant to which the Equipment Trust Certificates constituting Trust
Property of such Pass Through Trust are issued.
"EVENT OF LOSS" means, for any Aircraft, each of the events designated as
such in the related Lease. For a description of certain events constituting
Events of Loss, see "Description of the Equipment Trust Certificates--The
Leases--Events of Loss."
"EXCHANGE DATE" means, for any Aircraft, the date, on or after the related
Lease Commencement Date, on which the Indenture Trustee releases the related
Collateral Account Release Amount.
"EXTENDED PRE-FUNDING PERIOD" means, for any Aircraft, the period, if any,
from the related Scheduled Lease Commencement Date to the related Exchange Date.
"FAA" means the United States Federal Aviation Administration.
"INDENTURE" means each of the 13 separate trust indenture and security
agreements between the Owner Trustee and the Indenture Trustee, in each case
under which the Owner Trustee will issue Equipment Trust Certificates relating
to an Aircraft.
"INDENTURE EVENT OF DEFAULT" means, for any Indenture, each of the events
designated as an event of default in such Indenture. For a description of
certain events constituting Indenture Events of Default, see "Description of the
Equipment Trust Certificates--Indenture Events of Default, Notice and Waiver."
"INDENTURE TRUSTEE" means NationsBank of Georgia, National Association, a
national banking association, in its capacity as indenture trustee under each
Indenture, and any successor thereunder.
"LEASE" means each of 13 separate lease agreements between the Owner
Trustee and the Corporation, in each case under which the Owner Trustee will
lease the related Aircraft to the Corporation.
"LEASE COMMENCEMENT DATE" means, for each Lease, the date on which such
Lease commences.
"LEASE EVENT OF DEFAULT" means, for any Lease, each of the events
designated as an event of default in such Lease. For a description of certain
events constituting Lease Events of Default, see "Description of the Equipment
Trust Certificates--The Leases--Lease Events of Default."
"LIEN" means any mortgage, pledge, lien, charge, encumbrance, lease or
security interest or other similar interest.
"OPERATIVE AGREEMENTS" means, for any Aircraft, the Pass Through Agreement,
the Series Supplements, the Trust Agreement, the related Indenture, Equipment
Trust Certificates, Participation Agreement and Lease and any other related
documents defined as such in such Participation Agreement.
"PARTICIPATION AGREEMENT" means, for any Aircraft, the agreement among the
Corporation, the Indenture Trustee, the Owner Trustee, the Pass Through Trustee,
the Owner Participant and WestLB, that is defined as the "Participation
Agreement" in the related Indenture and pursuant to which the Pass Through
Trustee agrees to purchase from the Owner Trustee the Equipment Trust
Certificates issued under such Indenture.
A-2
<PAGE>
"PASS THROUGH AGREEMENT" means the Pass Through Trust Agreement dated as of
, 1994 between the Corporation and the Pass Through Trustee, in
accordance with which the Pass Through Trusts will be formed pursuant to the
Series Supplements.
"PASS THROUGH CERTIFICATES" means the Federal Express Corporation 1994 Pass
Through Certificates, Series A310-A1, and the Federal Express Corporation 1994
Pass Through Certificates, Series A310-A2, to be issued by the Pass Through
Trustee pursuant to the Pass Through Agreement and the related Series
Supplements and which represent the fractional undivided interest in the related
Pass Through Trusts.
"PASS THROUGH TRUST" means Federal Express Corporation Pass Through Trust,
1994-A310-A1, and Federal Express Corporation Pass Through Trust, 1994-A310-A2,
each to be formed pursuant to the related Series Supplement in accordance with
the Pass Through Agreement.
"PASS THROUGH TRUSTEE" means NationsBank of South Carolina, National
Association, a national banking association, in its capacity as pass through
trustee under the Pass Through Agreement and each Pass Through Trust, and its
successors and assigns thereunder.
"PAYING AGENT" means, for each Pass Through Trust, NationsBank of Georgia,
National Association.
"POOL BALANCE" means, for any Pass Through Trust, as of any date of
determination the aggregate unpaid principal amount of the Equipment Trust
Certificates that constitute Trust Property of such Pass Through Trust on such
date plus the amount of the principal payments on such Equipment Trust
Certificates held by the Pass Through Trustee and not yet distributed (other
than earnings thereon and without giving effect to any losses on investments
thereof). The Pool Balance as of any Regular Distribution Date or Special
Distribution Date shall be computed after giving effect to the payment of
principal, if any, on such Equipment Trust Certificates and the distribution
thereof being made on that date.
"POOL FACTOR" means, for any Pass Through Trust, as of any date of
determination the quotient (rounded to the seventh decimal place) computed by
dividing (i) the Pool Balance by (ii) the aggregate original amount of the Pass
Through Certificates of the related Series. The Pool Factor as of any Regular
Distribution Date or Special Distribution Date shall be computed after giving
effect to the payment of principal, if any, on such Equipment Trust Certificates
and the distribution thereon being made on that date.
"PRE-FUNDING EVENT OF LOSS" means, for any Aircraft, each of the events
designated as such in the related Indenture. For a description of certain events
constituting Pre-Funding Events of Loss, see "Description of the Equipment Trust
Certificates -- Prepayment -- Deemed Events of Loss and Pre-Funding Events of
Loss."
"PRE-FUNDING PERIOD" means, with respect to any Aircraft, the period
between the Closing Date and the Exchange Date with respect to such Aircraft.
"REGISTRAR" means, for each Pass Through Trust, NationsBank of Georgia,
National Association.
"REGULAR DISTRIBUTION DATE" means, for each Pass Through Trust, and
of each year, commencing , 1994.
"SCHEDULED LEASE COMMENCEMENT DATE" means, for any Lease, the date
scheduled under the Agreement to Lease for such Lease to commence.
"SCHEDULED PAYMENT" means any payment of interest on, or principal of and
interest on, any Equipment Trust Certificate that constitutes Trust Property
thereof, scheduled to be received by the Pass Through Trustee on a Regular
Distribution Date.
"SCHEDULED PRE-FUNDING PERIOD" means, with respect to any Aircraft, the
period between the Closing Date and the Scheduled Lease Commencement Date.
A-3
<PAGE>
"SERIES" means Federal Express Corporation 1994 Pass Through Certificates,
Series A310-A1 and Federal Express Corporation 1994 Pass Through Certificates,
Series A310-A2.
"SERIES SUPPLEMENT" means each of Series Supplement 1994-A310-A1 and Series
Supplement 1994-A310-A2 between the Corporation and the Pass Through Trustee, in
each case pursuant to which the related Pass Through Trust will be formed in
accordance with the Pass Through Agreement and the related Series of Pass
Through Certificates will be issued.
"SPECIAL DISTRIBUTION DATE" means the date on which a Special Payment is
scheduled to be distributed, which date will be the th day of a month, except
in certain circumstances, in which case it will be the date of receipt of the
proceeds by the Pass Through Trustee.
"SPECIAL PAYMENT" means, for any Pass Through Trust, any payments of
principal, Make-Whole Premium or interest other than Scheduled Payments received
by the Pass Through Trustee on any of the Equipment Trust Certificates held in
such Pass Through Trust and any proceeds from the sale of any such Equipment
Trust Certificates by the Pass Through Trustee.
"TRUST PROPERTY" means, for the Pass Through Trust, all money, instruments,
including the related Equipment Trust Certificates, and other property held as
the property of such Pass Through Trust, including all distributions thereon and
proceeds thereof.
"WESTLB" means Westdeutsche Landesbank Girozentrale, New York Branch.
A-4
<PAGE>
APPENDIX B
WESTDEUTSCHE LANDESBANK GIROZENTRALE
BACKGROUND INFORMATION
Westdeutsche Landesbank Girozentrale ("WestLB"), which traces its history to
1832, was created by the merger of two central banks, or Landesbanks (German
State Banks), in the State of North Rhine-Westphalia, the Federal Republic of
Germany ("Germany") on January 1, 1969. As a German universal bank, WestLB
provides commercial and investment banking services regionally, nationally and
internationally to public, corporate and bank customers. WestLB is the largest
of the nine Landesbanks and, on the basis of total assets at December 31, 1991,
was the fifth largest bank in Germany and the thirty-fourth largest bank in the
world. At December 31, 1992, WestLB had total assets of approximately DM 248.1
billion (U.S. $153.7 billion).
WestLB also performs the functions of a state and municipal bank for the
State of North Rhine-Westphalia and acts as the central bank of the Sparkassen
(savings banks) in North Rhine-Westphalia (Germany's most populous state). It
conducts a comprehensive range of wholesale banking business and has the power
to issue mortgage bonds, municipal bonds and other bonds and is the largest
continuous issuer of long term debt in Germany. In its capacity as central bank,
WestLB acts as the clearing and depository bank for the savings banks in North
Rhine-Westphalia. As a state bank, WestLB provides trustee services for
State-supported lending programs for housing, regional economic assistance,
middle market firms and environmental protection. Internationally, the WestLB
Group (the "Group") operates through an extensive network of banking
subsidiaries, branches and representative offices to provide a range of
financial services to its clients.
THE NEW YORK BRANCH
The New York Branch of WestLB (the "Branch") is licensed and subject to
supervision and regulation by the Superintendent of Banks of the State of New
York. The Branch is examined by the New York State Banking Department and is
subject to banking laws and regulations applicable to a foreign bank that
operates a New York branch. In addition to being subject to New York banking
laws and regulations, WestLB and the Branch are also subject to federal
regulation and supervision under the International Banking Act of 1978 (the
"IBA") and the Foreign Bank Supervision Enhancement Act of 1991, and WestLB is
subject to federal regulation under the IBA and the Bank Holding Company Act of
1956.
SUMMARY OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1992
In the fiscal year ended December 31, 1992, WestLB's total assets grew by
17.3% (from DM 211.5 billion) to DM 248.1 billion (U.S. $153.7 billion). As of
December 31, 1992, deposits and borrowed funds totalled DM 129.5 billion (U.S.
$80.2 billion), an increase of 12.4% from the previous year's amount of DM 115.2
billion. WestLB's capital and declared reserves increased to DM 11,190 million
(U.S. $6,933 million) as of December 31, 1992 (as compared to DM 5,190 million
as of December 31, 1991).
WestLB's operating profit of DM 969 million (U.S. $600.4 million) was 28%
more than its 1991 operating profits, due to an increase in interest surplus of
10.2% (from DM 1,719 million in 1991 to DM 1,895 million in 1992). Commission
surplus showed continued development, increasing by 18% (from DM 266 million in
1991 to DM 314 million in 1992). Staff expenses went up by 12.8% to DM 919
million (U.S. $569 million), with other operating expenses showing an increase
of 9.5% to DM 589 million (U.S. $364.9 million). As a result, WestLB's partial
operating profit (net of trading) of DM 700 million in 1992 (U.S. $433.7
million) was 10.8% higher than the DM 632 million of the previous year.
UNITED STATES AND GERMAN EXCHANGE RATES AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The financial information presented herein is derived from the audited
financial statements of WestLB for the year ended December 31, 1992, does not
include the consolidated subsidiaries of the
B-1
<PAGE>
WestLB Group and has been prepared in accordance with accounting principles,
practices, laws and regulations generally accepted in Germany. German accounting
principles differ in certain respects from accounting principles generally
accepted in the United States.
Unless indicated otherwise, currency amounts are stated in Deutsche Marks
("DM" or "Deutsche Marks") or United States dollars ("U.S.", "U.S. dollars", "$"
or "dollars"). Merely for the convenience of the reader, this summary contains
translations of certain Deutsche Mark amounts into U.S. dollars at specified
rates. These translations should not be construed as representations that the
Deutsche Mark amounts actually represent such U.S. dollar amounts or could be
converted into U.S. dollar amounts at the rate indicated. Unless otherwise
indicated, the translations of Deutsche Marks into U.S. dollars have been made
at DM 1.6140 = U.S. $1.00, which was the official (Frankfurt fixing) exchange
rate on December 30, 1992, the last trading day in 1992. In certain instances,
figures reflect the effect of rounding.
MISCELLANEOUS
Upon written request, WestLB will provide without charge to each person to
whom this Prospectus Supplement and the accompanying Prospectus is delivered a
copy of its most recent annual report. Written request for such annual reports
or any additional information concerning WestLB should be directed to
Westdeutsche Landesbank Girozentrale, New York Branch, 1211 Avenue of the
Americas, New York, New York 10036, Attention: Branch Management.
Delivery of this Prospectus Supplement and the accompanying Prospectus shall
not create any implication that there has been no change in the affairs of
WestLB since the date hereof or that the information contained or referred to
herein is correct as of any time subsequent to its date.
B-2
<PAGE>
PROSPECTUS [LOGO]
- -------------
PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES
---------------------
Up to $400,000,000 aggregate amount of Pass Through Certificates (the "Pass
Through Certificates") may be offered for sale from time to time pursuant to
this Prospectus and one or more Prospectus Supplements. The Pass Through
Certificates may be offered in one or more Series in amounts, at prices and on
terms to be determined at the time of sale. For each Series of Pass Through
Certificates offered pursuant to this Prospectus and a Prospectus Supplement, a
separate Pass Through Trust will be formed pursuant to a Pass Through Trust
Agreement (the "Pass Through Agreement") and a supplement thereto (a "Series
Supplement") between Federal Express Corporation (the "Corporation") and
NationsBank of South Carolina, National Association, not in its individual
capacity but solely as the Pass Through Trustee under such Pass Through Trust.
Each Pass Through Certificate in a Series will evidence a fractional undivided
interest in the related Pass Through Trust and will have no rights, benefits or
interest in respect of any other Pass Through Trust or the Trust Property held
in any other such Pass Through Trust. The Trust Property of each Pass Through
Trust will consist of equipment trust certificates (the "Equipment Trust
Certificates") issued as nonrecourse obligations by one or more Owner Trustees,
each acting not in its individual capacity but solely as the Owner Trustee of a
separate Owner Trust, in connection with leveraged lease transactions. The
Equipment Trust Certificates will be issued to finance a portion of the payment
to be made by each such Owner Trustee of the acquisition cost for specified
aircraft which are to be leased to the Corporation (the "Aircraft"). The
Prospectus Supplement relating to each offering will describe certain terms of
the Pass Through Certificates offered thereby, the respective Pass Through
Trusts, the Equipment Trust Certificates to be purchased by such Pass Through
Trusts, the leveraged lease transactions and the Aircraft relating to such
Equipment Trust Certificates.
With respect to each Aircraft, the Owner Trustee may issue one or more
Equipment Trust Certificates, each of which may have a different interest rate
and final maturity date. For each Series of Pass Through Certificates, the Pass
Through Trustee will purchase one or more Equipment Trust Certificates issued
with respect to each of one or more Aircraft such that all of the Equipment
Trust Certificates held in the related Pass Through Trust will have identical
interest rates, in each case equal to the rate applicable to the Pass Through
Certificates issued by such Pass Through Trust, and such that the latest
maturity date for such Equipment Trust Certificates will occur on or before the
final distribution date for such Pass Through Certificates. For any Aircraft,
except during the Pre-Funding Period, if any, with respect to such Aircraft, the
related Equipment Trust Certificates will be secured by a security interest in
such Aircraft and by the Lease relating thereto, including the right to receive
rent payable by the Corporation under such Lease. None of the Equipment Trust
Certificates held in the respective Pass Through Trusts will be obligations of,
or guaranteed by, the Corporation. For any Aircraft, however, except as
described under "Description of the Equipment Trust Certificates -- General"
relating to the Pre-Funding Period with respect to such Aircraft, the amounts
payable by the Corporation under the related Lease will be sufficient to pay in
full when due all principal of and interest on the related Equipment Trust
Certificates. During any Pre-Funding Period, the related Equipment Trust
Certificates will be secured by a collateral account funded by the net proceeds
of the sale of such Equipment Trust Certificates to the Pass Through Trustee and
by other security (which may include a letter of credit) to be described in the
applicable Prospectus Supplement. Funds in such collateral account, together
with such other security, will be available to pay any principal due and
interest accrued on such Equipment Trust Certificates during the Pre-Funding
Period, as well as to fund any mandatory prepayment of such Equipment Trust
Certificates during such Pre-Funding Period.
(CONTINUED ON FOLLOWING PAGE)
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
The date of this Prospectus is February 23, 1994.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Interest paid on the Equipment Trust Certificates held in each Pass Through
Trust will be passed through to the registered holders of the Pass Through
Certificates for such Pass Through Trust (for each Pass Through Trust, the
"Certificateholders") on the dates and at the rate per annum set forth in the
Prospectus Supplement relating to such Pass Through Certificates until the final
distribution date for such Pass Through Trust. Principal paid on the Equipment
Trust Certificates held in each Pass Through Trust will be passed through to the
Certificateholders in scheduled amounts on the dates set forth in the Prospectus
Supplement relating to such Pass Through Certificates until the final
distribution date for such Pass Through Trust.
The Pass Through Certificates represent interests in the related Pass
Through Trust only and all payments and distributions shall be made only from
the property of such Pass Through Trust. The Pass Through Certificates do not
represent an interest in or obligation of the Corporation.
The Pass Through Certificates may be sold to or through underwriters or
directly to other purchasers or through agents. The Prospectus Supplement
relating to each offering will set forth the names of any underwriters, dealers
or agents involved in the sale of the Pass Through Certificates in connection
with which this Prospectus is being delivered, the amounts, if any, to be
purchased by underwriters and the compensation, if any, of such underwriters or
agents.
Prior to their issuance, there will have been no market for the Pass Through
Certificates of any Series and there can be no assurance that one will develop.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Corporation does not intend to apply for the listing of any Series of Pass
Through Certificates on a national securities exchange. See "Plan of
Distribution."
This Prospectus may not be used to consummate sales of any Pass Through
Certificates unless accompanied by the Prospectus Supplement applicable to the
Pass Through Certificates being sold.
--------------------------
<PAGE>
AVAILABLE INFORMATION
Federal Express Corporation (the "Corporation") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy and information statements and other information filed by the
Corporation with the Commission can be inspected, and copies may be obtained at
prescribed rates, at the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the following Regional
Offices of the Commission: Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and New York Regional Office, 7 World
Trade Center, New York, New York 10048. Such material can also be inspected and
copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005, and The Toronto Stock Exchange, The Exchange Tower, Two
First Canadian Place, Toronto, Ontario M5X 1J2, Canada.
This Prospectus constitutes a part of a registration statement on Form S-3
(together with all amendments and exhibits, herein referred to as the
"Registration Statement") filed by the Corporation under the Securities Act of
1933, as amended (the "Securities Act"). This Prospectus does not contain all of
the information included in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
Reference is made to such Registration Statement and to the exhibits relating
thereto for further information with respect to the Corporation and the
securities offered hereby.
REPORTS TO PASS THROUGH CERTIFICATEHOLDERS
NationsBank of South Carolina, National Association ("NationsBank of South
Carolina"), in its capacity as Pass Through Trustee under each Pass Through
Trust, will provide the Certificateholders of each Pass Through Trust with
certain periodic statements concerning the distributions made from such Pass
Through Trust. See "Description of the Pass Through Certificates -- Statements
to Certificateholders."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission in accordance with the
provisions of the Exchange Act are incorporated herein by reference and made a
part hereof.
1. The Corporation's Annual Report on Form 10-K for the fiscal year ended May
31, 1993, filed August 13, 1993;
2. The Corporation's Quarterly Reports on Form 10-Q for the fiscal quarters
ended August 31, 1993, as amended by a Quarterly Report on Form 10-Q/A, and
November 30, 1993, filed October 14, 1993, October 25, 1993 and January 14,
1994, respectively; and
3. The Corporation's Current Reports on Form 8-K dated July 13, 1993, July 27,
1993, as amended by a Form 8-K/A dated July 28, 1993, September 2, 1993,
September 14, 1993, September 23, 1993, December 2, 1993 and December 13,
1993 and filed July 14, 1993, July 27, 1993, July 28, 1993, September 7,
1993, September 15, 1993, September 28, 1993, December 6, 1993 and December
14, 1993, respectively.
All documents filed by the Corporation pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and before the
termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Prospectus, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
3
<PAGE>
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Corporation will furnish without charge to each person to whom this
Prospectus is delivered, on written or oral request of such person, a copy of
any or all documents incorporated by reference in this Prospectus, without
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests for such copies should be directed
to: Thomas B. Martin, Managing Director -- Public Relations, Federal Express
Corporation, by mail at Box 727, Memphis, Tennessee 38194-1850 or by telephone
at (901) 395-3490.
FEDERAL EXPRESS CORPORATION
The Corporation offers a wide range of express services for the
time-definite transportation of goods and documents throughout the world using
an extensive fleet of aircraft and vehicles and leading-edge information
technologies. Corporate headquarters are located at 2005 Corporate Avenue,
Memphis, Tennessee 38132, telephone (901) 369-3600.
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
NOVEMBER
YEAR ENDED MAY 31, 30,
------------------------------ ----------
1989 1990 1991 1992 1993 1992 1993
---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(a)........................ 1.9x 1.4x 1.0x (b) 1.4x 1.3x 1.7x
<FN>
- ------------------------
(a) Earnings included in the calculation of the ratio of earnings to fixed
charges represent income before income taxes plus fixed charges (other
than capitalized interest). Fixed charges include interest expense,
capitalized interest, amortization of debt issuance costs and a portion of
rent expense representative of interest.
(b) Earnings were inadequate to cover fixed charges by $173.4 million for the
year ended May 31, 1992.
</TABLE>
OUTLINE OF PASS THROUGH TRUST STRUCTURE
For each Series of Pass Through Certificates (as such terms are defined
below) offered pursuant to this Prospectus and related Prospectus Supplement, a
separate pass through trust (a "Pass Through Trust") will be formed pursuant to
a supplemental agreement (a "Series Supplement") between the Corporation and
NationsBank of South Carolina, National Association ("NationsBank of South
Carolina"), not in its individual capacity but solely as pass through trustee
(the "Pass Through Trustee"), in accordance with a Pass Through Trust Agreement
(the "Pass Through Agreement") between the Corporation and the Pass Through
Trustee, for the benefit of the registered holders (the "Certificateholders") of
the series (a "Series") of certificates (the "Pass Through Certificates")
evidencing fractional undivided interests in such Pass Through Trust. The
property held in each Pass Through Trust (the "Trust Property") will consist of
equipment trust certificates issued in connection with one or more leveraged
lease transactions (the "Equipment Trust Certificates"), as specified in the
applicable Prospectus Supplement.
As more fully described below under "Use of Proceeds," in connection with
each leveraged lease transaction, one or more Equipment Trust Certificates may
be issued, each of which may have different interest rates and final maturity
dates. Concurrently with the execution and delivery of each Series Supplement,
the Pass Through Trustee, on behalf of the related Pass Through Trust, will
enter into one or more participation agreements (each, a "Participation
Agreement") pursuant to which it will, among other things, purchase one or more
Equipment Trust Certificates, such that the Equipment Trust Certificates that
constitute the property of such Pass Through Trust will have identical interest
rates, in each
4
<PAGE>
case equal to the rate applicable to the Pass Through Certificates issued by
such Pass Through Trust, and such that the latest maturity date for such
Equipment Trust Certificates will occur on or before the final distribution date
applicable to such Pass Through Certificates. For each Pass Through Trust, the
aggregate amount of the related Series of Pass Through Certificates will equal
the aggregate principal amount of the Equipment Trust Certificates constituting
the Trust Property of such Pass Through Trust. The Pass Through Trustee will
distribute the amount of payments of principal, premium, if any, and interest
received by it as holder of the Equipment Trust Certificates to the
Certificateholders of the Pass Through Trust in which such Equipment Trust
Certificates are held. See "Description of the Pass Through Certificates" and
"Description of the Equipment Trust Certificates."
USE OF PROCEEDS
Each Series of Pass Through Certificates offered pursuant to this Prospectus
and a related Prospectus Supplement will be issued to facilitate the financing
of the debt portion of one or more leveraged lease transactions entered into or
to be entered into by the Corporation, as lessee, with respect to each of the
aircraft that are to be leased by the Corporation (the "Aircraft"), as specified
in the applicable Prospectus Supplement. Each Prospectus Supplement will specify
the type and model of each Aircraft relating to the Pass Through Certificates
offered thereby, the engines with which such Aircraft is or will be equipped,
and when such Aircraft was delivered new by the manufacturer. The proceeds from
the sale of such Pass Through Certificates will be used by the Pass Through
Trustee on behalf of the related Pass Through Trust to purchase Equipment Trust
Certificates. The Equipment Trust Certificates will be issued as nonrecourse
obligations by First Security Bank of Utah, National Association, not in its
individual capacity but solely as the owner trustee (the "Owner Trustee") of one
or more owner trusts (each, an "Owner Trust" created pursuant to a "Trust
Agreement") for the benefit of the owner participant named therein (each, an
"Owner Participant"), in connection with one or more leveraged lease
transactions, in each case to finance a portion of the acquisition cost of an
Aircraft (including any costs of modification required prior to commencement of
the lease of such Aircraft to the Corporation) paid or to be paid by the Owner
Trustee for such Aircraft which is to be leased by such Owner Trustee to the
Corporation pursuant to a separate lease agreement (each, a "Lease"), as
specified in the applicable Prospectus Supplement.
If, for any Aircraft, under the circumstances discussed below in
"Description of the Equipment Trust Certificates -- Delayed Lease Commencement"
the proceeds from the sale of the related Equipment Trust Certificates to the
applicable Pass Through Trusts are not applied by the Owner Trustee to pay the
acquisition cost (including any costs of modification required prior to
commencement of the related Lease) for such Aircraft on the date of the purchase
of such Equipment Trust Certificates by such Pass Through Trusts, such proceeds,
after deducting certain expenses of the Pass Through Certificate offering, will
be deposited by the Owner Trustee into a Collateral Account (as defined below).
Such Collateral Account, together with the other security pledged under the
related Indenture (see "Description of the Equipment Trust Certificates --
Security" below), will secure such Equipment Trust Certificates during the
related Pre-Funding Period (as defined below) and will be available to make
scheduled payments of principal, if any, and interest accrued on such Equipment
Trust Certificates during the Pre-Funding Period. If the Lease related to such
Aircraft does not commence on the cut-off date specified in the applicable
Prospectus Supplement or an event of loss occurs with respect to such Aircraft
during the Pre-Funding Period, funds in such Collateral Account, together with
such other security will be available to prepay such Equipment Trust
Certificates as described in such Prospectus Supplement. See "Description of the
Equipment Trust Certificates -- Delayed Lease Commencement" and "-- Mandatory
Prepayment During the Pre-Funding Period."
The Equipment Trust Certificates to be sold to any Pass Through Trust will
be issued by the Owner Trustee and authenticated by NationsBank of Georgia,
National Association ("NationsBank of Georgia"), as indenture trustee (the
"Indenture Trustee") under a separate trust indenture and security agreement
(each, an "Indenture") between the Owner Trustee and the Indenture Trustee. Each
Owner Participant will have provided or will be obligated to provide, from
sources other than the related
5
<PAGE>
Equipment Trust Certificates, the portion of the acquisition cost (including any
costs of modification required prior to commencement of the lease to the
Corporation) for the related Aircraft specified in the applicable Prospectus
Supplement. No Owner Participant, however, will be personally liable for any
amount payable under the related Indenture or the Equipment Trust Certificates
issued thereunder.
DIAGRAM OF PAYMENTS
The following diagram illustrates certain aspects of the payment flows in
the Pass Through Trust structure for a possible transaction among the
Corporation, the Owner Trustee, the related Owner Participant, the Indenture
Trustee, the Pass Through Trustee and the Certificateholders, assuming that each
Aircraft is leased by the Corporation upon issuance of the Pass Through
Certificates. One or more Equipment Trust Certificates will be issued for each
Aircraft included in a particular Pass Through Certificate offering. Each of
such Equipment Trust Certificates may have a different interest rate and final
maturity date and will be held in a separate Pass Through Trust. Each Pass
Through Trust may hold Equipment Trust Certificates relating to more than one
Aircraft. The number of Aircraft included in each offering and the interest
rates and final maturity dates of the Equipment Trust Certificates held by each
Pass Through Trust will be described in the applicable Prospectus Supplement.
The Corporation is to lease each Aircraft from the Owner Trustee under a
separate Lease and will make scheduled rental payments for each Aircraft under
the related Lease. As a result of the assignment under the related Indenture of
certain rights of the Owner Trustee under such Lease, the Corporation will make
these payments directly to the Indenture Trustee. From these rental payments the
Indenture Trustee will pay to the Pass Through Trustee for each Pass Through
Trust the interest or interest and principal due from the Owner Trustee on the
Equipment Trust Certificates issued under the related Indenture and held in such
Pass Through Trust. After such payments have been made the Indenture Trustee
will pay the remaining balance, if any, to the Owner Trustee for the benefit of
the related Owner Participant. The Pass Through Trustee for each Pass Through
Trust will distribute to the related Certificateholders payments received on the
Equipment Trust Certificates held in such Pass Through Trust. See "Description
of the Pass Through Certificates -- Payments and Distributions" and "Description
of the Equipment Trust Certificates -- Delayed Lease Commencement" for a
discussion of payments during any Pre-Funding Period.
[GRAPHIC--See Appendix A]
- ------------------------
* Each Aircraft will be subject to a separate Lease and a separate Indenture.
6
<PAGE>
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
In connection with each offering of Pass Through Certificates, one or more
separate Pass Through Trusts will be formed, and one or more corresponding
Series of Pass Through Certificates will be issued, pursuant to the Pass Through
Agreement and one or more separate Series Supplements to be entered into between
the Corporation and the Pass Through Trustee. The following summary relates to
the Pass Through Agreement and each of the Series Supplements, the Pass Through
Trusts to be formed thereby and the Pass Through Certificates to be issued by
each Pass Through Trust, except as otherwise described in the applicable
Prospectus Supplement.
The discussion that follows is a summary and does not purport to be
complete. The summary includes descriptions of the material terms of the Pass
Through Agreement which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Series Supplement relating to
each Series of Pass Through Certificates and the forms of the related
Indentures, Participation Agreements, Leases and Trust Agreements will be filed
as exhibits to a post-effective amendment to this Registration Statement, a
Current Report on Form 8-K, a Quarterly Report on Form 10-Q or an Annual Report
on Form 10-K, as applicable, to be filed with the Commission in connection with
the issuance of each such Series of Pass Through Certificates. This summary
makes use of terms defined in and is qualified in its entirety by reference to
the Pass Through Agreement. Each Prospectus Supplement will include a glossary
of certain defined terms used in connection with the Pass Through Certificates
offered thereby and the related Equipment Trust Certificates.
GENERAL
Unless otherwise provided in the applicable Series Supplement, the Pass
Through Certificates will be issued in fully registered, certificated form only.
Each Pass Through Certificate will represent a fractional undivided interest in
the separate Pass Through Trust formed by the Pass Through Agreement and the
related Series Supplement pursuant to which such Pass Through Certificate is
issued. The property of each Pass Through Trust will include the Equipment Trust
Certificates held in such Pass Through Trust, all monies at any time paid
thereon, all monies due and to become due thereunder and funds from time to time
deposited with the Pass Through Trustee in accounts relating to such Pass
Through Trust. Each Pass Through Certificate will represent a pro rata share of
the outstanding principal amount of the Equipment Trust Certificates and other
property held in the related Pass Through Trust and will be issued, unless
otherwise specified in the applicable Prospectus Supplement, in minimum
denominations of $1,000 or any integral multiple of $1,000. (Pass Through
Agreement, Article II)
Interest will be passed through to Certificateholders of each Pass Through
Trust at the rate per annum payable on the Equipment Trust Certificates held in
such Pass Through Trust, as set forth for such Pass Through Trust on the cover
page of the applicable Prospectus Supplement.
The Pass Through Certificates represent interests in the related Pass
Through Trust only and all payments and distributions shall be made only from
the Trust Property of such Pass Through Trust. The Pass Through Certificates do
not represent an interest in or obligation of the Corporation, the Pass Through
Trustee, any related Owner Participant, the Owner Trustee in its individual
capacity or any affiliate of any of the foregoing. Each Certificateholder by its
acceptance of a Pass Through Certificate agrees to look solely to the income and
proceeds from the property held in the related Pass Through Trust as provided in
the Pass Through Agreement and the applicable Series Supplement. (Pass Through
Agreement, Section 3.06)
The Pass Through Agreement does not and, except as otherwise described in
the applicable Prospectus Supplement, the Indentures will not, contain any debt
covenants or provisions that would afford Certificateholders protection in the
event of a highly leveraged transaction involving the Corporation.
PAYMENTS AND DISTRIBUTIONS
Upon commencement of the Lease for any Aircraft, the Corporation will make
scheduled rental payments for such Aircraft under the related Lease. After any
Pre-Funding Period for an Aircraft, these
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scheduled rental payments will be assigned under the applicable Indenture by the
Owner Trustee to the Indenture Trustee to provide the funds necessary to make
the corresponding payments of principal and interest due from the Owner Trustee
on the Equipment Trust Certificates issued under such Indenture. Until the
Corporation has entered into a Lease in connection with an Aircraft, the
Corporation will not be obligated to make any scheduled rental payments and
during the Pre-Funding Period, if any, for such Aircraft, even if such Lease has
commenced, the related Equipment Trust Certificates will not be secured by such
Aircraft or the related Lease, including any rental payments under such Lease.
During the Pre-Funding Period, if any, for such Aircraft, however, the related
Collateral Account, together with the related Additional Collateral (as defined
below), will be available to provide funds necessary to make the corresponding
scheduled payments of principal, if any, and interest accrued on the related
Equipment Trust Certificates during such Pre-Funding Period, and to pay the
portion, if any, of principal and interest due on the first payment date after
the Pre-Funding Period to the extent exceeding the amount of rent payable by the
Corporation on such payment date. See "Description of the Equipment Trust
Certificates -- Delayed Lease Commencement."
Except during any Pre-Funding Period or under certain circumstances
thereafter, after the Indenture Trustee has made principal and interest payments
to the Pass Through Trustee for each of the Pass Through Trusts on the related
Equipment Trust Certificates held in such Pass Through Trust, the Indenture
Trustee will pay the remaining balance, if any, of rental payments received from
the Corporation to the Owner Trustee for the benefit of the related Owner
Participant. The Pass Through Trustee for each such Pass Through Trust will
distribute to the Certificateholders of such Pass Through Trust payments
received on the Equipment Trust Certificates held in such Pass Through Trust as
described below. During the Pre-Funding Period, if any, for an Aircraft, the
Indenture Trustee will not make any payments to the Owner Trustee for the
benefit of the related Owner Participant.
Payments of principal of, and interest on the unpaid amount of, the
Equipment Trust Certificates held in each Pass Through Trust will be scheduled
to be received by the Pass Through Trustee on the dates specified in the
applicable Prospectus Supplement (such scheduled payments of principal of, and
interest on, the Equipment Trust Certificates are referred to herein as
"Scheduled Payments," and the dates specified for distributions of Scheduled
Payments to the Pass Through Trustee in the applicable Prospectus Supplement are
referred to herein as "Regular Distribution Dates"). For each Pass Through
Trust, the Pass Through Trustee will distribute on each Regular Distribution
Date to the related Certificateholders any Scheduled Payment received by the
Pass Through Trustee on such Regular Distribution Date. If a Scheduled Payment
is not received by the Pass Through Trustee on or before a Regular Distribution
Date but is received within five Business Days thereafter, it will be
distributed on the date received to the Certificateholders. Each such
distribution of a Scheduled Payment will be made by the Pass Through Trustee to
the Certificateholders of record of such Pass Through Trust on the fifteenth day
prior to such Regular Distribution Date, subject to certain exceptions. Each
such Certificateholder will be entitled to receive a pro rata share of any such
distribution. (Pass Through Agreement, Sections 5.01 and 5.02) If a Scheduled
Payment is received more than five Business Days after the applicable Regular
Distribution Date, it will be treated as a Special Payment and will be
distributed as described below.
After any prepayment of principal, any redemption or any default in respect
of some or all of the Equipment Trust Certificates held in any Pass Through
Trust, any Certificateholder of such Pass Through Trust should refer to the Pool
Balance and the Pool Factor (as such terms are defined below) for such Pass
Through Trust reported periodically by the Pass Through Trustee, in order to
calculate such Certificateholder's pro rata share of such Pass Through Trust.
See "Pool Factors" and "Statements to Certificateholders" below.
For any Pass Through Trust, any payments of principal, premium, if any, or
interest, other than Scheduled Payments, received by the Pass Through Trustee on
any of the Equipment Trust Certificates held in such Pass Through Trust,
including payments received (i) for the prepayment of such Equipment Trust
Certificates in connection with certain events specified in the applicable
Prospectus Supplement (including prepayments during any Pre-Funding Period),
(ii) upon the prepayment by the related Owner Trustee of such Equipment Trust
Certificates following a default in respect of such Equipment Trust
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Certificates, and (iii) on account of the sale of such Equipment Trust
Certificates by the Pass Through Trustee (such payments are referred to herein
as "Special Payments"), will be distributed on the dates determined as set forth
in the applicable Prospectus Supplement (each, a "Special Distribution Date"
and, together with the Regular Distribution Dates, the "Distribution Dates").
See "Description of the Equipment Trust Certificates -- Mandatory Prepayment
During the Pre-Funding Period" for a discussion of the funding of such
prepayments during the Pre-Funding Period. Prior to any Special Payment for any
Pass Through Trust, the Pass Through Trustee will notify the Certificateholders
of record of such Pass Through Trust of such Special Payment and the anticipated
Special Distribution Date therefor in accordance with the Pass Through
Agreement. Each distribution of a Special Payment, other than the final
distribution, for any Pass Through Trust will be made by the Pass Through
Trustee to the Certificateholders of record of such Pass Through Trust on the
fifteenth day prior to such Special Distribution Date, unless otherwise
specified in the applicable Prospectus Supplement. Each such Certificateholder
will be entitled to receive a pro rata share of any such distribution. (Pass
Through Agreement, Section 5.02) See "Description of the Equipment Trust
Certificates -- Prepayment" and "Description of the Pass Through Certificates --
Events of Default and Certain Rights Upon an Event of Default."
The Pass Through Agreement requires that the Pass Through Trustee establish
and maintain, for each Pass Through Trust and for the benefit of the related
Certificateholders, one or more non-interest bearing accounts (the "Certificate
Account") for the deposit of Scheduled Payments on the Equipment Trust
Certificates held in such Pass Through Trust and one or more accounts which
will, except in connection with Permitted Investments as discussed below, be
non-interest bearing (the "Special Payments Account") for the deposit of Special
Payments on such Equipment Trust Certificates. The Pass Through Trustee is
required to deposit any Scheduled Payments relating to a Pass Through Trust
received by it in the related Certificate Account and to deposit any Special
Payments so received by it in the related Special Payments Account pending
distribution thereof. (Pass Through Agreement, Section 5.01) Special Payments
that are not promptly distributed by the Pass Through Trustee will, to the
extent practicable, be invested by the Pass Through Trustee in Permitted
Investments pending the distribution of such funds on a Special Distribution
Date, and the income and earnings on such investments will be distributed with
such Special Payment. "Permitted Investments" are non-callable direct
obligations of the United States of America maturing on or prior to the day
required for the distribution of any such funds on a Special Distribution Date.
(Pass Through Agreement, Article I and Section 5.04)
Distributions by the Pass Through Trust from the Certificate Account or the
Special Payments Account of any Pass Through Trust on any Distribution Date will
be paid to each Certificateholder of record of such Pass Through Trust on the
applicable record date at its address appearing on the register maintained for
such Pass Through Trust. (Pass Through Agreement, Section 5.02) The final
distribution for each Pass Through Trust, however, will be made only upon
presentation and surrender of the Pass Through Certificates for such Pass
Through Trust at the office or agency of the Pass Through Trustee specified in
the notice given by the Pass Through Trustee of such final distribution. The
Pass Through Trustee will mail such notice of the final distribution to the
Certificateholders of such Pass Through Trust, specifying the date set for such
final distribution and the amount of such distribution. (Pass Through Agreement,
Section 12.01) See "Termination of Pass Through Trusts" below.
If any Distribution Date is not a Business Day, distributions scheduled to
be made on such Distribution Date may be made on the next succeeding Business
Day without additional interest. (Pass Through Agreement, Section 13.15)
POOL FACTORS
Except as provided below, the Pool Factor (as defined below) for any Pass
Through Trust will decline in proportion to the scheduled repayments of
principal on the Equipment Trust Certificates held in such Pass Through Trust as
described in the applicable Prospectus Supplement. Where any Equipment Trust
Certificate held in a Pass Through Trust has been prepaid, a scheduled repayment
of principal thereon has not been made or certain actions have been taken
following a default thereon, as discussed in the applicable Prospectus
Supplement or below in "Events of Default and Certain Rights Upon an Event of
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Default," the Pool Factor and the Pool Balance (as defined below) of such Pass
Through Trust will be recomputed after giving effect thereto and notice thereof
will be mailed to the Certificateholders of such Pass Through Trust. Each Pass
Through Trust will have a separate Pool Factor.
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Balance" for each Pass Through Trust indicates, as of any date, the
aggregate unpaid principal amount of the Equipment Trust Certificates held in
such Pass Through Trust on such date plus any amounts in respect of principal on
such Equipment Trust Certificates held by the Pass Through Trustee and not yet
distributed. The Pool Balance for each Pass Through Trust as of any Distribution
Date will be computed after giving effect to the payment of principal, if any,
on the Equipment Trust Certificates held in such Pass Through Trust and the
distribution thereof being made on that date. (Pass Through Agreement, Article
I)
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Factor" for each Pass Through Trust as of any Distribution Date is the
quotient (rounded to the seventh decimal place) computed by dividing (i) the
Pool Balance by (ii) the aggregate original principal amount of the Equipment
Trust Certificates held in such Pass Through Trust. The Pool Factor for each
Pass Through Trust as of any Distribution Date shall be computed after giving
effect to the payment of principal, if any, on the Equipment Trust Certificates
held in such Pass Through Trust and the distribution thereof being made on that
date. The Pool Factor for each Pass Through Trust will initially be 1.0000000;
thereafter, the Pool Factor for each Pass Through Trust will decline as
described above to reflect reductions in the Pool Balance of such Pass Through
Trust. For any Pass Through Trust, the amount of any Certificateholder's pro
rata share of the Pool Balance of such Pass Through Trust can be determined by
multiplying the original denomination of such Certificateholder's Pass Through
Certificate by the Pool Factor for such Pass Through Trust as of the applicable
Distribution Date. (Pass Through Agreement, Article I)
STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Pass Through Trustee will include with each
distribution of a Scheduled Payment or Special Payment to Certificateholders of
record of the related Pass Through Trust a statement, giving effect to such
distribution being made on such Distribution Date, setting forth the following
information (per $1,000 in aggregate amount of Pass Through Certificates for
such Pass Through Trust, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and
allocable to premium, if any;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor for such Pass Through Trust.
In addition, after the end of each calendar year, the Pass Through Trustee
will prepare for each Certificateholder of each Pass Through Trust at any time
during the preceding calendar year a report containing the sum of the amounts
determined pursuant to clauses (i) and (ii) above with respect to each such Pass
Through Trust for such calendar year or, in the event such person was a
Certificateholder during a portion of such calendar year, for the applicable
portion of such calendar year. (Pass Through Agreement, Section 5.03)
VOTING OF EQUIPMENT TRUST CERTIFICATES
The Pass Through Trustee, as holder of the Equipment Trust Certificates held
in each Pass Through Trust, has the right to vote and give consents and waivers
in respect of such Equipment Trust Certificates under the related Indentures.
The Pass Through Agreement sets forth the circumstances in which the Pass
Through Trust shall direct any action or cast any vote as the holder of the
Equipment Trust Certificates held in the applicable Pass Through Trust at its
own discretion and the circumstances in which the Pass Through Trustee shall
seek instructions from the Certificateholders of such Pass Through Trust. Prior
to an Event of Default (as defined below) with respect to any Pass Through
Trust, the principal amount of the Equipment Trust Certificates held in such
Pass Through Trust directing any action or being voted for or against any
proposal will be in proportion to the principal amount of Pass Through
Certificates held by the Certificateholders of such Pass Through Trust taking
the corresponding position. (Pass Through Agreement, Section 7.01)
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EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
The Pass Through Agreement defines an event of default for any Pass Through
Trust (an "Event of Default") as the occurrence and continuance of an event of
default under one or more of the related Indentures (an "Indenture Event of
Default"). The Indenture Events of Default under the Indentures will be
described in the applicable Prospectus Supplement and will include events of
default under the related Leases ("Lease Events of Default"). Since the
Equipment Trust Certificates outstanding under an Indenture may be held in more
than one Pass Through Trust, a continuing Indenture Event of Default under such
Indenture would result in an Event of Default with respect to each such Pass
Through Trust. Unless otherwise provided in a Prospectus Supplement, all of the
Equipment Trust Certificates issued under the same Indenture will relate to a
specific Aircraft and there will be no cross-collateralization or cross-default
provisions in the Indentures. Consequently, events resulting in an Indenture
Event of Default under any particular Indenture will not necessarily result in
an Indenture Event of Default occurring under any other Indenture. If an
Indenture Event of Default occurs in fewer than all of the Indentures related to
a Pass Through Trust, the Equipment Trust Certificates issued pursuant to the
related Indentures with respect to which an Indenture Event of Default has not
occurred will continue to be held in such Pass Through Trust and payments of
principal of, premium, if any, and interest on such Equipment Trust Certificates
will continue to be distributed to the Certificateholders of such Pass Through
Trust as originally scheduled.
The Equipment Trust Certificates in any Pass Through Trust, and therefore
the related Pass Through Certificates, will not have the benefit of any debt
covenants or provisions in the Indentures relating to such Equipment Trust
Certificates or Pass Through Certificates that would afford the holders thereof
protection in the event of a highly leveraged transaction involving the
Corporation.
Under each Indenture the Owner Trustee will have the right under certain
circumstances to cure an Indenture Event of Default that results from the
occurrence of a Lease Event of Default under the related Lease. If the Owner
Trustee chooses to exercise such cure right, the Indenture Event of Default and
consequently the Event of Default under any Pass Through Trust holding the
related Equipment Trust Certificates will be deemed to be cured. See the
applicable Prospectus Supplement for a more detailed discussion of certain
provisions described in this paragraph.
The Pass Through Agreement provides that if an Indenture Event of Default
under an Indenture relating to Equipment Trust Certificates held in a Pass
Through Trust shall have occurred and be continuing, the Pass Through Trustee
(i) may vote all of the Equipment Trust Certificates issued under such Indenture
that are held in such Pass Through Trust, and (ii) upon the direction of the
Certificateholders evidencing fractional undivided interests aggregating not
less than a majority in interest of such Pass Through Trust shall vote a
corresponding majority of such Equipment Trust Certificates, in each case in
favor of directing the related Indenture Trustee to declare the unpaid principal
amount of all Equipment Trust Certificates issued under such Indenture and any
accrued and unpaid interest thereon to be due and payable. The Pass Through
Agreement also provides that if an Indenture Event of Default under an Indenture
relating to Equipment Trust Certificates held in a Pass Through Trust shall have
occurred and be continuing, the Pass Through Trustee may, and upon the direction
of the Certificateholders evidencing fractional undivided interests aggregating
not less than a majority in interest of such Pass Through Trust shall, vote all
of the Equipment Trust Certificates issued under such Indenture that are held in
such Pass Through Trust in favor of directing the related Indenture Trustee as
to the time, method and place of conducting any proceeding for any remedy
available to such Indenture Trustee or of exercising any trust or power
conferred on such Indenture Trustee under such Indenture. (Pass Through
Agreement, Sections 7.01 and 7.09)
The ability of the Certificateholders of any one Pass Through Trust to cause
the Indenture Trustee for any Equipment Trust Certificates held in such Pass
Through Trust to accelerate the payment on such Equipment Trust Certificates
under the related Indenture or to direct the exercise of remedies by such
Indenture Trustee under the related Indenture will depend, in part, upon the
proportion between the aggregate principal amount of the Equipment Trust
Certificates outstanding under such Indenture and
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held in such Pass Through Trust and the aggregate principal amount of all
Equipment Trust Certificates outstanding under such Indenture. Each Pass Through
Trust will hold Equipment Trust Certificates with different terms from those of
the Equipment Trust Certificates held in any other Pass Through Trust and,
therefore, the Certificateholders of a Pass Through Trust may have divergent or
conflicting interests from those of the Certificateholders of the other Pass
Through Trusts holding Equipment Trust Certificates relating to the same
Indenture. In addition, so long as the same institution or an affiliate of such
institution acts as Pass Through Trustee of each Pass Through Trust, in the
absence of instructions from the Certificateholders of any such Pass Through
Trust, the Pass Through Trustee for such Pass Through Trust could for the same
reason be faced with a potential conflict of interest upon an Indenture Event of
Default. In such event, the initial Pass Through Trustee has indicated that it
would resign as Pass Through Trustee of one or all of such Pass Through Trusts,
and a successor pass through trustee would be appointed in accordance with the
terms of the Pass Through Agreement and the applicable Series Supplement. See
"The Pass Through Trustee; the Indenture Trustee" below for a discussion of
resignation procedures.
As an additional remedy, if an Indenture Event of Default under an Indenture
has occurred and is continuing, the Pass Through Agreement provides that the
Pass Through Trustee of a Pass Through Trust holding Equipment Trust
Certificates issued under such Indenture may, and upon the direction of the
Certificateholders evidencing fractional undivided interests aggregating not
less than a majority in interest of such Pass Through Trust will, sell all or
part of such Equipment Trust Certificates for cash to any person at a price or
prices that it may reasonably deem advisable. Any proceeds received by the Pass
Through Trust upon any such sale will be deposited in the Special Payments
Account for such Pass Through Trust and will be distributed to the
Certificateholders of such Pass Through Trust on a Special Distribution Date.
(Pass Through Agreement, Sections 7.01 and 7.02) The market for Equipment Trust
Certificates in default may be very limited and there can be no assurance that
they could be sold for a reasonable price. Furthermore, so long as the same
institution or any affiliate of such institution acts as Pass Through Trustee of
each Pass Through Trust, it may be faced with a conflict in deciding from which
Pass Through Trust to sell Equipment Trust Certificates to available buyers. If
the Pass Through Trustee sells any such Equipment Trust Certificates with
respect to which an Indenture Event of Default exists for less than the
outstanding principal amount thereof, the Certificateholders of such Pass
Through Trust will receive a smaller amount of principal distributions than
anticipated and will not have any claim for the shortfall against the Pass
Through Trustee, the Corporation, the Owner Trustee or any related Owner
Participant. Furthermore, neither the Pass Through Trustee nor the
Certificateholders of such Pass Through Trust could take any action with respect
to any remaining Equipment Trust Certificates held in such Pass Through Trust so
long as no Indenture Event of Default existed with respect thereto.
For any Pass Through Trust, any amount distributed to the Pass Through
Trustee by the Indenture Trustee under any Indenture on account of the Equipment
Trust Certificates held in such Pass Through Trust following an Indenture Event
of Default under such Indenture will be deposited in the Special Payments
Account for such Pass Through Trust and will be distributed to the
Certificateholders of such Pass Through Trust on a Special Distribution Date. In
addition, if, following an Indenture Event of Default under any Indenture, the
related Owner Trustee exercises its option, if any, to prepay or purchase the
outstanding Equipment Trust Certificates issued under such Indenture as
described in the related Prospectus Supplement, the price paid by such Owner
Trustee to the Pass Through Trustee for such Equipment Trust Certificates held
in such Pass Through Trust will be deposited in the related Special Payments
Account and will be distributed to the Certificateholders of such Pass Through
Trust on a Special Distribution Date. (Pass Through Agreement, Sections 5.01 and
5.02)
Any funds representing payments received with respect to any Equipment Trust
Certificates held in a Pass Through Trust in default, or the proceeds from the
sale by the Pass Through Trustee of any such Equipment Trust Certificates, held
by the Pass Through Trustee in the Special Payments Account for such Pass
Through Trust will, to the extent practicable, be invested by the Pass Through
Trustee in Permitted Investments pending the distribution of such funds on a
Special Distribution Date. (Pass Through Agreement, Article I and Section 5.04)
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The Pass Through Agreement provides that the Pass Through Trustee will,
within 90 days after the occurrence of a default (as defined below) under any
Pass Through Trust, notify the Certificateholders of such Pass Through Trust by
mail of all uncured or unwaived defaults with respect to such Pass Through Trust
known to it. Under no circumstances, however, may the Pass Through Trustee give
such notice until the expiration of a period of 60 days from the occurrence of
such default. The Pass Through Trustee will be protected in withholding such
notice if it in good faith determines that the withholding of such notice is in
the interests of such Certificateholders, except in the case of default in the
payment of principal of, premium, if any, or interest on any of the Equipment
Trust Certificates held in such Pass Through Trust. The term "default," for the
purpose of the provision described in this paragraph only, means the occurrence
of any Event of Default with respect to a Pass Through Trust as described above,
except that in determining whether any such Event of Default has occurred any
grace period or notice in connection therewith shall be disregarded. (Pass
Through Agreement, Section 7.11)
The Pass Through Agreement provides that for each Pass Through Trust,
subject to the duty of the Pass Through Trustee during a default to act with the
required standard of care, the Pass Through Trustee is entitled to be
indemnified by the Certificateholders of such Pass Through Trust before
proceeding to exercise any right or power under such Pass Through Trust at the
request of such Certificateholders. (Pass Through Agreement, Section 8.03)
In certain cases, the Certificateholders of a Pass Through Trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of such Pass Through Trust may on behalf of all the Certificateholders of such
Pass Through Trust waive any past default or Event of Default with respect to
such Pass Through Trust and thereby annul any direction given by such
Certificateholders to the Pass Through Trustee or the related Indenture Trustee
with respect thereto, except (i) a default in payment of the principal of,
premium, if any, or interest on any of the Equipment Trust Certificates held in
such Pass Through Trust and (ii) a default in respect of any covenant or
provision of the Pass Through Agreement or the related Series Supplement that
cannot be modified or amended without the consent of each Certificateholder of
such Pass Through Trust affected thereby. Any such waiver, however, will be
effective to waive any such past default or Event of Default if, but only if,
the correlative Indenture Event of Default has been waived under the related
Indenture by the requisite holders of the Equipment Trust Certificates
outstanding thereunder. (Pass Through Agreement, Section 7.10)
Each Indenture will provide that, with certain exceptions, the holders of a
majority in aggregate unpaid principal amount of the Equipment Trust
Certificates issued thereunder may on behalf of all such holders waive any past
default or Indenture Event of Default thereunder. If, as described above, the
Certificateholders of a Pass Through Trust elect to waive a past default or
Event of Default with respect to such Pass Through Trust, the principal amount
of the Equipment Trust Certificates issued under the related Indenture and held
in such Pass Through Trust will be counted in favor of the waiver of the
corresponding past default or Indenture Event of Default under the related
Indenture when the Indenture Trustee determines whether such past default or
Indenture Event of Default has been waived by the requisite majority in
aggregate unpaid principal amount of Equipment Trust Certificates under such
Indenture. If, for example, the Equipment Trust Certificates issued under an
Indenture held in a Pass Through Trust constitute only 45% in aggregate unpaid
principal amount of the Equipment Trust Certificates issued and unpaid under
such Indenture, even if all the Certificateholders of such Pass Through Trust
were to instruct the Pass Through Trustee not to waive a past default or Event
of Default with respect to such Pass Through Trust and, consequently, to vote
such Equipment Trust Certificates against the waiver of the corresponding past
default or Indenture Event of Default under such Indenture, the Equipment Trust
Certificates so voted by the Pass Through Trustee on behalf of such Pass Through
Trust would not alone be sufficient under the terms of such Indenture to compel
the Indenture Trustee to refrain from giving such waiver. Moreover, there would
be no assurance that the Certificateholders of any other Pass Through Trust
holding Equipment Trust Certificates issued under such Indenture would at such
time vote such Equipment Trust Certificates against such waiver. Therefore, if
the Certificateholders of a Pass Through Trust or Pass Through Trusts waive a
past default or Event of Default such that the principal amount of the Equipment
Trust Certificates held either individually in such Pass Through Trust
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or in the aggregate in such Pass Through Trusts constitutes the required
majority in aggregate unpaid principal amount under the applicable Indenture,
such past default or Indenture Event of Default under such Indenture will be
waived whether or not the Certificateholders of any other Pass Through Trust
holding Equipment Trust Certificates issued under such Indenture waive such past
default or Event of Default with respect to such other Pass Through Trust.
MODIFICATIONS OF THE AGREEMENTS
The Pass Through Agreement contains provisions permitting the Corporation
and the Pass Through Trustee to enter into an agreement supplemental to any Pass
Through Trust, without the consent of the Certificateholders of such Pass
Through Trust, to (i) provide for the formation of any Pass Through Trust and
the issuance of the related Pass Through Certificates, (ii) evidence the
succession of another corporation to the Corporation and the assumption by such
corporation of the Corporation's obligations under the Pass Through Agreement
and the applicable Series Supplement, (iii) add to the covenants of the
Corporation for the protection of the related Certificateholders, (iv) surrender
any right or power conferred upon the Corporation in the Pass Through Agreement
or any Series Supplement, (v) cure any ambiguity or correct or supplement any
defective or inconsistent provision of such Pass Through Agreement or the
applicable Series Supplement, or make any other provisions in regard to matters
or questions arising thereunder that will not adversely affect the interests of
the related Certificateholders, (vi) correct or amplify the description of
property that constitutes Trust Property or the conveyance of such property to
the Pass Through Trustee, (vii) evidence and provide for a successor Pass
Through Trustee for some or all of the Pass Through Trusts, (viii) modify,
eliminate or add to the provisions of the Pass Through Agreement or any Series
Supplement to the extent necessary to continue to qualify such Pass Through
Agreement or such Series Supplement under the Trust Indenture Act or any similar
federal statute enacted thereafter, (ix) make any other amendments or
modifications which shall only apply to any Pass Through Trust established
thereafter, or (x) add, eliminate or change any provision under the Pass Through
Agreement that will not adversely affect the interests of the
Certificateholders, provided that in each case such modification does not cause
the Pass Through Trust to become taxable as an "association," within the meaning
of Treasury Regulation Section 301.7701-4. (Pass Through Agreement, Section
11.01)
The Pass Through Agreement also provides that the Corporation and the Pass
Through Trustee, with the consent of the Certificateholders evidencing
fractional undivided interests aggregating not less than a majority in interest
of the affected Pass Through Trust, may execute supplemental agreements adding
any provisions to or changing or eliminating any of the provisions of the Pass
Through Agreement, to the extent relating to such Pass Through Trust, and the
applicable Series Supplement, or modifying the rights of such
Certificateholders. No such supplemental agreement may, however, without the
consent of each Certificateholder so affected, (a) reduce in any manner the
amount of, or delay the timing of, any receipt by the Pass Through Trustee of
payments on the Equipment Trust Certificates held in such Pass Through Trust, or
distributions in respect of any Pass Through Certificate of such Pass Through
Trust, or make distributions payable in coin or currency other than that
provided for in such Pass Through Certificates, or impair the right of any such
Certificateholder to institute suit for the enforcement of any payment when due,
(b) permit the disposition of any Equipment Trust Certificate held in such Pass
Through Trust, except as provided in the Pass Through Agreement or the
applicable Series Supplement, or permit the creation of any Lien on the Trust
Property or deprive any holder of any such Equipment Trust Certificate of the
benefit of the Lien of the related Indenture, except as provided therein, (c)
reduce the percentage of the aggregate fractional undivided interests of the
Pass Through Trust that is required to approve any supplemental agreement or any
waiver provided for in the Pass Through Agreement or such Series Supplement or
(d) cause the Pass Through Trust to become taxable as an "association," within
the meaning of Treasury Regulation Section 301.7701-4. (Pass Through Agreement,
Section 11.02)
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MODIFICATION, CONSENTS AND WAIVERS UNDER THE INDENTURE AND RELATED AGREEMENTS
If the Pass Through Trustee, as the holder of any Equipment Trust
Certificates held in a Pass Through Trust, receives a request for its consent to
any amendment, modification or waiver under the Indenture, or other document
relating to such Equipment Trust Certificates (including any Lease), the Pass
Through Trustee will mail a notice of such proposed amendment, modification or
waiver to each Certificateholder of such Pass Through Trust as of the date of
such notice. The Pass Through Trustee will request instructions from such
Certificateholders as to whether or not to consent to such amendment,
modification or waiver. The Pass Through Trustee will vote or consent with
respect to such Equipment Trust Certificates in the same proportion as the Pass
Through Certificates of such Pass Through Trust are actually voted by such
Certificateholders by a certain date. If an Event of Default relating to such
Indenture has occurred and is continuing under such Pass Through Trust, the Pass
Through Trustee may, in the absence of instructions from Certificateholders
holding a majority in interest of such Pass Through Trust, in its own discretion
consent to such amendment, modification or waiver, and may so notify the related
Indenture Trustee. (Pass Through Agreement, Section 11.08)
TERMINATION OF PASS THROUGH TRUSTS
The obligations of the Corporation and the Pass Through Trustee with respect
to a Pass Through Trust will terminate upon the distribution to the
Certificateholders of such Pass Through Trust of all amounts required to be
distributed to them pursuant to the Pass Through Agreement and the applicable
Series Supplement and the disposition of all property held in such Pass Through
Trust. The Pass Through Trustee will notify each Certificateholder of record of
such Pass Through Trust by mail of, among other things, the termination of such
Pass Through Trust, the amount of the proposed final payment and the proposed
date for the distribution of such final payment for such Pass Through Trust. The
final distribution for each Certificateholder of such Pass Through Trust will be
made only upon surrender of such Certificateholder's Pass Through Certificates
at the office or agency of the Pass Through Trustee specified in such
termination notice. (Pass Through Agreement, Section 12.01)
THE PASS THROUGH TRUSTEE; THE INDENTURE TRUSTEE
NationsBank of South Carolina will be the Pass Through Trustee for each of
the Pass Through Trusts. The Pass Through Trustee and any of its affiliates may
hold Pass Through Certificates in their own names. (Pass Through Agreement,
Section 8.05)
Unless otherwise specified in the related Prospectus Supplement, NationsBank
of Georgia, an affiliate of NationsBank of South Carolina, will be the Indenture
Trustee under the Indentures under which the Equipment Trust Certificates have
been or will be issued. An affiliate of NationsBank of Georgia acts as trustee
under other indentures with respect to other indebtedness of the Corporation.
The Corporation from time to time borrows from, and maintains deposit accounts
with, NationsBank of Georgia and its affiliates.
The Pass Through Trustee may resign under any or all of the Pass Through
Trusts at any time. If the Pass Through Trustee ceases to be eligible to
continue as Pass Through Trustee with respect to a Pass Through Trust or becomes
incapable of acting as Pass Through Trustee or becomes insolvent, the
Corporation may remove such Pass Through Trustee, or any Certificateholder of
such Pass Through Trust for at least six months may, on behalf of itself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of such Pass Through Trustee and the appointment of a successor trustee.
In addition, the Pass Through Trustee of any Pass Through Trust may be removed
without cause by the Certificateholders holding more than 50% in aggregate
amount of the related Pass Through Certificates. In the case of the resignation
or removal of the Pass Through Trustee, the Certificateholders holding more than
50% in aggregate amount of the related Pass Through Certificates may appoint a
successor Pass Through Trustee. The resignation or removal of the Pass Through
Trustee for any Pass Through Trust and the appointment of the successor trustee
for such Pass Through Trust does not become effective until acceptance of the
appointment by the successor trustee. (Pass Through Agreement, Article X)
Pursuant to such resignation and successor trustee provisions, it is possible
that a different trustee could be appointed to act as the successor trustee with
respect to each Pass Through
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Trust. All references in this Prospectus to the Pass Through Trustee are to the
trustee acting in such capacity under each of the Pass Through Trusts and should
be read to take into account the possibility that each of the Pass Through
Trusts could have a different successor trustee in the event of such a
resignation or removal.
The Pass Through Agreement provides that the Corporation will pay the Pass
Through Trustee's fees and expenses and that the Pass Through Trustee will have
a priority claim on the related Trust Property to the extent such fees and
expenses are not paid. The Pass Through Agreement further provides that the Pass
Through Trustee in its individual capacity will be entitled to indemnification
by the Corporation for, and will be held harmless against, any loss, liability
or expenses (other than income or similar taxes) incurred by the Pass Through
Trustee in its individual capacity in connection with the administration of any
Pass Through Trust, except to the extent incurred through its own willful
misconduct, bad faith or negligence or by reason of a breach of any of its
representations or warranties set forth in the Pass Through Agreement or the
applicable Series Supplement or any related documents. In certain circumstances,
the Pass Through Trustee will be entitled to be reimbursed from the applicable
Pass Through Trust for any tax (other than income or similar taxes) incurred in
its trust capacity in connection with the administration of any Pass Through
Trust. (Pass Through Agreement, Articles VIII and IX)
DESCRIPTION OF THE EQUIPMENT TRUST CERTIFICATES
The discussion that follows is a summary that does not purport to be
complete and is qualified in its entirety by the detailed information appearing
in the applicable Prospectus Supplement. The following summary includes
descriptions of the material terms of the Equipment Trust Certificates and the
Indentures. Except as otherwise indicated below or as described in the
applicable Prospectus Supplement, the following summary will apply to the
Equipment Trust Certificates, the Indenture, the Lease, the Participation
Agreement and the Collateral Agreement, if any, related to each Aircraft.
Additional provisions with respect to the Equipment Trust Certificates, the
Indentures, the Leases, the Participation Agreements and the Collateral
Agreements, if any, relating to any particular offering of Pass Through
Certificates will be described in the applicable Prospectus Supplement. To the
extent that any provision in any Prospectus Supplement is inconsistent with any
provision of this summary, the provision of such Prospectus Supplement will
control.
GENERAL
The Equipment Trust Certificates will be issued as nonrecourse obligations
by the Owner Trustee, in each case acting for an Owner Trust for the benefit of
an Owner Participant, and will be authenticated under an Indenture by the
Indenture Trustee. All of the Equipment Trust Certificates issued under the same
Indenture will relate to and, after the related Pre-Funding Period, if any, as
discussed below under "Delayed Lease Commencement," will be secured by a
specific Aircraft and will not be secured by any other Aircraft. The Owner
Trustee is to lease the related Aircraft to the Corporation pursuant to a Lease
between the Owner Trustee and the Corporation. See "Delayed Lease Commencement"
below for a discussion of the circumstances under which the Lease for an
Aircraft may commence after the date of issuance of the related Equipment Trust
Certificates. The Aircraft to be subject to each Lease and the Equipment Trust
Certificates issued under the related Indenture will be specified in the
applicable Prospectus Supplement. Upon the commencement of the Lease for any
Aircraft, the Corporation will be obligated to make rental payments under the
related Lease that will be sufficient to pay the principal of and interest on
the related Equipment Trust Certificates when and as due and payable except
that, with respect to a Delayed Lease Aircraft (as defined below), on the first
scheduled payment date after the related Pre-Funding Period, the difference
between the rental payment due on such date by the Corporation and the scheduled
payment of principal, if any, and interest then due on such Equipment Trust
Certificates will be payable from the related Collateral Account and the related
Additional Collateral. See "Delayed Lease Commencement" below. The Equipment
Trust Certificates will not, however, be obligations of, or guaranteed by, the
Corporation. The Corporation's obligations to pay rent and to cause other
payments to be made under each Lease will be general obligations of the
Corporation.
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Until the Corporation has entered into a Lease in connection with an
Aircraft, the Corporation will not be obligated to make any scheduled rental
payments and during the Pre-Funding Period, if any, for such Aircraft, even if
such Lease has commenced, the related Equipment Trust Certificates will not be
secured by such Aircraft or the related Lease, including any rental payments
under such Lease. During the Pre-Funding Period, if any, for such Aircraft,
however, the related Collateral Account, together with the related Additional
Collateral, will be available to provide funds necessary to make the scheduled
payments of principal, if any, and interest on the related Equipment Trust
Certificates during such Pre-Funding Period, including the portion, if any, of
principal and interest due on the first payment date after the Pre-Funding
Period to the extent exceeding the amount of rent payable by the Corporation
pursuant to the related Lease. See "Delayed Lease Commencement" below.
PRINCIPAL AND INTEREST PAYMENTS
Interest received by the Pass Through Trustee on the Equipment Trust
Certificates constituting Trust Property of each Pass Through Trust will be
passed through to the Certificateholder of such Pass Through Trust on a pro rata
basis on the dates and at the rate per annum set forth in the applicable
Prospectus Supplement. Interest on the Equipment Trust Certificates will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Each Pass Through Trust will hold Equipment Trust Certificates on which
principal is payable in scheduled amounts and on specified dates as set forth in
the applicable Prospectus Supplement. Principal received by the Pass Through
Trustee on such Equipment Trust Certificates will be passed through to the
Certificateholders of such Pass Through Trust on a pro rata basis as set forth
in the Prospectus Supplement.
PREPAYMENT
The applicable Prospectus Supplement will describe the circumstances,
whether voluntary or involuntary, under which the related Equipment Trust
Certificates may or must be prepaid prior to the stated maturity date thereof,
in whole or in part, the premium, if any, applicable upon certain prepayments
and other terms applying to the prepayment of such Equipment Trust Certificates.
See "Mandatory Prepayment During the Pre-Funding Period" below for a discussion
of certain events which would require prepayment of Equipment Trust Certificates
related to an Aircraft during the related Pre-Funding Period.
SECURITY
For any Aircraft, except during the related Pre-Funding Period, if any, the
Equipment Trust Certificates issued under the related Indenture will be secured
by (i) an assignment by the Owner Trustee to the Indenture Trustee of the Owner
Trustee's rights (except for certain limited rights described below) under the
applicable Lease, including the right to receive rent and other payments
thereunder, (ii) a security interest granted to the Indenture Trustee in the
related Aircraft, subject to the rights of the Corporation under such Lease and
to certain other liens and encumbrances, and (iii) unless otherwise specified in
the applicable Prospectus Supplement, an assignment to the Indenture Trustee of
the Owner Trustee's rights related to such Aircraft and the related engines
under the agreements for the purchase and modification thereof. See
"Registration of the Aircraft" below. The assignment by the Owner Trustee to the
Indenture Trustee of its rights under each Lease will exclude rights of the
Owner Trustee and the related Owner Participant relating to (i) indemnification
by the Corporation for certain matters, (ii) proceeds of public liability
insurance payable to the Owner Trustee and the Indenture Trustee in their
respective individual capacities and to the Owner Participant under insurance
maintained by the Corporation under such Lease and (iii) proceeds of any
insurance policies separately maintained by such Owner Trustee in its individual
capacity or by such Owner Participant. The right of the Indenture Trustee,
however, to exercise any of the rights of the Owner Trustee under the related
Lease, except the right to receive payments of rent due thereunder, will be
subject to certain limitations as described in the applicable Prospectus
Supplement.
There will be no cross-collateralization provisions in the Indentures and
consequently the Equipment Trust Certificates issued in respect of one of the
Aircraft will not be secured by any other Aircraft or
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the Leases relating thereto. There will be no cross-default provisions in the
Indentures and consequently events resulting in an Indenture Event of Default
under any particular Indenture may not result in an Indenture Event of Default
occurring under any other Indenture.
Section 1110 of the United States Bankruptcy Code (the "Bankruptcy Code")
provides that the right of lessors, conditional vendors and holders of purchase
money equipment security interests with respect to aircraft used by air carriers
operating under certificates issued under Section 401 or 418 of the Aviation Act
to take possession of such aircraft in compliance with the provisions of the
lease, conditional sale contract or purchase money equipment security agreement,
as the case may be, is not affected by (a) the automatic stay provision of the
Bankruptcy Code, which provision enjoins the taking of any action against a
debtor by a creditor, (b) the provision of the Bankruptcy Code allowing the
trustee in reorganization to use, sell or lease property of the debtor and (c)
any power of the bankruptcy court to enjoin a repossession. Section 1110
provides, however, that the right of a lessor, conditional vendor or holder of a
purchase money equipment security interest to take possession of an aircraft in
the event of a default may not be exercised for 60 days following the date of
commencement of the reorganization proceedings (unless specifically permitted by
the bankruptcy court) and may not be exercised at all if, within such 60-day
period, the trustee in reorganization agrees to perform the debtor's obligations
that become due on or after such date and cures all existing defaults (other
than defaults resulting solely from the financial condition, bankruptcy,
insolvency or reorganization of the debtor). The Prospectus Supplement for each
offering will discuss the availability of the benefits of Section 1110 of the
Bankruptcy Code with respect to the related Aircraft.
For any Aircraft, if the applicable Prospectus Supplement provides that a
Pre-Funding Period will apply to such Aircraft, then during such Pre-Funding
Period the related Equipment Trust Certificates will not be secured by such
Aircraft or a related Lease. During such Pre-Funding Period, however, such
Equipment Trust Certificates will be secured by (i) an assignment of certain
rights of the Owner Trustee with respect to the related Delayed Lease Aircraft
under the Agreement to Lease (as defined below), (ii) the related Collateral
Account and (iii) certain additional security including, unless otherwise
specified in the applicable Prospectus Supplement, a letter of credit issued by
a bank (within the meaning of Section 3(a)(2) of the Securities Act) whose
obligations at the time of the relevant Pass Through Certificate offering carry
a credit rating at least as high as the Corporation's ("Additional Collateral").
See "Delayed Lease Commencement" below.
REGISTRATION OF THE AIRCRAFT
After commencement of a Lease, the Corporation will be required, except
under certain circumstances, to register and keep the related Aircraft
registered under the Federal Aviation Act of 1958, as amended (the "Aviation
Act"), in the name of the Owner Trustee, and to record and maintain the
recordation of the Indenture and the Lease relating to each such Aircraft under
the Aviation Act. Such recordation of the Indenture and the Lease, if any,
relating to each Aircraft will give the Indenture Trustee a perfected security
interest in each such Aircraft whenever it is located in the United States or
any of its territories and possessions and, with certain limited exceptions, in
those jurisdictions that have ratified or adhered to the Convention on the
International Recognition of Rights in Aircraft (the "Convention"). The
Corporation will be able, in certain circumstances, to re-register any Aircraft
in certain countries other than the United States. Unless otherwise specified in
the applicable Prospectus Supplement, prior to any such change in the
jurisdiction of registry, the related Indenture Trustee and the related Owner
Participant must receive certain assurances, including that such other country
would provide substantially equivalent protection for the rights of owner
participants, lessors and lenders in similar transactions as is provided under
United States law, except that, for the purpose of such determination, rights
and remedies similar to those available under Section 1110 of the Bankruptcy
Code will not be required in the absence of restrictions of rights and remedies
of lessors and secured parties that are similar to those imposed by Sections 362
and 363 of the Bankruptcy Code. Generally, each Aircraft may also be operated by
the Corporation or under lease, sublease or interchange agreements in countries
that are not parties to the Convention. The extent to which the Indenture
Trustee's security interest would be recognized in an Aircraft located in a
country that is not a party to the Convention, and the extent to which
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such security interest would be recognized in a jurisdiction adhering to the
Convention if the Aircraft is registered in a jurisdiction that is not a party
to the Convention, is uncertain. Moreover, in the case of any Indenture Event of
Default, the ability of the Indenture Trustee to realize upon its security
interest in the related Aircraft could be adversely affected as a legal or
practical matter if such Aircraft were registered or located outside the United
States.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
The Corporation will be prohibited from consolidating with or merging into
any other corporation under circumstances in which the Corporation is not the
surviving corporation, or from transferring all or substantially all of its
assets as an entirety to any other corporation, unless among other things, (i)
the successor or transferee corporation is a U.S. Citizen, an "air carrier"
within the meaning of and operating under the Aviation Act and a corporation
organized and existing under the laws of the United States or a political
subdivision thereof, and such corporation expressly assumes all the obligations
of the Corporation contained in the related Indenture, Participation Agreement,
Agreement to Lease (as defined below), if any, Lease, and certain related
agreements, (ii) immediately after giving effect to such consolidation, merger
or transfer, the successor or transferee is in compliance with all the terms and
conditions of such documents and (iii) such consolidation, merger or transfer
does not (or would not, if prior to commencement of the related Lease) give rise
to a Lease Event of Default under the related Lease.
DELAYED LEASE COMMENCEMENT
If the Corporation and the Owner Trustee have entered into an agreement to
lease (an "Agreement to Lease") with respect to any Aircraft, as specified in
the applicable Prospectus Supplement, which contemplates modification of such
Aircraft in accordance with specifications of the Corporation, then the Lease
with respect to such Aircraft will commence only upon the satisfaction of
certain conditions relating to such Aircraft, including completion of such
modification and U.S. certification of the Aircraft. Any such Aircraft, until
commencement of a Lease with respect thereto and the Indenture Trustee's release
of funds from the related Collateral Account, which is expected to occur at the
same time as the commencement of such Lease, is referred to as a "Delayed Lease
Aircraft" and the period prior to the Indenture Trustee's release of such funds
is referred to as the "Pre-Funding Period."
In the case of Equipment Trust Certificates relating to a Delayed Lease
Aircraft, the proceeds from sale of such Equipment Trust Certificates to the
applicable Pass Through Trusts, after deducting certain expenses of the offering
of the related Pass Through Certificates, will be deposited by the Owner
Trustee, on the date of such sale, in a collateral account (a "Collateral
Account") established pursuant to a collateral agreement between the Owner
Trustee and the Indenture Trustee (a "Collateral Agreement"). Such Collateral
Account will be part of the related Indenture Estate and will secure payment of
the related Equipment Trust Certificates. In addition, certain rights of the
Owner Trustee in the related Agreement to Lease with respect to the related
Delayed Lease Aircraft will be assigned to the Indenture Trustee to secure such
Equipment Trust Certificates, and the Owner Trustee will be required to provide
to the Indenture Trustee Additional Collateral, including, unless otherwise
specified in the applicable Prospectus Supplement, a letter of credit, for such
Equipment Trust Certificates during the related Pre-Funding Period. See
"Security" above.
Funds in the Collateral Account will be invested at the risk of the Owner
Trustee in U.S. government obligations pursuant to the related Collateral
Agreement and further described in the applicable Prospectus Supplement.
Earnings on such investments will be retained in the Collateral Account pending
distribution as contemplated below.
Unless otherwise specified in an applicable Prospectus Supplement, the
Equipment Trust Certificates relating to a Delayed Lease Aircraft will be issued
in an amount such that the net proceeds thereof, together with expected earnings
on the investments in the Collateral Account, will be sufficient (i) to make
scheduled payments of principal, if any, and interest accrued on such Equipment
Trust Certificates during the related scheduled Pre-Funding Period specified in
such Prospectus Supplement and (ii) to finance a portion of the acquisition cost
of such Delayed Lease Aircraft (including any costs of modification required
prior to the commencement of the related Lease), as specified in such Prospectus
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Supplement. Accordingly, the principal amount of such Equipment Trust
Certificates at issuance will exceed the amount that will be applied to the
acquisition costs (including any costs of modification of such Aircraft prior to
the commencement of the related Lease) of the Delayed Lease Aircraft.
Subject to any mandatory prepayment contemplated below, under the Collateral
Agreement relating to a Delayed Lease Aircraft, on each date during the
scheduled Pre-Funding Period for the scheduled payments of principal, if any,
and interest on the related Equipment Trust Certificates, the Indenture Trustee
shall withdraw from the Collateral Account the amount necessary to make the
scheduled payment then due. If the Indenture Trustee shall not have released the
funds in the Collateral Account on the date scheduled for the commencement of
the Lease relating to such Delayed Lease Aircraft, then on each scheduled
payment date during the Pre-Funding Period that occurs after such scheduled
commencement date, the Indenture Trustee shall withdraw from the Collateral
Account the excess of the amount therein over the amount specified to be
retained in such Collateral Account to be applied to the acquisition costs
(including any costs of modification of such Aircraft prior to the commencement
of the related Lease) of the Delayed Lease Aircraft. If the amount withdrawn is
less than the scheduled payment then due, the Indenture Trustee shall draw the
deficiency from any available Additional Collateral and will apply such amount
to satisfy the corresponding payment obligation. On the first scheduled payment
date after any Pre-Funding Period with respect to a Delayed Lease Aircraft, the
Indenture Trustee shall withdraw from the Collateral Account the difference
between the scheduled payment then due and the rental payment due on such
payment from the Corporation.
MANDATORY PREPAYMENT DURING THE PRE-FUNDING PERIOD
To the extent that the Lease related to a Delayed Lease Aircraft has not
commenced on or prior to the cut-off date specified in the applicable Prospectus
Supplement as the last date of the related permitted Pre-Funding Period, a
"Deemed Event of Loss" will occur, the Collateral Account and, to the extent
necessary, any Additional Collateral will be drawn upon and the related
Equipment Trust Certificates will be prepaid at a prepayment price equal to the
aggregate principal amount of such Equipment Trust Certificates, together with
accrued but unpaid interest thereon to the date designated for such prepayment
specified in such Prospectus Supplement. Such Prospectus Supplement will specify
the date after such Deemed Event of Loss on which such prepayment is to be made.
With respect to any Delayed Lease Aircraft, the applicable Prospectus
Supplement also will set forth any mandatory prepayments of the related
Equipment Trust Certificates, and the prepayment price therefor, upon the
occurrence of any event of loss with respect to such Delayed Lease Aircraft
during such Pre-Funding Period.
PAYMENTS AND LIMITATIONS OF LIABILITY
All payments of principal of, premium, if any, and interest on any Equipment
Trust Certificates will be made only from the assets subject to the lien of the
related Indenture or the income and proceeds received by the Indenture Trustee
therefrom, including, during the Pre-Funding Period, if any, relating to an
Aircraft, the Collateral Account and any Additional Collateral provided in
connection with such Pre-Funding Period and, on and after the commencement of
the related Lease and, in the case of a Delayed Lease Aircraft, after the
related Pre-Funding Period, rent payable by the Corporation under the related
Lease. The Equipment Trust Certificates will not be direct obligations of, or
guaranteed by, the Corporation. The Corporation's obligations to pay rent and to
cause other payments to be made under each Lease will be general obligations of
the Corporation.
Neither the Owner Trustee nor the Indenture Trustee (in their individual
capacities) will be liable to any Certificateholder or, in the case of the Owner
Trustee, in its individual capacity, to the Corporation or the Indenture Trustee
for any amounts payable or for any liability under the Equipment Trust
Certificates or the Indentures, except as provided in the Indentures and the
Participation Agreements and except for the gross negligence or willful
misconduct of the Owner Trustee.
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INDENTURE EVENTS OF DEFAULT AND REMEDIES
For any Pass Through Trust, the applicable Prospectus Supplement will
describe the Indenture Events of Default under the Indentures related to the
Equipment Trust Certificates to be held by such Pass Through Trust, the remedies
that the related Indenture Trustees may exercise with respect to the related
Aircraft, either at their own initiative or upon instructions from holders of
the related Equipment Trust Certificates, and other provisions relating to the
occurrence of an Indenture Event of Default and the exercise of remedies. There
will be no cross-default provisions in the Indentures and events resulting in an
Indenture Event of Default under any particular Indenture will not necessarily
result in an Indenture Event of Default under any other Indenture.
THE LEASES
Upon the commencement of any Lease, the following terms will be applicable:
TERMS AND RENTALS. Each Aircraft will be leased by the Owner Trustee to the
Corporation for a term commencing on the date of the Corporation's acceptance
thereof pursuant to the related Participation Agreement and expiring on a date
not earlier than the latest maturity date of the Equipment Trust Certificates
issued with respect to such Aircraft, unless previously terminated or extended,
as permitted by the related Lease. The scheduled rental payments by the
Corporation under each Lease will be payable on the dates specified in the
applicable Prospectus Supplement. The respective payments will be assigned under
the related Indenture by the Owner Trustee to the Indenture Trustee to provide
the funds necessary to make payments of principal and interest due from such
Owner Trustee on the Equipment Trust Certificates issued under such Indenture.
Any Prospectus Supplement may provide that, under certain circumstances, the
scheduled rental payments under any applicable Lease may be adjusted; in that
case, however, each such Lease will provide that under no circumstances will the
adjusted rental payments that the Corporation will be unconditionally obligated
to make or cause to be made under such Lease after such adjustment be less than
the scheduled payments of principal and interest on the Equipment Trust
Certificates issued under the Indenture relating to such Lease. For any Delayed
Lease Aircraft, upon the commencement of the Lease for such Aircraft and after
the related Pre-Funding Period, the Corporation will be obligated to make
scheduled rental payments under the related Lease that will be sufficient to pay
in full when due all principal of and interest on, to the extent accrued from
and after the related Pre-Funding Period, the related Equipment Trust
Certificates, except that on the first scheduled payment date after the related
Pre-Funding Period, the difference between the rental payment due on such date
by the Corporation and the scheduled payment of principal, if any, and interest
then due on such Equipment Trust Certificates will be payable from the related
Collateral Account and the related Additional Collateral. See "Payments and
Limitations of Liability." Scheduled payments of principal and interest on the
Equipment Trust Certificates will be made on the dates specified in the
applicable Prospectus Supplement.
NET LEASE. The Corporation's obligations under each Lease in respect of the
related Aircraft will be those of a lessee under a "net lease." Accordingly, the
Corporation will be obligated to pay all costs of operating the Aircraft and its
expenses, to maintain, service, repair and overhaul the Aircraft so as to keep
the Aircraft in good condition, ordinary wear and tear excepted, and to enable
the airworthiness certification thereof to be maintained in good standing at all
times under the Aviation Act or, under certain circumstances, under the
applicable requirements of the aeronautical authority of another country of
registry. If, however, the Aircraft loses its airworthiness certification and
such loss is curable, and the Corporation, using its best efforts, undertakes
such cure promptly, diligently and continuously, then the Corporation will not
be in default with respect to such obligation. Generally, the Corporation will
be obligated to replace or cause to be replaced all parts that may from time to
time be incorporated or installed in or attached to any Aircraft (including in
or on any engine) and that may become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use. The
Corporation will have the right to make other alterations, modifications and
additions to an Aircraft so long as such alterations, modifications or additions
do not materially decrease the value or utility of such Aircraft or impair its
condition or airworthiness below its value, utility, condition and airworthiness
immediately prior to such alteration, modification or additions assuming that
such Aircraft
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was then in the condition and airworthiness required by the related Lease. Also,
in certain circumstances, the Corporation will be permitted to remove parts
(without replacement) from an Aircraft or any engine (and therefore from the
Lien of the applicable Indenture) if the Corporation deems such parts to be
obsolete or no longer suitable or appropriate for use on such Aircraft so long
as such removals do not decrease the utility, condition or airworthiness of such
Aircraft or any such engine, although the value of such Aircraft or any such
engine may be reduced by such removal. See the applicable Prospectus Supplement
for a description of certain limitations, if any, applicable to provisions
described in this paragraph.
INSURANCE. Unless otherwise indicated in the applicable Prospectus
Supplement, the Corporation will be obligated to carry insurance with insurers
of recognized responsibility with respect to each Aircraft at its own cost and
expense, in such amounts, against such risks, with such deductibles or self-
insurance amounts (i) in the case of hull insurance, as the Corporation
customarily maintains with respect to other aircraft in the Corporation's fleet
of the same type and model and operating on the same routes as the respective
Aircraft and (ii) in the case of liability insurance, as is usually carried by
similar corporations engaged in the same or similar business and similarly
situated as the Corporation, owning or operating aircraft similar to the
Aircraft. The Corporation will be permitted to maintain coverage below certain
stipulated values and may be permitted to self-insure in certain circumstances,
subject to certain limits. Therefore, there is no assurance that any insurance
will be carried in the future, or, if it is carried, as to the amount of such
insurance. The Corporation and any permitted sublessee of an Aircraft will be
named as insured parties under all insurance policies required by the related
Lease. The Indenture Trustee, the Owner Trustee and the related Owner
Participant will be named additional insureds, which will afford each of them
the rights but not the obligations of an additional insured. Unless otherwise
specified in the applicable Prospectus Supplement, liability insurance proceeds
will be distributed to the respective parties as their interests may appear and
hull insurance proceeds in excess of certain specified amounts will be
distributed to the related Indenture Trustee. See the applicable Prospectus
Supplement for a description of certain limitations, if any, applicable to
provisions described in this paragraph.
LEASE EVENTS OF DEFAULT; REMEDIES. The applicable Prospectus Supplement
will describe the Lease Events of Default under the related Leases, the remedies
that the Owner Trustee may exercise with respect to the related Aircraft, and
other provisions relating to the occurrence of a Lease Event of Default and the
exercise of remedies.
THE PARTICIPATION AGREEMENTS
The Corporation will be required to indemnify each Indenture Trustee, each
Owner Participant and each Owner Trustee, and certain parties affiliated with
the foregoing (but not including holders of the Equipment Trust Certificates or
the Certificateholders), for certain liabilities, losses, fees and expenses and
for certain other matters arising out of the transactions described herein or
relating to the applicable Aircraft or the use thereof. In addition, under
certain circumstances the Corporation will be required to indemnify such persons
against certain taxes, levies and duties and for certain other matters relating
to such transactions or the applicable Aircraft. Each Owner Participant will be
required to indemnify the holders of the Equipment Trust Certificates issued
with respect to the Aircraft in which such Owner Participant has an interest
under an Owner Trust for certain losses that may be suffered as a result of the
failure of such Owner Participant to discharge certain liens or claims on or
against the assets subject to the Lien of the applicable Indenture. Subject to
certain restrictions, each Owner Participant may convey all of its right, title
and interest relating to any Aircraft. Moreover, if so provided in the
applicable Prospectus Supplement, in certain limited instances the Corporation
may assume an Owner Trust's obligation under the related Equipment Trust
Certificates on a full recourse basis.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Davis Polk & Wardwell, tax counsel to the Corporation, the
following discussion accurately describes the principal United States federal
income tax consequences of ownership and
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disposition of the Pass Through Certificates, and should be read in conjunction
with any additional discussion of federal income tax consequences included in
the applicable Prospectus Supplement. This opinion is based on laws,
regulations, rulings and decisions in effect as of the date hereof. Changes to
existing law, which could have retroactive effect, may alter the consequences
described below. This opinion does not purport to address federal income tax
consequences applicable to particular categories of investors, some of which
(for example, insurance companies and foreign investors) may be subject to
special rules. This summary discusses only Pass Through Certificates held as
capital assets for federal income tax purposes. Persons considering purchasing
interests in Pass Through Certificates should consult their own tax advisors
with regard to the application of the United States federal income tax laws to
their particular situations as well as any tax consequences arising under the
laws of any state, local or foreign jurisdiction. The Pass Through Trusts are
not indemnified for any federal income taxes that may be imposed upon them, and
the imposition of any such taxes on a Pass Through Trust could result in a
reduction in the amounts available for distribution to the Certificateholders of
such Pass Through Trust.
GENERAL
The Pass Through Trusts will not be classified as associations taxable as
corporations, but rather, will be classified as grantor trusts under subpart E,
Part 1 of Subchapter J of the Internal Revenue Code of 1986, as amended (the
"Code"), and each Certificateholder will be treated as the owner of a pro rata
undivided interest in each of the Equipment Trust Certificates and any other
property held in the related Pass Through Trust.
Each Certificateholder will be required to report on its federal income tax
return its pro rata share of the entire income from each of the Equipment Trust
Certificates and any other property held in the related Pass Through Trust in
accordance with such Certificateholder's method of accounting. A
Certificateholder using the cash method of accounting must take into account its
pro rata share of income as and when such income is considered to have been
received by the Pass Through Trustee. A Certificateholder using an accrual
method of accounting must take into account its pro rata share of income as it
accrues or is received by the Pass Through Trustee, whichever is earlier.
A purchaser of an interest in a Pass Through Certificate will be treated as
purchasing an interest in each Equipment Trust Certificate and any other
property in the related Pass Through Trust at a price determined by allocating
the purchase price paid for the Pass Through Certificate among such Equipment
Trust Certificates and other property in proportion to their fair market values
at the time of purchase of the Pass Through Certificate. Unless otherwise
indicated in a Prospectus Supplement, the Corporation anticipates that when all
the Equipment Trust Certificates have been acquired by the related Pass Through
Trust the purchase price paid for a Pass Through Certificate of such Pass
Through Trust by an original purchaser of such Pass Through Certificate should
be allocated among the Equipment Trust Certificates held in such Pass Through
Trust in proportion to their respective principal amounts.
If an Equipment Trust Certificate held by a Pass Through Trust is prepaid, a
Certificateholder will be considered to have sold his pro rata share of that
Equipment Trust Certificate, and will recognize the gain or loss equal to the
difference between its aggregate adjusted basis in the Equipment Trust
Certificate and the amount realized on the sale (except to the extent
attributable to accrued interest, which would be taxable as interest income if
not previously included in income). Subject to the market discount provisions of
the Code (described below), any such gain or loss will be long-term capital gain
or loss if the Equipment Trust Certificate is considered to have been held for
more than one year. Net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income. With respect
to the Equipment Trust Certificates, although the matter is not entirely free
from doubt, an Owner Participant's conveyance of its interest in an Owner Trust
will not constitute a taxable event to the holders of interests in the related
Equipment Trust Certificates. If the Corporation were to assume an Owner Trust's
obligations under the related Equipment Trust Certificates upon a purchase of
the related Aircraft by the Corporation, such assumption would be treated as a
taxable exchange of the respective Equipment Trust Certificates resulting in the
recognition of taxable gain or loss under the rules discussed above. For this
purpose the
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<PAGE>
amount realized will be equal to the fair market value of the
Certificateholder's pro rata share of the respective Equipment Trust
Certificates at such time. However, under proposed Treasury regulations not
currently in effect, the Corporation's assumption of the Owner Trust's
obligations under the circumstances described above would not be treated as a
taxable exchange of the Equipment Trust Certificates. It is impossible to
predict whether or in what form final or temporary regulations might be
promulgated and what the substance or effective date of such regulations might
be.
SALES OR EXCHANGES OF PASS THROUGH CERTIFICATES
A Certificateholder that sells or exchanges a Pass Through Certificate will
be considered to have sold his pro rata portion of the property held by the Pass
Through Trust, and will recognize gain or loss on the basis discussed in the
preceding paragraph.
MARKET DISCOUNT
A purchaser of a Pass Through Certificate generally will be considered to
have acquired an interest in an Equipment Trust Certificate at a "market
discount" to the extent the remaining principal amount of such Equipment Trust
Certificate allocable to the Pass Through Certificate exceeds the
Certificateholder's tax basis allocable to such Equipment Trust Certificate,
unless the excess does not exceed a prescribed DE MINIMIS amount. In the event
such excess exceeds the DE MINIMIS amount, the Certificateholder will be subject
to the market discount rules of Sections 1276 through 1278 of the Code with
regard to its interest in such Equipment Trust Certificate.
In the case of a sale or certain other disposition of indebtedness subject
to the market discount rules, Section 1276 of the Code requires that gain, if
any, from such sale or disposition be treated as ordinary income to the extent
such gain represents a market discount that has accrued during the period such
indebtedness was held. If such indebtedness is disposed of in a nontaxable
transaction (other than a nonrecognition transaction described in Code Section
1276(d)), accrued market discount will be includable as ordinary income as if
the Certificateholder had sold the Equipment Trust Certificate at its then
market value.
In the case of a partial principal payment on indebtedness subject to the
market discount rules, Section 1276 of the Code requires that such payment be
included in gross income as ordinary income to the extent such payment does not
exceed the market discount that has accrued during the period such indebtedness
was held. The amount of any accrued market discount later required to be
included in income upon a disposition or subsequent partial principal payment
will be reduced by the amount of accrued market discount previously included in
income.
Generally, market discount accrues under a straight line method or, at the
election of the taxpayer, a constant interest method. However, in the case of
installment obligations (such as the Equipment Trust Certificates), the manner
in which the market discount is to be accrued has been left to Treasury
regulations not yet promulgated. Until such Treasury regulations are issued, the
explanatory Conference Report to the Tax Reform Act of 1986 (the "Conference
Report") indicates that holders of installment obligations with a market
discount (which do not have original issue discount) may elect to accrue the
market discount either on the basis of a constant interest rate or as follows:
the amount of the market discount that is deemed to accrue is the amount of the
market discount that bears the same ratio to the total amount of the remaining
market discount that the amount of stated interest paid in the accrual period
bears to the total amount of stated interest remaining to be paid on the
installment obligation as of the beginning of such period.
Under Section 1277 of the Code, if in any taxable year interest paid or
accrued on indebtedness incurred or continued to purchase or carry indebtedness
subject to the market discount rules exceeds the interest currently includable
in income with respect to such indebtedness, deduction of the excess interest
must be deferred to the extent of the market discount allocable to the taxable
year. The deferred portion of any interest expense will generally be deductible
when such market discount is included in income upon the sale or other
disposition (including repayment) of the indebtedness.
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<PAGE>
Section 1278 of the Code allows a taxpayer to make an election to include
market discount in his gross income currently. If such election is made, the
rules of Sections 1276 and 1277 (described above) will not apply to the
taxpayer.
PREMIUM
A Certificateholder will be considered to have acquired an interest in an
Equipment Trust Certificate at a premium to the extent such Certificateholder's
tax basis allocable to such Equipment Trust Certificate exceeds the remaining
principal amount of such Equipment Trust Certificate allocable to such
Certificateholder's Pass Through Certificate. In that event, a Certificateholder
that holds such Pass Through Certificate as a capital asset may elect (in
accordance with applicable Code provisions) to amortize such premium as an
offset to interest income under Section 171 of the Code with corresponding
reductions in the Certificateholder's tax basis in such Equipment Trust
Certificate. Generally, such amortization is on a constant yield basis. In the
case of installment obligations (such as the Equipment Trust Certificates),
however, the Conference Report indicates a Congressional intent that
amortization will be in accordance with the same rules that will apply to the
accrual of market discount on installment obligations. See "Market Discount."
Since the Equipment Trust Certificates may be called at a premium prior to
maturity, amortizable premium may be determined by reference to an early call
date. Due to the complexities of the amortizable premium rules, particularly
where there is more than one possible call date and the amount of any premium is
uncertain, Certificateholders are urged to consult their tax advisors as to the
amount of any such amortizable premium.
If a Certificateholder acquires an interest in an Equipment Trust
Certificate at a premium and elects to amortize such premium, and the Internal
Revenue Service successfully challenges the amount of amortization claimed for a
particular period, then such Certificate Owner would be precluded from
offsetting interest income on the Equipment Trust Certificate for such period
with the amount of the disallowed amortization, and the basis of such Equipment
Trust Certificate would be increased accordingly.
ORIGINAL ISSUE DISCOUNT
Under a reasonable interpretation of applicable Treasury regulations on
original issue discount, it is anticipated that the Equipment Trust Certificate
will not be issued with original issue discount.
BACKUP WITHHOLDING
Payments made on the Pass Through Certificates, and proceeds from the sale
or exchange of the Pass Through Certificates to or through certain brokers, may
be subject to a "backup" withholding tax of 31% unless the Certificateholder
complies with certain reporting procedures or is an exempt recipient under the
Code. Any such withholding amounts will be allowed as a credit against the
Certificateholder's federal income tax and may entitle such Certificateholder to
a refund, provided that the required information is furnished to the Internal
Revenue Service.
CERTAIN SOUTH CAROLINA TAXES
The Pass Through Trustee is a national banking association with its
corporate trust office in Columbia, South Carolina. Powell, Goldstein, Frazer &
Murphy, special South Carolina tax counsel for the Pass Through Trustee, has
advised the Corporation that, in its opinion, under currently applicable law,
assuming that each Pass Through Trust will not be classified as an association
taxable as a corporation for federal income tax purposes, but rather, will be
classified as a grantor trust under subpart E, Part I of Subchapter J of the
Code, and assuming that each Pass Through Trust does not otherwise engage in
business in South Carolina, (i) the Pass Through Trusts will not be subject to
any tax (including, without limitation, net or gross income, tangible or
intangible property, net worth, capital, franchise or doing business tax), fee
or other governmental charge under the laws of the State of South Carolina or
any political subdivision thereof and (ii) Certificateholders that are not
residents of or otherwise subject to tax in South Carolina will not be subject
to any tax (including, without limitation, net
25
<PAGE>
or gross income, tangible or intangible property, net worth, capital, franchise
or doing business tax), fee or other governmental charge under the laws of the
State of South Carolina or any political subdivision thereof as a result of
purchasing, owning (including receiving payments with respect to) or selling a
Pass Through Certificate.
Neither the Pass Through Trusts nor the Certificateholders will be
indemnified for any state or local taxes imposed on them, and the imposition of
any such taxes on a Pass Through Trust could result in a reduction in the
amounts available for distribution to the Certificateholders of such Pass
Through Trust.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, Pass
Through Certificates may not be purchased by, or with the assets of, any
employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or individual retirement account or
plan subject to Section 4975 of the Code. Certain governmental plans and
non-electing church plans, however, are not subject to Title I of ERISA or
Section 4975 of the Code and, therefore, may purchase the Pass Through
Certificates.
PLAN OF DISTRIBUTION
The Pass Through Certificates may be sold to or through underwriters,
directly to other purchasers or through agents.
The distribution of the Pass Through Certificates may be effected from time
to time in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices.
In connection with the sale of Pass Through Certificates, underwriters or
agents may receive compensation from the Corporation or from purchasers of Pass
Through Certificates for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters may sell Pass Through Certificates to
or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from
the purchasers for whom they may act as agents. Underwriters, dealers and agents
that participate in the distribution of Pass Through Certificates may be deemed
to be underwriters, and any discounts or commissions received by them from the
Corporation and any profit on the resale of Pass Through Certificates by them
may be deemed to be underwriting discounts and commissions, under the Securities
Act. Any such underwriter or agent will be identified, and any such compensation
received from the Corporation will be described, in the applicable Prospectus
Supplement.
Under agreements which may be entered into by the Corporation, underwriters
and agents who participate in the distribution of Pass Through Certificates may
be entitled to indemnification by the Corporation against certain liabilities,
including liabilities under the Securities Act.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Corporation does not intend to apply for the listing of any Series of Pass
Through Certificates on a national securities exchange. If the Pass Through
Certificates of any Series are sold to or through underwriters, the underwriters
may make a market in such Pass Through Certificates, as permitted by applicable
laws and regulations. No underwriter would be obligated, however, to make a
market in such Pass Through Certificates, and any such market-making could be
discontinued at any time at the sole discretion of the underwriters.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Pass Through Certificates of any Series.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with, and perform services for, the Corporation in
the ordinary course of business.
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<PAGE>
LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplement, the
legality of the Pass Through Certificates offered hereby will be passed upon for
the Corporation by Davis Polk & Wardwell, 450 Lexington Avenue, New York, New
York 10017, and by counsel for any agents, dealers or underwriters
("Underwriters' Counsel"). Unless otherwise indicated in the applicable
Prospectus Supplement, both Davis Polk & Wardwell and Underwriters' Counsel may
rely on the opinion of Powell, Goldstein, Frazer & Murphy, counsel for
NationsBank of South Carolina, individually and as Pass Through Trustee, as to
matters relating to the authorization, execution and delivery of the Pass
Through Agreement and of each Series of Pass Through Certificates by the Pass
Through Trustee, and of Kenneth R. Masterson, Senior Vice President and General
Counsel of the Corporation, as to the Corporation's authorization, execution and
delivery of the Pass Through Agreement. At February 21, 1994, Mr. Masterson
owned 2,500 shares of the Corporation's common stock and held options to
purchase 69,000 shares of such common stock. Of the options granted, 34,400 were
vested at such date.
EXPERTS
The consolidated financial statements and schedules of the Corporation
included or incorporated by reference in the Corporation's Annual Report on Form
10-K for the year ended May 31, 1993 and incorporated by reference herein have
been audited by Arthur Andersen & Co., independent public accountants, as
indicated in their reports with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
With respect to the unaudited interim financial information for the quarters
ended August 31, 1993 and November 30, 1993, included in the Corporation's
Quarterly Reports on Form 10-Q for such periods, which are incorporated by
reference herein, Arthur Andersen & Co. has applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate reports thereon state that they did not audit and they
do not express an opinion on that interim financial information. Accordingly,
the degree of reliance on their reports on that information should be restricted
in light of the limited nature of the review procedures applied. In addition,
the accountants are not subject to the liability provisions of Section 11 of the
Securities Act for their reports on the unaudited interim financial information
because neither of such reports is a "report" or a "part" of the Registration
Statement, of which this Prospectus is a part, prepared or certified by the
accountants within the meaning of Sections 7 and 11 of the Securities Act.
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<PAGE>
Appendix A
A diagram is included following the second
paragraph of "Diagram of Payments." The diagram contains
boxes representing the parties identified in the second
paragraph of "Diagram of Payments," which are connected by
arrows demonstrating the cash flows described in the
paragraph.
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
CORPORATION OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY,
THE PASS THROUGH CERTIFICATES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS OR
IN THE AFFAIRS OF THE CORPORATION SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Summary................................. S-3
Federal Express Corporation........................ S-10
Use of Proceeds.................................... S-10
The Leveraged Lease Transactions................... S-10
Description of the Pass Through Certificates....... S-12
The Pre-Funding Periods............................ S-14
Description of the Equipment Trust Certificates.... S-16
Description of the Letters of Credit............... S-39
Underwriting....................................... S-40
Validity of Pass Through Certificates.............. S-41
Glossary of Certain Terms.......................... A-1
Westdeutsche Landesbank Girozentrale............... B-1
PROSPECTUS
Available Information.............................. 3
Reports to Pass Through Certificateholders......... 3
Incorporation of Certain Documents by Reference.... 3
Federal Express Corporation........................ 4
Ratio of Earnings to Fixed Charges................. 4
Outline of Pass Through Trust Structure............ 4
Use of Proceeds.................................... 5
Diagram of Payments................................ 6
Description of the Pass Through Certificates....... 7
Description of the Equipment Trust Certificates.... 16
Federal Income Tax Consequences.................... 22
Certain South Carolina Taxes....................... 25
ERISA Considerations............................... 26
Plan of Distribution............................... 26
Legal Matters...................................... 27
Experts............................................ 27
</TABLE>
$380,000,000
[LOGO]
$ 1994 PASS THROUGH
CERTIFICATES, SERIES A310-A1
$ 1994 PASS THROUGH
CERTIFICATES, SERIES A310-A2
-----------
PROSPECTUS SUPPLEMENT
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GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MARCH , 1994
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