Rule No. 424(b)(5)
Registration No. 33-56569
PRELIMINARY PROSPECTUS SUPPLEMENT DATED AUGUST 14, 1995
PROSPECTUS SUPPLEMENT
---------------------
(To Prospectus dated August 14, 1995)
$122,816,000
[LOGO]
1995 PASS THROUGH TRUSTS
1995 PASS THROUGH CERTIFICATES, SERIES A1
1995 PASS THROUGH CERTIFICATES, SERIES A2
---------------
The Pass Through Certificates offered hereby consist of Federal
Express Corporation 1995 Pass Through Certificates, Series A1 in the
aggregate amount of $ , , and Federal Express Corporation
1995 Pass Through Certificates, Series A2 in the aggregate amount of
$ , , which will represent fractional undivided interests in
the Federal Express Corporation Pass Through Trust, 1995-A1 and the Federal
Express Corporation Pass Through Trust, 1995-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, National Association (Carolinas), not
in its individual capacity but solely as the Pass Through Trustee under
such Pass Through Trust. (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 Participants,
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.
Pursuant to Rule 429 under the Securities Act of 1933, as amended (the
"Securities Act"), this Prospectus Supplement and the Prospectus are
being used in connection with an offering of Pass Through Certificates
covered by the Corporation's Registration Statement Nos. 33-50013, 33-51623
and 33-56569.
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>
Final Proceeds to
Pass Through Distribution Aggregate Applicable Price to Discounts and the Pass
Certificates Date Amount Interest Rate Public(1) Commissions(2) Through Trustee(1)(2)
------------ ------------ --------- ------------- --------- -------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Series A1...... $ % 100% % 100%
Series A2...... 100% 100%
Total........ $122,816,000 $122,816,000 $ $122,816,000
</TABLE>
------------
(1) Plus accrued interest, if any, at the applicable rate from the date of
issuance of such Pass Through Certificates.
(2) The underwriting commissions, and certain other expenses relating to
the offering estimated at $ , will be paid ratably by the Owner
Participants. 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 Trusts. The Corporation
has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act.
--------------
The Pass Through Certificates are offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to approval of certain legal matters by counsel
for the Underwriters and to certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify the offer and to reject
orders in whole or in part. It is expected that delivery of the Pass
Through Certificates will be made in New York, New York against payment
therefor in immediately available funds on or about August , 1995.
Merrill Lynch & Co. Chase Securities, Inc.
The date of this Prospectus Supplement is August , 1995.
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 PRELIMINARY PROSPECTUS SUPPLEMENT
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 REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
(continued from previous page)
The property of each Pass Through Trust will consist of Equipment
Trust Certificates from each of two separate series of Equipment Trust
Certificates being issued by the Owner Trustee for each of two separate
Owner Trusts to refund all of the outstanding loan certificates issued in
connection with the purchase by the Owner Trustee for each such Owner Trust
of one of two Airbus A300F4-605R aircraft (each, and collectively, the
"Aircraft"). Each Aircraft was leased to the Corporation by the Owner
Trustee at the time of such purchase. For each of the Aircraft, two
Equipment Trust Certificates, each of which 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 each separate Owner
Trust, and will be purchased from the Owner Trustee by the Pass Through
Trustee.
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. Although the Equipment
Trust Certificates will not be obligations of, or guaranteed by, the
Corporation, the amounts payable by the Corporation under the Lease for
each Aircraft will be sufficient to pay in full when due all principal of
and interest on the related Equipment Trust Certificates.
Interest paid on the Equipment Trust Certificates held in each Pass
Through Trust will be passed through to the related Certificateholders on
each January 5 and July 5, commencing on January 5, 1996, at the rate per
annum set forth on the cover of this Prospectus Supplement 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 January 5 or July 5, or both, of
each year, commencing on , , for the Series A1 Pass Through
Certificates, and commencing on , , for the Series A2
Pass Through Certificates, until the final distribution date for such Pass
Through Trust.
Prior to the maturity thereof, the Equipment Trust Certificates
relating to any Aircraft may be purchased at the direction of the related
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.
PROSPECTUS SUMMARY
The following is a summary of more detailed information contained
elsewhere in this Prospectus Supplement and the accompanying Prospectus and
should be read only in conjunction with this Prospectus Supplement and the
Prospectus.
The Offering
Glossary............... A glossary of certain of the significant defined
terms used in this Prospectus Supplement is
included as an Appendix at the end of this
Prospectus Supplement.
Diagram of Payments.... A diagram of payments illustrating
certain of the payment flows in the Pass Through
Trust structure for Aircraft leased by the
Corporation appears on page 7 of the Prospectus.
The Offering........... The Pass Through Certificates offered hereby
consist of Federal Express Corporation 1995 Pass
Through Certificates, Series A1 (the "Series A1
Pass Through Certificates") in the aggregate amount
of $ , , and Federal Express Corporation 1995 Pass
Through Certificates, Series A2 (the "Series 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 A1 Pass Through Certificates and the
Series A2 Pass Through Certificates will be issued
by Federal Express Corporation Pass Through Trust,
1995-A1, and Federal Express Corporation Pass
Through Trust, 1995-A2, respectively (each a "Pass
Through Trust"), to be formed pursuant to the Pass
Through Trust Agreement dated as of February 1,
1993 (the "Pass Through Agreement") and Series
Supplement 1995-A1 or Series Supplement 1995-A2
(each a "Series Supplement"), as the case may be,
in each case between the Corporation and
NationsBank, National Association (Carolinas)
(formerly known as NationsBank of South Carolina,
National Association), 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 one of two separate series of
Equipment Trust Certificates being issued as
nonrecourse obligations by the Owner Trustee in
connection with the refunding of the debt portion
of the purchase price paid by the Owner Trustee on
behalf of each of two separate Owner Trusts,
respectively, for two Airbus A300F4-605R Aircraft,
which were leased to the Corporation in two
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 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................ January 5 and July 5, commencing on January 5, 1996.
Special Distribution
Dates................ The fifth 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........... December 21 and June 20 for the January 5 and
July 5 Regular Distribution Dates, respectively,
and for any Special Distribution Date, the
fifteenth day preceding such Special Distribution
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 January 5 and July 5, commencing on
January 5, 1996, 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 January 5 or July 5, or both,
of each year, commencing on , , in the
case of the Pass Through Trust relating to the
Series A1 Pass Through Certificates, and commencing
on , , in the case of the Pass
Through Trust relating to the Series 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 an Event of
Loss 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 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:
Prepayment or
Purchase with
Premium............... The Equipment Trust Certificates for each Aircraft
shall be prepaid in whole, but not in part, (i) at
any time after , in connection with a refinancing
of such Equipment Trust Certificates at the
Corporation's election or (ii) on any scheduled
rent payment date under the related Lease after
November 2, 2000, in the case of one Lease, and
July 5, 2002, in the case of the other Lease, in
connection with a voluntary termination of such
Lease because such Aircraft has become obsolete or
surplus to the Corporation's needs, in each case 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 payable prior
to the dates set forth below (each, a "Premium
Termination Date") and 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 addition, the Equipment Trust Certificates
relating to any Aircraft will be subject to
prepayment or purchase at the direction of the
related 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, prior to the
relevant Premium Termination Date, (i) a Lease
Event of Default under the related Lease has
occurred and has continued for not more than 180
days and (ii) such Equipment Trust Certificates
have not been accelerated.
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 prior to the relevant Premium Termination
Date relating to the purchase of the Aircraft under
certain circumstances.
Premium
Termination
Trust Date
----- -----------
1995-A1..............................
1995-A2..............................
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, 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, but without premium, upon
the occurrence of an Event of Loss with respect to
such Aircraft if such Aircraft is not replaced by
the Corporation under the related Indenture.
In addition, the Equipment Trust Certificates
relating to any Aircraft will be subject to
prepayment or purchase at the direction of the
related 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 for more than 180 days or (ii) such
Equipment Trust Certificates have been accelerated.
Equipment Trust
Certificates:
Security For each Aircraft, 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 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,
subject to certain exceptions, payable by the
Corporation in respect of such Aircraft. 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 related 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 the other Aircraft
or the Lease related 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 occurring under
the other Indenture. If the Equipment Trust
Certificates issued in respect of one or the other
Aircraft are in default, the Equipment Trust
Certificates issued in respect of the 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 and "Description of
Equipment Trust Certificates Indenture Events of
Default, Notice and Waiver" in this Prospectus
Supplement.
Although the Equipment Trust Certificates will not
be obligations of, or guaranteed by, the
Corporation, the amounts payable by the Corporation
under the Lease for each Aircraft will be
sufficient to pay in full when due all principal of
and interest on the related Equipment Trust
Certificates.
The Pass Through
Trustee; the
Indenture Trustee.... NationsBank, National Association (Carolinas) will
be the Pass Through Trustee for each Pass Through
Trust. NationsBank of Georgia, National
Association ("NationsBank of Georgia"), an
affiliate of NationsBank, National Association
(Carolinas) 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.
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 Participants, 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.
FEDERAL EXPRESS CORPORATION
The Corporation offers a wide range of express services for the
time-definite transportation of documents, packages and freight 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
All of 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 amended and restated trust indenture and
security agreement between NationsBank of Georgia, not in its individual
capacity but solely as the indenture trustee (the "Indenture Trustee"),
and the Owner Trustee (each, an "Indenture").
For each Aircraft, the proceeds from the sale of the related Equipment
Trust Certificates will be used by the Owner Trustee to refund the
aggregate outstanding principal amount of the loan certificates of the
related Owner Trust issued under the Indenture as originally executed in
connection with the leveraged lease transaction relating to such Aircraft.
The aggregate principal amount of such original loan certificates is
$61,525,575 and $61,289,442 for each of the two Aircraft. Each such
original loan certificate bears interest at a floating rate determined from
time to time by reference to London interbank offered rates, the federal
funds rate or the prime rate and has a maturity date of January 5, 2016 or
January 5, 2015, as the case may be.
The aggregate principal amount of the Equipment Trust Certificates
related to each Aircraft will not exceed 80% of the purchase price paid for
such Aircraft by the Owner Trustee, and the owner participant named in the
related Trust Agreement (each, an "Owner Participant") will have
provided, from sources other than the related Equipment Trust Certificates,
at least 20% of the purchase price paid by the Owner Trustee for such
Aircraft. The underwriting commissions and certain other expenses relating
to the offering of the Pass Through Certificates will be paid ratably by
the Owner Participants as set forth on the cover of this Prospectus
Supplement.
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 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 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, 1995-A1, and Federal Express
Corporation Pass Through Trust, 1995-A2, to be formed pursuant to the Pass
Through Agreement and Series Supplement 1995-A1 or Series Supplement 1995-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, the scheduled
repayments of principal, the 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 January
5 and July 5. 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 January 5 and July 5, commencing on January 5,
1996, 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
January 5 or July 5, or both, of each year, commencing on , , in the case
of the Pass Through Trust relating to the Series A1 Pass Through
Certificates, and commencing on , , in the case of the Pass Through Trust
relating to the Series 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 December 21 and June 20. 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 fifth 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 an Event of Loss with respect to the related
Aircraft or a refinancing of the related Equipment Trust Certificates. The
record date for any Special Distribution Date will be the fifteenth 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 the payment of any Equipment Trust Certificates shall occur, the
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 such repayment,
are set forth below:
<TABLE>
<CAPTION>
Pass Through Trust, 1995-A1 Pass Through Trust, 1995-A2
------------------------------------------------- -------------------------------------
Scheduled Scheduled
Principal Principal
Regular Payments on Payments on
Distribution Equipment Trust Equipment Trust
Date Certificates Pool Factor Certificates Pool Factor
------------ ---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
$ 0. $ 0.
</TABLE>
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 Agreements 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 posteffective 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 and the
Participation Agreements 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:
Pass Through Trust Pass Through Trust
1995-A1 1995-A2
Aircraft % Equipment % Equipment Total Per
Designation Trust Certificates Trust Certificates Aircraft
----------- ------------------- -------------------- ---------
1. Federal Express
Corporation
Trust No. N658FE.... $ $ $
2. Federal Express
Corporation
Trust No. N659FE.... $ $ $
------------------ ------------------ ---------
Total............... $ $ $
================== ================== =========
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 January 5 and July 5,
commencing on January 5, 1996, 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% 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
January 5 or July 5, or both, of each year, commencing on , , in the case
of Equipment Trust Certificates held in the Pass Through Trust relating to
the Series A1 Pass Through Certificates, and commencing on , , in the case
of Equipment Trust Certificates held in the Pass Through Trust relating to
the Series 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.
Pass Through Trust, 1995-A1
% Equipment Trust Certificates
Regular
Distribution Aircraft Aircraft Aggregate
Date No.1 No.2 Total
------------ -------- -------- ---------
$ $ $
-------- -------- ---------
Total......................... $ $ $
======== ======== =========
Pass Through Trust, 1995-A2
% Equipment Trust Certificates
Regular
Distribution Aircraft Aircraft Aggregate
Date No.1 No.2 Total
------------ -------- -------- ---------
$ $ $
-------- -------- ---------
Total......................... $ $ $
======== ======== =========
The mandatory sinking fund redemptions will retire the full principal
amount of the Equipment Trust Certificates issued under each Indenture.
(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 shall be paid on the next succeeding Business Day without additional
interest. (Indentures, Section 3.01)
Prepayment
Prepayment with Premium. For any Aircraft, the related Equipment
Trust Certificates shall be prepaid in whole, but not in part, (i) at any
time after , in connection with a refinancing of such Equipment Trust
Certificates at the Corporation's election or (ii) on any scheduled rent
payment date under the related Lease after November 2, 2000, in the case of
one Lease, and July 5, 2002, in the case of the other Lease, 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; Participation Agreements, Section 15.01) (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 if such prepayment is made prior to ,
, in the case of Equipment Trust Certificates held in the Series 1995-A1
Trust and , , in the case of Equipment Trust Certificates held in the
Series 1995-A2 Trust (each such date, a "Premium Termination Date") 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"). (Indentures, Section 6.02)
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 remaining payments of principal 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. (Indentures, Article I) 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 or Lease. (Indentures, Section 6.02)
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 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, the Treasury Yield will be determined by the
Independent Investment Banker based on the average of the yields to stated
maturity determined from the bid prices as of 10:00 a.m. and 2:00 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 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)
If (i) a Lease Event of Default under the Lease relating to any
Aircraft has occurred and has continued for not more than 180 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 related Owner Participant on
the fifth 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, if prior to the relevant Premium Termination
Date, 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 under the related Indenture, Participation Agreement or
Lease. (Indentures, Article VI and Section 8.02)
Prepayment without Premium. For any Aircraft, the related Equipment
Trust Certificates will be subject to prepayment in whole, but not in part,
if an Event of Loss occurs to such Aircraft unless a replacement aircraft
has been substituted for the Aircraft. See "The Leases Events of Loss"
below. 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 Lease relating to any
Aircraft has occurred and has continued for more than 180 days or (ii) the
Equipment Trust Certificates issued under the related Indenture have become
due and payable pursuant to the remedies provisions of such Indenture, then
such Equipment Trust Certificates will be subject to prepayment or
purchase, in whole but not in part, at the direction of the related Owner
Participant on the fifth day of any month 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 the Indenture Trustee
under the related Indenture, Participation Agreement or Lease, but without
Make-Whole Premium. (Indentures, Article VI and Section 8.02)
Investment of Funds
Funds, if any, held from time to time by the Indenture Trustee with
respect to any Aircraft will be invested, except under certain
circumstances, upon the written instructions of the Corporation 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-1/P-1 by Standard & Poor's
Ratings Group 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) any Lease Event of Default under the Lease related to
such Indenture (other than a Lease Event of Default arising
solely as a result of the failure to make certain payments
to the related Owner Participant or the Owner Trustee which
are excluded from the Lien of the related Indenture which
will constitute an Indenture Event of Default under any
such Indenture upon notification by the related Owner
Participant) (see "The Leases Lease Events of Default"
below);
(b) any failure by the Owner Trustee other than by reason
of a Lease Event of Default or a default under the related
Lease (i) to pay principal, interest or Make-Whole Premium,
if any, with respect to any related Equipment Trust
Certificates when due, continued for 10 Business Days or
(ii) to pay any other amounts when due under such Indenture
or the Equipment Trust Certificates issued thereunder
continued for 30 days after demand for such payment is
given to the Owner Trustee and the Owner Participant by the
Indenture Trustee or by holders of not less than 25% in
aggregate principal amount of related outstanding Equipment
Trust Certificates;
(c) any representation or warranty made by First Security
Bank of Utah, National Association, the Owner Trustee, the
related Owner Participant or any related Guarantor or Owner
Trustee guarantor, in specified articles of the related
Participation Agreement, Lease or Guaranty, if any, in any
document or certificate furnished by any of the foregoing
to the Indenture Trustee or any holder of the related
Equipment Trust Certificates, proves to have been incorrect
when made and was and remains in any respect material to
the holders of the related Equipment Trust Certificates,
and such misrepresentation is not corrected within 30 days
after notice of such failure is given to the parties
designated to receive such notice in connection with the
applicable failure by the Indenture Trustee or by holders
holding a specified percentage of the aggregate principal
amount of related outstanding Equipment Trust Certificates;
(d) any failure by First Security Bank of Utah, National
Association, the Owner Trustee or the related Owner
Participant, or any related Guarantor or Owner Trustee
guarantor (i) to observe specified covenants in such
Indenture or the related Participation Agreement or (ii) to
observe any other covenant made by such party in such
Indenture, the related Participation Agreement, Trust
Agreement, any Guaranty and any Owner Trustee guaranty, as
the case may be, continued for a period of 30 days (or, in
certain instances under one Indenture, 120 days if such
covenant is capable of cure) after notice of such failure
is given to the parties designated to receive such notice
in connection with the applicable failure by the Indenture
Trustee or by the holders of not less than 25% in aggregate
principal amount of related outstanding Equipment Trust
Certificates;
(e) the occurrence of certain specified events of
bankruptcy, insolvency or reorganization of the Owner
Trustee or any Owner Trustee guarantor or the related Owner
Participant, Owner Trust or Guarantor, if any; or
(f) any Guaranty or Owner Trustee guaranty ceases to be a
valid and enforceable obligation of the Guarantor or Owner
Trustee guarantor, respectively, or to be in full force and
effect. (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
related Owner Participant may, subject to certain limitations, exercise
certain rights under such Lease, including the right to adjust scheduled
rental payments and the percentages relating to stipulated loss value and
termination value. (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 Indenture.
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) on or prior to the
date 15 Business Days after such Lease Event of Default then (i) the
failure of the Corporation to make such payment shall not constitute an
Indenture Event of Default under such Indenture and (ii) any declaration
based solely thereon shall be deemed to be automatically rescinded. The
related 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. (Indentures, Section 8.03(a))
If 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, and the Owner Trustee cures such Lease Event of
Default prior to the date 15 Business Days after such Lease Event of
Default then (i) 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 (ii) any
declaration based solely thereon will be deemed to be automatically
rescinded. (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. Under no circumstances, however, may the Indenture Trustee
give such notice until the expiration of a period of 60 days from the
occurrence of such default. 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
interests 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 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 related Owner Participant, the
Owner Trustee and the Indenture Trustee promptly upon any responsible
officer of the Corporation obtaining actual knowledge of any default under
the related Lease and 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 6.03(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 and remedies 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, and any other right
or remedy available to it under applicable law. (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 related
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 redemption provided by law), including, if exercised in
connection with a Lease Event of Default, 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,
including the Corporation's right to quiet enjoyment of the Aircraft,
unless a Lease Event of Default under such Lease has occurred and is
continuing. The Indenture Trustee may not sell any part of the related
trust estate under any such Indenture unless the related Equipment Trust
Certificates have been accelerated. The Indenture Trustee is required to
give the Owner Trustee notice of intent to foreclose the Lien of the
related Indenture at the earlier of the commencement of any such proceeding
or 30 days prior to consummation of such foreclosure. (Indentures, Article
7 and Section 15.05)
Notwithstanding the rights and powers of the Indenture Trustee
described above, if an Indenture Event of Default has occurred and is
continuing unremedied thereunder and the Indenture Trustee proceeds to
foreclose the Lien of such Indenture, the Indenture Trustee must,
concurrently with such foreclosure, to the extent the Indenture Trustee is
then entitled to do so under such Indenture and under the related Lease and
is not then stayed or otherwise prevented by law from doing so, proceed (to
the extent it has not already done so) to declare such Lease in default and
commence the exercise in good faith of one or more of certain significant
remedies under such Lease (as the Indenture Trustee determines in its sole
discretion). If the Indenture Trustee is unable to exercise one or more
such remedies under such Lease because of any stay or operation of law,
then the Indenture Trustee may not foreclose the Lien of the related
Indenture (A) if the Corporation has agreed to perform or assume such Lease
and no Lease Event of Default is continuing (other than the occurrence of
certain events of bankruptcy, reorganization or insolvency of the
Corporation or similar events) or (B) until the earlier of (i) actual
repossession of the related Aircraft by the Indenture Trustee and (ii) 60
days from the date of any such stay or other applicable order under Section
1110 of the Bankruptcy Code including any extension of such period
permitted under Section 1110 consented to by the Indenture Trustee or the
holders. (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 related Owner Participant, Owner Trust or Guarantor
or Owner Trustee guarantor (if any), 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 the 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 thereunder and under such
Indenture, by written notice or notices to the Owner Trustee and the
Corporation. The holders of not less than 50% in aggregate principal
amount of the outstanding Equipment Trust Certificates may rescind any such
declaration by the Indenture Trustee or by such holders at any time prior
to the sale or disposition of the property subject to the Lien of the
Indenture if (i) there has been paid to or deposited with the Indenture
Trustee an amount sufficient to pay all overdue installments of interest on
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 non-payment 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 related 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 of the related Owner Trust 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 the Indenture Trustee under the related 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. (Indentures, Sections 6.04
and 8.02) 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 the 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 is continuing, 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 Equipment Trust
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
security interests with respect to aircraft capable of carrying 10 or more
individuals or 6,000 pounds or more of cargo used by air carriers operating
under certificates issued by the Secretary of Transportation under Chapter
447 of the Transportation Code to take possession of such aircraft in
compliance with provisions of the lease, conditional sale contract or
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 against a
debtor by a creditor;
(ii) the provision of the Bankruptcy Code allowing the
trustee in reorganization or the debtor-in-possession to
use, sell or lease property of the debtor;
(iii) the confirmation of a plan by the bankruptcy court;
and
(iv) 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 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 or the debtor-in-possession 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, the provisions of Section 1110 of the Bankruptcy Code will be
applicable to such Aircraft for the benefit of the Indenture Trustee.
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,
Participation Agreement and 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 (including provisions
relating to maintenance, operation, subleasing and possession of the
Aircraft), the Participation Agreements and the Trust Agreements may be
amended or modified without the consent 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
related Owner Participant in favor of such holder;
(iii) reduce the amount of any rental payment payable by
the Corporation below the amount required to pay all
principal of, premium, if any, and interest on all such
Equipment Trust Certificates as and when due 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
under, or as provided in, such Lease upon the termination
of the Lease 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 and 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 its 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 holder 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. Each of the Aircraft was delivered new by the manufacturer
and leased by the Corporation from the Owner Trustee in 1995. As of August
10, 1995, the Corporation operated ten Airbus A300F4-605R aircraft under
lease (including the Aircraft).
Terms and Rentals. Each Aircraft has been leased separately by the
Owner Trustee to the Corporation for a term commencing on the date of the
delivery of the related Aircraft to the Owner Trustee 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
January 5 and July 5, and have been 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 the Owner Trustee on
the Equipment Trust Certificates issued under such Indenture. (Leases,
Article 3; Indentures, Granting Clause and Section 3.01)
Under no circumstances will the scheduled rental payments that the
Corporation is unconditionally obligated to make or cause to be made under
any Lease on the related payment dates be less than the aggregate amount of
principal and interest payable on such dates on the Equipment Trust
Certificates issued under the Indenture relating to such Lease. (Leases,
Sections 3.01 and 3.05) 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 under each Lease in respect
of each of the related Aircraft are those of a lessee under a "net
lease." Accordingly, the Corporation is 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 Transportation Code or,
under certain circumstances, under the applicable requirements of the
aeronautics authority of another country of registry of the Aircraft
(permitted after December 31, 2002) (see "Description of the Equipment
Certificates Registration of the Aircraft" in the Prospectus). (Leases,
Section 20.01)
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
Aeronautics Authority 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 reasonable manner that does not involve any material risk of civil
liabilities (unless indemnified against by the Corporation) or any risk of
criminal penalties being imposed on or against the Indenture Trustee, the
related Owner Participant or the Owner Trustee or any material risk or
danger of loss, forfeiture or sale of an Aircraft, and that does not
adversely affect the Owner Trustee, its title or interest in such Aircraft,
the Lien of the related Indenture, or the interests of the Indenture
Trustee or the related Owner Participant in such Aircraft or any related
Operative Agreement. (Leases, Section 9.01)
The Corporation may make other alterations, modifications and
additions to any Aircraft so long as such alterations, modifications or
additions, individually or in the aggregate, do not, among other things,
diminish the value, remaining useful life (in the case of the Airframe
only) or utility of such Aircraft, or the value and utility of any Engine,
or impair its condition or airworthiness below its value, remaining 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 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 remaining useful life, utility, condition or
airworthiness of such Aircraft. Although the value of such Aircraft may be
reduced by such removal, the aggregate value of all such obsolete parts so
removed and not replaced may not exceed $500,000. (Leases, Section 9.02)
Subleasing and Possession. In certain circumstances, the Corporation
is permitted to sublease any Aircraft or any Engine at any time to (i)
certain United States air carriers or (ii) (x) certain air carriers
principally based in and domiciled in certain specified foreign countries
(the "Specified Jurisdiction Carriers") and in countries that are parties
to the convention on the International Recognition of Rights in Aircraft
(the "Convention Carriers"), provided that, at the time of any such
sublease the United States maintains full diplomatic relations with such
country or (y) to any other air carrier that is reasonably acceptable to
the Owner Trustee as evidenced by its prior written consent. 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 written consent of
the Owner Trustee except as provided in such Lease. Any such sublease will
be subject and subordinate to the related Lease, 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 and no sublease
will be assigned to the Owner Trustee (and, therefore, to the Indenture
Trustee). (Leases, Section 7.02; Indentures, Granting Clause) While the
Corporation is required, in the case of a sublease to a Convention Carrier
to provide certain assurances relating to, among other things, maintenance
standards, local law and governmental approvals, as well as assurances
intended to provide that the Owner Trustee's title to the Aircraft and the
Indenture Trustee's Lien thereon will be recognized in the jurisdiction of
the subleasee, no such assurances are required in the case of a sublease to
a Specified Jurisdiction Carrier. Moreover, even in the case of subleases
to certain Convention Carriers, there is no guarantee that as a practical
matter the Indenture Trustee would be able to realize upon its security
interest in the case of an Indenture Event of Default.
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
"CRAF Program"). The Corporation expects that the Aircraft will be
enrolled in one or more stages of the CRAF Program. The Corporation may
also 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 by the Corporation
free of any Liens, other than the respective rights of the related 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 material danger of
the sale, forfeiture or loss of the trust estate of the
Owner Trustee, the Aircraft or any interest therein or any
material risk of civil liabilities (unless indemnified
against by the Corporation) or any risk of the assertion of
criminal charges against the Owner Trustee, the related
Owner Participant, the Indenture Trustee or the holder of
any Equipment Certificate;
(ii) materialmen's, mechanic's, 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 material
danger of the sale, forfeiture or loss of the trust estate
of the Owner Trustee, the Aircraft or any interest therein;
and
(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
material danger of the sale, forfeiture or loss of the
trust estate of the Owner Trustee, the Aircraft or any
interest therein. (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.
Each Lease provides that the Corporation may self-insure with respect to
comprehensive airline liability insurance and allrisk 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 selfinsurance
with respect to all aircraft in the Corporation's fleet, however, may not
in aggregate exceed for any 12- month policy 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, in the case of one Lease, and the aggregate insured value, in the
case of the other Lease, from time to time of the Corporation's entire
aircraft fleet. A standard deductible per occurrence per aircraft, as is
customary in the industry, is permitted in addition to such self-insurance.
The Corporation has agreed to not discriminate 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, Article 13)
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 or (ii) in
the case of one Lease, in any war zone or, in the Corporation's reasonable
judgment, area of recognized hostilities, unless 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 unless the Aircraft is only temporarily located in such area
as a result of an isolated occurrence attributable to a hijacking, medical
emergency, equipment malfunction, weather conditions, navigational error or
other similar unforeseen circumstances and the Corporation is using good
faith efforts to remove the Aircraft from such area; provided that the
Corporation need procure war risk insurance only if such insurance is
available on commercially reasonable terms and it is customary for major
international air carriers flying comparable routes to carry such
insurance. If any such Aircraft is requisitioned for use by the United
States government, such Aircraft may be flown or located in an area
described in the preceding sentence without such indemnification or
insurance in lieu of such indemnification from the United States government
if the Corporation certifies that such insurance is unobtainable after
diligent effort or is obtainable only at unreasonably high rates or on
unduly burdensome terms and conditions. (Leases, Sections 7.01(f) and
13.01(a))
Termination. So long as no Lease Event of Default, payment default or
bankruptcy default under the related Lease for one Aircraft and no Lease
Event of Default under the related Lease for the other Aircraft shall have
occurred and be continuing, the Corporation may on any scheduled rent
payment date under such Lease on or after November 2, 2000 (the earliest
date under either Lease), on at least 90 days' (the shortest period under
either Lease) prior written notice to the Owner Trustee and the related
Owner Participant terminate such Lease if a designated officer of the
Corporation certifies to the Owner Trustee, such Owner Participant and the
Indenture Trustee that the related Aircraft has become obsolete or surplus
to the Corporation's operations. 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 related 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 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, Section 10.01)
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) plus Make-Whole Premium, if any. The proceeds of the 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.
(Leases, Section 10.01; Indentures, Section 6.02) (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 related 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. (Leases, Article 10; Indentures,
Sections 6.02 and 14.01)
After receiving a termination notice from the Corporation, the Owner
Trustee may elect to retain title to the Aircraft. It is an absolute
condition to the Owner Trustee's right to retain title that the holders of
the related Equipment Trust Certificates receive the aggregate principal
amount of such Equipment Trust Certificates together with accrued but
unpaid interest thereon, Make-Whole Premium, if any, and any other sums due
and payable to the Indenture Trustee or such holders under the related
Lease, Indenture or Participation Agreement. Unless the related Owner
Trustee elects to retain the Aircraft or a cash bid is received that the
Corporation may not reject in connection with the sale, the Corporation, in
the case of one Lease, on no more than two occasions, may revoke its notice
of termination with respect to such Aircraft not less than ten days prior
to the proposed termination date. (Leases, Article 10)
The Corporation may, at any time upon 30 days' prior notice,
substitute for any Engine not then installed or held for use on the related
Aircraft another engine of the same make and model (or, under certain
circumstances, engines of another manufacturer) 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 and any replacement engine of a
different manufacturer than the original Engines on such Aircraft must then
be commonly used in the commercial aviation industry on A300-600 airframes.
(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) on the
scheduled rent payment date occurring on or about January 5, 2011 or 2014,
in the case of one Lease, and on or about January 5, 2010 or 2012 in the
case of the other Lease, (ii) under certain circumstances, on a scheduled
rent payment date, if the Corporation is required at any time on or after
January 5, 2001 (the earliest date under either Lease) to make non-severable
improvements to such Aircraft in excess of a certain designated
amount, (iii) under certain circumstances, on a scheduled rent payment
date, if the Corporation would be required at any time on or after January
5, 2001 (the earliest date under either Lease) 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 or (iv) on the scheduled rent payment date
occurring on or about January 5, 2016 for one Lease and July 5, 2014 for
the other Lease for a fixed purchase price. 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 to
the Owner Trustee funds at least sufficient to pay any principal of, if
any, and interest and, if prior to the related Premium Termination Date,
Make-Whole Premium on, such Equipment Trust Certificates or (y) to assume
the obligations of the Owner Trustee under such Equipment Trust
Certificates, the related Indenture and the related Participation
Agreement.
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 holders of such Equipment Trust Certificates the
security interest in such Aircraft created by the related Indenture. Upon
payment to the Owner Trustee of the full purchase price for the Aircraft
being purchased determined in accordance with the related 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 will terminate.
See "Federal Income Tax Consequences General" in the Prospectus.
(Leases, Section 4.02; Participation Agreements, Section 7.11)
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, within 60 days of the
occurrence of such Event of Loss, to elect either (i) 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 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 or (ii) so long as no Lease Event of Default or payment default
or bankruptcy default under the related Lease shall have occurred and be
continuing, to replace the Aircraft. The Corporation's failure to make
such election within the 60-day period shall be deemed to be an election of
the alternative set forth in clause (i) above.
If the Corporation elects not to replace the Aircraft, the Corporation
must pay the amount described in clause (i) above on the earlier of (x) the
10th Business Day (the longest period under either Lease) following receipt
in full of insurance proceeds or requisition proceeds in connection with
such Event of Loss and (y) the 120th day following the occurrence of the
Event of Loss. If the Corporation elects to replace the Aircraft, it must
do so within 120 days from the date of the Event of Loss with (x) an Airbus
A300-600 airframe, in the case of one Lease manufactured after October 22,
1994, and in the case of the other Lease, manufactured no earlier than
1994, duly certified as an airworthy airframe by the Aeronautics Authority
and having a value, remaining useful life and utility at least equal to,
and being in as good operating condition as, the Airframe with respect to
which such Event of Loss occurred, assuming that the Airframe was in the
condition and airworthiness required to be maintained by the terms of the
related Lease immediately prior to the occurrence of such Event of Loss and
(y) a number of engines equal to the number of Engines with respect to
which the Event of Loss has occurred and meeting the requirements for
replacement Engines described below.
If the Corporation elects to replace the Aircraft but fails to do so
within 120 days from the Event of Loss, the Corporation must provide as
security to the Indenture Trustee (as assignee of the Owner Trustee) funds
in an amount equal to any deficiency between the stipulated loss value
applicable upon the occurrence of such Event of Loss and any amount held by
the Indenture Trustee with respect to such Event of Loss. If the
Corporation fails to effect the elected replacement within 180 days after
the occurrence of such Event of Loss, the Corporation will be deemed to
have elected not to replace the Aircraft and must immediately pay the
balance of the amount described in clause (i) of the first sentence of the
first paragraph of this subsection, including any other amounts owed by the
Corporation to the Owner Trustee or the related Owner Participant under the
related Lease or Participation Agreement. Such payments 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. (Leases, 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 (or, under certain
circumstances, engines of another manufacturer), in the case of one Lease,
manufactured after October 22, 1994 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 and, in the case of one Lease, any replacement
engine of a different manufacturer than the original Engines on such
Aircraft must then be commonly used in the commercial aviation industry on
A300-600 airframes. (Leases, Section 11.04)
An "Event of Loss" with respect to an Aircraft or Engine includes
any of the following events:
(a) loss of such property or its use (i) for a period in
excess of 60 days (the longest period under either Lease)
due to theft or disappearance (provided that, under both of
the Leases, the specified periods may be extended up to an
additional 180 days (the longest period under either Lease)
if and as long as the location of such property is known to
the Corporation and the Corporation is diligently pursuing
recovery of such property) 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 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;
(d) as a result of any law, rule, regulation, order or
other action by the Aeronautics Authority or other
governmental body having jurisdiction, the use of the
Aircraft or related airframe in the normal course of air
transportation of cargo shall have been prohibited by
virtue of a condition affecting all A300F-600 series
aircraft equipped with engines of the same make and model
as the Engines, and such loss of use shall continue for
certain specified periods which could extend for up to 12
months (the longest period under either Lease) or, under
certain circumstances such longer period not exceeding 24
months (the longest period under either Lease) during which
the Corporation shall be diligently carrying forward all
steps necessary or desirable to permit the normal use of
such 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.
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.
The Owner Trustee may elect, within 30 days after the date upon which
an Event of Loss described in clause (a)(i), (c) or (d) of the first
sentence of this paragraph is deemed to have occurred, to waive such Event
of Loss and the consequences thereof. (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 ten Business Days after the
date when due (except that failure to make certain payments
to the related Owner Participant or the Owner Trustee which
are excluded from the Lien of the related Indenture will
constitute a Lease Event of Default under such Lease at the
discretion of such Owner Participant);
(b) failure by the Corporation to pay any other amount
under such Lease or the related Participation Agreement or
any other Operative Agreement within 30 days (the longest
period under either Lease) 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 related Owner Participant or the
Owner Trustee which are excluded from the Lien of the
related Indenture will constitute a Lease Event of Default
under such Lease at the discretion of such 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 (the longest period
under any such Lease) (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, for any Lease, such failure
shall not constitute a Lease Event of Default as long as
the Aircraft is insured as required while on the ground and
not operated or (ii) the related Aircraft is operated at
any time when comprehensive airline 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 or in
certain agreements entered into in connection with the
transactions contemplated therein, continued unremedied for
a period of 30 days after the date on which the Corporation
has received written notice of such failure from the Owner
Trustee or the related Owner Participant or, in the case of
one Lease, if earlier, the date on which a responsible
officer of the Corporation has actual knowledge of the
failure, provided that 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 180 days after the earlier of a
responsible officer's actual knowledge or such notice, and
provided further that failure by the Corporation to perform
its covenant to maintain the registration of the related
Aircraft under the Transportation Code solely because the
Owner Trustee or related Owner Participant has ceased to be
a citizen of the United States will not constitute a Lease
default or Lease Event of 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 in
certain agreements 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 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.
Remedies. 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 related 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 due but 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 fair market value of such
Aircraft or (ii) if such Aircraft has been sold, the net sale proceeds.
(Leases, Section 17.01; Indentures, Section 7.02)
The Participation Agreements
Under each Participation Agreement, the Corporation is required to
indemnify the Indenture Trustee, each Owner Participant and the Owner
Trustee, and certain parties affiliated with the foregoing (but not
including the 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 is obligated to indemnify such
persons against certain taxes, levies, duties, withholdings and for certain
other matters relating to such transactions or the applicable Aircraft.
Each Owner Participant is obligated to indemnify the Indenture Trustee and
the Pass Through Trustee 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. (Participation Agreements, Section 7.03(c) and Articles 8 and
9) The payment and performance obligations of the Owner Participant
relating to one of the Aircraft have been guaranteed by an entity
affiliated with such Owner Participant (the "Guarantor" under a
"Guaranty"). Subject in each case to certain restrictions, including, in
certain circumstances, the requirement to provide a Guaranty by a
Guarantor, each Owner Participant may convey all of its right, title and
interest relating to the applicable Aircraft. (Participation Agreements,
Section 7.03(d); Trust Agreements, Article 5)
Registration of the Aircraft
The Aircraft have been registered under the Transportation Code in the
name of the Owner Trustee. Each of the Owner Trustee, in its individual
capacity, and the Owner Participant for each Aircraft and the Corporation
has represented and warranted that it is a United States citizen. 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 related Owner
Participant, it will immediately resign as Owner Trustee and such Owner
Participant then may appoint a successor Owner Trustee that, among other
things, is a United States citizen. If an Owner Participant ceases to be a
United States citizen at a time when such citizenship is necessary for
registration of the related Aircraft in the United States, it is obligated
to either (i) effect a voting trust or other similar arrangement, (ii) take
such action as may be required to maintain the United States registration
of such Aircraft or (iii) transfer, in accordance with the related
Operative Agreements, all of its interest in such Aircraft to a United
States citizen. (Participation Agreements, Sections 6.01, 7.02 and 7.03;
Trust Agreements, Sections 3.11 and 3.12 and Article 5)
The Corporation may, under certain circumstances and subject to
certain limitations, after December 31, 2002 register any Aircraft in
certain jurisdictions outside of the United States which would include the
jurisdictions in which the Specific Jurisdiction Carriers are domiciled
and, in one Lease, the jurisdictions in which the Convention Carriers are
domiciled. (Participation Agreements, Section 6.03(b)) See "Description
of the Equipment Certificates Registration of the Aircraft" in the
Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement") among the Corporation and
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Chase Securities,
Inc. (the "Underwriters") relating to the Pass Through Certificates, the
Corporation has agreed to cause each Pass Through Trust to sell to each of
the Underwriters, and each of such Underwriters has severally agreed to
purchase the respective aggregate amounts of Pass Through Certificates set
forth after their names below. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters will be obligated to purchase all of
the Pass Through Certificates if any Pass Through Certificates are
purchased thereunder.
Total
Percentage Aggregate
of Aggregate Amount of
Amount of Pass Through
Underwriter Each Series Certificates
----------- ------------ ------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................... % $
Chase Securities, Inc. ...................... %
---- ------------
Total.................................. 100% $122,816,000
In the event of a default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of
non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
The Underwriters have advised the Corporation that the Underwriters
propose initially to offer the Pass Through Certificates of each Series to
the public at the 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.
Series of Pass Concession Reallowance
Through Certificates to Dealers Concession
-------------------- ---------- -----------
Series A1........................................ % %
Series A2........................................ % %
The Corporation does not intend to apply for the listing of the Pass
Through Certificates on a national securities exchange, but has been
advised by the Underwriters that they presently intend to make a market in
the Pass Through Certificates, as permitted by applicable laws and
regulations. No Underwriter is obligated, however, to make a market in the
Pass Through Certificates, and any such market-making may be discontinued
at any time at the sole discretion of such Underwriter. Accordingly, no
assurance can be given as to the liquidity of, or trading markets for, the
Pass Through Certificates.
The Underwriting Agreement provides that the Corporation will
reimburse the Underwriters for all expenses and indemnify the Underwriters
against certain liabilities, including liabilities under the Securities
Act.
Each of the Underwriters performs investment banking services for the
Corporation in the ordinary course of business.
The Chase Manhattan Bank (National Association), an affiliate of one
of the Underwriters, will receive more than 10% of the proceeds of the
offering in repayment of the outstanding loan certificates. Accordingly,
the offering is being made in conformity with Article III, Section 44(c)(8)
of the Rules of Fair Practice of the National Association of Securities
Dealers, Inc.
LEGAL MATTERS
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 Vedder, Price, Kaufman & Kammholz, 222 North
LaSalle Street, Chicago, Illinois 60601. Both Davis Polk & Wardwell and
Vedder, Price, Kaufman & Kammholz may rely on the opinion of George W.
Hearn, Vice President Law 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, National Association (Carolinas),
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, National
Association (Carolinas). At August 9, 1995, Mr. Hearn owned zero shares
of the Corporation's common stock and held options to purchase 14,675
shares of such common stock. Of the options granted, 5,250 were vested at
such date.
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
or the Leases are qualified in their entirety by reference to the
definitions of such terms contained therein.
"Aircraft" means each of the two Airbus A300F4-605R aircraft,
including the Engines relating thereto, leased by the Owner Trustee to the
Corporation pursuant to one of two separate Leases, and, collectively,
means all of the foregoing.
"Authenticating Agent" means, for each Pass Through Trust,
NationsBank of Georgia, National Association.
"Bankruptcy Code" means Title 11 of the United States Code (11
U.S.C. et seq.), as amended, or any successor 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 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.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Commission" means the Securities and Exchange Commission of the
United States.
"Engine" means, for each Aircraft, each of two General Electric
CF6-80C2-A5F 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 an Event of Loss, see "Description of the Equipment
Trust Certificates The Leases Events of Loss."
"Guarantor" is defined in this Prospectus Supplement under
"Description of the Equipment Trust Certificates The Participation
Agreements."
"Guaranty" is defined in this Prospectus Supplement under
"Description of the Equipment Trust Certificates The Participation
Agreements."
"Indenture" means each of the two 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 containing 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, in its capacity as indenture trustee under each Indenture, and
any successor thereunder.
"Lease" means each of two separate lease agreements between the
Owner Trustee and the Corporation, in each case under which the Owner
Trustee has leased the related Aircraft to the Corporation.
"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 Indenture, Equipment Trust Certificates, Series Supplements,
Participation Agreement, Lease, Trust Agreement and any other related
documents defined as such in such Participation Agreement, except that for
purposes of the default described in clause (d) of the "Description of
Equipment Trust Certificates--The Leases--Lease Events of Default", the
separate tax indemnity agreement between the Corporation and any related
Owner Participant is not an Operative Agreement.
"Participation Agreement" means, for any Aircraft, the agreement
among the Corporation, the Indenture Trustee, the Owner Trustee, the Pass
Through Trustee, the related Owner Participant and the holders of the
original loan certificates, 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 Trusts will
be formed pursuant to the Series Supplements.
"Pass Through Agreement" means the Pass Through Trust Agreement
dated as of February 1, 1993 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
1995 Pass Through Certificates, Series A1, and the Federal Express
Corporation 1995 Pass Through Certificates, Series 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 interests
in the related Pass Through Trusts.
"Pass Through Trust" means Federal Express Corporation Pass Through
Trust, 1995-A1, and Federal Express Corporation Pass Through Trust,
1995-A2, each to be formed pursuant to the related Series Supplement in
accordance with the Pass Through Agreement.
"Pass Through Trustee" means NationsBank, National Association
(Carolinas) (formerly known as NationsBank of South Carolina, National
Association), in its capacity as pass through trustee under the Pass
Through Agreement and each Pass Trough 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 if
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 and is subject to adjustment as provided in "Description of Pass
Through Certificates--Pool Factors" in the Prospectus.
"Registrar" means, for each Pass Through Trust, NationsBank of
Georgia, National Association.
"Regular Distribution Date" means, for each Pass Through Trust,
January 5 and July 5 of each year, commencing January 5, 1996.
"Scheduled Payment" means any payment of interest on, or principal
of and interest on, and Equipment Trust Certificate that constitutes Trust
Property thereof, scheduled to be received by the Pass Through Trustee on a
Regular Distribution Date.
"Series" means Federal Express Corporation 1995 Pass Through
Certificates, Series A1 and Federal Express Corporation 1995 Pass Through
Certificates, Series A2.
"Series Supplement" means each of Series Supplement 1995-A1 and
Series Supplement 1995-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 fifth day of
a month, except in certain circumstances, in which case it will be the date
of receipt of 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 from the sale of any
such Equipment Trust Certificates by the Pass Through Trustee.
"Transportation Code" means Title 49 of the United States Code, as
amended.
"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.
PROSPECTUS
[LOGO]
PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES
_______________________________
Up to $465,000,000 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 the Pass
Through Trust Agreement (the "Pass Through Agreement") and a supplement
thereto (a "Series Supplement") between Federal Express Corporation (the
"Corporation") and NationsBank, National Association (Carolinas), 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 (as defined below) held in any other such Pass Through
Trust.
The Trust Property of each Pass Through Trust will consist of (a)
equipment purchase certificates issued with recourse to the Corporation (the
"Owned Aircraft Certificates") or (b) equipment trust certificates issued as
nonrecourse obligations by certain Owner Trustees, each acting not in its
individual capacity but solely as the Owner Trustee of a separate Owner Trust,
in connection with separate leveraged lease transactions (the "Leased Aircraft
Certificates" and, together with the Owned Aircraft Certificates, the
"Equipment Certificates"). The Owned Aircraft Certificates will be issued to
finance or refinance all or a portion of the purchase price of each of one or
more aircraft that have been or will be purchased and owned by the Corporation
(the "Owned Aircraft"). The Leased Aircraft Certificates will be issued to
finance or refinance a portion of the payment by each such Owner Trustee of
the purchase price for a specified aircraft which has been or will be leased
to the Corporation (the "Leased Aircraft" and, together with the Owned
Aircraft, 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 Certificates to be
purchased by such Pass Through Trusts, the leveraged lease transactions, if
any, relating thereto and the Aircraft relating to such Equipment
Certificates.
For each Aircraft, the related Owner Trustee or the Corporation,
as the case may be, may issue one or more Equipment 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 Certificates issued with respect to each of one or more
Aircraft such that all of the Equipment 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 Certificates
will occur on or before the final distribution date for such Pass Through
Certificates.
(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 August 14, 1995.
(continued from previous page)
The Owned Aircraft Certificates issued with respect to each Owned
Aircraft will be secured by a security interest in such Owned Aircraft and
will be direct obligations of the Corporation. The Leased Aircraft
Certificates issued with respect to each Leased Aircraft, except during the
Pre-Funding Period, if any, will be secured by a security interest in such
Leased Aircraft and by the Lease relating thereto, including the right to
receive rent payable by the Corporation under such Lease. Although none of
the Leased Aircraft Certificates held in the respective Pass Through Trusts
will be obligations of, or guaranteed by, the Corporation, the amounts payable
by the Corporation under the Lease of each Leased Aircraft will be sufficient
to pay in full when due all principal of and interest on the Leased Aircraft
Certificates relating to such Leased Aircraft, except as described under
"Description of the Equipment Certificates -- General" relating to any
Pre-Funding Period with respect to such Leased Aircraft. During any
Pre-Funding Period, the related Leased Aircraft Certificates will be secured
by a collateral account funded by the net proceeds of the sale of such Leased
Aircraft 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 Leased Aircraft Certificates during such Pre-Funding Period, as well as
to fund any mandatory prepayment of such Leased Aircraft Certificates during
such Pre-Funding Period.
Interest paid on the Equipment 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 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 shall be issued in registered form
only and may, if so specified in the applicable Prospectus Supplement, be
issued in accordance with a book-entry system.
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.
____________________________
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.
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, National Association (Carolinas) ("NationsBank"),
formerly known as NationsBank of South Carolina, National Association, 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 document filed with the Commission in accordance with
the provisions of the Exchange Act is incorporated herein by reference and
made a part hereof.
The Corporation's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 filed August 4, 1995.
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
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: Shirlee M. Clark, Manager -- Media 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 documents, packages and freight 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)
Year Ended May 31,
---------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Ratio of Earnings to
Fixed Charges(a) 1.0x (b) 1.4x 1.7x 2.0x
______________________
(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.
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 a 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, not in its individual capacity but solely as
pass through trustee (the "Pass Through Trustee"), in accordance with the Pass
Through Trust Agreement, dated as of February 1, 1993, (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 (a)
equipment purchase certificates issued in connection with the purchase by the
Corporation of one or more aircraft (the "Owned Aircraft Certificates") or (b)
equipment trust certificates issued in connection with one or more leveraged
lease transactions (the "Leased Aircraft Certificates" and, together with the
Owned Aircraft Certificates, the "Equipment Certificates"), as specified in
the applicable Prospectus Supplement.
As more fully described below under "Use of Proceeds," in connection
with each purchase or leveraged lease transaction, one or more Equipment
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 Owned Aircraft Certificates or Leased Aircraft
Certificates, such that the Equipment Certificates that constitute the
property of such Pass Through Trust will have identical interest rates, in
each case equal to the rate applicable to the Pass Through Certificates issued
by such Pass Through Trust, and such that the latest maturity date for such
Equipment 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 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 Certificates to the
Certificateholders of the Pass Through Trust in which such Equipment
Certificates are held. See "Description of the Pass Through Certificates" and
"Description of the Equipment 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
(a) the financing of the aggregate principal amount of debt to be issued, or
the refinancing of the aggregate principal amount of the debt previously
issued, by the Corporation with respect to each of the aircraft that have been
or will be purchased and owned by the Corporation (the "Owned Aircraft"), as
specified in the applicable Prospectus Supplement, or (b) the financing or
refinancing of the debt portion and, in certain cases, refinancing some of the
equity portion of one or more separate leveraged lease transactions entered
into or to be entered into by the Corporation, as lessee, with respect to each
of the aircraft that have been or will be leased by the Corporation (the
"Leased Aircraft" and, together with the Owned Aircraft, 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 equipped
and whether such Aircraft was or will be delivered new by the manufacturer to
the Corporation or the Owner Trustee, as the case may be, or whether such
Aircraft is already in use in the Corporation's fleet.
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
(a) to purchase Owned Aircraft Certificates or (b) to purchase Leased Aircraft
Certificates. The Owned Aircraft Certificates will be issued with recourse to
the Corporation to finance or refinance all or a portion of the purchase price
(as specified in the applicable Prospectus Supplement) for one or more Owned
Aircraft which have been or will be purchased and owned by the Corporation.
The Leased Aircraft 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 separate
owner trusts (each, an "Owner Trust" created pursuant to a separate "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 or refinance not more than, unless
otherwise specified in such Prospectus Supplement, 80% of the purchase price
paid or to be paid by the Owner Trustee for a Leased Aircraft which has been
or will be leased by the related Owner Trustee to the Corporation.
To the extent that any proceeds from the sale of the Pass Through
Certificates for any Pass Through Trust have not been applied by the Pass
Through Trustee by the date specified in the applicable Prospectus Supplement
to the purchase of the Equipment Certificates that were contemplated to be
held in such Pass Through Trust, such proceeds will be distributed on the date
specified in such Prospectus Supplement to the related Certificateholders on a
pro rata basis, together with interest accrued thereon, but without premium.
See "Description of the Pass Through Certificates -- Special Payment Upon
Unavailability of Trust Property."
If, for any Leased Aircraft, under the circumstances discussed below
in "Description of Equipment Certificates -- Delayed Lease Commencement" the
proceeds from the sale of the related Leased Aircraft Certificates to the
applicable Pass Through Trusts are not applied by the Owner Trustee to pay the
purchase price for such Leased Aircraft on the date of the purchase of such
Leased Aircraft 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 Certificates -- Security"
below), will secure such Leased Aircraft 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 Leased Aircraft
Certificates during the Pre-Funding Period. If the Lease related to such
Leased 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 Leased Aircraft during the Pre-Funding Period, funds in such Collateral
Account, together with such other security will be available to prepay such
Leased Aircraft Certificates as described in such Prospectus Supplement. See
"Description of the Equipment Certificates -- Delayed Lease Commencement" and
"--Mandatory Prepayment During the Pre-Funding Period."
For each Leased Aircraft, the related Leased Aircraft Certificates
have been or 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, a "Leased Aircraft Indenture") between the Owner
Trustee and the Indenture Trustee. Each Owner Participant will have provided
or will provide, from sources other than the related Leased Aircraft
Certificates, at least, unless otherwise specified in the applicable
Prospectus Supplement, 20% of the purchase price for the related Leased
Aircraft. No Owner Participant, however, will be personally liable for any
amount payable under the related Leased Aircraft Indenture or the Leased
Aircraft Certificates issued thereunder. For each Owned Aircraft, the related
Owned Aircraft Certificates have been or will be issued under a separate trust
indenture and security agreement (each, an "Owned Aircraft Indenture," and
together with any Leased Aircraft Indentures, the "Indentures") between the
Indenture Trustee and the Corporation. The Owned Aircraft Certificates will
be direct obligations of the Corporation.
DIAGRAM OF PAYMENTS
The following diagram illustrates certain aspects of the payment
flows in the Pass Through Trust structure (1) for a possible transaction for
Leased Aircraft among the Corporation, the Owner Trustee, the related Owner
Participant, the Indenture Trustee, the Pass Through Trustee and the
Certificateholders, assuming each Leased Aircraft is leased by the Corporation
upon issuance of the Pass Through Certificates, and (2) for a possible
transaction for Owned Aircraft among the Corporation, the Indenture Trustee,
the Pass Through Trustee and the Certificateholders. For each Aircraft
included in a particular Pass Through Certificate offering, one or more
Equipment Certificates will be issued, each of which 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 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
Certificates held by each Pass Through Trust will be described in the
applicable Prospectus Supplement.
In a Leased Aircraft transaction, the Corporation will lease each
Leased Aircraft from the Owner Trustee under a separate Lease. The
Corporation will make scheduled rental payments for each Leased Aircraft under
the related Lease. As a result of the assignment under the related Leased
Aircraft 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 Leased Aircraft Certificates issued under the
related Leased Aircraft Indenture and held in such Pass Through Trust. After
such payments have been made, the Indenture Trustee will pay the remaining
balance 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 Leased Aircraft
Certificates held in such Pass Through Trust. See "Description of the Pass
Through Certificates -- Payments and Distributions" and "Description of the
Equipment Certificates -- Delayed Lease Commencement" for a discussion of
payments during any Pre-Funding Period.
In an Owned Aircraft transaction, the Corporation will make scheduled
payments on the Owned Aircraft Certificates relating to each Owned Aircraft to
the Indenture Trustee. From these payments the Indenture Trustee will pay to
the Pass Through Trustee for each Pass Through Trust the interest or interest
and principal due on the Owned Aircraft Certificates issued under the related
Owned Aircraft Indenture and held in such Pass Through Trust. The Pass
Through Trustee for each Pass Through Trust will distribute to the related
Certificateholders payments received on the Owned Aircraft Certificates held
in such Pass Through Trust.
[GRAPHIC - SEE APPENDIX A]
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 and Participation Agreements and, if the Pass Through Certificates
relate to Leased Aircraft, the related Leases, Trust Agreements and Collateral
Agreements, if any, 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 Certificates. 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 Pass Through Certificates will be issued in fully registered,
certificated form only and may, if so specified in the applicable Series
Supplement, be registered in the name of Cede & Co. ("Cede") as the nominee
of The Depository Trust Company ("DTC"). If the Pass Through Certificates are
so registered, no Certificateholder will be entitled to receive a certificated
Pass Through Certificate representing such person's interest in the related
Pass Through Trust unless such certificates are issued as described below.
Unless certificated Pass Through Certificates are issued, all references to
actions by Certificateholders shall refer to actions taken by DTC upon
instructions from DTC Participants (as defined below), and all references
herein to distributions, notices, reports and statements to Certificateholders
shall refer, as the case may be, to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of the Pass Through
Certificates, or to DTC Participants for distribution to Certificateholders in
accordance with DTC procedures. See "Description of the Pass Through
Certificates -- Book-Entry Procedures." (Pass Through Agreement, Section 2.12)
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 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 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)
The applicable Prospectus Supplement will describe the specific
Series of Pass Through Certificates offered thereby, including:
(1) the specific designation and title of such Pass Through
Certificates;
(2) the Regular Distribution Dates (as herein defined) and Special
Distribution Dates (as herein defined) applicable to such Pass
Through Certificates and the applicable Cut-Off Date (as herein
defined), if any;
(3) the specific form of such Pass Through Certificates;
(4) a description of the Equipment Certificates to be purchased by such
Pass Through Trust, including the period or periods within which,
the price or prices at which, and the terms and conditions upon
which such Certificates may or must be repaid in whole or in part,
by the Corporation or, with respect to Leased Aircraft
Certificates, the related Owner Trustee;
(5) a description of the related Aircraft, including whether the
Aircraft is a Leased Aircraft or an Owned Aircraft;
(6) a description of the related Participation Agreement and Indenture,
including a description of the events of default under the related
Indentures, the remedies exercisable upon the occurrence of such
events of default and any limitations on the exercise of such
remedies with respect to such Equipment Certificates;
(7) if such Pass Through Certificates relate to Leased Aircraft, a
description of the related Lease, Trust Agreement and Collateral
Agreement, if any, including (a) the names of the related Owner
Trustee, (b) a description of the events of default under the
related Lease, the remedies exercisable upon the occurrence of such
events of default and any limitations on the exercise of such
remedies with respect to such Leased Aircraft Certificates, and (c)
the rights, if any, of the related Owner Trustee or Owner
Participant to cure failures of the Corporation to pay rent under
the related Lease;
(8) the extent, if any, to which the provisions of the operative
documents applicable to such Equipment Certificates may be amended
by the parties thereto without the consent of the Holders, or upon
the consent of the Holders of a specified percentage of aggregate
principal amount of, such Equipment Certificates; and
(9) any other special terms pertaining to such Pass Through
Certificates.
Interest will be passed through to Certificateholders of each Pass
Through Trust at the rate per annum payable on the Equipment 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 Trust Property of 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 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. However, the Certificateholders of each Series will have the
benefit of a lien on the specific Aircraft securing the related Equipment
Certificates held in the related Pass Through Trust. See "Description of the
Equipment Certificates - Security" below for a discussion of security for
Leased Aircraft Certificates during any Pre-Funding Period.
Book-Entry Procedures
If specified in the applicable Prospectus Supplement, the Pass
Through Certificates will be subject to the provisions described below. Upon
issuance, each Series of Pass Through Certificates will be represented by one
fully registered global certificate. Each global certificate will be
deposited with, or on behalf of, DTC, and registered in its name or in the
name of Cede, its nominee. No Certificateholder will be entitled to receive a
certificated Pass Through Certificate, except as set forth below.
DTC has advised the Corporation that DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was
created to hold securities for its participants ("DTC Participants") and to
facilitate the clearance and settlement of securities transactions between DTC
Participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. DTC Participants include securities
brokers and dealers, banks, trust companies and clearing corporations. Access
to DTC's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Certificateholders that are not DTC Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests, in Pass
Through Certificates may do so only through DTC Participants. In addition,
Certificateholders will receive all distributions of principal and interest
from the Pass Through Trustee through the DTC Participants. Under the rules,
regulations and procedures creating and affecting DTC and its operation, DTC
is required to make book-entry transfers of Pass Through Certificates among
DTC Participants on whose behalf it acts and to receive and transmit
distributions of principal of, and interest on, the Pass Through Certificates.
Under the book-entry system, Certificateholders may experience some delay in
receipt of payments, since such payments will be forwarded by the Pass Through
Trustee to Cede, as nominee for DTC, and DTC in turn will forward the payments
to the appropriate DTC Participants. Distributions by DTC Participants to
Certificateholders will be the responsibility of such DTC Participants and
will be made in accordance with customary industry practices. Accordingly,
although Certificateholders will not have possession of the Pass Through
Certificates, the rules of DTC provide a mechanism by which participants will
receive payments and will be able to transfer their interests. Although the
DTC Participants are expected to convey the rights represented by their
interests in any global security to the related Certificateholders, because
DTC can only act on behalf of DTC Participants, the ability of
Certificateholders to pledge Pass Through Certificates to persons or entities
that are not DTC Participants or to otherwise act with respect to such Pass
Through Certificates, may be limited due to the lack of physical certificates
for such Pass Through Certificates.
None of the Corporation, the Pass Through Trustee or any other agent
of the Corporation or the Pass Through Trustee will have any responsibility or
liability for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests in the Pass Through Certificates or
for supervising or reviewing any records relating to such beneficial ownership
interests. Since the only "Certificateholder" will be Cede, as nominee of
DTC, Certificateholders will not be recognized by the Pass Through Trustee as
Certificateholders, as such term is used in the Pass Through Agreement, and
Certificateholders will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and DTC Participants. DTC has
advised the Corporation that it will take any action permitted to be taken by
a Certificateholder under the Pass Through Agreement and any Prospectus
Supplement only at the direction of one or more DTC Participants to whose
accounts with DTC the related Pass Through Certificates are credited.
Additionally, DTC has advised the Corporation that it will take such actions
with respect to any percentage of the beneficial interest of
Certificateholders held in each Pass Through Trust only at the direction of
and on behalf of DTC Participants whose holders include undivided interests
that satisfy any such percentage. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of DTC Participants whose holders include such undivided interests.
Same-Day Settlement and Payment. All payments made by the
Corporation to the Indenture Trustee under each Lease will be in immediately
available funds and will be passed through to DTC in immediately available
funds.
Secondary trading in long-term notes and debentures of corporate
issuers is generally settled in clearinghouse or next-day funds. In contrast,
the Pass Through Certificates will trade in DTC's Same Day Funds Settlement
System until maturity, and secondary market trading activity in the Pass
Through Certificates will therefore be required by DTC to settle in
immediately available funds. No assurance can be given as to the effect, if
any, of settlement in immediately available funds on trading activity in the
Pass Through Certificates.
Certificated Form. The Pass Through Certificates will be issued in
fully registered, certificated form to Certificateholders, or their nominees,
rather than to DTC or its nominee, only if DTC advises the Pass Through
Trustee in writing that it is no longer willing or able to discharge properly
its responsibilities as depositary with respect to the Pass Through
Certificates and the Corporation is unable to locate a qualified successor or
if the Corporation, at its option, elects to terminate the book-entry system
through DTC. In such event, the Pass Through Trustee will notify all
Certificateholders through DTC Participants of the availability of such
certificated Pass Through Certificates. Upon surrender by DTC of the
definitive global certificate representing the series of Pass Through
Certificates and receipt of instructions for reregistration, the Pass Through
Trustee will reissue the Pass Through Certificates in certificated form to
Certificateholders or their nominees. (Pass Through Agreement, Section 2.12)
Certificates in certificated form will be freely transferable and
exchangeable at the office of the Pass Through Trustee upon compliance with
the requirements set forth in the Pass Through Agreement and the applicable
Series Supplements. No service charge will be imposed for any registration of
transfer or exchange, but payment of a sum sufficient to cover any tax or
other governmental charge may be required.
Payments and Distributions
The Corporation will make scheduled payments of principal of, and
interest on the unpaid amount of, the Owned Aircraft Certificates to the
Indenture Trustee under the related Owned Aircraft Indenture, and the
Indenture Trustee will distribute such principal and interest payments to the
Pass Through Trustee for each of the Pass Through Trusts that hold such Owned
Aircraft Certificates. Upon commencement of the Lease for any Leased
Aircraft, the Corporation will make scheduled rental payments for each Leased
Aircraft under the related Lease. After any Pre-Funding Period for a Leased
Aircraft, these scheduled rental payments will be assigned under the
applicable Leased Aircraft Indenture by the related 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 Leased
Aircraft Certificates issued under such Leased Aircraft Indenture. Until the
Corporation has entered into a Lease in connection with a Leased Aircraft, the
Corporation will not be obligated to make any scheduled rental payments and
during any Pre-Funding Period for such Leased Aircraft the related Leased
Aircraft Certificates will not be secured by such Leased Aircraft or the
related Lease, including any rental payments under such Lease. During the
Pre-Funding Period, if any, for such Leased Aircraft, however, the related
Collateral Account, together with the other security pledged under the related
Indenture will be available to provide funds necessary to make the
corresponding scheduled payments of principal, if any, and interest accrued on
the related Leased Aircraft 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 Certificates -- Delayed Lease Commencement."
Following any Pre-Funding Period, after the Indenture Trustee has
made such principal and interest payments to the Pass Through Trustee for each
of the Pass Through Trusts on the Leased Aircraft Certificates held in such
Pass Through Trust, the Indenture Trustee will, except under certain
circumstances, pay the remaining balance, if any, 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 Certificates held in such
Pass Through Trust as described below. During any Pre-Funding Period for a
Leased 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 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 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 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 Certificates held in such Pass Through Trust,
including payments received (i) for the prepayment of such Equipment
Certificates in connection with certain events specified in the applicable
Prospectus Supplement (including payments upon unavailability of Trust
Property and prepayments during any Pre-Funding Period as described below),
(ii) upon the prepayment by the related Owner Trustee of such Equipment
Certificates following a default in respect of such Equipment Certificates,
and (iii) on account of the sale of such Equipment 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 Certificates -- Mandatory Prepayment During the Pre-Funding
Period" for a discussion of the funding of such prepayments during any
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 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 (a
"Certificate Account") for the deposit of Scheduled Payments on the Equipment
Certificates held in such Pass Through Trust and one or more accounts which
will, except in connection with Permitted Investments as defined below, be
non-interest bearing (a "Special Payments Account") for the deposit of Special
Payments on such Equipment 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 investment will be distributed with such Special
Payment. "Permitted Investments" are non-callable and non-redeemable direct
obligations of the United States of America maturing on or prior to the day
required for the distribution of any such funds on the applicable Special
Distribution Date. (Pass Through Agreement, Article I and Section 5.04)
If at any time, the Pass Through Certificates of any Pass Through
Trust are issued in the form of certificated Pass Through Certificates and not
to Cede, as nominee for DTC, distributions by the Pass Through Trustee from a
Certificate Account or a 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 Certificates held in such Pass Through Trust as
described in the applicable Prospectus Supplement. Where any Equipment
Certificates held in a Pass Through Trust have been prepaid, a scheduled
repayment of principal thereon has not been made or certain actions have been
taken following a default thereon, as discussed in the applicable Prospectus
Supplement or below in "Events of Default and Certain Rights Upon an Event of
Default," the Pool Factor and the Pool Balance (as defined below) of such Pass
Through Trust will be recomputed after giving effect thereto and notice thereof
will be mailed to the Certificateholders of such Pass Through Trust. Each
Pass Through Trust will have a separate Pool Factor.
Unless otherwise described in the applicable Prospectus Supplement,
the "Pool Balance" for each Pass Through Trust indicates, as of any date, the
aggregate unpaid principal amount of the Equipment Certificates held in such
Pass Through Trust on such date plus any amounts in respect of principal on
such Equipment Certificates held by the Pass Through Trustee and not yet
distributed plus any amounts transferred to the Corporation and deposited in a
deposit trust account in connection with a delayed purchase of the Equipment
Certificates. 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 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 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
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.
So long as the Pass Through Certificates of any related Pass Through
Trust are registered in the name of Cede, as nominee for DTC, on the record
date prior to each Distribution Date, the Pass Through Trustee will request
from DTC a securities position listing setting forth the names of all DTC
Participants reflected on DTC's books as holding interests in the Pass Through
Certificates of such related Pass Through Trust on such record date. On each
Distribution Date, the Pass Through Trustee will mail to each such DTC
Participant the statement described above, and will make available additional
copies as requested by such DTC Participant, to be available for forwarding to
Certificateholders.
In addition, after the end of each calendar year, the Pass Through
Trustee will prepare and deliver to 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. Such report
and such other items will be prepared on the basis of information supplied to
the Pass Through Trustee by the DTC Participants, and shall be delivered by
the Pass Through Trustee to such DTC Participants to be available for
forwarding by such DTC Participants to Certificateholders in the manner
described above. (Pass Through Agreement, Section 5.03)
At such time, if any, as the Pass Through Certificates of a related
Pass Through Trust are issued in certificated form, the related Pass Through
Trustee will prepare and deliver the information described above to each
Certificateholder of record of such Trust as the name and period of record
ownership of such Certificateholder appears on the records on the registrar
for such Pass Through Trust.
Voting of Equipment Certificates
The Pass Through Trustee, as holder of the Equipment Certificates
held in each Pass Through Trust, has the right to vote and give consents and
waivers in respect of such Equipment Certificates under the related
Indentures. The Pass Through Agreement sets forth the circumstances in which
the Pass Through Trustee shall direct any action or cast any vote as the
holder of the Equipment 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 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)
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, for the Leased
Aircraft, will include events of default under the related Leases ("Lease
Events of Default"). Since the Equipment 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. All of the Equipment
Certificates issued under the same Indenture, however, 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 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
Certificates will continue to be distributed to the Certificateholders of such
Pass Through Trust as originally scheduled.
The Equipment 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
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 Leased Aircraft Indenture the related Owner Trustee and
the Owner Participant 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 or the Owner
Participant 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 Leased Aircraft Certificates will be deemed to be cured.
The applicable Prospectus Supplement will contain 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 Certificates held in a Pass
Through Trust shall have occurred and be continuing, the Pass Through Trustee
may vote all of the Equipment Certificates issued under such Indenture that
are held in such Pass Through Trust, 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 a
corresponding majority of such Equipment Certificates, in each case in favor
of directing the Indenture Trustee to declare the unpaid principal amount of
all Equipment 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 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 Certificates issued under such Indenture that
are held in such Pass Through Trust in favor of directing the 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 Certificates held in such
Pass Through Trust to accelerate the payment on such Equipment 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 of the aggregate principal amount of the Equipment Certificates
outstanding under such Indenture and held in such Pass Through Trust to the
aggregate principal amount of all Equipment Certificates outstanding under
such Indenture. Each Pass Through Trust will hold Equipment Certificates
outstanding under such Indenture. Each Pass Through Trust will hold Equipment
Certificates with different terms from those of the Equipment 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
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
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 Certificates for cash to any person at a price or
prices that it may reasonably deem advisable. Any proceeds received by the
Pass Through Trustee 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
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 an 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 Certificates to available buyers.
If the Pass Through Trustee sells any such Equipment 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, or
the Corporation or, in the case of Leased Aircraft Certificates, the Owner
Trustee or any related Owner Participant, as the case may be. Furthermore,
neither the Pass Through Trustee nor the Certificateholders of such Pass
Through Trust could take any action with respect to any remaining Equipment
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 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 Leased
Aircraft Indenture, the related Owner Trustee or Owner Participant, as the
case may be, exercises its option, if any, to prepay or purchase the
outstanding Leased Aircraft Certificates issued under such Indenture as
described in the related Prospectus Supplement, the price paid by such Owner
Trustee or the Owner Participant to the Pass Through Trustee for such Leased
Aircraft 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 Certificates held in a Pass Through Trust in default, or the
proceeds from the sale by the Pass Through Trustee of any such Equipment
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)
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 Certificates held in such Pass Through
Trust. The term "default" 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
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
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
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
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 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 Certificates under
such Indenture. If, for example, the Equipment Certificates issued under an
Indenture held in a Pass Through Trust constitute only 45% in aggregate unpaid
principal amount of the Equipment 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 Certificates against the waiver of the corresponding past
default or Indenture Event of Default under such Indenture, the Equipment
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 Certificates issued under such Indenture would
at such time vote such Equipment Certificates against such waiver. Therefore,
if the Certificateholders of a Pass Through Trust or Trusts waive a past
default or Event of Default such that the principal amount of the Equipment
Certificates held either individually in such Pass Through Trust or in the
aggregate in such Pass Through Trusts constitutes the required majority in
aggregate unpaid principal amount under the applicable Indenture, such past
default or Indenture Event of Default under such Indenture will be waived
whether or not the Certificateholders of any other Pass Through Trust holding
Equipment Certificates issued under such Indenture waive such past default or
Event of Default with respect to such other Pass Through Trust.
Modifications of the Pass Through Agreement
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; and
(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 the amount of, or delay the timing of, any receipt by the
Pass Through Trustee of payments on the Equipment 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 a 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) reduce, modify or amend any indemnities in favor of any
Certificateholder (unless consented to by each such holder adversely
affected thereby);
(c) create or permit the creation of any lien on the Trust Property or
deprive any holder of any such Equipment Certificate of the benefit
of the related Pass Through Trust with respect to the Trust Property
whether by disposition or otherwise, except as provided in the Pass
Through Agreement or the applicable Series Supplement;
(d) 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
(e) 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)
Modification, Consents and Waivers under the Indenture and Related Agreements
If the Pass Through Trustee, as the holder of any Equipment
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 Certificates (including any Lease with
respect to Leased Aircraft Certificates), 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 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 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)
Delayed Purchase
If, on the date of issuance of any Pass Through Certificates, all of
the proceeds from the sale of such Pass Through Certificates are not used to
purchase the Equipment Certificates contemplated to be held in the related
Pass Through Trust, such Equipment Certificates may be purchased by the Pass
Through Trustee at any time on or prior to the date specified in the
applicable Prospectus Supplement. In such event, the Pass Through Trustee
will transfer the proceeds from the sale of such Pass Through Certificates not
used to purchase Equipment Certificates on such date of issuance to the
Corporation which will deposit such amount into a deposit trust account
pending the purchase of the Equipment Certificates not so purchased. Such
proceeds will be invested in specified investments at the direction and risk
of, and for the benefit of, the Corporation until applied to such purchase.
Earnings on specified investments in such deposit trust account will be paid
to the Corporation periodically, and the Corporation will be responsible for
any losses. Subject to a Special Payment upon unavailability of the Trust
Property as described below, in return for its interest in the funds
transferred to the deposit trust account, if the Equipment Certificates that
were not so purchased become available for purchase on or prior to the date
specified in the applicable Prospectus Supplement, then the Corporation will
cause an amount equal to the purchase price of such Equipment Certificates to
be transferred from the deposit trust account to the Pass Through Trustee on
the date for such delayed purchase. On the initial Regular Distribution Date,
the Corporation will pay to the Pass Through Trustee an amount equal to the
interest that would have accrued on any Equipment Certificates purchased after
the date of the issuance of such Pass Through Certificates from the date of
the issuance of such Pass Through Certificates to, but excluding, the date of
the purchase of such Equipment Certificates by the Pass Through Trustee. (Pass
Through Agreement, Section 2.02)
Special Payment Upon Unavailability of Trust Property
For any Pass Through Trust, to the extent that any of the proceeds
from the sale of the related Pass Through Certificates are not applied on or
prior to the date specified in the applicable Prospectus Supplement to
purchase the Equipment Certificates that were contemplated to be held in such
Pass Through Trust, the Corporation will cause an amount equal to such
unapplied proceeds to be paid from the deposit trust account to the Pass
Through Trustee. The Pass Through Trustee will distribute such proceeds to
the Certificateholders of such Pass Through Trust on a pro rata basis upon not
less than 20 days' prior notice to them as a Special Payment on the date
specified in the applicable Prospectus Supplement, together with interest
thereon at a rate equal to the rate applicable to such Pass Through
Certificates, but without premium. The Corporation will also pay to the Pass
Through Trustee on such date an amount equal to such interest. The
Corporation will be responsible for any losses in the deposit trust account.
(Pass Through Agreement, Section 2.02)
The Pass Through Trustee; the Indenture Trustee
NationsBank 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, will be the Indenture
Trustee under the Indentures under which the Equipment Certificates have been
or will be issued. An affiliate of NationsBank of Georgia acts as trustee
under other indentures with respect to other indebtedness by 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 as trustee 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 holding Pass Through Certificates
for at least six months may, on behalf of such Certificateholder 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 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 gross 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 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 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 Certificates, the Indenture and the Participation Agreement relating
to each Aircraft and, for Leased Aircraft, the Lease and the Collateral
Agreement, if any, relating thereto. Where no distinction is made between the
Leased Aircraft Certificates and the Owned Aircraft Certificates or between
their respective Indentures, the summary applies to any Equipment Certificate
and any Indenture. Additional provisions with respect to the Equipment
Certificates, the Indentures and the Participation Agreements and, for Leased
Aircraft, the Leases 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
For each Owned Aircraft, the related Owned Aircraft Certificates will
be issued as direct obligations by the Corporation and will be authenticated
under an Owned Aircraft Indenture by the Indenture Trustee. All of the Owned
Aircraft Certificates issued under the same Owned Aircraft Indenture will
relate to a specific Owned Aircraft and will not be secured by any other
Aircraft. The Owned Aircraft relating to each Owned Aircraft Indenture and
the related Owned Aircraft Certificates will be specified in the applicable
Prospectus Supplement. The Corporation will be directly obligated under each
Owned Aircraft Indenture to make payments of principal of, premium, if any,
and interest on the related Owned Aircraft Certificates.
For each Leased Aircraft, the related Leased Aircraft Certificates
will be issued as nonrecourse obligations by the Owner Trustee, in each case
acting for a separate Owner Trust for the benefit of an Owner Participant, and
will be authenticated under a Leased Aircraft Indenture by the Indenture
Trustee. All of the Leased Aircraft Certificates issued under the same Leased
Aircraft Indenture will relate to and, after any related Pre-Funding Period,
as discussed below under "Delayed Lease Commencement," will be secured by a
specific Leased Aircraft and will not be secured by any other Aircraft. In
each case, the Owner Trustee will lease the related Leased Aircraft to the
Corporation pursuant to a separate Lease between such 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 Leased Aircraft Certificates. The Leased
Aircraft subject to each Lease and the Leased Aircraft Certificates issued
under the related Leased Aircraft Indenture will be specified in the
applicable Prospectus Supplement. Upon the commencement of the Lease for any
Leased Aircraft, the Corporation will be obligated to make rental payments
under such Lease that will be sufficient to pay the principal of and accrued
interest on the related Leased Aircraft 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, any 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 Leased Aircraft Certificates will be payable from the related
Collateral Account and the other security pledged under the related Indenture.
See "Delayed Lease Commencement" below. The Leased Aircraft 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.
For any Owned Aircraft, if specified in the applicable Prospectus
Supplement, the Corporation may arrange for an Owner Trustee, acting for an
Owner Trust for the benefit of an Owner Participant, to purchase such Owned
Aircraft from the Corporation and lease such Aircraft back to the Corporation
under a "net lease," subsequent to the sale of the related Owned Aircraft
Certificates to the Pass Through Trustee for each applicable Pass Through
Trust and the offering and sale of the related Pass Through Certificates
pursuant to such Prospectus Supplement. In such event, such Owner Trustee
will assume, on a nonrecourse basis, the obligations of the Corporation to
make payments of principal and interest on the related Equipment Certificates.
However, the related Equipment Certificates will no longer be direct
obligations of, and will not be guaranteed by, the Corporation, although the
Corporation will be obligated under the related Lease to make rental payments
that will be sufficient to pay the principal of and accrued interest on the
related Equipment Certificates when and as due and payable, and such Equipment
Certificates will continue to be secured by a security interest in the related
Aircraft, in addition to being secured by an assignment by such Owner Trustee
to the Indenture Trustee of such Owner Trustee's rights under such Lease and
the agreements relating to the purchase of such Aircraft. See "Security,"
"Payments and Limitation of Liability" below and "Federal Income Tax
Consequences." The terms and conditions under which any such sale and
leaseback transaction may be consummated will be described in the applicable
Prospectus Supplement.
Until the Corporation has entered into a Lease in connection with a
Leased Aircraft, the Corporation will not be obligated to make any scheduled
rental payments and during any Pre-Funding Period for such Leased Aircraft the
related Leased Aircraft Certificates will not be secured by such Leased
Aircraft or the related Lease, including any rental payments under such Lease.
During any Pre-Funding Period for such Leased Aircraft, however, the related
Collateral Account, together with the other security pledged under the related
Indenture will be available to provide funds necessary to make the
corresponding scheduled payments of principal, if any, and interest accrued on
the related Leased Aircraft 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
Certificates constituting Trust Property of each Pass Through Trust will be
passed through to the Certificateholders of such Pass Through Trust on a pro
rata basis on the dates and at the rate per annum set forth in the applicable
Prospectus Supplement. Interest on the Equipment 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 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 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
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 Certificates.
See "Mandatory Prepayment During the Pre-Funding Period" below for a
discussion of certain events which would require prepayment of Leased Aircraft
Certificates related to a Leased Aircraft during any related Pre-Funding
Period.
Security
Except during any related Pre-Funding Period, the Leased Aircraft
Certificates issued under each Leased Aircraft Indenture will be secured by:
(i) an assignment by the related Owner Trustee to the Indenture Trustee
of such 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
Leased Aircraft, subject to the rights of the Corporation under
such Lease and to certain other liens and encumbrances; and
(iii) an assignment to such Indenture Trustee of such Owner Trustee's
rights relating to such Leased Aircraft and the related engines
under the agreements for the purchase thereof between the
Corporation and the respective manufacturers of such Leased
Aircraft and of such engines. See "Registration of the Aircraft"
below.
The assignment by such Owner Trustee to the Indenture Trustee of its rights
under each Lease will exclude rights of such 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 such Owner
Trustee in its individual capacity and to such 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.
The Owned Aircraft Certificates issued under each Owned Aircraft
Indenture will be secured by (i) a security interest granted to the Indenture
Trustee in all of the Corporation's right, title and interest in and to the
related Owned Aircraft and (ii) an assignment to such Indenture Trustee of
certain of the Corporation's rights relating to such Owned Aircraft and the
related engines under the agreements for the purchase thereof between the
Corporation and the respective manufacturers of such Owned Aircraft and of
such engines. See "Registration of the Aircraft" below.
There will be no cross-collateralization provisions in the Indentures
and consequently the Equipment Certificates issued in respect of one of the
Aircraft will not be secured by any other Aircraft or, in the case of Leased
Aircraft Certificates, the Leases related 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
security interests with respect to aircraft capable of carrying ten (10) or
more individuals or 6,000 pounds or more of cargo used by air carriers
operating under certificates issued by the Secretary of Transportation under
Chapter 447 of the Transportation Code to take possession of such aircraft in
compliance with the provisions of the lease, conditional sale contract or
security agreement, as the case may be, is not affected by:
(a) the automatic stay provision of the Bankruptcy 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 or the debtor-in-possession to use, sell or lease
property of the debtor;
(c) the confirmation of a plan by the bankruptcy court; and
(d) 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 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 or the debtor-in-possession
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.
If the applicable Prospectus Supplement provides that a Pre-Funding
Period will apply to a Leased Aircraft, then during such Pre-Funding Period
the related Leased Aircraft Certificates will not be secured by such Leased
Aircraft or a related Lease. During such Pre-Funding Period, however, such
Leased Aircraft Certificates will be secured by (i) the related Collateral
Account and (ii) certain additional security which may include, 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
The Corporation will be required, except under certain circumstances,
to register and keep each Aircraft registered under Title 49 of the United
States Code (which, among other things, recodified the Federal Aviation Act of
1958, as amended to the time of such recodification) (the "Transportation
Code"), in the name of the Corporation, in the case of an Owned Aircraft, or
in the name of the Owner Trustee, after commencement of a Lease in the case of
a Leased Aircraft, and to record and maintain the recordation of the Indenture
and the Lease, if any, relating to each such Aircraft under the Transportation
Code. Such recordation of the Indenture and the Lease, if any, relating to
each Aircraft will give the Indenture Trustee a security interest in each such
Aircraft perfected under the Transportation Code, which perfected security
interest will, with certain limited exceptions, be recognized in those
jurisdictions that have ratified 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 Indenture Trustee and,
for Leased Aircraft, 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. While such assurances are intended to provide that the
Corporation's (in the case of an Owned Aircraft) or the Owner Trustee's (in
the case of a Leased Aircraft) title to the Aircraft and the Indenture
Trustee's lien thereon will be recognized in such jurisdiction and that the
Indenture Trustee may exercise the rights granted to it in the Indentures,
there is no guarantee that, even if such jurisdiction is a party to the
Convention, as a practical matter, the Indenture Trustee would be able to
realize upon its security interest in the case of an Indenture Event of
Default.
Also, each Aircraft may be operated by the Corporation, or placed
under lease, sublease or interchange arrangements with carriers domiciled
outside of the United States. The ability of the Indenture Trustee in the
case of an Indenture Event of Default, to realize upon its security interest
in the Aircraft could be adversely affected as a legal or practical matter if
the Aircraft were located outside the United States.
Merger, Consolidation and Transfer of Assets
With respect to each Aircraft, 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
Transportation Code 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, the Participation
Agreement, the Lease, the Purchase Agreement and the Purchase
Agreement Assignment;
(ii) immediately after giving effect to such consolidation, merger or
transfer, the successor or transferee is in compliance with all of
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 Default under the related Lease or, in the case of an Owned
Aircraft, an Indenture Event of Default under the related Owned
Aircraft Indenture.
Delayed Lease Commencement
If the applicable Prospectus Supplement provides that a Pre-Funding
Period will apply to a Leased Aircraft, then until commencement of a Lease
with respect to such Leased Aircraft 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, such Leased Aircraft 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 Leased Aircraft Certificates relating to a Delayed
Lease Aircraft, the proceeds from sale of such Leased Aircraft 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 secure payment of the related Leased Aircraft
Certificates. In addition, the Corporation will be required to provide to the
Indenture Trustee Additional Collateral for such Leased Aircraft 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 Leased Aircraft 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
Leased Aircraft Certificates during the related scheduled Pre-Funding Period
specified in such Prospectus Supplement and (ii) to finance a portion of the
purchase price of such Delayed Lease Aircraft, as specified in such Prospectus
Supplement. Accordingly, the principal amount of such Leased Aircraft
Certificates at issuance will exceed the amount that will be applied to the
purchase price 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 Leased Aircraft 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
purchase price 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 will 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 and the Collateral Account and, to
the extent necessary any Additional Collateral will be drawn upon and the
related Leased Aircraft Certificates will be prepaid at a prepayment price
equal to the aggregate principal amount of such Leased Aircraft 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 prepayment of the related Leased
Aircraft 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.
Owned Aircraft Indenture Covenants
Maintenance. The Corporation will be obligated to pay all costs of
operating the Owned Aircraft and, at its expense, to maintain, inspect,
service, repair and overhaul the Owned Aircraft so as to keep the Owned
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 Transportation Code or, under certain circumstances, under the
applicable requirements of the aeronautical authority of another country of
registry. If, however, the Owned Aircraft loses its airworthiness
certification and such loss is curable, and the Corporation, using its
reasonable 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 Owned 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
Owned Aircraft so long as such alterations, modifications or additions do not
materially decrease the value or utility of such Owned Aircraft or impair its
condition or airworthiness below its value, utility, condition and
airworthiness immediately prior to such alteration, modification or addition,
assuming that such Owned Aircraft was then in the condition and airworthiness
required by the related Indenture. Also, in certain circumstances, the
Corporation will be permitted to remove parts (without replacement) from an
Owned 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 thereon so long as such removals do not
decrease the utility, condition or airworthiness of such Owned Aircraft or any
such engine, although the value of such Owned Aircraft or any such engine may
be reduced by such removal. The applicable Prospectus Supplement will contain
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 Owned Aircraft, at its own
cost and expense, in such amounts, against such risks, with such deductibles
or 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
respective Owned 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 (including by way of deductibles and retentions) 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 lessee of an Owned Aircraft will be
named as insured parties under all insurance policies required by the related
Indenture. The Indenture Trustee will be named as an additional insured,
which will afford such Indenture Trustee 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
will be distributed to the Indenture Trustee if the amount of such proceeds
exceeds certain specified amounts. The applicable Prospectus Supplement will
contain a description of certain limitations, if any, applicable to provisions
described in this paragraph.
Payments and Limitation of Liability
All payments of principal of, premium, if any, and interest on any
Leased Aircraft Certificates will be made only from the assets subject to the
Lien of the related Leased Aircraft Indenture. The income and proceeds
received by the Indenture Trustee therefrom or from certain payments received
by the Indenture Trustee to be applied pursuant to such Leased Aircraft
Indenture, including, during any Pre-Funding Period relating to a Leased
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 Leased Aircraft 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 or 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 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.
The Corporation's obligations under each Owned Aircraft Indenture and
under the related Owned Aircraft Certificates will be general obligations of
the Corporation.
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 Certificates to be held by such Pass Through Trust, the remedies
that the Indenture Trustee may exercise with respect to the related Aircraft,
either at its own initiative or upon instruction from holders of the related
Equipment 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 Leased Aircraft will be leased separately by
the related Owner Trustee to the Corporation for a term commencing on the date
of the delivery of the related Leased Aircraft to such Owner Trustee and
expiring on a date not earlier than the latest maturity date of the Leased
Aircraft Certificates issued with respect to such Leased 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 Leased Aircraft
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 Leased Aircraft Certificates issued under such Leased Aircraft
Indenture. Although in certain cases the scheduled rental payments under the
Leases may be adjusted, under no circumstances will such payments that the
Corporation will be unconditionally obligated to make or cause to be made
under any Lease be less than the scheduled payments of principal and interest
on the Leased Aircraft Certificates issued under the Leased Aircraft Indenture
relating to such Lease. See "Payments and Limitations of Liability" above.
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 Leased Aircraft 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 Leased Aircraft
Certificates will be payable from the related Collateral Account and any
related Additional Collateral. See "Payments and Limitations of Liability"
above. Scheduled payments of principal and interest on the Leased Aircraft
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 Leased Aircraft will be those of a lessee under a "net lease."
Accordingly, the Corporation will be obligated to pay all costs of operating
the Leased Aircraft and, at its expense, to maintain, service, repair and
overhaul the Leased Aircraft so as to keep the Leased 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
Transportation Code or, under certain circumstances, under the applicable
requirements of the aeronautical authority of another country of registry.
If, however, the Leased Aircraft loses its airworthiness certification and
such loss is curable, and the Corporation, using its reasonable 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 Leased 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 a
Leased Aircraft so long as such alterations, modifications or additions do not
materially decrease the value or utility of such Leased Aircraft or impair its
condition or airworthiness below its value, utility, condition and
airworthiness immediately prior to such alteration, modification or addition,
assuming that such Leased Aircraft 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 a
Leased 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 Leased Aircraft so long as such
removals do not decrease the utility, condition or airworthiness of such
Leased Aircraft or any such engine, although the value of such Leased Aircraft
or any such engine may be reduced by such removal. The applicable Prospectus
Supplement will contain a description of certain limitations, if any,
applicable to provisions described above.
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 Leased Aircraft, at its own
cost and expense, in such amounts, against such risks, with such deductibles
or 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
respective Leased 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 (including by way of deductibles and retentions) 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 a Leased Aircraft will
be named as insured parties under all insurance policies required by the
related Lease. The Indenture Trustee, Owner Trustee and 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 will be distributed to the Indenture
Trustee if the amount of such proceeds exceeds certain specified amounts. The
applicable Prospectus Supplement will contain 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
Leased 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
and, in the case of Leased Aircraft Certificates, each Owner Participant and
each Owner Trustee, and certain parties affiliated with the foregoing (but not
including holders of the Equipment 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, duties, withholdings and for certain other
matters relating to such transactions or the applicable Aircraft. Subject to
certain restrictions, each Owner Participant may convey all of its right,
title and interest relating to any Leased Aircraft. Moreover, if so provided
in the applicable Prospectus Supplement, in certain limited instances the
Corporation may assume an Owner Trust's obligations under the related Leased
Aircraft 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 disposition of
the Pass Through Certificates to the initial purchasers thereof at the "issue
price" who hold such Pass Through Certificates as a capital asset, 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, financial
institutions, dealers in securities and foreign investors) may be subject to
special rules. 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 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 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
Certificates and any other property held in the related Pass Through Trust, in
accordance with such Certificateholder's method of accounting.
A purchaser of an interest in a Pass Through Certificate will be
treated as purchasing an interest in each Equipment 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
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 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 Certificates held in such Pass Through Trust
in proportion to their respective principal amounts.
If an Equipment Certificate held by a Pass Through Trust is prepaid,
a Certificateholder will be considered to have sold his pro rata share of that
Equipment Certificate, and will recognize gain or loss equal to the difference
between its aggregate adjusted basis in the Equipment 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). Any such gain or loss will be long-term capital gain or loss if
the Equipment 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
Leased Aircraft 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
Leased Aircraft Certificates. However, if the Corporation were to assume an
Owner Trust's obligations under the related Leased Aircraft Certificates upon
a purchase of the related Aircraft by the Corporation, or an Owner Trust were
to assume the Company's obligations under Owned Aircraft Certificates upon a
conversion of an Owned Aircraft to a Leased Aircraft, such assumption would be
treated for federal income tax purposes as a taxable exchange of the
respective Equipment Certificates resulting in the recognition of taxable gain
or loss under the rules discussed above. For this purpose the amount
realized, as determined under current Treasury regulations on original issue
discount, will be equal to the fair market value of the Certificateholder's
pro rata share of the respective Equipment Certificates at such time.
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.
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 withheld 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
corporate trust offices in 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 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.
Offers to purchase Pass Through Certificates may be solicited
directly and the sale thereof may be made directly to institutional investors
or others, who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale thereof. The terms of any such
sales will be described in the Prospectus Supplement relating thereto.
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.
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, 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 George W. Hearn, Vice President - Law of the Corporation, as to the
Corporation's authorization, execution and delivery of the Pass Through
Agreement. At August 9, 1995, Mr. Hearn owned zero shares of the
Corporation's common stock and had been granted options to purchase 14,675
shares of the Corporation's common stock. Of the options granted, 5,250 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, 1995 and incorporated by
reference herein, have been audited by Arthur Andersen LLP, 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 giving said reports.
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No dealer, salesperson or other individual has been
authorized to give any information or to make any
representation 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 representation 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 or thereunder 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.
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Prospectus Summary..................................... S-3
Federal Express Corporation............................ S-8
Use of Proceeds........................................ S-8
Description of the Pass Through Certificates........... S-8
Description of the Equipment Trust Certificates........ S-11
Underwriting........................................... S-29
Legal Matters.......................................... S-30
Glossary of Certain Terms.............................. A-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........... 8
Description of the Equipment Certificates.............. 22
Federal Income Tax Consequences........................ 31
Certain South Carolina Taxes........................... 32
ERISA Considerations................................... 33
Plan of Distribution................................... 33
Legal Matters.......................................... 34
Experts................................................ 34
$122,816,000
[LOGO]
$ 1995 Pass Through Certificates, Series A1
$ 1995 Pass Through Certificates, Series A2
---------------------
PROSPECTUS SUPPLEMENT
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Merrill Lynch & Co.
Chase Securities, Inc.
August , 1995
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APPENDIX A
A diagram is included following the third paragraph of "Diagram of
Payments." The diagram contains boxes representing the parties identified
in the first paragraph of "Diagram of Payments," which are connected by
arrows demonstrating the cash flows described in each of the second and
third paragraphs.
