<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 33-56569
SUBJECT TO COMPLETION, DATED MAY 29, 1996
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MAY 14, 1996
$192,000,000
[LOGO OF FED EX APPEARS HERE]
1996 PASS THROUGH TRUSTS
1996 PASS THROUGH CERTIFICATES, SERIES A1
1996 PASS THROUGH CERTIFICATES, SERIES A2
-----------
The Pass Through Certificates offered hereby consist of Federal Express
Corporation 1996 Pass Through Certificates, Series A1 in the aggregate amount
of $ , and Federal Express Corporation 1996 Pass Through Certificates,
Series A2 in the aggregate amount of $ , which will represent
fractional undivided interests in the Federal Express Corporation Pass Through
Trust, 1996-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 between Federal Express
Corporation (the "Corporation") and State Street Bank and Trust Company, not in
its individual capacity but solely as the Pass Through Trustee under such Pass
Through Trust.
The property of each Pass Through Trust will, except as provided below,
consist of Equipment Trust Certificates from each of two separate series of
Equipment Trust Certificates being issued by the Owner Trustee for each of
three separate Owner Trusts to finance or refinance a portion of the purchase
price paid or to be paid by the Owner Trustee for each such Owner Trust of one
McDonnell Douglas MD-11F aircraft and two Airbus A300F4-605R aircraft (each,
and collectively, the "Aircraft"). The McDonnell Douglas MD-11F aircraft was
delivered new to American Airlines in 1991 and was operated in American's
commercial passenger transportation service prior to purchase thereof by the
Corporation. This Aircraft was converted from passenger configuration to
freighter configuration and purchased by the related Owner Trustee in April
1996. One of the Airbus A300F4-605R aircraft was delivered new to the related
Owner Trustee in May 1996 and the other Airbus A300F4-605R aircraft is expected
to be delivered new to the Owner Trustee in June 1996. The Aircraft were, or
will be, 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 (the "Owner Trustee"), and will be purchased from the
Owner Trustee by the Pass Through Trustee.
(continued on following page)
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>
INITIAL
FINAL APPLICABLE PUBLIC
DISTRIBUTION AGGREGATE INTEREST OFFERING
PASS THROUGH CERTIFICATES DATE AMOUNT RATE PRICE (1)(2)
------------------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Series A1.................... $ % 100%
Series A2.................... 100
------------ ------------
Total........................ $192,000,000 $192,000,000
</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 vary by Series and aggregate $ . 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 of 1933, as amended (the "Securities
Act").
-----------
The Pass Through Certificates are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any orders in whole or in part. It is expected that
delivery of the Pass Through Certificates in book-entry form will be made
through the facilities of the Depository Trust Company against payment therefor
in immediately available funds on or about June , 1996.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
MORGAN STANLEY & CO.
INCORPORATED
-----------
The date of this Prospectus Supplement is June , 1996.
<PAGE>
(continued from previous page)
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, except as described below,
the amounts payable by the Corporation under the Lease for each Aircraft and
amounts payable by the Corporation while the proceeds of the sale of the
related Equipment Trust Certificates are held in the Collateral Account will
be sufficient to pay in full when due all principal of and interest and any
premium on the related Equipment Trust Certificates.
During the period between the date of issuance of Equipment Trust
Certificates by the Owner Trustee for one of the Owner Trusts and the delivery
date of the related Aircraft, which is expected to occur in June 1996, such
Equipment Trust Certificates will not be secured by such Aircraft or the
related Lease, but will be secured by the Collateral Account. Pursuant to the
related Indenture, the Owner Trustee will deposit the proceeds from the sale
of the related Equipment Trust Certificates into the Collateral Account for
the benefit of the related Indenture Trustee. Sums deposited in the Collateral
Account will be invested in: (a) direct obligations of the United States of
America or obligations fully guaranteed by the United States of America; (b)
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 hightest rating assigned by such voting organization; (c)
overnight federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers; and (d) overnight repurchase
agreements with respect to the securities described in clause (a) above
entered into with an office of a bank or trust company which is located in the
United States of America of any bank or trust company which is organized under
the laws of the United States or any state thereof and has capital, surplus
and undivided profits aggregating at least $500 million. The Corporation will
pay to the Indenture Trustee on demand any losses on such investments. On the
delivery date of such Aircraft, upon satisfaction or waiver of the conditions
to the Indenture Trustee's release of amounts in the Collateral Account, the
Indenture Trustee will release such amounts. Such amounts will be applied by
the Indenture Trustee in accordance with the related Participation Agreement
to pay a portion of the purchase price for such Aircraft on the delivery date
thereof.
The Corporation will pay to the Indenture Trustee on such delivery date the
excess, if any, of the portion of the purchase price for such Aircraft
required to be paid by the Indenture Trustee over the amounts released from
the Collateral Account. The Corporation is obligated to cause the proceeds of
the Equipment Trust Certificates to be utilized to acquire such Aircraft in
all circumstances other than the failure of the manufacturer to deliver such
Aircraft. Accordingly, if the related Owner Participant does not make
available its portion of the purchase price on the delivery date of such
Aircraft or the Corporation does not enter into the related Lease on or prior
to the Cut-off Date (defined herein) for any reason other than the failure of
the manufacturer to deliver such Aircraft, the Corporation will purchase such
Aircraft and assume on a fully recourse basis all of the obligations of the
Owner Trustee under the related Equipment Trust Certificates pursuant to an
indenture containing terms substantially identical to those contained in the
Leases and Indentures described herein. In such case, the Indenture Trustee
will release the amounts in the Collateral Account to the Corporation to pay a
portion of the purchase price for such Aircraft.
Interest paid on the Equipment Trust Certificates held in each Pass Through
Trust will be passed through to the related Certificateholders on each January
30 and July 30, commencing on July 30, 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 30 or July 30, 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.
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of more detailed information contained elsewhere
in this Prospectus Supplement and the accompanying Prospectus and should be
read only in conjunction with this Prospectus Supplement and the Prospectus.
THE OFFERING
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 8
of the Prospectus.
THE OFFERING........... The Pass Through Certificates offered hereby consist
of Federal Express Corporation 1996 Pass Through
Certificates, Series A1 (the "Series A1 Pass Through
Certificates") in the aggregate amount of $
, and Federal Express Corporation
1996 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 1996-A1 and
Federal Express Corporation Pass Through Trust 1996-
A2, respectively (each a "Pass Through Trust"), to be
formed pursuant to the Pass Through Trust Agreement
dated as of February 1, 1993, as amended and restated
as of October 1, 1995 (the "Pass Through Agreement")
as supplemented by Series Supplement 1996-A1 or Series
Supplement 1996-A2 (each a "Series Supplement"), as
the case may be, between the Corporation and State
Street Bank and Trust Company, 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, except as provided
herein, 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
to finance or refinance the debt portion of the
purchase price paid or to be paid by the Owner Trustee
on behalf of each of three separate Owner Trusts for
one McDonnell Douglas MD-11F aircraft and two Airbus
A300F4-605R aircraft,
S-3
<PAGE>
which were leased, or will be leased (unless the
Corporation is required to purchase the Aircraft as
described herein), to the Corporation in three
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.
CERTIFICATES OFFERED:
BOOK-ENTRY
REGISTRATION........... 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 person
acquiring a beneficial ownership interest in a Pass
Through Certificate will be entitled to receive a
certificate in certificated form representing such
person's interest in the related Pass Through Trust,
except in the limited circumstances described in
"Description of the Pass Through Certificates--Book-
Entry Procedures--Certificated Form" in the
Prospectus.
DENOMINATIONS.......... The Pass Through Certificates of each Pass Through
Trust will be issued in minimum denominations of
$1,000 or any integral multiple thereof.
REGULAR DISTRIBUTION
DATES.................. January 30 and July 30, commencing on July 30, 1996.
SPECIAL DISTRIBUTION
DATES.................. The thirtieth 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........... January 15 and July 15 for the January 30 and July 30
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 30 and July 30, commencing on July 30,
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 of such Equipment Trust
Certificates are scheduled to be received in specified
amounts on January 30 or July 30, 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
, ,
S-4
<PAGE>
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.......... Under the terms of the Pass Through Agreement, the
Corporation and the Pass Through Trustee will treat
the persons in whose names the Pass Through
Certificates are registered as the owners of such Pass
Through Certificates for the purpose of receiving
payments of principal and interest on such Pass
Through Certificates and for all other purposes
whatsoever. Therefore, neither the Corporation nor the
Pass Through Trustee has any direct responsibility or
liability for distributions or payments to owners of
beneficial interests in the Pass Through Certificates.
So long as the Pass Through Certificates are
registered in the name of Cede, as nominee of DTC,
distributions by the Pass Through Trustee, including
the final distribution of principal with respect to
the Pass Through Certificates of any Pass Through
Trust, will be made in immediately available funds to
DTC. See "Description of Pass Through Certificates--
Book-Entry Procedures--Same-Day Settlement and
Payment" in the Prospectus. DTC will in turn make
distributions in immediately available funds to those
participants in DTC who are credited with ownership of
the Pass Through Certificates ("DTC Participants") in
amounts proportionate to the amount of each such DTC
Participant's respective holdings of beneficial
interests in such Pass Through Certificates.
Corresponding payments by the DTC Participants to
beneficial owners of the Pass Through Certificates
will be the responsibility of such DTC Participants
and will be made in accordance with customary industry
practices. See "Description of the Pass Through
Certificates--Book-Entry Procedures" in the
Prospectus.
At such time, if ever, as the Pass Through
Certificates are issued in certificated form and not
registered in the name of Cede, as nominee for DTC,
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
S-5
<PAGE>
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.
PREDELIVERY FUNDING.... For one of the Indentures, the Aircraft related
thereto will not have been delivered on the date of
the issuance of the related Equipment Trust
Certificates. Such Aircraft is expected to be
delivered in June 1996. The Corporation is obligated
to cause the proceeds of the Equipment Trust
Certificates issued under such Indenture to be
utilized to acquire such Aircraft in all circumstances
other than the failure of the manufacturer to deliver
such Aircraft. Accordingly, if the Owner Participant
does not make available its committed portion of the
purchase price for such Aircraft on the delivery date
thereof or the Corporation does not enter into the
related Lease on or prior to the Cut-off Date for any
reason other than the failure of the manufacturer to
deliver such Aircraft, the Corporation will purchase
such Aircraft and assume, on a fully recourse basis,
all of the obligations of the Owner Trustee under the
related Equipment Trust Certificates.
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 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 July 30, 2001 (the
earliest date under any 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.
S-6
<PAGE>
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.
<TABLE>
<CAPTION>
PREMIUM
TERMINATION
TRUST DATE
----- -----------
<S> <C>
1996-A1...................................
1996-A2...................................
</TABLE>
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 (A) 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 and (B) prepayment
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, in
the case of one Indenture, the manufacturer of the
related Aircraft has not delivered such Aircraft on or
prior to the Cut-off Date.
EQUIPMENT TRUST CERTIFICATES:
SECURITY.............. Except as provided below, the principal amount of the
related Equipment Trust Certificates, premium, if any,
and interest thereon will be secured by a security
interest in each 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.
S-7
<PAGE>
In the case of the Indenture subject to the
Predelivery Funding described above, the principal
amount of the Equipment Trust Certificates issued by
the Owner Trustee under such Indenture will be secured
prior to delivery of the related Aircraft by the
Collateral Account, which will be funded by the
proceeds of the sale of such Equipment Trust
Certificates. Funds deposited in the Collateral
Account will be invested in obligations of, or
guaranteed by, the United States of America and
certain other Specified Investments described herein.
The Corporation will pay to the Indenture Trustee any
losses on such specified investments. Earnings on such
Collateral Account will be paid to the Corporation and
the Corporation will pay to the Indenture Trustee on
the Regular Distribution Date falling on or closest to
July 30, 1996 interest due on the related Equipment
Trust Certificates accrued for the period from the
date of issuance of such Equipment Trust Certificates
to, but excluding, the delivery date of such Aircraft.
Amounts in the Collateral Account will be released on
the delivery date of such Aircraft and used to fund a
portion of the purchase price to be paid by either the
Owner Trustee on such date or, if the Corporation is
required to purchase such Aircraft as provided above,
the Corporation on such date. The Corporation will pay
to the Indenture Trustee on such delivery date the
excess, if any, of the portion of the purchase price
for such Aircraft required to be paid by the Indenture
Trustee over the amounts released from the Collateral
Account. If such Equipment Trust Certificates are
subject to prepayment on the Cut-off Date as provided
above, the Corporation will be obligated to pay to the
Indenture Trustee, together with any losses on the
investments in the Collateral Account, such additional
amounts as will be required to pay the amount of
interest accrued on such Equipment Trust Certificates
through the Cut-off Date.
There will be no cross-collateralization provisions in
the Indentures and, consequently, the Equipment Trust
Certificates issued in respect of any one Aircraft
will not be secured by any 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 any other Indenture. If the
Equipment Trust Certificates issued in respect of any
one 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,
except as described above, the amounts payable by the
Corporation under the Lease for each Aircraft and
amounts payable by the Corporation while the proceeds
S-8
<PAGE>
of the sale of the related Equipment Trust
Certificates are held in the Collateral Account
(together with the amounts in the Collateral Account)
will be sufficient to pay in full when due all
principal of and interest and any premium on the
related Equipment Trust Certificates.
THE PASS THROUGH TRUSTEE;
THE INDENTURE
TRUSTEE................ State Street Bank and Trust Company will be the Pass
Through Trustee for each Pass Through Trust and the
Paying Agent, Authenticating Agent and Registrar for
the Pass Through Certificates. In addition, State
Street Bank and Trust Company 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... The Pass Through Certificates are eligible for
purchase by an employee benefit plan subject to Title
I of ERISA or individual retirement account or plan
subject to Section 4975 of the Code, or any trust
established under any such plan or account
(hereinafter collectively referred to as an "ERISA
Plan") if such ERISA Plan determines that an
administrative or a statutory exemption from the
prohibited transaction rules under Section 406 of
ERISA and Section 4975 of the Code is applicable to
its purchase and holding of the Pass Through
Certificates, or such ERISA Plan determines that its
purchase and holding of the Pass Through Certificates
will not result in a prohibited transaction.
A fiduciary of an ERISA Plan contemplating the
purchase of any Pass Through Certificate should
carefully consider how the purchase will relate to the
plan's investment portfolio and whether a prohibited
transaction could result from such purchase. Certain
governmental and non-electing church plans which are
not subject to Title I of ERISA or Section 4975 of the
Code must determine the availability of exemptive
relief, if necessary, under federal, state or local
laws for their investment in the Pass Through
Certificates. See "ERISA Considerations" in this
Prospectus Supplement.
S-9
<PAGE>
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 for each of three separate
Owner Trusts under a separate trust indenture and security agreement between
State Street Bank and Trust Company, not in its individual capacity but solely
as the indenture trustee (the "Indenture Trustee"), and the Owner Trustee
(each, an "Indenture").
For one of the Aircraft, the proceeds from the sale of the related Equipment
Trust Certificates will be used to finance a portion of the purchase price to
be paid by the Owner Trustee on behalf of the related Owner Trust (or, in
certain circumstances, by the Corporation) for such Aircraft, unless the
manufacturer fails to deliver such Aircraft by the Cut-off Date. For the other
two Aircraft, the proceeds from the sale of the related Equipment Trust
Certificates will be used by the Owner Trustee to refinance 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, and in respect of one
of such Aircraft, the Owner Trustee will apply $ from the proceeds of the
sale of the related Equipment Trust Certificates to reduce the original equity
portion of the purchase price for such Aircraft. The aggregate principal
amount of such original loan certificates is $62,021,500 and $62,653,800 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 October 21, 2013 and July 30, 2019, respectively. Morgan
Guaranty Trust Company of New York, an affiliate of one of the Underwriters,
will receive approximately $24,900,000 of the proceeds of this offering in
repayment of the outstanding loan certificates. See "Underwriting" in this
Prospectus Supplement.
The aggregate principal amount of the Equipment Trust Certificates related
to each Aircraft will not exceed 80% of the purchase price paid or to be 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 or
will provide, from sources other than the related Equipment Trust
Certificates, at least 20% of the purchase price paid or to be 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.
For one Indenture, the Aircraft related thereto will not have been delivered
on the date of the issuance of the related Equipment Trust Certificates. Such
Aircraft is expected to be delivered in June 1996. The Corporation is
obligated to cause the proceeds of the Equipment Trust Certificates issued
under such Indenture to be utilized to acquire such Aircraft in all
circumstances other than the failure of the manufacturer to deliver such
Aircraft. Accordingly, if the related Owner Participant does not make
available its portion of the purchase price for such Aircraft on the delivery
date thereof or the Corporation does not enter into the related Lease on or
prior to the Cut-off Date for any reason other than the failure of the
manufacturer to deliver such Aircraft, the Corporation will purchase such
Aircraft using such proceeds and its own funds and assume, on a fully recourse
basis, all of the obligations of the Owner Trustee under the related Equipment
Trust Certificates. If the assumption described in the preceding sentence
occurs, the Equipment Trust Certificates will be "Owned Aircraft Certificates"
as described in the Prospectus and the provisions applying to "Owned Aircraft"
as so described will be applicable to such Aircraft.
S-10
<PAGE>
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
and to the provisions of each Series Supplement. The Pass Through Agreement
and 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, 1996-A1 and Federal Express
Corporation Pass Through Trust, 1996-A2 to be formed pursuant to the Pass
Through Agreement and Series Supplement 1996-A1 or Series Supplement 1996-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, the Premium Termination Date 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 Pass Through Certificates will be issued in fully registered form only.
Each Pass Through Certificate will represent a fractional undivided interest
in the Pass Through Trust pursuant to which such Pass Through Certificate is
issued. The property of each Pass Through Trust will include the Equipment
Trust Certificates, 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 Equipment Trust
Certificates held in the related Pass Through Trust and will be issued only in
minimum denominations of $1,000 or any integral multiple thereof. (Pass
Through Agreement, Article II)
The Pass Through Certificates will be issued pursuant to a book-entry system
and will be registered in the name of Cede as the nominee of DTC. No owner of
a beneficial interest in the Pass Through Certificates will be entitled to
receive a certificate representing such person's interest, except as set forth
in the Prospectus. Unless and until certificates are issued in certificated
form under the circumstances described in the Prospectus, all references to
actions by Certificateholders refer to actions taken by DTC upon instructions
from DTC Participants (as defined in the Prospectus), and all references
herein to distributions, notices, reports and statements to Certificateholders
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 owners of a beneficial interest in the
Pass Through Certificates in accordance with DTC procedures. (Pass Through
Agreement, Section 2.12) See "Description of the Pass Through Certificates--
Book-Entry Procedures" in the Prospectus.
S-11
<PAGE>
The Regular Distribution Dates for each Pass Through Trust are January 30
and July 30. 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 30 and July 30, commencing on July 30, 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 of the Equipment Trust Certificates held in each Pass
Through Trust are scheduled to be received in specified amounts on January 30
or July 30, 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 January 15 and July 15. 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
thirtieth 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)
At such time, if ever, as the Pass Through Certificates are issued in
certificated form, 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 New York, New York, 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
The Pass Through Trustee will be the Paying Agent, Authenticating Agent and
Registrar for each Pass Through Trust and the Indenture Trustee under each of
the Indentures pursuant to which the Equipment Trust Certificates will be
issued.
S-12
<PAGE>
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 of 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, PASS THROUGH TRUST,
1996-A1 1996-A2
------------------- -------------------
SCHEDULED SCHEDULED
PRINCIPAL PRINCIPAL
PAYMENTS ON PAYMENTS ON
REGULAR EQUIPMENT EQUIPMENT
DISTRIBUTION TRUST POOL TRUST POOL
DATES CERTIFICATES FACTOR CERTIFICATES FACTOR
- ------------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C>
$ $
</TABLE>
S-13
<PAGE>
DESCRIPTION OF THE EQUIPMENT TRUST CERTIFICATES
The following description of the particular terms of the Equipment Trust
Certificates supplements, and to the extent inconsistent therewith replaces,
the description of the general terms and provisions of the Equipment Trust
Certificates set forth in the Prospectus, reference to which is hereby made.
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in
their entirety by reference to, the provisions of the Indentures, the
Equipment Trust Certificates, the Leases, the Participation Agreements, the
Trust 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 post-effective amendment to the Registration Statement or a Current Report
on Form 8-K to be filed by the Corporation with the Commission in connection
with this offering. The provisions of the Indentures, the Equipment Trust
Certificates, the Leases 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, except as described above, will be
nonrecourse obligations of the Owner Trustee, in each case acting for the
Owner Trust for the benefit of the related Owner Participant, and will be
authenticated under an Indenture by the Indenture Trustee. Although the
Equipment Trust Certificates will not be obligations of, or guaranteed by, the
Corporation, except as described above, the amounts payable by the Corporation
under the Lease for each Aircraft and amounts payable by the Corporation while
the proceeds of the sale of the related Equipment Trust Certificates are held
in the Collateral Account (together with the amounts in the Collateral
Account) will be sufficient to pay in full when due all principal of and
interest and any premium on the related Equipment Trust Certificates.
For each of the Owner Trusts, 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 Owner Trust, as such Equipment Trust Certificates will be held
in each of the Pass Through Trusts, are as follows:
<TABLE>
<CAPTION>
PASS THROUGH PASS THROUGH
TRUST TRUST
1996-A1 1996-A2
% %
EQUIPMENT EQUIPMENT
AIRCRAFT TRUST TRUST TOTAL PER
DESIGNATION CERTIFICATES CERTIFICATES AIRCRAFT
----------- ------------ ------------ ------------
<S> <C> <C> <C>
1. Federal Express Corporation
Trust No. N582FE...................... $ $ $
2. Federal Express Corporation
Trust No. N668FE......................
3. Federal Express Corporation
Trust No. N669FE .....................
------------ ------------ ------------
Total................................. $ $ $192,000,000
============ ============ ============
</TABLE>
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 30 and July 30, commencing on July
30, 1996, until the final distribution date for such Pass Through Trust.
Interest on the Equipment Trust
S-14
<PAGE>
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 30
or July 30, 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 on the following page.
PASS THROUGH TRUST, 1996-A1
% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION AIRCRAFT AIRCRAFT AIRCRAFT AGGREGATE
DATES NO. 1 NO. 2 NO. 3 TOTAL
------------ -------- -------- -------- ---------
<S> <C> <C> <C> <C>
$ $ $ $
-------- -------- -------- --------
Total.................................... $ $ $ $
======== ======== ======== ========
</TABLE>
S-15
<PAGE>
PASS THROUGH TRUST, 1996-A2
% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION AIRCRAFT AIRCRAFT AIRCRAFT AGGREGATE
DATES NO. 1 NO. 2 NO. 3 TOTAL
------------ -------- -------- -------- ---------
<S> <C> <C> <C> <C>
$ $ $ $
-------- -------- -------- --------
Total.................................... $ $ $ $
======== ======== ======== ========
</TABLE>
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)
PREFUNDING PERIOD
During the period between the date of issuance of the related Equipment
Trust Certificates and the delivery date of one Airbus A300F4-605R aircraft,
the related Equipment Trust Certificates will not be secured by such Aircraft
or the related Lease, but will be secured by the Collateral Account. Pursuant
to the related Indenture, the Owner Trustee will deposit the proceeds from the
sale of the related Equipment Trust Certificates into the Collateral Account
for the benefit of the related Indenture Trustee.
Funds deposited in the Collateral Account will be invested in: (a) direct
obligations of the United States of America or obligations fully guaranteed by
the United States of America; (b) 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 hightest rating assigned by
such voting organization; (c) overnight federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers; and
(d) overnight repurchase agreements with respect to the securities described
in clause (a) above entered into with an office of a bank or trust company
which is located in the United States of America of any bank or trust company
which is organized under the laws of the United States or any state thereof
and has capital, surplus and undivided profits aggregating at least $500
million. The Corporation will pay to the Indenture Trustee any losses on such
investments. On the delivery date of such Aircraft, upon satisfaction or
waiver of the conditions to the Indenture Trustee's release of amounts in the
Collateral Account, the Indenture Trustee shall release such amounts. Such
amounts will be applied by the Indenture Trustee in accordance with the
related Participation Agreement to pay a portion of the purchase price for
such Aircraft on the delivery date thereof. The Corporation will pay to the
Indenture Trustee on such delivery date the excess, if any, of the portion of
the purchase price for such Aircraft required to be paid by the Indenture
Trustee over the amounts released from the Collateral Account net of
investment earnings (which will be paid to the Corporation). (Indenture,
Sections 2.13, 2.14 and 2.15; Participation Agreement, Section 17.02 for
Federal Express Corporation Trust No. N669FE)
S-16
<PAGE>
If the related Owner Participant does not make available its portion of the
purchase price on the delivery date of such Aircraft or the Corporation does
not enter into the related Lease on or prior to the Cut-off Date for any
reason other than the failure of the manufacturer to deliver such Aircraft,
the Corporation will purchase such Aircraft and assume on a fully recourse
basis all of the obligations of the Owner Trustee under the related Equipment
Trust Certificates pursuant to an indenture containing terms substantially
identical to those contained in the Leases and Indentures described herein. In
such case, the Indenture Trustee will release the amounts in the Collateral
Account to the Corporation to pay a portion of the purchase price for such
Aircraft. (Participation Agreement, Section 3.05 for Federal Express
Corporation Trust No. N669FE)
If such Equipment Trust Certificates are subject to prepayment on the Cut-
off Date as provided below, the Corporation will be obligated to pay to the
Indenture Trustee, together with any losses on the investments in the
Collateral Account, such additional amounts as will be required to pay the
amount of interest accrued on such Equipment Trust Certificates through the
Cut-off Date. (Participation Agreement, Section 17.02 for Federal Express
Corporation Trust No. N669FE)
PREPAYMENT
Prepayment with Premium. For any Aircraft, the related Equipment Trust
Certificates will be prepaid in whole, but not in part, (i) at any time 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 July 30, 2001 (the earliest date under any 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 1996-A1 Trust and , , in the case of Equipment Trust
Certificates held in the Series 1996-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 (excluding interest accrued from the
immediately preceding payment date to the date of prepayment) 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
S-17
<PAGE>
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 thirtieth day
of any month upon not less than 15 days' notice of such prepayment or
purchase. 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, Section 6.02)
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 thirtieth
day of any month upon not less than
S-18
<PAGE>
15 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)
In addition, in the case of one Indenture, if the related Aircraft has not
been delivered by the manufacturer thereof by the Cut-off Date, then the
Equipment Trust Certificates issued under such Indenture will be prepaid in
full on the fifteenth day after the Cut-off Date. On such date, the Indenture
Trustee will apply the proceeds of the Collateral Account together with the
amounts required to be paid by the Corporation to pay the aggregate principal
amount of such Equipment Trust Certificates, together with accrued interest
thereon. (Indenture, Section 2.16 for Federal Express Corporation Trust No.
N669FE)
INVESTMENT OF FUNDS
The proceeds from the sale of the Equipment Trust Certificates deposited in
the Collateral Account will be invested in Specified Investments. "Specified
Investments" mean any of the following: (a) direct obligations of the United
States of America or obligations fully guaranteed by the United States of
America; (b) 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 hightest rating assigned by such voting
organization; (c) overnight federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers; and (d) overnight
repurchase agreements with respect to the securities described in clause (a)
above entered into with an office of a bank or trust company which is located
in the United States of America of any bank or trust company which is
organized under the laws of the United States or any state thereof and has
capital, surplus and undivided profits aggregating at least $500 million. The
Corporation will pay to the Indenture Trustee any losses on such Specified
Investments. Such Specified Investments must mature within two weeks of the
scheduled delivery date for the related Aircraft. If Specified Investments are
not available on any day on which funds are to be invested, the Indenture
Trustee may leave such funds in the Collateral Account until the earliest of
(i) the date on which an appropriate Specified Investment becomes available,
(ii) the delivery date and (iii) the Cut-off Date. If the delivery date is
postponed, the proceeds of such investments maturing prior to such postponed
delivery date will be invested in Specified Investments and any such Specified
Investments must mature within two weeks of the rescheduled delivery date or,
if no notice of rescheduled delivery date has been given, within two weeks of
the Cut-off Date. (Indenture, Section 2.14 for Federal Express Corporation
Trust No. N669FE)
Funds (other than funds in the Collateral Account), 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 (the
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longest period under any Indenture) 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
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 Indentures.
If a Lease Event of Default occurs under the related Lease as a result of
the Corporation's failure to make any scheduled rental payment under such
Lease and the Owner Trustee pays all principal and interest on the related
Equipment Trust Certificates then due (as well as any interest on overdue
principal and interest, but not including any principal or interest becoming
due on account of such Lease Event of Default) 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 will not constitute an Indenture Event of
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Default under such Indenture and (ii) any declaration based solely thereon
will 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 will 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, except in the case of a default in the payment of
the principal of or interest on any related Equipment Trust Certificates, 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 officer of the Corporation obtaining
knowledge of any condition or event that constitutes a Lease Event of Default
(or event which with the giving of notice, lapse of time, or both, would
constitute 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 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
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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 the related 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, in the case of two
Indentures, any other Lease Event of Default in respect of which the 30-day
period referred to in clause (a)(1)(B)(ii)(I) of Section 1110 of the
Bankruptcy Code shall not have expired) 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. No Make-Whole Premium is payable upon any such
acceleration. 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 or the
securities in the Collateral Account, as the case may be, is or are owned by
the Owner Trustee in trust, such Aircraft and the related Lease or such
securities, as the case may be, and Equipment Trust Certificates might become
part of the bankruptcy proceeding.
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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 or such securities, as the case may be.
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.
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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.
The marketability of a particular aircraft will also 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;
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(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. The McDonnell Douglas MD-11F aircraft was delivered new to American
Airlines in 1991 and was operated in American's commercial passenger
transportation service prior to purchase thereof by the Corporation. This
Aircraft was converted from passenger configuration to freighter configuration
and purchased by the related Owner Trustee in April 1996. One of the Airbus
A300F4-605R aircraft was delivered new by the manufacturer and leased by the
Corporation from the related Owner Trustee in May 1996. The third Aircraft, an
Airbus A300F4-605R aircraft, is expected to be delivered in June 1996 by the
manufacturer and leased by the Corporation from the related Owner Trustee. If
for any reason, other than the failure of the manufacturer to deliver such
Aircraft, the Corporation does not enter into the related Lease, the
Corporation will purchase such Aircraft and assume on a fully recourse basis
all of the obligations of the Owner Trustee under the related Equipment Trust
Certificates and the related Indenture pursuant to an indenture containing
terms substantially identical to those contained in the Leases and Indentures
described herein. As of May 15, 1996, the Corporation operated 17 McDonnell
Douglas MD-11F aircraft and 15 Airbus A300F4-605R aircraft under lease.
Terms and Rentals. Two of the Aircraft have been, and the other Aircraft
will be (unless the Corporation is required to purchase such Aircraft as
described herein), 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
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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 30 and July 30, 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.
The Corporation will also pay to the Indenture Trustee on the Regular
Distribution Date falling on or closest to July 30, 1996 interest due on the
Equipment Trust Certificates relating to the Aircraft subject to the
predelivery funding accrued from the date of issuance thereof to but excluding
the delivery date of such Aircraft. (Participation Agreement, Section 17.02
for Federal Express Corporation Trust No. N669FE)
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, 2003, in the case of
two Aircraft and July 30, 2004, in the case of the other Aircraft). See
"Description of the Equipment Certificates--Registration of the Aircraft" in
the Prospectus. (Leases, Section 20.01; Participation Agreements, Section
6.03(b))
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, in the case
of two Aircraft, 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 or utility of the Airframe, or the value,
remaining useful life (in the case of one Aircraft) or 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
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the condition and state of 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 (i) after July 30, 2004, in the case of one Lease, and
at any time, in the case of the other two Leases, any Aircraft or any Engine
to certain United States air carriers; and (ii) after July 30, 2004, in the
case of one Lease, and December 31, 2003, in the case of the other two Leases,
any Aircraft and, in the case of two Leases, any Engines, to (x) certain air
carriers principally based in and domiciled in certain specified foreign
countries, or (y) any other air carrier that is reasonably acceptable to the
Owner Trustee as evidenced by its prior written consent, provided that, at the
time of any such sublease under this clause (ii) the Corporation satisfies
certain conditions precedent and the United States maintains normal diplomatic
relations with such country and, in the case of two Leases, such country is
not experiencing war or substantial civil unrest. The term of any such
sublease must expire not later than 180 days prior to the expiration of the
term of the related Lease, in the case of one Lease, and not prior to the
expiration of the term of the related Lease, in the case of the other two
Leases, and permitted sublessees 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)
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 risk 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 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;
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(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 risk 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
risk 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, in the case of one Lease, and aircraft and engines of
the same type and model, in the case of the other two Leases, 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 all-risk ground and
flight aircraft hull insurance required to be provided under such Lease, in
such reasonable amounts as are then applicable to other aircraft or engines of
the Corporation of value comparable to the Aircraft. Such self-insurance with
respect to all aircraft in the Corporation's fleet, 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, from
time to time of the Corporation's entire aircraft fleet. A standard deductible
per occurrence per aircraft, as is customary in the industry, in the case of
one Aircraft, and as imposed by the relevant insurer, in the case of the other
two Aircraft, is permitted in addition to such self-insurance. The Corporation
has agreed not to 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 in any area excluded from coverage by
any insurance policy required by the related Lease 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. For two Aircraft, the Corporation must
maintain war risk insurance if such Aircraft are operated in a war zone or a
recognized area of armed hostilities. For the other Aircraft, 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. In the case of one
Aircraft, if 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
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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 under the related Lease
shall have occurred and be continuing, the Corporation may on any scheduled
rent payment date under such Lease on or after July 30, 2001 (the earliest
date under any Lease) on at least 90 days' (the shortest period under any
Lease) prior written notice to the Owner Trustee, Indenture 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, in the case of two Aircraft, 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 will be paid to the Indenture Trustee. If the 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, and in the case of two Leases, on no more than one
occasion, may revoke its notice of termination with respect to such Aircraft
not less than ten
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days (the shortest notice period under any Lease) prior to the proposed
termination date. (Leases, Article 10)
The Corporation may, at any time upon 30 days' prior notice (unless, in the
case of one Lease, a Lease Event of Default is continuing), 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 (i) in the case of one Lease, commonly used in
the commercial aviation industry on MD-11F airframes and (ii) in the case of
the other two Leases, utilized by the Corporation on a significant number of
other Airbus A300-600 airframes operated by the Corporation (and then only if
certain other tests are met). (Leases, Article I; 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 July 30, 2017, in the case of two
Leases, and July 30, 2008 or July 30, 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 July 30, 2003, in the case of
two Leases, and July 30, 2001, in the case of the other Lease, to make non-
severable improvements to such Aircraft in excess of a certain designated
amount, or (iii) under certain circumstances, on a scheduled rent payment
date, if the Corporation would be required at any time on or after July 30,
2003, in the case of two Leases, and July 30, 2001, in the case of the other
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. 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.
(Indentures, Article I; Leases, Section 4.02)
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)
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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 (x) in the case of one Lease, incipient default or
(y) in the case of two Leases, 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.
(Leases, Sections 11.01, 11.02 and 11.03)
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 15th
day 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 manufactured after January 1, 1996, or a
McDonnell Douglas MD-11F airframe, as the case may be, 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. (Leases,
Sections 11.02 and 11.03)
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), and having a value, utility and, in the case of one
Lease, remaining useful life, at least equal to, and being in as good
operating condition as, such Engine, assuming such Engine was of the value,
utility and, in the case of one Lease, remaining useful life, 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 any replacement engine of a
different manufacturer than the original Engines on such Aircraft must then be
(i) the case of one Lease, commonly used in the commercial aviation industry
on MD-11F airframes and (ii) in the
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case of the other two Leases, utilized by the Corporation on a significant
number of other Airbus A300-600 airframes operated by the Corporation (and
then only if certain other tests are met). (Leases, Article I and 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 any Lease) due to theft or disappearance
(provided that, the specified periods may be extended up to an
additional 180 days (the longest period under any Lease) if and so long
as the location of such property is known to the Corporation and the
Corporation is pursuing recovery of such property) or (ii) for a period
in excess of 60 (the longest period under any Lease) 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, or (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, in the case of the two
Airbus A300 aircraft, and prohibited for any reason, in the case of the
McDonnell Douglas MD-11F aircraft, and such loss of use shall continue
for certain specified periods which could extend for up to 12 months
(the longest period under any Lease) or, under certain circumstances
such longer period not exceeding 24 months (the longest period under
any 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. (Leases, Article I
and Section 7.02)
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.
In the case of two Leases, 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)
above 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
five Business Days, in the case of
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one Lease, and ten Business Days, in the case of the other two Leases,
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 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 two Leases at
the discretion of such Owner Participant);
(c) (i)(x) failure by the Corporation to provide insurance on the related
Aircraft as required under such Lease at any time, or (y) the lapse or
cancellation of such insurance continued for the earlier of 30 days (or
with respect to war risk coverage, seven days or such shorter time as
may be standard in the industry) after receipt by the Owner Trustee of
notice of such lapse or cancellation and the date that such lapse or
cancellation is effective as to the Owner Trustee, provided that, for
one Lease, such lapse or cancellation under clause (y) will be a Lease
Event of Default unless the related Aircraft is grounded, not operated
and properly insured, and for two Leases, such failure, lapse or
cancellation under clause (x) or (y) 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) for two Leases, 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,
the Corporation has actual knowledge of such 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 (the longest period under any Lease)
after 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
remains material and unremedied for a period of 120 days (the longest
period under any Lease) after receipt by the Corporation of written
notice of, or in the case of one Lease, the Corporation has actual
knowledge of, such misstatement, except in the case of two Leases, the
Corporation has the benefit of the additional cure period only if such
representation or warranty was originally made by the Corporation in
good faith. (Leases, Article 16; Section 13.01)
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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 Leases.
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 (or, in the case of one Lease, fair rental 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, the Owner Participant and the Owner Trustee, and
certain parties affiliated with the foregoing (but not including the holders
of the Equipment Trust Certificates, except as otherwise provided in the Pass
Through Agreement, 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 reimburse the
Corporation, 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) and Trust Agreement, Article 5 for Federal Express Corporation Trust
No. N582FE)
REGISTRATION OF THE AIRCRAFT
The Aircraft have been or, in the case of one Aircraft, will be 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)
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The Corporation may, under certain circumstances and subject to certain
limitations, after December 31, 2003, in the case of two Aircraft, and after
July 30, 2004, in the case of the other Aircraft, register any Aircraft in
certain jurisdictions outside of the United States. (Participation Agreements,
Section 6.03(b)) See "Description of the Equipment Certificates--Registration
of the Aircraft" in the Prospectus.
CERTAIN MASSACHUSETTS TAXES
The summary set forth below is based upon applicable tax statutes,
regulations and rules promulgated thereunder, government agency rulings and
court decisions published to date, each of which is subject to change.
The Pass Through Trustee is a Massachusetts trust company with its principal
corporate trust office in Boston, Massachusetts. Bingham, Dana & Gould,
counsel to the Pass Through Trustee, has advised the Corporation that, in its
opinion, under currently applicable Massachusetts laws and assuming that the
Pass Through Trustee will not hold any legal or equitable title to, or lease,
any real or tangible personal property located in the Commonwealth of
Massachusetts and that each Pass Through Trust will not be taxable as a
corporation but rather will be classified as a grantor trust under subpart E,
Part I of Subchapter J of the Code: (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), governmental fee or similar charge imposed by the Commonwealth
of Massachusetts or any political subdivision thereof as a result of the
transactions contemplated by the Pass Through Agreement; and (ii)
Certificateholders who are not residents of, or otherwise subject to tax in or
by, the Commonwealth of Massachusetts 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), governmental
fee or similar charge imposed by the Commonwealth of Massachusetts or any
political subdivision thereof as a result of purchasing, holding (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. In general, should a Certificateholder or any Pass Through
Trust be subject to any state or local tax which would not be imposed if such
Pass Through Trust were administered in a different jurisdiction in the United
Sates or if the Pass Through Trustee were located in a different jurisdiction
in the United States, the Pass Through Trustee will either relocate the
administration of such Pass Through Trust to such other jurisdiction or resign
and, in the event of the Pass Through Trustee's resignation, a new Pass
Through Trustee in such other jurisdiction will be appointed.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to ERISA should consider
fiduciary standards under ERISA in the context of the particular circumstances
of such plan before authorizing an investment in the Pass Through
Certificates. Such fiduciary should determine whether the investment satisfies
ERISA's diversification and prudence requirements and whether the investment
is in accordance with the documents and instruments governing the plan. In
addition, ERISA and the Code prohibit a wide range of transactions
("Prohibited Transactions") involving the assets of a plan subject to ERISA or
the assets of an individual retirement account or plan subject to Section 4975
of the Code (hereinafter an "ERISA Plan") and persons who have certain
specified relationships to the ERISA Plan ("parties in interest," within the
meaning of ERISA and "disqualified persons," within the meaning of
S-35
<PAGE>
the Code). Such transactions may require "correction" and may cause the ERISA
Plan fiduciary to incur certain liabilities and the parties in interest or
disqualified persons to be subject to excise taxes.
Each of the Owner Participants, the manufacturer of the Aircraft, the
holders of the original loan certificates and the Corporation may be a party
in interest or a disqualified person with respect to an ERISA Plan purchasing
the Pass Through Certificates; therefore, the purchase by an ERISA Plan of the
Pass Through Certificates may give rise to a direct or indirect Prohibited
Transaction. Any person who is, or who in acquiring the Pass Through
Certificates is or may be using the assets of, an ERISA Plan may purchase the
Pass Through Certificates, if such person determines that a statutory or an
administrative exemption from the Prohibited Transaction rules discussed below
or otherwise available is applicable to such person's purchase and holding of
the Pass Through Certificates (or a participation interest therein), or such
person determines that its purchase and holding of the Pass Through
Certificates will not result in a Prohibited Transaction.
Certain statutory or administrative exemptions from the Prohibited
Transaction rules under ERISA and the Code may be available to an ERISA Plan
which is purchasing the Pass Through Certificates. Included among these
exemptions are: Prohibited Transaction Class Exemption ("PTE") 90-1, regarding
investments by insurance company pooled separate accounts; PTE 91-38,
regarding investments by bank collective investment funds; PTE 84-14,
regarding transactions effected by a qualified professional asset manager; or
PTE 95-60, regarding investments by insurance company general accounts.
Certain of the exemptions, however, do not afford relief from the Prohibited
Transaction rules under Section 406(b) of ERISA and Section 4975(c)(1)(E)-(F)
of the Code.
The United States Department of Labor (the "DOL") has granted Goldman, Sachs
& Co., J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated
administrative exemptions (Prohibited Transaction Exemption 89-88, Exemption
Application No. D-7573, 54 Fed. Reg. 42581 (1989), as amended, 55 Fed. Reg.
48939 (1990), Prohibited Transaction Exemption 90-23, Exemption Application
No. D-7989, 55 Fed. Reg. 20545 (1990) and Prohibited Transaction Exemption 90-
24, Exemption Application No. D-8019, 55 Fed. Reg. 20548 (1990), respectively
(collectively, the "Underwriter Exemptions")) from certain Prohibited
Transaction rules with respect to the purchase, the holding, and the
subsequent resale by an ERISA Plan of certificates in certain pass through
trusts, the assets of which consist of secured credit instruments that bear
interest, including qualified equipment notes secured by leases. The
Underwriter Exemptions include a number of important terms and conditions,
including the requirement that the certificates have, at the time of their
purchase by an ERISA Plan, a credit rating that is in one of the three highest
rating categories from Standard & Poor's Corporation, Moody's Investors
Service, Inc., Fitch Investor Service, Inc. or Duff & Phelps Inc. and that
each ERISA Plan purchasing any certificates be an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D under the Securities Act. The
Underwriter Exemptions provide limited exemptive relief for the acquisition
and holding of certificates by ERISA Plans sponsored by the so-called
"Restricted Group" (which for purposes of this offering would include the
Corporation, the Underwriters, the Pass Through Trustee, the Owner Trustees,
the Owner Participants or any of their affiliates) and for self-dealing or
conflict of interest Prohibited Transactions.
If an ERISA Plan acquires a Pass Through Certificate, the ERISA Plan's
assets may include both the Pass Through Certificate acquired and an undivided
interest in the underlying assets of the Pass Through Trust, unless the actual
investment by "benefit plan investors" in the Pass Through Certificates is not
"significant" within the meaning of the DOL plan assets regulations.
Consequently, the Pass Through Trust assets could be deemed to be "plan
assets" of such ERISA Plan for purposes of the fiduciary responsibility
provisions of ERISA and the Prohibited Transaction rules. Any person who
exercises any authority or control with respect to the management or
disposition of the assets of an ERISA Plan is considered to be a fiduciary of
such ERISA Plan. The Pass Through Trustee could, therefore, become a fiduciary
of ERISA Plans that have invested in the Pass Through Certificates and
S-36
<PAGE>
be subject to general fiduciary requirements of ERISA in exercising its
authority with respect to the management of the assets of the Pass Through
Trust. If the Pass Through Trustee becomes a fiduciary with respect to the
ERISA Plans purchasing the Pass Through Certificates, there may be an improper
delegation by such ERISA Plans of the responsibility to manage plan assets.
Any ERISA Plan purchasing the Pass Through Certificates must ensure that any
statutory or administrative exemption from the Prohibited Transaction rules on
which such ERISA Plan relies with respect to its purchase or holding of the
Pass Through Certificates also applies to such ERISA Plan's indirect holding
of the assets of the Pass Through Trust. See "Description of the Equipment
Trust Certificates--Prefunding Period" in this Prospectus Supplement for a
description of Specified Investments of the assets in the Collateral Account.
Governmental plans and certain church plans (each as defined under ERISA)
are not subject to the Prohibited Transaction rules. Such plans may, however,
be subject to federal, state or local laws or regulations which may affect
their investment in the Pass Through Certificates. Any fiduciary of such a
governmental or church plan considering a purchase of the Pass Through
Certificates must determine the need for, and the availability, if necessary,
of any exemptive relief under any such laws or regulations.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Any fiduciary of an ERISA Plan, governmental plan or church plan
considering the purchase and holding of the Pass Through Certificates should
consult with its legal advisors regarding the consequences of such purchase
and holding.
S-37
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") among the Corporation and Goldman, Sachs & Co.,
J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated (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.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL AGGREGATE
AGGREGATE AMOUNT OF PASS
AMOUNT OF THROUGH
UNDERWRITER EACH SERIES CERTIFICATES
----------- ------------- ---------------
<S> <C> <C>
Goldman, Sachs & Co......................... % $
J.P. Morgan Securities Inc..................
Morgan Stanley & Co. Incorporated...........
--- ------------
Total..................................... 100% $192,000,000
=== ============
</TABLE>
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.
<TABLE>
<CAPTION>
SERIES OF PASS CONCESSION REALLOWANCE
THROUGH CERTIFICATES TO DEALERS CONCESSION
-------------------- ---------- -----------
<S> <C> <C>
Series A1.......................................... % %
Series A2.......................................... % %
</TABLE>
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 and certain of its affiliates have performed, and
may in the future perform, commercial banking and investment banking services
for the Corporation in the ordinary course of business.
Morgan Guaranty Trust Company of New York, 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. See "Use of Proceeds" in this
Prospectus Supplement. 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.
S-38
<PAGE>
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 Bingham, Dana & Gould, counsel for State Street Bank and Trust Company, as
Pass Through Trustee and in its individual capacity, as to the authorization,
execution and delivery of each Series Supplement and the Pass Through
Certificates by State Street Bank and Trust Company. At May 15, 1996, Mr.
Hearn owned no shares of the Corporation's common stock and held options to
purchase 15,800 shares of such common stock. Of the options granted, 3,750
were vested at such date.
S-39
<PAGE>
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 one McDonnell Douglas MD-11F aircraft and two
Airbus A300F4-605R aircraft, including the Engines relating thereto, leased,
or to be leased, by the Owner Trustee to the Corporation pursuant to one of
three separate Leases, and, collectively, means all of the foregoing.
"Authenticating Agent" means, for each Pass Through Trust, State Street Bank
and Trust Company.
"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 or Memphis, Tennessee are authorized
or required by law to close.
"Cede" means Cede & Co., as nominee for DTC.
"Certificateholder" means, for any Pass Through Trust, the registered holder
of any Pass Through Certificate issued by such Pass Through Trust and, with
respect to the discussion under "Certain Massachusetts Taxes" in the
Prospectus Supplement and "Federal Income Tax Consequences" in the Prospectus,
also means persons having a beneficial interest in a Pass Through Certificate.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Collateral Account" means the Collateral Account established pursuant to
the Indenture for Federal Express Corporation Trust No. N669FE into which the
proceeds of sale of the related Equipment Trust Certificates will be
deposited.
"Commission" means the Securities and Exchange Commission of the United
States.
"Cut-off Date" means September 30, 1996.
"DTC" means The Depository Trust Company.
"Engine" means, for the McDonnell Douglas MD-11F aircraft, each of three
General Electric CF6-80C2-D1F engines, and for each Airbus A300F4-605R
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 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.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"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.
A-1
<PAGE>
"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 three separate trust indenture and security
agreements between the Owner Trustee and the Indenture Trustee, in each case
under which the Owner Trustee will issue Equipment Trust Certificates relating
to an Aircraft.
"Indenture Event of Default" means, for any Indenture, each of the events
designated as an event of default in such Indenture. For a description of
certain events constituting Indenture Events of Default, see "Description of
the Equipment Trust Certificates--Indenture Events of Default, Notice and
Waiver."
"Indenture Trustee" means State Street Bank and Trust Company in its
capacity as indenture trustee under each Indenture, and any successor
thereunder.
"Lease" means each of three separate lease agreements between the Owner
Trustee and the Corporation, in each case under which the Owner Trustee has
leased or is expected to lease 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,
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 "Description of the Equipment Trust Certificates--
The Leases--Lease Events of Default", the separate tax indemnity agreement
between the Corporation and the related Owner Participant is not an Operative
Agreement.
"Owner Trustee" means First Security Bank of Utah, National Association in
its capacity as owner trustee of each separate Owner Trust.
"Participation Agreement" means the agreement among the Corporation, the
Indenture Trustee, the Owner Trustee, the Pass Through Trustee, the related
Owner Participant and, in the case of two Aircraft, 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 Trust Certificates issued
under such Indenture.
"Pass Through Agreement" means the Pass Through Trust Agreement dated as of
February 1, 1993, as amended and restated as of October 1, 1995, between the
Corporation and The Bank of New York, in accordance with which the Pass
Through Trusts will be formed pursuant to the Series Supplements.
A-2
<PAGE>
"Pass Through Certificates" means the Federal Express Corporation 1996 Pass
Through Certificates, Series A1 and the Federal Express Corporation 1996 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,
1996-A1 and Federal Express Corporation Pass Through Trust, 1996-A2, each to
be formed pursuant to the related Series Supplement in accordance with the
Pass Through Agreement.
"Pass Through Trustee" means State Street Bank and Trust Company in its
capacity as pass through trustee under the Pass Through Agreement, as
supplemented by each Series Supplement, for each Pass Through Trust, and its
successors and assigns thereunder.
"Paying Agent" means, for each Pass Through Trust, State Street Bank and
Trust Company.
"Pool Balance" means, for any Pass Through Trust as of any date of
determination, the aggregate unpaid principal amount of the Equipment Trust
Certificates that constitute Trust Property of such Pass Through Trust on such
date plus the amount of the principal payments on such Equipment Trust
Certificates held by the Pass Through Trustee and not yet distributed (other
than earnings thereon and without giving effect to any losses on investments
thereof). The Pool Balance as of any Regular Distribution Date or Special
Distribution Date shall be computed after giving effect to the payment of
principal, if any, on such Equipment Trust Certificates and the distribution
thereof being made on that date.
"Pool Factor" means, for any Pass Through Trust as of any date of
determination, the quotient (rounded to the seventh decimal place) computed by
dividing (i) the Pool Balance by (ii) the aggregate original amount of the
Pass Through Certificates of the related Series. The Pool Factor as of any
Regular Distribution Date or Special Distribution Date shall be computed after
giving effect to the payment of principal, if any, on such Equipment Trust
Certificates and the distribution thereon being made on that date 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, State Street Bank and Trust
Company.
"Regular Distribution Date" means, for each Pass Through Trust, January 30
and July 30 of each year, commencing July 30, 1996.
"Scheduled Payment" means any payment of interest on, or principal of and
interest on, any Equipment Trust Certificate that constitutes Trust Property
thereof, scheduled to be received by the Pass Through Trustee on a Regular
Distribution Date.
"Series" means Federal Express Corporation 1996 Pass Through Certificates,
Series A1 and Federal Express Corporation 1996 Pass Through Certificates,
Series A2.
"Series Supplement" means each of Series Supplement 1996-A1 and Series
Supplement 1996-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 thirtieth 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.
A-3
<PAGE>
"Special Payment" means, for any Pass Through Trust, any payments of
principal, Make-Whole Premium or interest other than Scheduled Payments
received by the Pass Through Trustee on any of the Equipment Trust
Certificates held in such Pass Through Trust and any proceeds from the sale of
any such Equipment Trust Certificates by the Pass Through Trustee.
"Transportation Code" means Title 49 of the United States Code, as amended.
"Trust Property" means, for each 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.
A-4
<PAGE>
PROSPECTUS
[LOGO OF FED EX APPEARS HERE]
PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES
---------------
Up to $197,380,000 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 dated as of February 1, 1993, as amended and restated
as of October 1, 1995 (the "Pass Through Agreement") between Federal Express
Corporation (the "Corporation") and The Bank of New York, and the supplements
thereto relating to such Pass Through Trust (a "Series Supplement") between
the Corporation and the trustee named in such Series Supplements, not in its
individual capacity but solely as the Pass Through Trustee with respect to
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 May 14, 1996.
<PAGE>
(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.
----------------
<PAGE>
AVAILABLE INFORMATION
Federal Express Corporation (the "Corporation") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy and information statements and other information filed by the
Corporation with the Commission can be inspected, and copies may be obtained
at prescribed rates, at the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as at the following
Regional Offices of the Commission: Chicago Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and New York Regional Office,
7 World Trade Center, New York, New York 10048. Such material can also be
inspected and copied at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
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
The Pass Through Trustee under each Pass Through Trust will provide the
Certificateholders of each Pass Through Trust with certain periodic statements
concerning the distributions made from such Pass Through Trust. See
"Description of the Pass Through Certificates -- Statements to
Certificateholders."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission in accordance with the
provisions of the Exchange Act are incorporated herein by reference and made a
part hereof.
1. The Corporation's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 filed August 4, 1995.
2. The Corporation's Quarterly Reports on Form 10-Q for the fiscal
quarters ended August 31, 1995, November 30, 1995 and February
29, 1996, respectively, filed October 13, 1995, January 12, 1996
and April 12, 1996, respectively.
3. The Corporation's Current Reports on Form 8-K dated August 14,
1995, August 16, 1995, September 14, 1995, October 17, 1995,
October 25, 1995, October 26, 1995, January 12, 1996 and March
14, 1996, respectively, filed August 15, 1995, August 18, 1995,
September 19, 1995, October 18, 1995, October 27, 1995, October
30, 1995, January 16, 1996 and March 26, 1996, respectively.
All documents filed by the Corporation pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and before
the termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Prospectus, shall be
deemed to be modified or superseded for
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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, including any
beneficial owner, to whom this Prospectus is delivered, upon 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)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 NINE MONTHS ENDED
------------------------- -------------------------
FEBRUARY 28, FEBRUARY 29,
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges (a) 1.0x (b) 1.4x 1.7x 2.0x 2.0x 1.8x
</TABLE>
- ----------------------
(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 the trustee named in such Series Supplement, 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, as amended and restated as of October 1, 1995 (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.
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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
Wilmington Trust Company, 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.
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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, if any, 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 by 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 or
will be applied to finance the aggregate principal amount of the debt to be
issued by the Corporation in connection with the acquisition of such Aircraft
by the Corporation so that such Aircraft becomes an Owned Aircraft. 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 the trustee
named in such trust indenture and security agreement, 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.
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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.
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[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
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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 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 Pass Through Trustee for such series of Pass Through Certificates;
(3) 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;
(4) the specific form of such Pass Through Certificates;
(5) 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;
(6) a description of the related Aircraft, including whether the Aircraft
is a Leased Aircraft or an Owned Aircraft;
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(7) 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;
(8) 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;
(9) 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
(10) 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
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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.
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 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.
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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 depository 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 or otherwise provided to the Indenture Trustee 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.
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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."
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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
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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.
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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
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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 one or more Pass Through Trusts holding Equipment Certificates issued under
such Indenture, 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 one or more Pass Through Trusts
holding Equipment Certificates issued under such Indenture, 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
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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
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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;
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(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
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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
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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
The Pass Through Trustee for each of the Pass Through Trusts will be named
in the Prospectus Supplement. 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, The Bank
of New York will be the Indenture Trustee under the Indentures under which the
Equipment Certificates have been or will be issued. The Bank of New York acts
as trustee under other indentures with respect to other indebtedness by the
Corporation, and the Corporation from time to time borrows from, and maintains
deposit accounts with, The Bank of New York 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
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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
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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 other security pledged under the related Indenture or
otherwise available to the Indenture Trustee. 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.
In certain circumstances described in the applicable Prospectus
Supplement, the Corporation will have the right to purchase an Owner Trustee's
right, title and interest in and to the related Aircraft and to assume the
related Leased Aircraft Certificates on a full recourse basis, which would
reflect a financing contemplated by an Owned Aircraft Indenture.
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 or otherwise available to the Indenture Trustee 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
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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
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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 the related Collateral Account
and, if the Prospectus Supplement so provides, 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 (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
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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, 363 and
1129 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
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Owner Trustee, on the date of such sale, in a collateral account (a
"Collateral Account") established pursuant to the Indenture or 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 if the Prospectus Supplement so provides,
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 or Indenture or as 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.
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 or
otherwise realize from any Additional Collateral 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 either (i) 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 or (ii) the Corporation will assume the Leased Aircraft
Certificates on a full recourse basis.
With respect to any Delayed Lease Aircraft, the applicable Prospectus
Supplement also will set forth (i) 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 and (ii) any option the Corporation may have to
convert the leveraged lease financing for a Delayed Lease Aircraft into the
type of financing available for Owned Aircraft.
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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.
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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
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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
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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
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<PAGE>
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 for an
amount that differs from a Certificateholder's aggregate adjusted basis in the
Equipment Certificate, the Certificateholder will be considered to have sold
his pro rata share of that Equipment Certificate, and will recognize any gain
or loss equal to the difference between the Certificateholder's adjusted basis
and the amount realized from such prepayment (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 Corporation'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.
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CERTAIN NEW YORK TAXES
The Pass Through Trustee is a New York state banking corporation with its
corporate trust office in New York. Powell, Goldstein, Frazer & Murphy,
special state tax counsel for the Pass Through Trustee, has advised the
Corporation that, in its opinion, under currently applicable law, assuming the
accuracy of the statements with respect to federal income taxes set forth
herein and in the Prospectus (including the assumption that each Pass Through
Trust will not be 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, i.e. all of the property of the Pass Through Trust
will be deemed owned by and all of the income thereon taxable to the grantors
or beneficiaries thereof on a pro-rata basis), assuming that the Equipment
Trust Certificates will be treated as debt for federal income tax purposes,
assuming that the Pass Through Trustee will engage in only those activities
contemplated herein and in the Prospectus (i.e. engaging in no activity other
than holding the Equipment Trust Certificates, issuing the Pass Through
Certificates, distributing the payments thereon and performing other
incidental activities), and assuming that each Pass Through Trust does not
otherwise engage in business in New York, (i) the Pass Through Trusts will not
be subject to any tax (including, without limitation, net or gross income,
unincorporated business, tangible or intangible property, net worth, capital,
franchise or doing business tax), fee or other governmental charge under the
laws of the State of New York or any political subdivision thereof and (ii)
Certificateholders that are not residents of or otherwise subject to tax in
New York will not be subject to any tax (including, without limitation, net or
gross income, unincorporated business, tangible or intangible property, net
worth, capital, franchise or doing business tax), fee or other governmental
charge under the laws of the State of New York 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. However, a majority in interest of the Certificateholders of
each Series may remove the Pass Through Trustee from the relevant Pass Through
Trust and appoint a successor Pass Through Trustee in another jurisdiction.
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.
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<PAGE>
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 counsel for the 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 May 2, 1996, Mr. Hearn owned zero shares of the Corporation's
common stock and had been granted options to purchase 15,800 shares of the
Corporation's common stock. Of the options granted, 3,750 were vested at such
date.
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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.
With respect to the unaudited interim financial information for the
quarters ended August 31, 1995, November 30, 1995 and February 29, 1996,
included in the Corporation's Quarterly Reports on Form 10-Q for such periods,
which are incorporated by reference in this Prospectus, Arthur Andersen LLP
has applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports thereon state that
they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their reports on
that information should be restricted in light of the limited nature of the
review procedures applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act for their reports on
the unaudited interim financial information because those reports are not
"reports" or a "part" of the Registration Statement, of which this Prospectus
is a part, prepared or certified by the accountants within the meaning of
Sections 7 and 11 of the Securities Act.
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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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Summary......................................................... S-3
Federal Express Corporation................................................ S-10
Use of Proceeds............................................................ S-10
Description of the Pass Through Certificates............................... S-11
Description of the Equipment Trust Certificates............................ S-14
Certain Massachusetts Taxes................................................ S-35
ERISA Considerations....................................................... S-35
Underwriting............................................................... S-38
Legal Matters.............................................................. S-39
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 ....................................................... 7
Description of the Pass Through Certificates............................... 8
Description of the Equipment Certificates.................................. 23
Federal Income Tax Consequences............................................ 32
Certain New York Taxes..................................................... 34
ERISA Considerations....................................................... 34
Plan of Distribution....................................................... 34
Legal Matters.............................................................. 35
Experts.................................................................... 36
</TABLE>
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$192,000,000
[LOGO OF FEDERAL EXPRESS APPEARS HERE]
$ 1996 PASS THROUGH
CERTIFICATES, SERIES A1
$ 1996 PASS THROUGH
CERTIFICATES, SERIES A2
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PROSPECTUS SUPPLEMENT
----------------
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
MORGAN STANLEY & CO.
INCORPORATED
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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.
