<PAGE>
PROSPECTUS SUPPLEMENT Registration Statement No. 333-07691
(To Prospectus dated April 28, 1997) Rule 424(b)(5)
$555,839,000
[LOGO OF FEDERAL EXPRESS APPEARS HERE]
1997-1 Pass Through Trusts
PASS THROUGH CERTIFICATES, SERIES 1997-1
----------------
Each Pass Through Certificate (collectively, the "Pass Through
Certificates") will represent a fractional undivided interest in one of three
Federal Express Corporation 1997-1 Pass Through Trusts (the "Class A Trust,"
the "Class B Trust" and the "Class C Trust" and, collectively, the "Pass
Through Trusts"). 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 First Security Bank, National Association,
not in its individual capacity but solely as the Pass Through Trustee under
such Pass Through Trust. Pursuant to the Intercreditor Agreement (defined
herein), (i) the Pass Through Certificates of the Class B Trust will be
subordinated in right of payment to the Pass Through Certificates of the Class
A Trust, and (ii) the Pass Through Certificates of the Class C Trust will be
subordinated in right of payment to the Pass Through Certificates of the Class
B Trust. Payments of interest on the Pass Through Certificates to be issued by
each Pass Through Trust (other than the Class C Trust) will be supported by a
separate Liquidity Facility (defined herein) for the benefit of the holders of
the Pass Through Certificates. Each Liquidity Facility will be provided by
Kredietbank N.V., acting through its New York branch, in an amount sufficient
to pay interest on the related Pass Through Certificates at the applicable
interest rate for such Pass Through Certificates on three successive
distribution dates but will not provide for drawings to pay principal or
premium, if any.
(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.
<TABLE>
<CAPTION>
PASS THROUGH PRINCIPAL INTEREST FINAL EXPECTED PUBLIC OFFERING
CERTIFICATES AMOUNT RATE DISTRIBUTION DATE PRICE (1)(2)
- ------------ ------------ -------- ----------------- ---------------
<S> <C> <C> <C> <C>
1997-1-A $310,854,000 7.50% January 15, 2018 100%
1997-1-B 115,800,000 7.52% January 15, 2018 100
1997-1-C 129,185,000 7.65% January 15, 2014 100
</TABLE>
- --------
(1) Plus accrued interest, if any, at the applicable rate from May 28, 1997.
(2) The underwriting commissions aggregate $3,612,953. The underwriting
commissions, and certain other expenses relating to the offering estimated
at $5,334,617, will be paid ratably by the related 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 related 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 hereby offered by the Underwriters,
subject to prior sale, when, as and if accepted by them and subject to
approval of certain legal matters by Shearman & Sterling, counsel for the
Underwriters. 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
May 28, 1997.
----------------
MORGAN STANLEY & CO.
Incorporated
FIRST CHICAGO CAPITAL MARKETS, INC.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
May 22, 1997
<PAGE>
(continued from previous page)
The property of each Pass Through Trust will consist of, among other things,
Equipment Trust Certificates to be issued by the related Owner Trustee of each
of nine 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 four McDonnell Douglas MD-11F aircraft and five Airbus A300F4-605R
aircraft (each, and collectively, the "Aircraft"). The McDonnell Douglas MD-
11F aircraft were delivered new to American Airlines between April 1991 and
April 1992 and were or will continue to be operated in American's commercial
passenger transportation service prior to purchase thereof by the Corporation.
One of the McDonnell Douglas MD-11F aircraft was converted from passenger
configuration to freighter configuration and purchased by the related Owner
Trustee in December 1996. The other three McDonnell Douglas MD-11F aircraft
are expected to be converted and purchased by the related Owner Trustee
between May 1997 and January 1998. The Airbus A300F4-605R aircraft are
expected to be delivered new to the related Owner Trustee between June and
September 1997. The Aircraft were, or are expected to be, leased to the
Corporation by the related Owner Trustee at the time of such purchase.
The Equipment Trust Certificates for each of the Aircraft will be issued in
three series (the "Series A Equipment Trust Certificates," the "Series B
Equipment Trust Certificates" and the "Series C Equipment Trust Certificates")
under the related Indenture as nonrecourse obligations of State Street Bank
and Trust Company of Connecticut, National Association (or Wilmington Trust
Company, in the case of two Owner Trusts), 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 related Owner Trustee by the Pass
Through Trustee. For each Pass Through Trust, all of the Equipment Trust
Certificates purchased by the Pass Through Trustee will have identical
interest rates, in each case equal to the rate applicable to the Pass Through
Certificates of such Pass Through Trust set forth on the cover of this
Prospectus Supplement (the "Stated Interest Rates"), and will have a maturity
date on or before the Final Expected Distribution Date (defined herein) 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
any amounts payable by the Corporation while the proceeds of the sale of the
related Equipment Trust Certificates are held in the related Collateral
Account (defined herein) 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 the Equipment Trust
Certificates by the Owner Trustee for eight of the Owner Trusts and the
delivery date of the related Aircraft, which is expected to occur from May
1997 through January 1998 (the "Prefunding Period"), such Equipment Trust
Certificates will not be secured by such Aircraft or the related Lease, but
will be secured by the related 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 related Collateral Account for
the benefit of the Indenture Trustee. Sums deposited in the Collateral
Accounts 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 highest rating assigned by such rating organization; (c)
investments in negotiable certificates of deposit, time deposits, banker's
acceptances, commercial paper or other direct obligations of, or obligations
guaranteed by, commercial banks organized under the laws of the United States
or of any political subdivision thereof (or any U.S. branch of a foreign bank)
with issuer ratings of at least B/C by Thomson Bankwatch, having maturities no
later than 90 days following the date of such investment; (d) overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers; or (e) 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 or
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
S-2
<PAGE>
to the Indenture Trustee's release of amounts in the related 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 or, in certain circumstances discussed below, to prepay
the Equipment Trust Certificates.
The Corporation will pay to the Indenture Trustee on such delivery date the
excess, if any, of the amounts required to be paid by the Indenture Trustee
over the amounts released from the related Collateral Account. With respect to
the A300F4-605R aircraft, 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 related 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.
With respect to the three undelivered McDonnell Douglas MD-11F aircraft, the
related Equipment Trust Certificates will be prepaid in whole on or before the
15th day following the related Cut-off Date if (i) the modification of such
Aircraft has not been completed and such Aircraft delivered on or prior to the
related Cut-off Date, (ii) the related Owner Participant does not make
available its committed portion of the purchase price for such Aircraft, or
(iii) with respect to two of such Aircraft, the Corporation fails to obtain a
commitment from any prospective Owner Participant. The Series C Equipment
Trust Certificates relating to these two Aircraft may also be subject to
prepayment in part, no later than 20 days after the date on which a
prospective Owner Participant participates in the purchase of such Aircraft,
in connection with any reoptimization (subject to the Mandatory Economic
Terms) negotiated with such prospective Owner Participant.
Interest paid on the Equipment Trust Certificates held in each Pass Through
Trust will be passed through to the related Certificateholders on each January
15 and July 15, commencing on July 15, 1997, at the Stated Interest Rate for
the related Pass Through Certificates, in each case subject to the
Intercreditor Agreement. 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 15 or July 15 in accordance
with the principal repayment schedule set forth herein under "Description of
the Pass Through Certificates--Pool Factors," in each case subject to the
Intercreditor Agreement.
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 will result in an early
distribution of principal paid in respect of the Pass Through Certificates.
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.
The Pass Through Certificates do not represent an interest in, obligation
of, or guarantee by the Corporation.
A PTC Event of Default will occur if the Pass Through Trustee fails to pay
within 10 business days of the due date thereof (i) the outstanding Pool
Balance (defined herein) of the related Class of Pass Through Certificates on
the Final Legal Distribution Date (defined herein) for such Class or (ii)
interest due on such Pass Through Certificates on any distribution date
(unless the Subordination Agent (defined herein) has made an Interest Drawing
(defined herein) in an amount sufficient to pay such interest and has
distributed such amount to the Certificateholders entitled thereto).
S-3
<PAGE>
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
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... S-5
Federal Express Corporation................................................ S-26
Incorporation of Certain Documents by Reference............................ S-26
Use of Proceeds............................................................ S-26
Risk Factors............................................................... S-27
Description of the Pass Through Certificates............................... S-29
Description of the Liquidity Facilities.................................... S-37
Description of the Intercreditor Agreement................................. S-41
Description of the Aircraft and the Appraisals............................. S-44
Description of the Equipment Trust Certificates............................ S-45
Federal Income Tax Consequences............................................ S-73
Certain Utah Taxes......................................................... S-75
ERISA Considerations....................................................... S-75
Underwriting............................................................... S-78
Legal Matters.............................................................. S-79
Experts.................................................................... S-79
Glossary of Certain Terms.................................................. A-I
Summary of Aircraft Appraisals............................................. A-II
PROSPECTUS
Available Information...................................................... 3
Reports to Pass Through Certificateholders................................. 3
Incorporation of Certain Documents by Reference............................ 3
Federal Express Corporation................................................ 4
Ratio of Earnings to Fixed Charges......................................... 4
Outline of Pass Through Trust Structure.................................... 4
Use of Proceeds............................................................ 5
Diagram of Payments........................................................ 6
Description of the Pass Through Certificates............................... 8
Description of the Equipment Certificates.................................. 24
Federal Income Tax Consequences............................................ 34
Certain Massachusetts Taxes................................................ 36
ERISA Considerations....................................................... 37
Plan of Distribution....................................................... 37
Legal Matters.............................................................. 38
Experts.................................................................... 38
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PASS THROUGH
CERTIFICATES. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH
THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE PASS THROUGH CERTIFICATES IN
THE OPEN MARKET. IN ADDITION, UNDERWRITERS AND SELLING GROUP MEMBERS MAY
ENGAGE IN PASSIVE MARKET MAKING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
S-4
<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.
Certain capitalized terms used herein are defined in the Glossary included as
Appendix I to this Prospectus Supplement or elsewhere in this Prospectus
Supplement on the pages indicated in the Glossary.
SUMMARY OF TERMS OF PASS THROUGH CERTIFICATES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
PASS THROUGH PASS THROUGH PASS THROUGH
CERTIFICATES CERTIFICATES CERTIFICATES
----------------- ----------------- ----------------
<S> <C> <C> <C>
Aggregate Face Amount..... $310,854,000 $115,800,000 $129,185,000
Ratings:
Moody's................. Aa3 A1 Baa1
Standard & Poor's....... AAA AA- BBB+
Initial Loan to Aircraft
Value (cumulative)(1).... 39.7% 54.5% 71.0%
Expected Principal
Distribution Window (in
years)................... 0.6-20.6 0.6-20.6 0.6-16.6
Initial Average Life (in
years)(2)................ 14.6 12.7 9.8
Regular Distribution
Dates.................... January 15 and January 15 and January 15 and
Final Expected July 15 July 15 July 15
Distribution Date........ January 15, 2018 January 15, 2018 January 15, 2014
Final Legal Distribution
Date..................... July 15, 2019 July 15, 2019 January 15, 2014
Section 1110
Protection(3)............ Yes Yes Yes
Liquidity Facility
Coverage................. 3 successive 3 successive None
Initial Liquidity Facility interest payments interest payments
Amount(4)................ $34,971,075 $13,062,240 None
</TABLE>
- --------
(1) Determined as of January 15, 1998, assuming that all Aircraft are delivered
prior to such date and no Class C Equipment Trust Certificates have been
prepaid in part.
(2) As a result of the limited right to vary the payment terms of the Equipment
Trust Certificates issued with respect to two Aircraft, the Initial Average
Life may decrease by not more than 0.5 of a year in the case of the Class A
Pass Through Certificates, 0.7 of a year in the case of the Class B Pass
Through Certificates and 1.0 year in the case of the Class C Pass Through
Certificates.
(3) Following delivery of the related Aircraft, the benefits of Section 1110 of
the Bankruptcy Code will be available to the Indenture Trustee.
(4) For each Class of Pass Through Certificates (other than the Class C Pass
Through Certificates), the initial amount of the Liquidity Facility will
cover three successive interest payments (without regard to any future
payments of principal on such Pass Through Certificates).
S-5
<PAGE>
EQUIPMENT TRUST CERTIFICATES AND THE AIRCRAFT
Set forth below is certain information about the Equipment Trust Certificates
to be held in the Pass Through Trusts and the Aircraft:
<TABLE>
<CAPTION>
PRINCIPAL
DELIVERY DATE LATEST EQUIPMENT AMOUNT OF
AIRCRAFT OR EXPECTED TRUST EQUIPMENT
TAIL DELIVERY CERTIFICATES TRUST APPRAISED
NUMBER AIRCRAFT TYPE DATE(1)(2) MATURITY DATE CERTIFICATES VALUE
- -------- ------------------------ -------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
N670FE Airbus A300F4-605R June 1997 January 15, 2018 $ 62,392,000 $ 83,380,000
N671FE Airbus A300F4-605R June 1997 January 15, 2018 62,317,000 83,380,000
N672FE Airbus A300F4-605R August 1997 January 15, 2018 61,984,000 83,435,000
N673FE Airbus A300F4-605R September 1997 January 15, 2018 61,813,000 83,456,667
N674FE Airbus A300F4-605R September 1997 January 15, 2018 61,835,000 83,456,667
N581FE McDonnell Douglas MD-11F May 1997 January 15, 2017 61,833,000 89,055,000
N583FE McDonnell Douglas MD-11F September 1997 January 15, 2016 61,019,000(3) 88,963,333
N584FE McDonnell Douglas MD-11F January 1998 January 15, 2017 60,892,000(3) 93,533,333
N587FE McDonnell Douglas MD-11F December 1996 January 15, 2015 61,754,000 93,845,000
------------ ------------
$555,839,000 $782,505,000
============ ============
</TABLE>
- --------
(1) Reflects the scheduled delivery months under the Corporation's purchase
agreement and modification agreement with the respective manufacturers. The
actual delivery date for any Aircraft may be subject to delay.
(2) The McDonnell Douglas MD-11F aircraft were originally delivered new to
American Airlines in May 1991, April 1991, April 1992 and March 1992,
respectively.
(3) The Series C Equipment Trust Certificates related to these two Aircraft may
be prepaid in part no later than 20 days after the date on which a
prospective Owner Participant participates in the purchase of such
Aircraft.
The appraised value of each Aircraft set forth above is based upon the lesser
of the average and the median value of such Aircraft as appraised by the
following three independent appraisal and consulting firms as of the dates
indicated: Aircraft Information Services, Inc., as of April 24, 1997, Simat,
Helliesen & Eichner, Inc. as of April 24, 1997 and Morten Beyer and Associates,
Inc. as of April 23, 1997 ("AISI," "SH&E" and "MBA" referred to herein
collectively, as the "Appraisers").
An appraisal is only an estimate of value and should not be relied upon as a
measure of realizable value. The proceeds realized upon a sale of any Aircraft
may be less than the appraised value thereof. For a discussion of the
assumptions and methodologies used in preparing the appraisals, see "Risk
Factors" and "Description of the Aircraft and the Appraisals" in this
Prospectus Supplement and the summaries of the Appraisals included in Appendix
II hereto.
S-6
<PAGE>
LOAN TO AIRCRAFT VALUE RATIOS
The following table sets forth loan to aircraft value ratios ("LTVs") for
each Class of Pass Through Certificates as of the January 15, 1998 Regular
Distribution Date and each subsequent July 15 Regular Distribution Date. The
LTVs for each Class of Pass Through Certificates were obtained for each such
Regular Distribution Date by dividing (i) the expected Pool Balance of such
Class of Pass Through Certificates together in each case with the expected Pool
Balance of all other Classes of Pass Through Certificates senior in right of
payment to such Class of Pass Through Certificates under the Intercreditor
Agreement determined immediately after giving effect to the distributions
expected to be made on such Regular Distribution Date, by (ii) the assumed
value of all of the Aircraft (the "Assumed Aggregate Aircraft Value") on such
Regular Distribution Date based on the assumptions set forth below.
This table is based on the assumption that the value of each Aircraft
included in the Assumed Aggregate Aircraft Value opposite the initial Regular
Distribution Date depreciates by approximately 2% of the initial appraised
value per year until the fifteenth year after the year of delivery of such
Aircraft, by approximately 3% per year thereafter until the twentieth year
after the year of such delivery and by 4% per year thereafter. In the case of
the McDonnell Douglas MD-11F aircraft, such periods are measured from the
delivery date to the Corporation after modification rather than the original
delivery date of the Aircraft to American Airlines. Other rates or methods of
depreciation may result in materially different LTVs. No assurance can be given
that the depreciation rates and method assumed for the purpose of the table are
the ones most likely to occur, or as to the actual future value of any
Aircraft. See "Risk Factors" in this Prospectus Supplement.
The Equipment Trust Certificates are not cross-collateralized with respect to
the Aircraft. The excess proceeds realized from the disposition of any
particular Aircraft will not be available to offset shortfalls on the Equipment
Trust Certificates relating to any other Aircraft. Upon the occurrence of an
Indenture Event of Default, even if the Aircraft as a group can be sold for
more than the total amounts payable in respect of all of the outstanding
Equipment Trust Certificates, if certain Aircraft are sold for less than the
total amount payable in respect of the related Equipment Trust Certificates,
there will not be sufficient proceeds to pay all Classes of Pass Through
Certificates in full. See "Description of the Equipment Trust Certificates--
Loan to Value Ratios of Equipment Trust Certificates" for additional
information regarding LTVs for the Equipment Trust Certificates issued in
respect of individual Aircraft, which may be more relevant in a default
situation than the aggregate values shown in the following table. This table
should not be considered a forecast or prediction of expected or likely LTVs
but simply a mathematical calculation based on one set of assumptions.
S-7
<PAGE>
The initial appraised value of each Aircraft was based upon the lesser of the
average and the median value of all Aircraft as appraised by the Appraisers, as
of the respective date of their appraisals and projected as of the scheduled
delivery date of each such Aircraft. No assurance can be given that such value
represents the realizable value of any Aircraft. See "Risk Factors" and
"Description of the Aircraft and the Appraisals" in this Prospectus Supplement.
<TABLE>
<CAPTION>
ASSUMED CLASS A PASS CLASS A PASS CLASS B PASS CLASS B PASS CLASS C PASS CLASS C PASS
AGGREGATE THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH
AIRCRAFT CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
DATE VALUE POOL BALANCE LTV POOL BALANCE LTV POOL BALANCE LTV
---- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 28, 1997 $782,505,000* $310,854,000 39.7% $115,800,000 54.5% $129,185,000 71.0%
July 15, 1998 766,854,900 306,088,267 39.9 114,628,224 54.9 128,370,907 71.6
July 15, 1999 751,204,800 300,481,917 40.0 112,680,718 55.0 125,017,964 71.6
July 15, 2000 735,554,700 294,221,876 40.0 110,333,202 55.0 121,583,130 71.5
July 15, 2001 719,904,600 287,961,835 40.0 107,985,686 55.0 117,691,597 71.3
July 15, 2002 704,254,500 281,701,794 40.0 105,638,170 55.0 113,316,184 71.1
July 15, 2003 688,604,400 275,441,754 40.0 103,290,654 55.0 106,589,729 70.5
July 15, 2004 672,954,300 269,181,714 40.0 100,943,138 55.0 97,889,895 69.5
July 15, 2005 657,304,200 262,921,668 40.0 98,595,616 55.0 89,001,685 68.5
July 15, 2006 641,654,100 256,661,622 40.0 96,248,098 55.0 73,355,305 66.4
July 15, 2007 626,004,000 250,401,580 40.0 92,497,610 54.8 50,040,078 64.1
July 15, 2008 610,353,900 244,141,538 40.0 87,898,398 54.4 41,428,533 62.7
July 15, 2009 594,703,800 237,881,496 40.0 78,650,741 53.2 30,677,090 64.7
July 15, 2010 579,053,700 230,294,190 39.8 64,832,300 52.7 23,220,905 62.1
July 15, 2011 563,403,600 219,106,359 38.9 40,707,800 48.2 22,292,412 57.9
July 15, 2012 546,815,050 201,840,883 36.9 18,997,328 42.8 22,292,412 53.0
July 15, 2013 523,339,900 160,275,369 30.6 12,920,062 36.1 22,168,649 46.6
July 15, 2014 499,864,750 130,940,539 26.2 12,920,062 33.6 0 NA
July 15, 2015 420,082,600 82,140,779 19.6 12,920,062 23.9 0 NA
July 15, 2016 347,824,067 34,651,943 11.8 12,371,173 15.6 0 NA
July 15, 2017 229,409,584 1,076,230 0.8 9,962,666 4.8 0 NA
July 15, 2018 0 0 NA 0 NA 0 NA
</TABLE>
- --------
* This amount includes the value of all nine Aircraft; however, eight of the
Aircraft are expected to be delivered after May 28, 1997.
S-8
<PAGE>
DIAGRAM OF CASH FLOW
Set forth below is a diagram illustrating the structure for the offering of
the Pass Through Certificates and certain cash flows.
[DIAGRAM APPEARS HERE]
S-9
<PAGE>
THE OFFERING
THE OFFERING............ The Pass Through Certificates offered hereby consist
of Federal Express Corporation Pass Through
Certificates, 1997-1-A (the "Class A Pass Through
Certificates") in the aggregate amount of
$310,854,000, Federal Express Corporation Pass
Through Certificates, 1997-1-B (the "Class B Pass
Through Certificates") in the aggregate amount of
$115,800,000, and Federal Express Corporation Pass
Through Certificates, 1997-1-C (the "Class C Pass
Through Certificates") in the aggregate amount of
$129,185,000. Each such Class of Pass Through
Certificates is a "Class" and the Pass Through
Certificates of each Class and of all such Classes,
collectively, are the "Pass Through Certificates."
The Class A, Class B and Class C Pass Through
Certificates will be issued by Federal Express
Corporation 1997-1 Pass Through Trust Class A, Class
B and Class C, respectively (each a "Pass Through
Trust"), to be formed pursuant to the Pass Through
Trust Agreement dated as of May 1, 1997 (the "Pass
Through Agreement") as supplemented by Series
Supplement 1997-1-A, Series Supplement 1997-1-B and
Series Supplement 1997-1-C (each a "Series
Supplement"), as the case may be, between the
Corporation and First Security Bank, National
Association, not in its individual capacity but
solely as pass through trustee under each such Pass
Through Trust (the "Pass Through Trustee") for the
benefit of the registered holders (the
"Certificateholders") of the related Class of Pass
Through Certificates. Each Pass Through Certificate
will represent a fractional undivided interest in the
related Pass Through Trust.
INITIAL LIQUIDITY
PROVIDER............... Kredietbank N.V., acting through its New York branch,
initially will provide separate liquidity facilities
for the benefit of the holders of the Class A Pass
Through Certificates and Class B Pass Through
Certificates, respectively.
TRUST PROPERTY.......... The property held in each Pass Through Trust (the
"Trust Property") will consist, except as provided
herein, of (i) equipment trust certificates (the
"Equipment Trust Certificates") from one of three
separate series of Equipment Trust Certificates being
issued as nonrecourse obligations by the related
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 nine separate
Owner Trusts for four McDonnell Douglas MD-11F
aircraft and five Airbus A300F4-605R aircraft leased,
or to be leased, to the Corporation in separate
leveraged lease transactions (or owned by the
Corporation in the circumstances described below);
(ii) the rights of such Pass Through Trust under the
Intercreditor Agreement (including all monies
receivable in respect of such rights); (iii) except
for the Class C Trust, all monies receivable under
the Liquidity Facility for such Pass Through Trust;
and (iv) funds from time to time deposited with the
Pass Through Trustee in accounts relating to such
Pass Through Trust.
S-10
<PAGE>
Each Pass Through Trust will hold Equipment Trust
Certificates with identical interest rates, in each
case equal to the Stated Interest Rate applicable to
the Pass Through Certificates of such Pass Through
Trust, and having maturity dates on or before the
Final Expected Distribution Date for such Pass
Through Trust. For each Pass Through Trust, the
aggregate original principal amount of the Equipment
Trust Certificates held in such Pass Through Trust
will equal the aggregate original amount of the
related Class of Pass Through Certificates.
CERTIFICATES OFFERED:
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 15 and July 15, commencing on July 15, 1997.
SPECIAL DISTRIBUTION
DATES.................. Any Business Day on which a Special Payment is to be
distributed.
RECORD DATES............ December 31 and June 30 for the January 15 and July
15 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 15 and July 15, commencing on July
15, 1997, and are to be distributed to the related
Certificateholders on the corresponding Regular
Distribution Dates, in each case subject to the
Intercreditor Agreement. 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 15 or July 15, or both,
of each year, commencing on January 15, 1998, in the
case of each Class of Pass Through Certificates, and
are to be distributed to the related
Certificateholders on the corresponding Regular
Distribution Dates, in each case subject to the
Intercreditor Agreement. 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 this
Prospectus Supplement.
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
S-11
<PAGE>
Distribution Date after not less than 15 days' notice
(or prompt notice in the case of an Event of Loss
with respect to the related Aircraft), in each case
subject to the Intercreditor Agreement.
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 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.
PTC EVENTS OF DEFAULT... A "PTC Event of Default" will occur if the Pass
Through Trustee fails to pay within 10 business days
of the due date thereof (i) the outstanding Pool
Balance of the related Class of Pass Through
Certificates on the Final Legal Distribution Date for
such Class or (ii) interest due on such Pass Through
Certificates on any distribution date (unless, in the
case of the Class A and Class B Pass Through
Certificates, the Subordination Agent has made an
Interest Drawing in an amount sufficient to pay such
interest and has distributed such amount to the
Certificateholders entitled thereto). Any failure to
make expected principal distributions on any Class of
Pass Through Certificates on any Regular Distribution
Date (other than the Final Legal Distribution Date)
will not be a PTC Event of Default with respect to
such Pass Through Certificates.
PREDELIVERY FUNDING;
COLLATERAL ACCOUNTS.... For eight of the Indentures, the Aircraft related
thereto (five A300F4-605R aircraft and three MD-11F
aircraft) will not have been delivered on the date of
the issuance of the related Equipment Trust
Certificates. Such Aircraft are expected to be
delivered between May 1997 and January 1998. The
Corporation has obtained commitments from certain
companies to act as the Owner Participant with
respect to leveraged leases for the five A300F4-605R
aircraft and for two of the McDonnell Douglas MD-11F
aircraft. The Corporation is seeking commitments from
prospective Owner Participants for the other two
McDonnell Douglas MD-11F aircraft. The Corporation
will hold the beneficial interest under the Trust
Agreement relating to each such Aircraft until the
date upon which a prospective Owner Participant
commits to participate in the purchase of such
Aircraft (which
S-12
<PAGE>
date may be up to 90 days after the scheduled
delivery date of the Aircraft). The Corporation will
transfer to such Owner Participant on such date the
Corporation's beneficial interest under the Trust
Agreement.
The Corporation is obligated to cause the proceeds of
the sale of the Equipment Trust Certificates issued
under the Indentures relating to the A300F4-605R
aircraft 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 committed portion of the purchase price
for such Aircraft on the delivery date therefor or
the Corporation does not enter into the related Lease
on or prior to the related 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 related Owner Trustee
under the related Equipment Trust Certificates.
Under the Indentures relating to the three
undelivered McDonnell Douglas MD-11F aircraft, the
related Equipment Trust Certificates will be prepaid
in whole on or before the 15th day following the
related Cut-off Date if (i) the modification of such
Aircraft has not been completed and such Aircraft
delivered on or prior to the related Cut-off Date,
(ii) the related Owner Participant does not make
available its committed portion of the purchase price
for such Aircraft, or (iii) with respect to two of
such Aircraft, the Corporation fails to obtain a
commitment from any prospective Owner Participant.
The Series C Equipment Trust Certificates relating to
these two Aircraft may also be subject to prepayment
in part, no later than 20 days after the date on
which a prospective Owner Participant participates in
the purchase of such Aircraft, in connection with any
reoptimization (subject to the Mandatory Economic
Terms) negotiated with such prospective Owner
Participant.
PURCHASE RIGHTS OF
CERTIFICATEHOLDERS..... Upon the occurrence and during the continuation of a
Triggering Event (defined herein), (i) the Class B
Certificateholders will have the right to purchase
all, but not less than all, of the Class A Pass
Through Certificates; and (ii) the Class C
Certificateholders will have the right to purchase
all, but not less than all, of the Class A and B Pass
Through Certificates, in each case at a purchase
price equal to the Pool Balance of the relevant Class
or Classes of Pass Through Certificates, plus accrued
and unpaid interest thereon to the date of purchase,
without premium, but including any other amounts due
to the Certificateholders of such Class or Classes.
S-13
<PAGE>
EQUIPMENT TRUST CERTIFICATES:
PREPAYMENT OR
PURCHASE WITH
PREMIUM.............. The Equipment Trust Certificates for each Aircraft
may be prepaid in whole, but not in part, at any
time at a prepayment price equal to the aggregate
principal amount of such Equipment Trust
Certificates plus accrued but unpaid interest
thereon and a Make-Whole Premium (defined herein),
if any. Such Make-Whole 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").
<TABLE>
<CAPTION>
PREMIUM
SERIES TERMINATION DATE
-------- -----------------
<S> <C>
Series A December 27, 2011
Series B February 5, 2010
Series C March 22, 2007
</TABLE>
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 Make-Whole Premium, if any, if prior to the
relevant Premium Termination Date (i) a Lease Event
of Default under the related Lease has occurred and
has continued for not more than 180 days and (ii)
such Equipment Trust Certificates have not been
accelerated. See "Description of the Equipment Trust
Certificates--The Leases--Purchase Options" in this
Prospectus Supplement for a discussion of prepayments
with a premium in connection with the Corporation's
exercise of certain options or elections prior to the
relevant Premium Termination Date relating to the
purchase of the Aircraft under certain circumstances.
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, at a price equal to the aggregate principal
amount of such Equipment Trust Certificates plus
accrued but unpaid interest thereon, but without
premium, upon the occurrence of an Event of Loss with
respect to such Aircraft if such Aircraft is not
replaced by the Corporation under the related
Indenture.
In addition, the Equipment Trust Certificates
relating to any Aircraft will be subject to
prepayment or purchase at the direction of the
related Owner Participant in whole, but not in part,
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.
S-14
<PAGE>
The Equipment Trust Certificates relating to any
Aircraft will also be subject to prepayment in whole,
but not in part, at a price equal to the principal
amount of such Equipment Trust Certificates plus
accrued but unpaid interest thereon, but without
premium, if (i) in the case of the Indentures
relating to the A300F4-605R aircraft, the
manufacturer of the related Aircraft has not
delivered the Aircraft on or prior to the related
Cut-off Date, (ii) in the case of the Indentures
relating to the three undelivered McDonnell Douglas
MD-11F aircraft, the modification of such Aircraft
has not been completed and such Aircraft delivered on
or prior to the related Cut-off Date or the related
Owner Participant fails to make available its
committed portion of the purchase price of such
Aircraft and (iii) in the case of two such McDonnell
Douglas MD-11F aircraft, the Corporation fails to
obtain a commitment from any prospective Owner
Participant. The Series C Equipment Trust
Certificates relating to these two Aircraft may also
be subject to prepayment in part, no later than 20
days after the date on which a prospective Owner
Participant participates in the purchase of such
Aircraft, in connection with any reoptimization
(subject to the Mandatory Economic Terms) negotiated
with such prospective Owner Participant.
EQUIPMENT TRUST CERTIFICATES:
SECURITY.............. Except as provided below, the principal amount of the
related Equipment Trust Certificates, Make-Whole
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
related 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 related Owner Trustee
or the related Owner Participant.
In the case of the Indentures subject to the
Predelivery Funding described above, the principal
amount of the Equipment Trust Certificates issued by
the related Owner Trustee under such Indentures will
be secured prior to delivery of the related Aircraft
by the related Collateral Account, which will be
funded by the proceeds of the sale of such Equipment
Trust Certificates. Funds deposited in the related
Collateral Account will be invested in obligations
of, or guaranteed by, the United States of America
and in certain other Specified Investments described
herein.
S-15
<PAGE>
The Corporation will pay to the Indenture Trustee any
losses on the Specified Investments and excess
earnings on such Collateral Account will be paid to
the Corporation on the related delivery date. The
Corporation will pay (i) interest due on the related
Equipment Trust Certificates on each Regular
Distribution Date during the related Prefunding
Period and (ii) interest due on the first Regular
Distribution Date after the related delivery date for
the period from the preceding Regular Distribution
Date (or, if none, the date of issuance of the
Equipment Trust Certificates) to the related delivery
date.
The Corporation will pay to the Indenture Trustee the
excess, if any, of the portion of the purchase price
for any Aircraft required to be paid by the Indenture
Trustee over the amounts released from the related
Collateral Account. If such Equipment Trust
Certificates are subject to prepayment as provided
above, the Corporation will be obligated to pay to
the Indenture Trustee on the date of prepayment any
losses on the investments in the related Collateral
Account together with such additional amounts as will
be required to pay the amount of interest accrued and
unpaid on such Equipment Trust Certificates to the
date of such prepayment.
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
(unless the Corporation is required to purchase the
related Aircraft as described above), the amounts
payable by the Corporation under the Lease for each
Aircraft and any amounts payable by the Corporation
while the proceeds of the sale of the related
Equipment Trust Certificates are held in the related
Collateral Account (together with the amounts in the
related 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.
S-16
<PAGE>
EQUIPMENT TRUST CERTIFICATES:
SECTION 1110
PROTECTION........... Davis Polk & Wardwell, special counsel to the
Corporation, has advised the Indenture Trustee that
the Owner Trustee, as lessor under the related Lease,
and the Indenture Trustee, as assignee of such Owner
Trustee's rights under such Lease pursuant to the
related Indenture, are entitled to the benefits of
Section 1110 of the Bankruptcy Code with respect to
the related Aircraft.
EQUIPMENT TRUST CERTIFICATES:
RANKING............... Series B Equipment Trust Certificates issued in
respect of each Aircraft will be subordinated in
right of payment to Series A Equipment Trust
Certificates issued in respect of such Aircraft.
Series C Equipment Trust Certificates issued in
respect of each Aircraft will be subordinated in
right of payment to Series A and B Equipment Trust
Certificates issued in respect of such Aircraft.
On each Distribution Date, payments of interest and
principal due on Series A Equipment Trust
Certificates issued in respect of each Aircraft will
be made prior to payments of interest and principal
due on Series B and C Equipment Trust Certificates
issued in respect of such Aircraft. Payments of
interest and principal due on Series B Equipment
Trust Certificates will be made prior to payments of
interest and principal due on Series C Equipment
Trust Certificates issued in respect of such
Aircraft.
LIQUIDITY FACILITIES.... The Subordination Agent and the Liquidity Provider
will enter into a separate revolving credit agreement
(each, a "Liquidity Facility") with respect to each
Pass Through Trust (other than the Class C Trust).
Under each of the Liquidity Facilities, the Liquidity
Provider will, if necessary, make advances ("Interest
Drawings") solely for the payment of interest when
due in an aggregate amount (the "Required Amount")
sufficient to pay interest on the Class A or B Pass
Through Certificates, as the case may be, on three
successive Regular Distribution Dates (without regard
to any future payments of principal on such Pass
Through Certificates) at the Stated Interest Rates.
The initial amount available under the Liquidity
Facilities for the Class A Pass Through Certificates
and the Class B Pass Through Certificates will be
$34,971,075 and $13,062,240, respectively.
An Interest Drawing under the related Liquidity
Facility will be made promptly after any Regular
Distribution Date if (after giving effect to the
subordination provisions of the Intercreditor
Agreement) there are insufficient funds available to
pay interest on any Class A or B Pass Through
Certificates. The maximum amount available under such
Liquidity Facility to fund any shortfall in interest
due on such Pass Through Certificates will not exceed
the Required Amount. The Liquidity Facility for any
Class of Pass Through Certificates does not provide
for drawings to pay principal of or premium on the
Pass Through Certificates of such Class, any
S-17
<PAGE>
interest on the Pass Through Certificates of such
Class in excess of the Stated Interest Rate, or
principal of or interest or premium on the Pass
Through Certificates of any other Class.
Upon each Interest Drawing under any Liquidity
Facility, the Subordination Agent is obligated to
reimburse (to the extent that the Subordination Agent
has available funds) the Liquidity Provider for the
amount of such drawing. Such reimbursement obligation
as well as any other amounts owing to the Liquidity
Provider under each Liquidity Facility (the
"Liquidity Obligations") will rank pari passu with
the Liquidity Obligations relating to all other
Liquidity Facilities and will rank senior to the Pass
Through Certificates in right of payment. Upon
reimbursement in full of any Interest Drawing,
together with any accrued interest thereon, the
amount available under such Liquidity Facility will
be reinstated to the then Required Amount of such
Liquidity Facility. The amount will not be reinstated
at any time after (i)(x) a Triggering Event has
occurred and is continuing and (y) less than 65% of
the then aggregate outstanding principal amount of
all Equipment Trust Certificates are Performing
Equipment Trust Certificates or (ii) all of the
Equipment Trust Certificates have been declared to be
immediately due and payable or have not been paid at
their final maturity.
"Non-Performing Equipment Trust Certificates" are
Equipment Trust Certificates other than Performing
Equipment Trust Certificates.
"Performing Equipment Trust Certificates" are
Equipment Trust Certificates with respect to which
there is no payment default (without giving effect to
any acceleration thereof). In the event of a
bankruptcy proceeding involving the Corporation under
Title 11 of the Bankruptcy Code, (i) any payment
default existing during the 60-day period under
Section 1110(a)(1)(A) of the Bankruptcy Code (or such
longer period as may apply under Section 1110(b))
will not be taken into consideration, unless during
the Section 1110 period the trustee in such
proceeding or the Corporation refuses to assume or
agree to perform its obligations under the Lease
related to such Equipment Trust Certificates, and
(ii) any payment default occurring after the date of
the order of relief in such proceeding will not be
taken into consideration if such payment default is
cured under Section 1110(a)(1)(B) before the later of
30 days after the date of such default or the
expiration of the Section 1110 period.
"Performing Certificate Deficiency" means any time
that less than 65% of the then aggregate outstanding
principal amount of all Equipment Trust Certificates
are Performing Equipment Trust Certificates.
S-18
<PAGE>
If at any time the short-term unsecured debt rating
of a Liquidity Provider issued by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's
Ratings Group ("Standard & "Poor's") (together the
"Rating Agencies") is lower than the Threshold Rating
(defined herein) or, in the event such Liquidity
Provider's short-term unsecured debt is not rated by
Moody's or Standard & Poor's, the long-term unsecured
debt rating of a Liquidity Provider issued by either
Moody's or Standard & Poor's is lower than the
Threshold Rating, then the Liquidity Provider for the
related Class of Pass Through Certificates or the
Subordination Agent (in consultation with the
Corporation) may arrange for another similar facility
to be provided by a financial institution having
unsecured debt ratings which are equal to or higher
than the Threshold Rating. If such Liquidity Facility
is not replaced within the period specified in the
Intercreditor Agreement after the downgrading, such
Liquidity Facility will be drawn in full (the
"Downgrade Drawing") and the proceeds will be
deposited into the Cash Account for the related Class
of Pass Through Certificates and used for the same
purposes as cash payments of Interest Drawings under
such Liquidity Facility.
The Subordination Agent, in consultation with the
Corporation may, subject to certain limitations,
arrange for a replacement facility at any time to
replace the Liquidity Facility for any Pass Through
Trust. If such replacement facility is provided at
any time after a Downgrade Drawing or Non-Extension
Drawing (defined herein) for such Liquidity Facility,
the funds on deposit in the Cash Account for such
Pass Through Trust will be returned to the Liquidity
Provider being replaced.
The initial Liquidity Facility for each Class of Pass
Through Certificates (other than the Class C Pass
Through Certificates) is scheduled to expire on the
fifteenth day after the Final Legal Distribution Date
for such Class of Pass Through Certificates. A
replacement facility may, however, be scheduled to
expire on an earlier date. If a replacement facility
for a Class of Pass Through Certificates is scheduled
to expire prior to the date that is fifteen days
after the Final Legal Distribution Date for such
Class, the Intercreditor Agreement will provide for
the replacement or extension of such replacement
facility for 364 days. If such replacement facility
cannot be replaced or extended by the date that is 25
days prior to the then scheduled expiration date of
such replacement facility, such replacement facility
will be drawn in full (the "Non-Extension Drawing")
on such scheduled expiration date and the proceeds
will be deposited in the Cash Account for the related
Class of Pass Through Certificates and used for the
same purposes as cash payments of Interest Drawings
under such Liquidity Facility.
Notwithstanding the subordination provisions of the
Intercreditor Agreement, the Liquidity Facility for
any Class of Pass Through
S-19
<PAGE>
Certificates does not provide for drawings to pay
principal of or interest or premium on the Pass
Through Certificates of any other Class. Only the
holders of the Pass Through Certificates to be issued
by a particular Pass Through Trust will be entitled
to receive and retain the proceeds of drawings under
the Liquidity Facility for such Pass Through Trust.
There is no Liquidity Facility for the Class C Trust.
INTERCREDITOR AGREEMENT:
SUBORDINATION......... All payments made in respect of the Equipment Trust
Certificates and certain other payments will be made
to the Subordination Agent which will distribute such
payments as follows:
(i) On any Regular Distribution Date or Special
Distribution Date (each, a "Distribution Date"),
so long as no Triggering Event has occurred, all
payments received by the Subordination Agent in
respect of the Equipment Trust Certificates and
certain other payments will be distributed in the
following order: (1) payment of the Liquidity
Obligations; (2) payment of Expected
Distributions (defined herein) to the holders of
Class A Pass Through Certificates; (3) payment of
Expected Distributions to the holders of Class B
Pass Through Certificates; (4) payment of
Expected Distributions to the holders of Class C
Pass Through Certificates; and (5) payment of
certain fees and expenses of the Subordination
Agent and the Pass Through Trustee.
"Expected Distributions" means, with respect to
the Pass Through Certificates of any Pass Through
Trust on any Distribution Date (the "Current
Distribution Date"), the sum of (i) accrued and
unpaid interest on such Pass Through Certificates
and (ii) the difference between (x) the Pool
Balance of such Pass Through Certificates as of
the immediately preceding Distribution Date and
(y) the Pool Balance of such Pass Through
Certificates as of the Current Distribution Date,
calculated on the basis that (1) the principal of
the Equipment Trust Certificates held in such
Pass Through Trust has been paid when due and
such payments have been distributed to the
holders of such Pass Through Certificates and (2)
the principal of any Equipment Trust Certificates
formerly held in such Pass Through Trust that
have been sold pursuant to the Intercreditor
Agreement has been paid in full and such payments
distributed to the Certificateholders. In certain
circumstances, premium will be included as part
of Expected Distributions.
(ii) Upon the occurrence of a Triggering Event and at
all times thereafter, all payments received by
the Subordination Agent in respect of the
Equipment Trust Certificates and certain other
payments will be distributed in the following
order: (1) to reimburse the Subordination Agent,
the Pass Through Trustee, the Liquidity Provider
and any Certificateholder, as the case
S-20
<PAGE>
may be, for the payment of certain expenses; (2)
to the Liquidity Provider in payment of Liquidity
Expenses, Liquidity Obligations and, so long as no
Performing Certificate Deficiency exists and no
Liquidity Event of Default (defined herein) has
occurred and is continuing, to replenish the Cash
Account; (3) to reimburse the Subordination Agent,
the Pass Through Trustee and each
Certificateholder, as the case may be, for the
payment of certain taxes and fees; (4) to pay
Adjusted Expected Distributions (defined herein)
to the holders of Class A Pass Through
Certificates; (5) to pay Adjusted Expected
Distributions to the holders of Class B Pass
Through Certificates; (6) to pay Adjusted Expected
Distributions to the holders of Class C Pass
Through Certificates; and (7) the balance will be
held in the Collection Account (defined herein)
until the next Distribution Date or, if all
Classes of Pass Through Certificates have been
paid in full, will be distributed to the related
Owner Trustee.
"Adjusted Expected Distributions" means with respect
to the Pass Through Certificates of any Class on any
Current Distribution Date the sum of (i) the amount
of accrued and unpaid interest on such Pass Through
Certificates plus (ii) the greater of:
(A) the difference between (x) the Pool Balance of
such Pass Through Certificates as of the
immediately preceding Distribution Date and
(y) the Pool Balance of such Pass Through
Certificates as of the Current Distribution
Date, calculated on the basis that (1) the
principal of the Non-Performing Equipment
Trust Certificates held in such Pass Through
Trust has been paid in full and such payments
have been distributed to the holders of such
Pass Through Certificates, (2) the principal
of the Performing Equipment Trust Certificates
has been paid when due (but without giving
effect to any acceleration of Performing
Equipment Trust Certificates) and has been
distributed to the holders of such Pass
Through Certificates and (3) the principal of
any Equipment Trust Certificates formerly held
in such Pass Through Trust that have been sold
pursuant to the Intercreditor Agreement has
been paid in full and such payments
distributed to the Certificateholders; and
(B) the amount, if any, by which (x) the Pool
Balance of such Class of Pass Through
Certificates as of the immediately preceding
Distribution Date exceeds (y) the Aggregate
LTV Collateral Amount for such Class of Pass
Through Certificates for the Current
Distribution Date; provided that, until the
date of the initial LTV Appraisals, this
clause (B) is not applicable.
"Aggregate LTV Collateral Amount" means, for any
Class of Pass Through Certificates for any
Distribution Date, the sum of the
S-21
<PAGE>
applicable LTV Collateral Amounts for each Aircraft
minus the Pool Balance for each Class of Pass Through
Certificates, if any, senior to such Class after
giving effect to any distribution of principal on
such Distribution Date on such senior Class or
Classes.
"Appraised Current Market Value" of any Aircraft
means the lower of the average and the median of the
most recent three LTV Appraisals of such Aircraft.
After a Triggering Event has occurred and any
Equipment Trust Certificate becomes a Non-Performing
Equipment Trust Certificate, the Subordination Agent
will be required to obtain LTV Appraisals to
determine the Appraised Current Market Value and
additional LTV Appraisals on or prior to each
anniversary of the date of such initial LTV
Appraisals. If the Controlling Party reasonably
objects to any LTV Appraisals, the Controlling Party
(defined herein) has the right to obtain substitute
LTV Appraisals (including any LTV Appraisals based
upon physical inspection of the Aircraft).
"LTV Appraisal" means a current fair market value
appraisal (which may be a "desktop" appraisal)
performed by an Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length
transaction between an informed and willing purchaser
under no compulsion to buy and an informed and
willing seller under no compulsion to sell, both
parties having knowledge of all relevant facts.
"LTV Collateral Amount" of any Aircraft for any Class
of Pass Through Certificates for any Distribution
Date means the lesser of (i) the LTV Ratio for such
Class of Pass Through Certificates multiplied by the
Appraised Current Market Value of such Aircraft (or
with respect to any such Aircraft which has suffered
an Event of Loss under the related Lease, the amount
of the insurance proceeds paid or payable to the
Indenture Trustee in respect thereof) and (ii) the
outstanding principal amount of the Equipment Trust
Certificates secured by such Aircraft after giving
effect to any principal payments of such Equipment
Trust Certificates on or before such Distribution
Date.
"LTV Ratio" means for the Class A Pass Through
Certificates 40.0%, for the Class B Pass Through
Certificates 55.0% and for the Class C Pass Through
Certificates 75.0%.
INTERCREDITOR RIGHTS.... With respect to any Indenture at any given time, the
Indenture Trustee will be directed in taking, or
refraining from taking, any action thereunder, (i) by
the holders of at least a majority of the outstanding
principal amount of the Equipment Trust Certificates
issued thereunder (provided that, for so long as the
Subordination Agent is the registered holder of the
Equipment Trust Certificates, the Subordination Agent
will act with respect to this clause (i) in
accordance with the directions of the Pass Through
Trustee representing holders of Pass Through
Certificates representing an
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<PAGE>
undivided interest in such principal amount of
Equipment Trust Certificates) so long as no Indenture
Event of Default has occurred and is continuing and
(ii) by the Controlling Party after the occurrence
and during the continuance of an Indenture Event of
Default, subject to certain conditions, in exercising
remedies thereunder (including acceleration of such
Equipment Trust Certificates or foreclosing the lien
on the Aircraft securing such Equipment Trust
Certificates).
"Controlling Party" with respect to any Indenture
means: (i) the Class A Pass Through Trustee; (ii)
upon payment of Final Distributions to the holders of
Class A Pass Through Certificates, the Class B Pass
Through Trustee; and (iii) upon payment of Final
Distributions to the holders of Class B Pass Through
Certificates, the Class C Pass Through Trustee.
Notwithstanding the foregoing, subject to certain
limitations, the Liquidity Provider will have the
right to elect to become the Controlling Party at any
time after 18 months after the earlier of (i) the
acceleration of the Equipment Trust Certificates and
(ii) a Final Drawing with respect to the Liquidity
Facilities, if, in the case of clause (i) or (ii)
above, at the time of such election the Liquidity
Obligations have not been paid in full. If there is
more than one Liquidity Provider, the Liquidity
Provider with the greatest amount of unreimbursed
Liquidity Obligations will have such right.
"Final Distributions" means, with respect to the Pass
Through Certificates of any Pass Through Trust on any
Distribution Date, the sum of (x) the aggregate
amount of all accrued and unpaid interest on such
Pass Through Certificates and (y) the Pool Balance of
such Pass Through Certificates as of the immediately
preceding Distribution Date.
Upon the occurrence and during the continuation of
any Indenture Event of Default, the Controlling Party
may accelerate and sell all (but not less than all)
of the Equipment Trust Certificates issued under such
Indenture to any person, subject to the provisions of
the paragraph below. The proceeds of such sale will
be distributed pursuant to the provisions of the
Intercreditor Agreement.
Subject to certain limitations, so long as any Pass
Through Certificates are outstanding, during nine
months after the earlier of (x) the acceleration of
the Equipment Trust Certificates under any Indenture
and (y) the bankruptcy or insolvency of the
Corporation, without the consent of each Pass Through
Trustee, (1) no Aircraft subject to the lien of such
Indenture or such Equipment Trust Certificates may be
sold, if the net proceeds from such sale will be less
than the Minimum Sale Price for such Aircraft or such
Equipment Trust Certificates, and (2) the amount and
payment dates of rentals payable by the Corporation
under the Lease for such Aircraft may not be
adjusted, if, as a result of such
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adjustment, the discounted present value of all such
rentals will be less than 75% of the discounted
present value of the rentals payable by the
Corporation under such Lease before giving effect to
such adjustment, in each case, using the weighted
average interest rate of the Equipment Trust
Certificates outstanding under such Indenture as the
discount rate.
"Minimum Sale Price" means, with respect to any
Aircraft or the Equipment Trust Certificates issued
in respect of such Aircraft, at any time, the lesser
of (i) 75% of the Appraised Current Market Value of
such Aircraft and (ii) the aggregate outstanding
principal amount of such Equipment Trust
Certificates, plus accrued and unpaid interest
thereon.
THE PASS THROUGH
TRUSTEE; THE INDENTURE
TRUSTEE; THE
SUBORDINATION AGENT.... First Security Bank, National Association will be the
Pass Through Trustee for each Pass Through Trust and
the Paying Agent, Authenticating Agent and Registrar
for the Pass Through Certificates.
First Security Bank, National Association will be the
Indenture Trustee under each Indenture.
First Security Bank, National Association will be the
Subordination Agent under the Intercreditor
Agreement. See "Description of the Pass Through
Certificates--The Pass Through Trustee; the Indenture
Trustee" and "Description of the Intercreditor
Agreement--the Subordination Agent" in this
Prospectus Supplement.
FEDERAL INCOME TAX
CONSEQUENCES........... The Pass Through Trusts will not themselves be
subject to federal income tax. Accordingly, each
Certificateholder must 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 this Prospectus Supplement.
ERISA CONSIDERATIONS.... In general, employee benefit plans subject to Title I
of ERISA or Section 4975 of the Code or entities
which may be deemed to hold the assets of any such
plan will be eligible to purchase the Pass Through
Certificates, subject to certain conditions. See
"ERISA Considerations" in this Prospectus Supplement.
By its acceptance of a Pass Through Certificate, each
Certificateholder will be deemed to have represented
and warranted that either (i) no ERISA Plan assets
have been used to purchase such Pass Through
Certificate or (ii) one or more prohibited
transaction statutory or administrative exemptions
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<PAGE>
applies such that the use of such plan assets to
purchase and hold such Pass Through Certificate will
not constitute a non-exempt prohibited transaction
under ERISA or Section 4975 of the Code.
Each ERISA Plan fiduciary (and each fiduciary for a
governmental or church plan subject to rules similar
to those imposed on ERISA Plans) should consult with
its legal advisor concerning an investment in any of
the Pass Through Certificates.
RATING OF THE PASS
THROUGH CERTIFICATES... It is a condition to the issuance of the Pass Through
Certificates that the Pass Through Certificates be
rated by Moody's and Standard & Poor's as set forth
below.
<TABLE>
<CAPTION>
PASS THROUGH STANDARD &
CERTIFICATES MOODY'S POOR'S
------------ ------- ----------
<S> <C> <C>
Class A Aa3 AAA
Class B A1 AA-
Class C Baa1 BBB+
</TABLE>
A rating is not a recommendation to purchase, hold or
sell Pass Through Certificates, inasmuch as such
rating does not address market price or suitability
for a particular investor. There can be no assurance
that such ratings will not be lowered or withdrawn by
a Rating Agency. See "Risk Factors" in this
Prospectus Supplement.
RATING OF THE INITIAL
LIQUIDITY PROVIDER..... Kredietbank N.V. is rated as set forth below.
<TABLE>
<CAPTION>
STANDARD &
MOODY'S POOR'S
------- ----------
<S> <C> <C>
Short-term P-1 A-1+
Long-term Aa2 AA-
</TABLE>
There can be no assurance that such ratings will not
be lowered or withdrawn by a Rating Agency. See "Risk
Factors" in this Prospectus Supplement.
THRESHOLD RATING........
<TABLE>
<CAPTION>
STANDARD &
MOODY'S POOR'S
------- ----------
<S> <C> <C>
Short-term P-1 A-1+
</TABLE>
There can be no assurance that such ratings will not
be lowered or withdrawn by a Rating Agency. See "Risk
Factors" in this Prospectus Supplement.
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<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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission in
accordance with the provisions of the Securities Exchange Act of 1934, as
amended, are incorporated herein by reference and made a part hereof.
1. The Corporation's Current Report on Form 8-K dated May 12, 1997 and
filed May 14, 1997.
See "Incorporation of Certain Documents by Reference" in the Prospectus.
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 related Owner Trustee for each of nine
separate Owner Trusts under a separate trust indenture and security agreement
between the Indenture Trustee, not in its individual capacity but solely as
the indenture trustee, and the related Owner Trustee (each, an "Indenture").
For eight of the Aircraft, the proceeds from the sale of the related
Equipment Trust Certificates are expected to be used to finance a portion of
the purchase price to be paid by the related Owner Trustee on behalf of the
related Owner Trust (or, in certain circumstances, by the Corporation) for
such Aircraft. For one Aircraft, the proceeds from the sale of the related
Equipment Trust Certificates will be used by the related Owner Trustee to
refinance the aggregate outstanding principal amount of the loan certificates
of the related Owner Trust issued under the related Indenture as originally
executed in connection with the leveraged lease transaction relating to such
Aircraft. The aggregate principal amount of such original loan certificates is
$61,754,680. Each such original loan certificate bears interest at a floating
rate determined from time to time by reference to London interbank offered
rates, the federal funds rate or the prime rate and has a maturity date of
January 13, 2015. Morgan Guaranty Trust Company of New York, an affiliate of
one of the Underwriters, will receive approximately $61,754,680 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 related 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 eight Indentures, the Aircraft related thereto will not have been
delivered on the date of the issuance of the related Equipment Trust
Certificates. Such Aircraft are expected to be delivered between May 1997 and
January 1998. For the A300F4-605R aircraft, the Corporation is obligated to
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<PAGE>
cause the proceeds of the Equipment Trust Certificates issued under such
Indentures 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 therefor or the
Corporation does not enter into the related Lease on or prior to the related
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.
With respect to the three undelivered McDonnell Douglas MD-11F aircraft, if
(i) the modification of such Aircraft has not been completed and such Aircraft
delivered on or prior to the related Cut-off Date, (ii) the related Owner
Participant does not make available its committed portion of the purchase
price for such Aircraft, or (iii) with respect to two of such Aircraft, the
Corporation fails to obtain a commitment from any prospective Owner
Participant, the related Equipment Trust Certificates will be prepaid in whole
on or before the 15th day following the related Cut-off Date for such
Aircraft. The Series C Equipment Trust Certificates relating to these two
Aircraft may also be subject to prepayment in part, no later than 20 days
after the date on which a prospective Owner Participant participates in the
purchase of such Aircraft, in connection with any reoptimization (subject to
the Mandatory Economic Terms) negotiated with such prospective Owner
Participant.
RISK FACTORS
APPRAISALS AND REALIZABLE VALUE OF AIRCRAFT
The appraised value of each Aircraft is based upon the lesser of the average
and the median value of such Aircraft as appraised by the Appraisers (the
"Appraisals"). The Appraisals are based on various assumptions and
methodologies, which vary among the Appraisals. For a discussion of the
assumptions and methodologies used in preparing each of the Appraisals,
reference is hereby made to the summaries of the Appraisers' reports, copies
of which are included in Appendix II hereto.
Appraisals based on different assumptions or methodologies may result in
valuations that are significantly different from those contained in the
Appraisals. An appraisal is only an estimate of value and should not be relied
upon as a measure of realizable value. The proceeds realized upon the sale of
any Aircraft may be less than the appraised value thereof. In addition, the
value of the Aircraft in the event of the exercise of remedies under the
related Indenture will depend on market and economic conditions at the time,
the availability of buyers, the condition of the Aircraft, whether the
Aircraft are sold separately or as a block and other factors. Accordingly,
there can be no assurance that the proceeds realized upon any such exercise
with respect to the Equipment Trust Certificates and the Aircraft pursuant to
the related Indenture will be as appraised or sufficient to satisfy in full
payments due on the Equipment Trust Certificates issued thereunder or the Pass
Through Certificates. See "Description of the Aircraft and the Appraisals" in
this Prospectus Supplement.
The Equipment Trust Certificates are not cross-collateralized and,
consequently, liquidation proceeds from the sale of an Aircraft in excess of
the principal amount of the Equipment Trust Certificates related to such
Aircraft will not be available to cover losses, if any, on any other Equipment
Trust Certificates.
PRIORITY OF DISTRIBUTIONS; SUBORDINATION
The priority of distributions after a Triggering Event will have the effect
in certain circumstances of distributing payments received in respect of one
or more junior series of Equipment Trust
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<PAGE>
Certificates to more senior Classes of Pass Through Certificates. If this
occurs, the interest accruing on the remaining Equipment Trust Certificates
will be less than the interest accruing on the remaining Pass Through
Certificates because the Pass Through Certificates will have a greater
proportion of higher interest rate junior Classes. As a result of this
possible interest shortfall, the holders of one or more junior Classes of Pass
Through Certificates may not receive the full amount due them after a
Triggering Event even if all the Equipment Trust Certificates are eventually
paid in full. See "Description of the Pass Through Certificates--
Subordination" in this Prospectus Supplement.
RATINGS OF THE PASS THROUGH CERTIFICATES
It is a condition to the issuance of the Pass Through Certificates that the
Class A Pass Through Certificates be rated "Aa3" by Moody's and "AAA" by
Standard & Poor's; the Class B Pass Through Certificates be rated "A1" by
Moody's and "AA-" by Standard & Poor's and the Class C Pass Through
Certificates be rated "Baa1" by Moody's and "BBB+" by Standard & Poor's.
A rating is not a recommendation to purchase, hold or sell Pass Through
Certificates, inasmuch as such rating does not address market price or
suitability for a particular investor. There is no assurance that a rating
will remain for any given period of time or that a rating will not be lowered
or withdrawn entirely by a Rating Agency if in its judgment circumstances in
the future (including the downgrading of the Corporation or the Liquidity
Provider) so warrant. The rating of the Pass Through Certificates is based
primarily on the default risk of the Equipment Trust Certificates, the
availability of the Liquidity Facility for the holders of the Pass Through
Certificates (other than the Class C Pass Through Certificates), the
collateral value provided by the Aircraft and the subordination in right of
payment under the Intercreditor Agreement of the Class B Pass Through
Certificates to the Class A Pass Through Certificates and of the Class C Pass
Through Certificates to the Class B Pass Through Certificates. The ratings
address the likelihood of timely payment of interest (at the non-default rate)
when due on the Pass Through Certificates and the ultimate payment of
principal of the Pass Through Certificates by the Final Legal Distribution
Date. Such ratings do not address the possibility of an Event of Default or an
Indenture Event of Default or other circumstances (such as an Event of Loss)
which may result in the payment of the outstanding principal amount of the
Pass Through Certificates prior to the Final Expected Distribution Date.
The reduction, suspension or withdrawal of the ratings of the Pass Through
Certificates will not, in and of itself, constitute an Event of Default.
OWNER PARTICIPANT; REVISIONS TO AGREEMENTS
The Corporation has obtained commitments from certain companies to act as
the Owner Participant with respect to the leveraged leases for seven of the
Aircraft and is seeking commitments from prospective Owner Participants for
two of the McDonnell Douglas MD-11F aircraft. The Corporation will hold the
beneficial interest under the Trust Agreement relating to each such Aircraft
until the date upon which a prospective Owner Participant commits to
participate in the purchase price of such Aircraft (which date may be up to 90
days after the scheduled delivery date of the Aircraft). The Corporation will
transfer to such Owner Participant on such date the Corporation's beneficial
interest under the Trust Agreement. Such prospective Owner Participants may
request revisions to the Participation Agreement, Lease, Trust Agreement and
Indenture so that the terms of such agreements applicable to these Aircraft
may differ from the description of such agreements contained in this
Prospectus Supplement.
Notwithstanding the foregoing, the terms of such agreements are required to
(i) contain the Mandatory Document Terms and (ii) not vary the Mandatory
Economic Terms. In addition, the Corporation is obligated (i) to certify to
the Pass Through Trustee that any such modifications will not materially and
adversely affect the Certificateholders and (ii) if the documents are modified
in any
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<PAGE>
material respect, to obtain written confirmation from each Rating Agency that
the use of modified versions of such agreements will not result in a
withdrawal, suspension or downgrading of the rating of any Class of Pass
Through Certificates.
Each Owner Participant will have the right to sell, assign or otherwise
transfer its interests as Owner Participant in any leveraged lease, subject to
the terms and conditions of the relevant Participation Agreement and related
documents.
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,
the Intercreditor Agreement and to the provisions of each Series Supplement
and Liquidity Facility. The Pass Through Agreement and each Series Supplement,
together with the forms of the Intercreditor Agreement, the related Indentures
and Liquidity Facilities 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 1997-1 Pass Through Trust Class A, Class B and Class C,
respectively, to be formed pursuant to the Pass Through Agreement and Series
Supplement 1997-1-A, Series Supplement 1997-1-B or Series Supplement 1997-1-C,
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 as described under "Subordination" below and 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 Expected Distribution Date
applicable to each Pass Through Trust will differ.
The Pass Through Agreement does not, and the Series Supplements, the
Indentures, the Liquidity Facilities and the Intercreditor Agreement will not,
include covenants that will 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:
(i) the Equipment Trust Certificates held in such Pass Through Trust;
(ii) the rights of such Pass Through Trust under the Intercreditor
Agreement (including all monies receivable in respect of such rights);
(iii) except for the Class C Trust, all monies receivable under the
Liquidity Facility for such Pass Through Trust; and
(iv) funds from time to time deposited with the Pass Through Trustee in
accounts relating to such Pass Through Trust.
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<PAGE>
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; Series Supplements, Article I)
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.
The Regular Distribution Dates for each Pass Through Trust are January 15
and July 15. 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 15 and July 15, commencing on July 15, 1997, and are
to be distributed to the related Certificateholders on the corresponding
Regular Distribution Dates, in each case subject to the Intercreditor
Agreement. 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 Stated Interest Rate, which is calculated on the basis of a
360-day year consisting of twelve 30-day months.
Payments of interest on the Pass Through Certificates to be issued by each
Pass Through Trust (other than the Class C Trust) will be supported by a
separate Liquidity Facility to be provided by the Liquidity Provider for the
benefit of the holders of such Pass Through Certificates in an amount
sufficient to pay interest thereon at the Stated Interest Rate for such Pass
Through Trust on three successive Regular Distribution Dates. Notwithstanding
the subordination provisions of the Intercreditor Agreement, the Liquidity
Facility for any Class of Pass Through Certificates will not provide for
drawings to pay principal of or interest or premium on the Pass Through
Certificates of any other Class. Only the holders of the Pass Through
Certificates to be issued by a particular Pass Through Trust will be entitled
to receive and retain the proceeds of drawings under the Liquidity Facility
for such Pass Through Trust. See "Description of the Liquidity Facilities" in
this Prospectus Supplement.
Payments of principal of the Equipment Trust Certificates held in each Pass
Through Trust are scheduled to be received in specified amounts on January 15
or July 15, or both, of each year, commencing on January 15, 1998, in the case
of each Class of Pass Through Certificates, and are to be distributed to the
related Certificateholders on the corresponding Regular Distribution Dates, in
each case subject to the Intercreditor Agreement. The record dates for the
respective Regular Distribution Dates are December 31 and June 30. 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.
Subject to the Intercreditor Agreement, 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 Specified Investments
pending the distribution of such funds on a Special Distribution Date. See
"Description of the Pass Through Certificates--Payments and Distributions" in
the Prospectus.
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For each Pass Through Trust, the Special Distribution Dates will be any
Business Day on which a Special Payment is to be distributed. 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 Salt Lake City, Utah, 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 Class of Pass Through Certificates. (Pass Through Agreement,
Section 5.02(d))
SUBORDINATION
Pursuant to the Intercreditor Agreement, on each Distribution Date, so long
as no Triggering Event has occurred, all payments received by the
Subordination Agent will be distributed in the following order:
(1) payment of the Liquidity Obligations;
(2) payment of Expected Distributions to the holders of Class A Pass
Through Certificates;
(3) payment of Expected Distributions to the holders of Class B Pass
Through Certificates;
(4) payment of Expected Distributions to the holders of Class C Pass
Through Certificates; and
(5) payment of certain fees and expenses of the Subordination Agent and the
Pass Through Trustee. (Intercreditor Agreement, Sections 2.4 and 3.2)
Upon the occurrence of a Triggering Event and at all times thereafter, all
payments received by the Subordination Agent in respect of the Equipment Trust
Certificates and certain other payments will be distributed in the following
order:
(1) to reimburse the Subordination Agent, the Pass Through Trustee, the
Liquidity Provider and any Certificateholder, as the case may be, for
the payment of certain expenses;
(2) to the Liquidity Provider in payment of Liquidity Expenses, Liquidity
Obligations and, so long as no Performing Certificate Deficiency exists
and no Liquidity Event of Default has occurred and is continuing, to
replenish the Cash Account;
(3) to reimburse the Subordination Agent, the Pass Through Trustee and each
Certificateholder, as the case may be, for the payment of certain taxes
and fees;
(4) to pay Adjusted Expected Distributions to the holders of Class A Pass
Through Certificates;
(5) to pay Adjusted Expected Distributions to the holders of Class B Pass
Through Certificates;
(6) to pay Adjusted Expected Distributions to the holders of Class C Pass
Through Certificates; and
(7) the balance will be held in the Collection Account until the next
Distribution Date or, if all Classes of Pass Through Certificates have
been paid in full, will be distributed to the related Owner Trustee.
(Intercreditor Agreement, Section 3.3)
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<PAGE>
The priority of distributions after a Triggering Event will have the effect
in certain circumstances of distributing payments received in respect of one
or more junior series of Equipment Trust Certificates to more senior Classes
of Pass Through Certificates. If this occurs, the interest accruing on the
remaining Equipment Trust Certificates will be less than the interest accruing
on the remaining Pass Through Certificates because the Pass Through
Certificates will have a greater proportion of higher interest rate junior
classes. As a result of this possible interest shortfall, the holders of one
or more junior Classes of Pass Through Certificates may not receive the full
amount due them after a Triggering Event even if all the Equipment Trust
Certificates are eventually paid in full.
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 the
Indentures.
POOL FACTORS
Unless there has been a prepayment, purchase or default in the payment of
principal and interest, in respect of one or more series of the Equipment
Trust Certificates held in a Pass Through Trust, the Pool Factor with respect
to each Pass Through Trust will decline in proportion to the scheduled
repayment of principal on the Equipment Trust Certificates held in such Pass
Through Trust as described below in "Description of Equipment Trust
Certificates--General." In the event of a prepayment or default, the Pool
Factor and the Pool Balance of each Pass Through Trust affected will be
recomputed after giving effect thereto and notice will be sent to the
Certificateholders affected.
The "Pool Balance" for any Pass Through Trust or for the Pass Through
Certificates issued by any Pass Through Trust indicates, as of any date, the
original aggregate face amount of the Pass Through Certificates of such Pass
Through Trust less the aggregate amount of all payments on such Pass Through
Certificates other than payments made in respect of interest or premium or
reimbursement of any costs and expenses in connection therewith. The Pool
Balance for each Pass Through Trust as of any Regular Distribution Date or
Special Distribution Date will be computed after giving effect to the payment
of principal, if any, on the Equipment Trust Certificates or other Trust
Property held in such Pass Through Trust and the distribution thereof being
made on that date.
The "Pool Factor" for any Pass Through Trust as of any Regular Distribution
Date or Special Distribution Date is the quotient (rounded to the seventh
decimal place) computed by dividing (i) the Pool Balance by (ii) the original
aggregate face amount of the Pass Through Certificates of the related Class.
The Pool Factor for each Pass Through Trust as of any Regular Distribution
Date or Special Distribution Date will be computed after giving effect to the
payment of principal, if any, on such Equipment Trust Certificates or other
Trust Property held in such Pass Through Trust and the distribution thereof
being made on that date. Assuming that no prepayment or purchase, or default,
in respect of any Equipment Trust Certificates has occurred, the Pool Factor
for each Pass Through Trust will be 1.0000000 on the date of issuance of the
Pass Through Certificates. Thereafter, the Pool Factor for each Pass Through
Trust will decline as described herein to reflect reductions in the Pool
Balance of such Pass Through Trust. The amount of a Certificateholder's pro
rata share of the Pool Balance for such Pass Through Trust can be determined
by multiplying the par value of the holder's Pass Through Certificate of such
Pass Through Trust by the Pool Factor for such Pass Through Trust as of the
applicable Regular Distribution Date or Special Distribution Date. Notice of
the Pool Factor and the Pool Balance for each Pass Through Trust will be
mailed to Certificateholders of such Pass Through Trust on each Regular
Distribution Date or Special Distribution Date.
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<PAGE>
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 has occurred (and assuming there
will be no change in the payment terms of the Equipment Trust Certificates
relating to Aircraft N583FE and N584FE), 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 PASS THROUGH TRUST
1997-1-A 1997-1-B 1997-1-C
---------------------- ---------------------- ----------------------
SCHEDULED SCHEDULED SCHEDULED
PRINCIPAL PRINCIPAL PRINCIPAL
PAYMENTS ON PAYMENTS ON PAYMENTS ON
REGULAR EQUIPMENT EXPECTED EQUIPMENT EXPECTED EQUIPMENT EXPECTED
DISTRIBUTION TRUST POOL TRUST POOL TRUST POOL
DATE CERTIFICATES FACTOR CERTIFICATES FACTOR CERTIFICATES FACTOR
------------ ------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
May 28, 1997............ $ 0 1.0000000 $ 0 1.0000000 $ 0 1.0000000
July 15, 1997........... 0 1.0000000 0 1.0000000 0 1.0000000
January 15, 1998........ 2,582,007 0.9916938 1,171,776 0.9898810 814,093 0.9936982
July 15, 1998........... 2,183,726 0.9846689 0 0.9898810 0 0.9936982
January 15, 1999........ 3,781,639 0.9725036 1,947,506 0.9730632 3,352,943 0.9677437
July 15, 1999........... 1,824,711 0.9666336 0 0.9730632 0 0.9677437
January 15, 2000........ 4,381,953 0.9525371 2,347,516 0.9527910 3,434,834 0.9411552
July 15, 2000........... 1,878,088 0.9464954 0 0.9527910 0 0.9411552
January 15, 2001........ 4,755,783 0.9311963 2,347,516 0.9325189 3,891,533 0.9110314
July 15, 2001........... 1,504,258 0.9263572 0 0.9325189 0 0.9110314
January 15, 2002........ 5,644,273 0.9081999 2,347,516 0.9122467 4,375,413 0.8771621
July 15, 2002........... 615,768 0.9062190 0 0.9122467 0 0.8771621
January 15, 2003........ 5,510,536 0.8884919 2,075,927 0.8943199 6,726,455 0.8250937
July 15, 2003........... 749,504 0.8860808 271,589 0.8919746 0 0.8250937
January 15, 2004........ 4,443,848 0.8717852 1,800,026 0.8764303 8,699,834 0.7577497
July 15, 2004........... 1,816,192 0.8659426 547,490 0.8717024 0 0.7577497
January 15, 2005........ 3,997,728 0.8530821 1,518,492 0.8585893 8,888,210 0.6889475
July 15, 2005........... 2,262,318 0.8458044 829,030 0.8514302 0 0.6889475
January 15, 2006........ 4,443,848 0.8315087 1,666,446 0.8370395 13,320,067 0.5858391
July 15, 2006........... 1,816,198 0.8256661 681,072 0.8311580 2,326,313 0.5678314
January 15, 2007........ 4,930,209 0.8098059 3,469,888 0.8011935 23,315,227 0.3873521
July 15, 2007........... 1,329,833 0.8055279 280,600 0.7987704 0 0.3873521
January 15, 2008........ 6,260,042 0.7853897 4,599,212 0.7590535 8,611,545 0.3206915
July 15, 2008........... 0 0.7853897 0 0.7590535 0 0.3206915
January 15, 2009........ 6,260,042 0.7652515 9,247,657 0.6791947 10,751,443 0.2374663
July 15, 2009........... 0 0.7652515 0 0.6791947 0 0.2374663
January 15, 2010........ 7,587,306 0.7408436 13,818,441 0.5598644 7,456,185 0.1797492
July 15, 2010........... 0 0.7408436 0 0.5598644 0 0.1797492
January 15, 2011........ 11,187,831 0.7048530 24,124,500 0.3515354 928,493 0.1725619
July 15, 2011........... 0 0.7048530 0 0.3515354 0 0.1725619
January 15, 2012........ 17,265,476 0.6493109 21,710,472 0.1640529 0 0.1725619
July 15, 2012........... 0 0.6493109 0 0.1640529 0 0.1725619
January 15, 2013........ 41,565,514 0.5155969 6,077,266 0.1115722 123,763 0.1716039
July 15, 2013........... 0 0.5155969 0 0.1115722 0 0.1716039
January 15, 2014........ 29,254,801 0.4214859 0 0.1115722 22,168,649 0.0000000
July 15, 2014........... 80,029 0.4212284 0 0.1115722 0 0.0000000
January 15, 2015........ 48,486,399 0.2652504 0 0.1115722 0 0.0000000
July 15, 2015........... 313,361 0.2642423 0 0.1115722 0 0.0000000
January 15, 2016........ 46,924,316 0.1132894 548,889 0.1068322 0 0.0000000
July 15, 2016........... 564,520 0.1114734 0 0.1068322 0 0.0000000
January 15, 2017........ 33,575,713 0.0034622 2,408,507 0.0860334 0 0.0000000
July 15, 2017........... 0 0.0034622 0 0.0860334 0 0.0000000
January 15, 2018........ 1,076,230 0.0000000 9,962,666 0.0000000 0 0.0000000
</TABLE>
S-33
<PAGE>
CERTAIN RIGHTS UPON AN INDENTURE EVENT OF DEFAULT
Upon the occurrence of an Indenture Event of Default, the Controlling Party
may direct the exercise of the remedies discussed in "Events of Default and
Certain Rights Upon an Event of Default" in the Prospectus.
PURCHASE RIGHTS OF THE CERTIFICATEHOLDERS
Upon the occurrence and during the continuation of a Triggering Event, with
ten days' written notice to the Pass Through Trustee and each other
Certificateholder of the same Class, (i) the Class B Certificateholders will
have the right to purchase all, but not less than all, of the Class A Pass
Through Certificates; and (ii) the Class C Certificateholders will have the
right to purchase all, but not less than all, of the Class A and B Pass
Through Certificates, in each case at a purchase price equal to the Pool
Balance of the relevant Class or Classes of Pass Through Certificates plus
accrued and unpaid interest thereon to the date of purchase, without premium,
but including any other amounts due to the Certificateholders of such Class or
Classes. In each case, if prior to the end of the ten-day period, any other
Certificateholder of the same Class notifies the purchasing Certificateholder
that the other Certificateholder wants to participate in such purchase, then
such other Certificateholder may join with the purchasing Certificateholder to
purchase the Pass Through Certificates pro rata based on the interest in the
Pass Through Trust held by each Certificateholder. (Pass Through Agreement,
Section 7.01(b))
PTC EVENTS OF DEFAULT
A PTC Event of Default will occur if the Pass Through Trustee fails to pay
within ten business days of the due date thereof (i) the outstanding Pool
Balance of the related Class of Pass Through Certificates on the Final Legal
Distribution Date for such Class or (ii) interest due on such Pass Through
Certificates on any distribution date (unless, in the case of the Class A and
Class B Pass Through Certificates, the Subordination Agent has made an
Interest Drawing in an amount sufficient to pay such interest and has
distributed such amount to the Certificateholders entitled thereto). Any
failure to make expected principal distributions on any Class of Pass Through
Certificates on any Regular Distribution Date (other than the Final Legal
Distribution Date) will not be a PTC Event of Default with respect to such
Pass Through Certificates. (Series Supplement, Article I)
OBLIGATION TO PURCHASE EQUIPMENT TRUST CERTIFICATES
The Corporation has obtained commitments from certain companies to act as
the Owner Participant with respect to the leveraged leases for seven of the
Aircraft and is seeking commitments from prospective Owner Participants for
two of the McDonnell Douglas MD-11F aircraft. The Corporation will hold the
beneficial interest under the Trust Agreement relating to each such Aircraft
until the date upon which a prospective Owner Participant commits to
participate in the purchase price of such Aircraft (which date may be up to 90
days after the scheduled delivery date of the Aircraft). The Corporation will
transfer to such Owner Participant on such date the Corporation's beneficial
interest under the Trust Agreement. Such prospective Owner Participants may
request revisions to the Participation Agreement, the Lease, the Trust
Agreement and the Indenture so that the terms of such agreements applicable to
these Aircraft may differ from the description of such agreements contained in
this Prospectus Supplement. See "Risk Factors--Owner Participant; Revisions to
Agreements." However, the terms of such agreements are required to (i) contain
the Mandatory Document Terms and (ii) not vary the Mandatory Economic Terms.
In addition, the Corporation is obligated (i) to certify to the Pass Through
Trustee that any such modifications will not materially and adversely affect
the Certificateholders and (ii) if the documents are modified in any material
respect, to obtain written confirmation from each Rating Agency that the use
of modified versions of such agreements will not result in a withdrawal,
suspension or downgrading of the rating
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<PAGE>
of any Class of Pass Through Certificates. (Participation Agreements, Sections
2.03 and 4.02(r) for Federal Express Corporation Trust Nos. N583FE and N584FE)
The "Mandatory Economic Terms," defined in the Participation Agreement for
each such Aircraft require, among other things, that:
(i) with respect to each series of Equipment Trust Certificates issued with
respect to these Aircraft the schedule of principal payments may be
changed but:
(a) the final maturity may not be extended beyond January 15, 2018 for
the Series A Equipment Trust Certificates, January 15, 2018 for the
Series B Equipment Trust Certificates and January 15, 2014 for the
Series C Equipment Trust Certificates;
(b) the average life may not be more than 14.5 years in the case of the
Series A Equipment Trust Certificates and 13.0 years in the case of
the Series B Equipment Trust Certificates and in the case of the
Series C Equipment Trust Certificates may not be so great as to
cause the average life of the Class C Pass Through Certificates to
be more than 10.0 years (but in each case may be decreased by any
amount);
(c) the interest rate and the January 15 and July 15 payment dates may
not be changed; and
(d) the loan to aircraft value ratio on any July 15 Distribution Date
shall not exceed 40.0% in the case of the Series A Equipment Trust
Certificates, 55.0% in the case of the Series B Equipment Trust
Certificates and 75.0% in the case of the Series C Equipment Trust
Certificates.
(ii) basic rent, stipulated loss values and termination values under the
related Lease must be sufficient to pay amounts due with respect to
the related Equipment Trust Certificates;
(iii) the amounts payable under the all-risk aircraft hull insurance
maintained with respect to each Aircraft must be sufficient to pay
the applicable stipulated loss value, subject to certain rights of
self-insurance; and
(iv) (a)the past due rate in the related Indenture and the related Lease;
(b) the Make-Whole Premium payable under the related Indenture;
(c) the provisions relating to the prepayment and purchase of Equipment
Trust Certificates in the related Indentures;
(d) the minimum liability insurance amount on Aircraft in the related
Lease;
(e) the interest rate payable with respect to stipulated loss value in
the related Lease; and
(f) the indemnification of Indenture Trustee, Subordination Agent,
Liquidity Providers, Pass Through Trustee and registered holders of
the Equipment Trust Certificates with respect to certain taxes and
expenses, in each case, must be provided as set forth in the
related Participation Agreement, Lease and Indenture, as the case
may be as in effect on the date of purchase of the Equipment Trust
Certificates. (Participation Agreements, Section 2.03 and Schedule
VI for Federal Express Corporation Trust Nos. N583FE and N584FE)
The "Mandatory Document Terms" prohibit modifications in any material
adverse respect to certain specified provisions of the operative agreements.
In the case of the Indentures, modifications are prohibited to:
(i) the Granting Clause of the Indentures so as to deprive the holders of a
first priority security interest in the Aircraft and the Lease;
(ii) certain provisions relating to the issuance, prepayment, purchase,
payments and ranking of the Equipment Trust Certificates (including
the obligation to pay Make-Whole Premium in certain circumstances);
(iii) certain provisions regarding Indenture Events of Default, remedies
relating thereto and rights of the related Owner Trustee and related
Owner Participant in such circumstances;
S-35
<PAGE>
(iv) certain provisions relating to any replaced airframe or engines with
respect to an Aircraft; and
(v) the provision that New York law will govern the Indentures.
(Participation Agreements, Section 2.03 and Schedule V for Federal
Express Corporation Trust Nos. N583FE and N584FE)
In the case of the Lease, modifications are prohibited to certain provisions
regarding the obligation of the Corporation to:
(i) pay basic rent, stipulated loss value and termination value to the
Indenture Trustee;
(ii) furnish certain opinions with respect to a replacement airframe; and
(iii) consent to the assignment of the related Lease by the Owner Trustee
as collateral under the Indenture, as well as modifications which
will either alter the provision that New York law will govern the
Lease or will deprive the Indenture Trustee of rights expressly
granted to it under the Leases. (Participation Agreements, Section
2.03 and Schedule V for Federal Express Corporation Trust Nos. N583FE
and N584FE)
In the case of the Participation Agreement, modifications are prohibited to:
(i) certain conditions to the obligations of the Pass Through Trustee to
participate in the purchase price of these Aircraft by releasing the
debt portion thereof from the Collateral Account, involving good title
to such Aircraft, obtaining a certificate of airworthiness with respect
to such Aircraft, entitlement to the benefits of Section 1110 of the
Bankruptcy Code with respect to such Aircraft and filings of certain
documents with the Federal Aviation Administration;
(ii) certain provisions regarding the obligation of the Corporation to
record the Indenture with the Federal Aviation Administration and to
maintain such Indenture as a first-priority perfected mortgage on the
related Aircraft;
(iii) certain provisions requiring the delivery of legal opinions; and
(iv) the provision that New York law will govern the Participation
Agreement. (Participation Agreements, Section 2.03 and Schedule V for
Federal Express Corporation Trust Nos. N583FE and N584FE)
In the case of all of the related operative agreements, modifications are
prohibited in any material adverse respect as regards the interest of the
holders, the Subordination Agent, the Liquidity Providers or the Indenture
Trustee or in the definition of "Make-Whole Premium." Notwithstanding the
foregoing, any such Mandatory Document Term may be modified to correct or
supplement any such provision which may be defective or to cure any ambiguity
or correct any mistake, unless such action will materially adversely affect
the interests of the holders, the Subordination Agent, the Liquidity
Providers, the Indenture Trustee or the Certificateholders. (Participation
Agreements, Section 2.03 and Schedule V for Federal Express Corporation Trust
Nos. N583FE and N584FE)
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<PAGE>
DESCRIPTION OF THE LIQUIDITY FACILITIES
The following description of the particular terms of the Liquidity
Facilities supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Liquidity Facilities
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 Liquidity Facilities 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 Liquidity Facilities which relate to each of
the Pass Through Trusts and that are summarized below are substantially the
same, except where otherwise indicated.
GENERAL
With respect to the Pass Through Certificates of each Pass Through Trust
(other than the Class C Trust), the Subordination Agent will enter into a
Liquidity Facility with the Liquidity Provider pursuant to which the Liquidity
Provider will make one or more advances to the Subordination Agent which will
be used solely to pay interest on such Pass Through Certificates when due
subject to certain limitations. The Liquidity Facility for any Pass Through
Trust is intended to enhance the likelihood of timely receipt by the
Certificateholders of such Pass Through Trust of the interest payable on the
Pass Through Certificates of such Pass Through Trust at the Stated Interest
Rate therefor on three consecutive Regular Distribution Dates. If interest
payment defaults occur which exceed the amount covered by or available under
the Liquidity Facility for any Pass Through Trust, the Certificateholders of
such Pass Through Trust will bear their allocable share of the deficiencies to
the extent that there are no other sources of funds. Although Kredietbank
N.V., acting through its New York branch, is the initial Liquidity Provider
for each of the Pass Through Trusts entitled to the benefits of a Liquidity
Facility, it may be replaced by one or more other entities with respect to the
Pass Through Trusts under certain circumstances; therefore, the Liquidity
Providers for each Pass Through Trust may differ. There is no Liquidity
Facility for the Class C Trust.
DRAWINGS
The initial amount available under the Liquidity Facilities for the Class A
Trust and the Class B Trust will be $34,971,075 and $13,062,240, respectively.
Except as otherwise provided below, the Liquidity Facility for each Pass
Through Trust will enable the Subordination Agent to make Interest Drawings
promptly after any Regular Distribution Date to pay interest then due and
payable on the Pass Through Certificates of such Pass Through Trust at the
Stated Interest Rate for such Pass Through Trust to the extent that the
amount, if any, available to the Subordination Agent on such Regular
Distribution Date is not sufficient to pay such interest. The maximum amount
available to be drawn under such Liquidity Facility with respect to any Pass
Through Trust on any Regular Distribution Date to fund any shortfall of
interest on Pass Through Certificates of such Pass Through Trust will not
exceed the Required Amount for such Pass Through Certificates. The Liquidity
Facility for any Pass Through Trust does not provide for drawings to pay for
principal of or premium on the Pass Through Certificates of such Pass Through
Trust or any interest on the Pass Through Certificates of such Pass Through
Trust in excess of the Stated Interest Rate for such Pass Through Trust or
more than three installments of interest and does not provide for drawings to
pay principal of or interest or premium on the Pass Through Certificates of
any other Pass Through Trust. (Liquidity Facilities, Section 2.02;
Intercreditor Agreement, Section 3.6)
Each payment by the Liquidity Provider under each Liquidity Facility reduces
pro tanto the amount available to be drawn under such Liquidity Facility. With
respect to any Interest Drawings
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<PAGE>
under a Liquidity Facility for any Pass Through Trust, upon reimbursement of
the relevant Liquidity Provider in full for the amount of such Interest
Drawings plus interest thereon, the amount available to be drawn under such
Liquidity Facility will be reinstated to the Required Amount of such Liquidity
Facility. Such Liquidity Facility will not, however, be so reinstated at any
time after (i)(x) a Triggering Event has occurred and is continuing and (y)
less than 65% of the then aggregate outstanding principal amount of all
Equipment Trust Certificates are Performing Equipment Trust Certificates or
(ii) all of the Equipment Trust Certificates have been declared to be
immediately due and payable or have not been paid at their final maturity.
With respect to any other drawings under such Liquidity Facility, amounts
available to be drawn thereunder are not subject to reinstatement. (Liquidity
Facilities, Section 2.02(a); Intercreditor Agreement, Section 3.6(g))
The Required Amount of the Liquidity Facilities for any Pass Through Trust
will be automatically reduced from time to time to an amount equal to the next
three successive interest payments due on the Pass Through Certificates of
such Pass Through Trust (without regard to expected future payment of
principal of such Pass Through Certificates) at the Stated Interest Rate for
such Pass Through Trust. The Liquidity Provider will be paid a fee on the
average amount available to be drawn under the initial Liquidity Facility
until the earlier of the date when the commitment under the Liquidity Facility
terminates and the date when a Downgrade Drawing, if any, is made, in an
amount and on the dates specified in the Liquidity Facility. (Liquidity
Facilities, Sections 2.03(b) and 2.04(a); Intercreditor Agreement, Section
3.6(j))
If at any time the short-term unsecured debt rating of a Liquidity Provider
issued by either of the Rating Agencies is lower than the Threshold Rating or,
in the event such Liquidity Provider's short-term unsecured debt is not rated
by either Rating Agency, the long-term unsecured debt rating of such Liquidity
Provider issued by either Rating Agency is lower than the Threshold Rating,
then the Liquidity Provider for such Pass Through Trust or the Subordination
Agent (in consultation with the Corporation) may arrange for a Replacement
Facility (as defined below). In the event that such Liquidity Facility is not
replaced within 30 days after notice of the downgrading and as otherwise
provided in the Intercreditor Agreement, the Subordination Agent will request
the Downgrade Drawing in an amount equal to all available and undrawn amounts
thereunder and will hold the proceeds in the Cash Account for such Pass
Through Trust as cash collateral to be used for the same purposes and under
the same circumstances as cash payments of Interest Drawings under such
Liquidity Facility. (Liquidity Facilities, Section 2.02(b); Intercreditor
Agreement, Section 3.6(c))
A "Replacement Facility" for any Pass Through Trust will be an irrevocable
revolving credit agreement in substantially the form of the initial Liquidity
Facility for such Pass Through Trust, including reinstatement provisions, or
subject to certain conditions, in such other form (which may include a letter
of credit) as will permit the Rating Agencies to confirm in writing their
respective ratings then in effect for the Pass Through Certificates (before
downgrading of such ratings, if any, as a result of the downgrading of the
Liquidity Provider). In addition, such Replacement Facility will be in a face
amount equal to the Required Amount for such Pass Through Trust and issued by
a person having unsecured debt ratings issued by the applicable Rating
Agencies which are equal to or higher than the Threshold Rating.
(Intercreditor Agreement, Section 1.01)
The Liquidity Facility for each Pass Through Trust (other than the Class C
Trust) provides that the Liquidity Provider's obligations will expire on the
earliest of (i) 15 days later than the Final Legal Distribution Date for the
Pass Through Certificates of such Pass Through Trust; (ii) the date on which
the Subordination Agent certifies to the Liquidity Provider that all of the
Pass Through Certificates of such Pass Through Trust have been paid in full;
(iii) the date on which the Subordination Agent certifies to the Liquidity
Provider that a Replacement Facility has been substituted for such Liquidity
Facility; (iv) the date on which the Liquidity Provider makes the Final
Drawing; and (v) the date on which no amount is or may (by reason of
reinstatement) become available for drawing under such Liquidity Facility.
(Liquidity Facilities, Sections 1.01(a) and 2.04(b))
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<PAGE>
The Replacement Facility, if any, may be replaced for any Pass Through Trust
(other than a Replacement Facility which expires no earlier than 15 days later
than the Final Legal Distribution Date) in the event that such Replacement
Facility is scheduled to expire (after giving effect to any extensions of the
maturity thereof) prior to the date which is 15 days later than the Final
Legal Distribution Date. In the event such Replacement Facility is not
replaced, the Subordination Agent will, prior to the expiration of such
facility, request the Non-Extension Drawing in an amount equal to all
available and undrawn amounts thereunder and hold the proceeds in the Cash
Account for such Pass Through Trust as cash collateral to be used for the same
purposes as cash payments of Interest Drawings under such Liquidity Facility.
(Intercreditor Agreement, Section 3.6(d))
The Subordination Agent, in consultation with the Corporation (whose
recommendations the Subordination Agent will accept in the absence of a good
faith reason not to), may, subject to certain limitations, arrange for a
Replacement Facility at any time to replace the Liquidity Facility for any
Pass Through Trust. If such Replacement Facility is provided at any time after
the Downgrade Drawing or Non-Extension Drawing under such Liquidity Facility,
all obligations owed to the Liquidity Provider being replaced must be repaid.
(Intercreditor Agreement, Section 3.6(e))
The Subordination Agent will hold the proceeds of a Final Drawing made in
accordance with the provisions set forth under "Liquidity Events of Default"
below in the Cash Account for the related Pass Through Trusts as cash
collateral to be used for the same purposes as cash payments of Interest
Drawings under such Liquidity Facility. The Subordination Agent will take any
action required in order to make a Final Drawing under a Liquidity Facility.
(Intercreditor Agreement, Section 3.6(i))
Drawings (other than a Final Drawing) under any Liquidity Facility will be
made by delivery by the Subordination Agent of a certificate in the form
required by such Liquidity Facility. Upon receipt of such a certificate, the
Liquidity Provider will make payment of the drawing requested in immediately
available funds. Upon payment by any Liquidity Provider of the amount
specified in any drawing under any Liquidity Facility, the Liquidity Provider
will be fully discharged of its obligations under such Liquidity Facility with
respect to such drawing and will not thereafter be obligated to make any
further payments under such Liquidity Facility in respect of such drawing to
the Subordination Agent or any other person or entity who makes a demand for
payment in respect of interest on the related Pass Through Certificates.
(Liquidity Facilities, Section 2.02(a) and (e))
REIMBURSEMENT OF DRAWINGS
Amounts drawn under any Liquidity Facility by reason of an Interest Drawing
or the Final Drawing will be immediately due and payable, together with
interest on the amount of such drawing at a rate equal to the applicable LIBOR
rate plus 1.50% per annum or the applicable base rate plus 1.50% per annum.
The Subordination Agent will be obligated to reimburse such amounts only to
the extent that the Subordination Agent has available funds therefor.
The amount drawn under the Liquidity Facility for any Pass Through Trust by
reason of the Downgrade Drawing (or Non-Extension Drawing in the case of a
Replacement Facility) and deposited in the Cash Account will be treated as
follows:
(i) such amount will be released on any Regular Distribution Date to the
Liquidity Provider to the extent that such amount exceeds the Required
Amount for such Pass Through Trust;
(ii) any portion of such amount withdrawn from the Cash Account for such
Pass Through Certificates to pay interest on such Pass Through
Certificates will be treated in the same way as Interest Drawings; and
(iii) the balance of such amount will be invested in Specified Investments.
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<PAGE>
The Downgrade Drawing under any Liquidity Facility will bear interest equal to
the applicable LIBOR rate plus .275% per annum or the applicable base rate
plus .275% per annum. (Liquidity Facilities, Section 3.07)
LIQUIDITY EVENTS OF DEFAULT
Events of Default under each Liquidity Facility (each, a "Liquidity Event of
Default") include: (i) the acceleration of all the Equipment Trust
Certificates; and (ii) the failure to pay all of the Equipment Trust
Certificates at maturity. A Liquidity Event of Default does not occur upon an
automatic acceleration of the Equipment Trust Certificates as a result of
certain bankruptcy or insolvency events involving the Corporation. (Liquidity
Facilities, Section 1.01)
If (i) a Liquidity Event of Default has occurred and is continuing or
(ii)(A) a Triggering Event has occurred and (B) less than 65% of the then
aggregate outstanding principal amount of all Equipment Trust Certificates are
Performing Equipment Trust Certificates, the Liquidity Provider may, in its
discretion, cause a final drawing ("Final Drawing") to be made of all
available and undrawn amounts under the Liquidity Facilities. After such
drawing (i) the Liquidity Provider will have no further obligation to make
Drawings under the Liquidity Facility, (ii) any Drawing remaining unreimbursed
will be automatically converted into a Final Drawing under such Liquidity
Facility, and (iii) all amounts owing to the Liquidity Provider will
automatically be accelerated. Notwithstanding the foregoing, the Subordination
Agent will be obligated to pay amounts owing to the Liquidity Provider only to
the extent of funds available therefor after giving effect to the payments in
accordance with the provisions set forth under "Description of the
Intercreditor Agreement--Priority of Distributions." (Liquidity Facilities,
Section 6.01)
Upon the circumstances described below under "Description of the
Intercreditor Agreement-- Intercreditor Rights," the Liquidity Provider may
become the Controlling Party with respect to the exercise of remedies under
the Indentures. (Intercreditor Agreement, Section 2.6(c))
LIQUIDITY PROVIDER
The Liquidity Provider will be the Belgian bank Kredietbank N.V., acting
through its New York branch. Kredietbank N.V. was established in 1935. As of
December 31, 1996, Kredietbank N.V. had total assets of 3,624 billion Belgian
francs (approximately $105 billion). Kredietbank N.V. provides commercial,
investment banking and capital market services nationally and internationally
to public, corporate and banking customers and has offices in 26 countries.
Kredietbank N.V. currently has long-term unsecured debt ratings of Aa2 from
Moody's and AA- from Standard & Poor's and short-term unsecured debt ratings
of P-1 from Moody's and A1+ from Standard & Poor's.
The New York branch of Kredietbank N.V. is licensed and subject to
supervision and regulation by the Superintendent of Banks of the State of New
York. It is examined by the New York State Banking Department and is subject
to banking laws and regulations applicable to a foreign bank that operates a
New York branch. It is also subject to review and supervision by the Federal
Reserve Bank.
Kredietbank N.V. has been active in aircraft finance since the mid-1980s and
has a significant portfolio of loans secured by modern commercial jet and
turboprop aircraft, Kredietbank N.V. has established business relationships
with most leading international airlines and aircraft manufacturing companies.
S-40
<PAGE>
DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following description of the particular terms of the Intercreditor
Agreement supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Intercreditor Agreement
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 Intercreditor Agreement
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.
INTERCREDITOR RIGHTS
Controlling Party. With respect to any Indenture at any given time, the
Indenture Trustee will be directed in taking, or refraining from taking, any
action thereunder (a) by the holders of at least a majority of the outstanding
principal amount of the Equipment Trust Certificates issued thereunder
(provided that, for so long as the Subordination Agent is the registered
holder of the Equipment Trust Certificates, the Subordination Agent will act
with respect to this clause (a) in accordance with the directions of the Pass
Through Trustee representing holders of Pass Through Certificates representing
an undivided interest in such principal amount of Equipment Trust
Certificates), so long as no Indenture Event of Default has occurred and is
continuing thereunder and (b) by the Controlling Party after the occurrence
and during the continuance of an Indenture Event of Default, in taking, or
refraining from taking, any action thereunder, including exercising remedies
thereunder (including acceleration of such Equipment Trust Certificates or
foreclosing the lien on the Aircraft securing such Equipment Trust
Certificates). (Intercreditor Agreement, Section 2.6)
The "Controlling Party" with respect to any Indenture will be:
(a) the Class A Pass Through Trustee;
(b) upon payment of Final Distributions to the holders of Class A Pass
Through Certificates, the Class B Pass Through Trustee; and
(c) upon payment of Final Distributions to the holders of Class B Pass
Through Certificates, the Class C Pass Through Trustee.
Notwithstanding the foregoing, the Liquidity Provider has the right to elect
to become the Controlling Party at any time after 18 months after the earlier
of (i) the acceleration of the Equipment Trust Certificates under such
Indenture and (ii) a Final Drawing with respect to the Liquidity Facilities,
if, in the case of clause (i) or (ii) above, at the time of such election the
Liquidity Obligations have not been paid in full. If there is more than one
Liquidity Provider, the Liquidity Provider with the greatest amount of
unreimbursed Liquidity Obligations will have such right. For purposes of
giving effect to the foregoing, the Pass Through Trustee (other than the
Controlling Party) has agreed (and the Certificateholders (other than the
Certificateholders represented by the Controlling Party) shall be deemed to
agree by virtue of their purchase of Pass Through Certificates) to exercise
its voting rights as directed by the Controlling Party. (Intercreditor
Agreement, Section 2.6)
Sale of Equipment Trust Certificates or Aircraft. Upon the occurrence and
during the continuation of any Indenture Event of Default, the Controlling
Party may accelerate and, subject to the provisions of the immediately
following sentence, sell all (but not less than all) of the Equipment Trust
Certificates issued under such Indenture to any person. Subject to certain
limitations, so long as any Pass Through Certificates are outstanding, during
nine months after the earlier of (x) the acceleration of the Equipment Trust
Certificates under any Indenture or (y) the bankruptcy or insolvency of the
Corporation, without the consent of each Pass Through Trustee, (1) no Aircraft
subject to the lien of
S-41
<PAGE>
such Indenture or such Equipment Trust Certificates may be sold, if the net
proceeds from such sale will be less than the Minimum Sale Price for such
Aircraft or such Equipment Trust Certificates, and (2) the amount and payment
dates of rentals payable by the Corporation under the Lease for such Aircraft
may not be adjusted, if, as a result of such adjustment, the discounted
present value of all such rentals will be less than 75% of the rentals payable
by the Corporation under such Lease before giving effect to such adjustment,
in each case using the weighted average interest rate of the Equipment Trust
Certificates outstanding under such Indenture as the discount rate.
(Intercreditor Agreement, Section 4.1)
After a Triggering Event occurs and any Equipment Trust Certificate becomes
a Non-Performing Equipment Trust Certificate, the Subordination Agent will be
required to obtain LTV Appraisals for the Aircraft as soon as practicable and
additional LTV Appraisals on or prior to each anniversary of the date of such
initial LTV Appraisals. If the Controlling Party reasonably objects to any LTV
Appraisals, the Controlling Party has the right to obtain substitute LTV
Appraisals (including any LTV Appraisals based upon physical inspection of the
Aircraft). (Intercreditor Agreement, Section 4.1)
PRIORITY OF DISTRIBUTIONS
So long as no Triggering Event has occurred, the payments in respect of the
Equipment Trust Certificates and certain other payments received on any
Distribution Date will be promptly distributed by the Subordination Agent on
such Distribution Date in the following order of priority:
(i) to pay the Liquidity Obligations (other than any interest accrued
thereon or the principal amount of any Drawing) (the "Liquidity
Expenses") to the Liquidity Provider;
(ii) to pay interest accrued on the Liquidity Obligations to the Liquidity
Provider;
(iii) to pay or reimburse the Liquidity Provider for the Liquidity
Obligations (other than the amounts specified in clauses (i) and (ii)
above) and, if applicable, to replenish each Cash Account up to the
amount of interest payable on the related Class of Pass Through
Certificates at the Stated Interest Rate therefor on the next three
consecutive Regular Distribution Dates (the "Required Amount");
(iv) to pay Expected Distributions to the holders of Class A Pass Through
Certificates;
(v) to pay Expected Distributions to the holders of Class B Pass Through
Certificates;
(vi) to pay Expected Distributions to the holders of Class C Pass Through
Certificates;
(vii) to pay certain fees and expenses of the Subordination Agent and the
Pass Through Trustee; and
(viii) the balance, if any, remaining thereafter will be held in the
Collection Account for later distribution, as provided in the
Intercreditor Agreement. (Intercreditor Agreement, Sections 2.4 and
3.2)
Subject to the terms of the Intercreditor Agreement, upon the occurrence of
a Triggering Event and at all times thereafter, all funds received by the
Subordination Agent in respect of the Equipment Trust Certificates and certain
other payments will be promptly distributed by the Subordination Agent in the
following order of priority:
(1) to reimburse (i) the Subordination Agent for any out-of-pocket costs
and expenses actually incurred by it in the protection of, or the
realization of value of, the Equipment Trust Certificates or any Trust
Property, (ii) each Pass Through Trustee for any amounts of the nature
described in clause (i) above, and (iii) the Liquidity Provider or any
Certificateholder for payments, if any, made by it to the Subordination
Agent or any Pass Through Trustee in respect of clause (i) above;
(2) to the Liquidity Provider to pay all accrued and unpaid Liquidity
Expenses;
S-42
<PAGE>
(3) to the Liquidity Provider to pay all accrued and unpaid interest on the
Liquidity Obligations as provided in the Liquidity Facilities;
(4) to the Liquidity Provider (i) to pay in full all Liquidity Obligations,
whether or not then due (other than amounts payable pursuant to clauses
(2) and (3) above) and (ii) if applicable, so long as (i) not less than
65% of the then aggregate outstanding principal amount of all Equipment
Trust Certificates are Performing Equipment Trust Certificates and (ii)
no Liquidity Event of Default has occurred and is continuing, to
replenish the Cash Accounts;
(5) to reimburse or pay the Subordination Agent and Pass Through Trustee
for certain taxes;
(6) to pay Adjusted Expected Distributions to the holders of Class A Pass
Through Certificates;
(7) to pay Adjusted Expected Distributions to the holders of Class B Pass
Through Certificates;
(8) to pay Adjusted Expected Distributions to the holders of Class C Pass
Through Certificates; and
(9) the balance will be held in the Collection Account until the next
Distribution Date or, if all Classes of Pass Through Certificates have
been paid in full, will be distributed to the related Owner Trustee.
(Intercreditor Agreement, Section 3.3)
Interest Drawings under the related Liquidity Facility and withdrawals from
the Cash Account, in each case in respect of interest on the Pass Through
Certificates of any Pass Through Trust (other than the Class C Trust), will be
distributed to the Pass Through Trustee of such Pass Through Trust,
notwithstanding the priority of distributions to the Pass Through Trustee for
such Pass Through Trust, or the priority of distributions set forth in the
Intercreditor Agreement and otherwise described herein. All amounts on deposit
in the Cash Account for any Pass Through Trust which are in excess of the
Required Amount for such Pass Through Trust and all investment earnings on
such amounts on deposit in the Cash Account will be paid to the Liquidity
Provider. (Intercreditor Agreement, Section 3.6)
VOTING OF EQUIPMENT TRUST CERTIFICATES
In the event that the Subordination Agent, as the registered holder of any
Equipment Trust Certificate, receives a request for its consent to any
amendment, modification or waiver under such Equipment Trust Certificate, the
related Indenture, Lease, Participation Agreement or other related document,
if no Indenture Event of Default with respect thereto has occurred and is
continuing, the Subordination Agent will request instructions for each Series
of Equipment Trust Certificates from the Pass Through Trustee of the Pass
Through Trust which holds such Series of Equipment Trust Certificates. The
Pass Through Trustee in turn will request directions from Certificateholders
of such Pass Through Trust, however, the Pass Through Trustee is not required
to request directions if such consent will not adversely affect the
Certificateholders or an Event of Default has occurred and is continuing under
the Pass Through Agreement of such Pass Through Trust. If any Indenture Event
of Default has occurred and is continuing with respect to such Indenture, the
Subordination Agent will exercise its voting rights as directed by the
Controlling Party. (Intercreditor Agreement, Section 9.1 (b))
THE SUBORDINATION AGENT
First Security Bank, National Association will be the Subordination Agent
under the Intercreditor Agreement. The Corporation and its affiliates are not
restricted from entering into banking and trustee relationships with First
Security Bank, National Association and its affiliates.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed. The Liquidity Provider or the
Controlling Party may remove the Subordination Agent for cause as provided in
the Intercreditor Agreement. Any resignation or removal of the Subordination
Agent and appointment of a successor Subordination Agent will not become
effective until acceptance of the appointment by the successor Subordination
Agent. (Intercreditor Agreement, Section 8.1)
S-43
<PAGE>
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The Aircraft consist of four McDonnell Douglas MD-11F and five Airbus
A300F4-605R, including the Engines relating thereto, leased, or to be leased,
by the related Owner Trustee to the Corporation pursuant to one of nine
separate Leases or owned by the Corporation in the circumstances described
herein.
THE APPRAISALS
The table below sets forth the appraised values and certain additional
information regarding the Aircraft.
<TABLE>
<CAPTION>
AIRCRAFT DELIVERY DATE OR APPRAISED VALUE
TAIL EXPECTED DELIVERY --------------------------------------
NUMBER AIRCRAFT TYPE(3) DATE(1)(2) AISI SH&E MBA
- -------- ------------------------ ----------------- ---- ------------ ------------
<S> <C> <C> <C> <C> <C>
N670FE Airbus A300F4-605R June 1997 $ 84,000,000 $ 83,500,000 $ 82,640,000
N671FE Airbus A300F4-605R June 1997 84,000,000 83,500,000 82,640,000
N672FE Airbus A300F4-605R August 1997 84,000,000 83,500,000 82,805,000
N673FE Airbus A300F4-605R September 1997 84,000,000 83,500,000 82,870,000
N674FE Airbus A300F4-605R September 1997 84,000,000 83,500,000 82,870,000
N581FE McDonnell Douglas MD-11F May 1997 94,200,000 80,600,000 92,365,000
N583FE McDonnell Douglas MD-11F September 1997 94,200,000 80,600,000 92,090,000
N584FE McDonnell Douglas MD-11F January 1998 98,700,000 86,900,000 95,000,000
N587FE McDonnell Douglas MD-11F December 1996 98,700,000 88,100,000 94,735,000
------------ ------------ ------------
$805,800,000 $753,700,000 $788,015,000
============ ============ ============
</TABLE>
- --------
(1) Reflects the scheduled delivery month under the Corporation's purchase
agreement and modification agreement with the respective manufacturer. The
actual delivery date for any Aircraft may be subject to delay.
(2) The McDonnell Douglas MD-11F aircraft were originally delivered new to
American Airlines in May 1991, April 1991, April 1992 and March 1992,
respectively.
(3) Each Airbus A300F4-605R has two General Electric CF6-80C2-A5F engines and
each McDonnell Douglas MD-11F has three General Electric CF6-80C2-D1F
engines.
The appraised values set forth in the above table were determined by the
following three independent aircraft appraisal and consulting firms: AISI,
SH&E and MBA. Each Appraiser was asked to provide its opinion as to the
appraised value of each Aircraft as of April 24, 1997, April 24, 1997 and
April 23, 1997, respectively, and projected as of the scheduled delivery date
of each such Aircraft. All three Appraisers performed "desk-top" appraisals
without any physical inspection of the Aircraft. The appraisals are based on
various assumptions and methodologies, which vary among the appraisals. The
Appraisers have delivered letters summarizing their respective Appraisals,
copies of which are annexed to this Prospectus Supplement as Appendix II. For
a discussion of the assumptions and methodologies used in each of the
Appraisals, reference is hereby made to such summaries.
An appraisal is only an estimate of value, is not indicative of the price at
which an aircraft may be purchased from the manufacturer and should not be
relied upon as a measure of realizable value. The proceeds realized upon a
sale of any Aircraft may be less than the appraised value thereof. The value
of the Aircraft in the event of the exercise of remedies under the applicable
Indenture will depend on market and economic conditions, the availability of
buyers, the condition of the Aircraft and other similar factors. Accordingly,
there can be no assurance that the proceeds realized upon any
S-44
<PAGE>
such exercise with respect to the Equipment Trust Certificates and the
Aircraft pursuant to the related Indenture will be as appraised or sufficient
to satisfy in full payments due on the Equipment Trust Certificates issued
thereunder or the Pass Through Certificates. See "Risk Factors" in this
Prospectus Supplement.
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 will be nonrecourse obligations of the
related Owner Trustee, in each case acting for the Owner Trust for the benefit
of the related Owner Participant (or the Corporation, in the case of the
Equipment Trust Certificates issued in respect of the A300F4-605R aircraft, if
the Corporation is required to purchase such Aircraft as described herein),
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 any amounts payable
by the Corporation while the proceeds of the sale of the related Equipment
Trust Certificates are held in the related Collateral Account (together with
the amounts in the related 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, three 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:
S-45
<PAGE>
<TABLE>
<CAPTION>
PASS THROUGH PASS THROUGH PASS THROUGH
TRUST CLASS TRUST CLASS TRUST CLASS
A 7.50% B 7.52% C 7.65%
EQUIPMENT EQUIPMENT EQUIPMENT
TRUST TRUST TRUST TOTAL PER
AIRCRAFT DESIGNATION CERTIFICATES CERTIFICATES CERTIFICATES AIRCRAFT
- --------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1. Federal Express
Corporation............... $ 33,352,000 $ 12,507,000 $ 16,533,000 $ 62,392,000
Trust No. N670FE
2. Federal Express
Corporation............... 33,352,000 12,507,000 16,458,000 62,317,000
Trust No. N671FE
3. Federal Express
Corporation............... 33,374,000 12,515,000 16,095,000 61,984,000
Trust No. N672FE
4. Federal Express
Corporation............... 33,382,000 12,408,000 16,023,000 61,813,000
Trust No. N673FE
5. Federal Express
Corporation............... 33,382,000 12,430,000 16,023,000 61,835,000
Trust No. N674FE
6. Federal Express
Corporation............... 35,615,000 13,210,000 13,008,000 61,833,000
Trust No. N581FE
7. Federal Express
Corporation............... 34,220,000 12,811,000 13,988,000 61,019,000
Trust No. N583FE(1)
8. Federal Express
Corporation............... 36,665,000 13,616,000 10,611,000 60,892,000
Trust No. N584FE(1)
9. Federal Express
Corporation............... 37,512,000 13,796,000 10,446,000 61,754,000
------------ ------------ ------------ ------------
Trust No. N587FE
Total.................... $310,854,000 $115,800,000 $129,185,000 $555,839,000
============ ============ ============ ============
</TABLE>
- -------
(1) The Series C Equipment Trust Certificates related to these Aircraft may be
prepaid in part no later than 20 days after the date on which a
prospective Owner Participant participates in the purchase of such
Aircraft.
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 15 and July 15, commencing on July
15, 1997, in each case subject to the Intercreditor Agreement. Interest on the
Equipment Trust Certificates will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. For any Equipment Trust Certificate, any
overdue payment of principal, interest or any other amount payable thereon
will accrue interest from the due date for such amount to the date such amount
is paid in full at a rate per annum equal to 2% plus the interest rate
otherwise applicable to such Equipment Trust Certificate. (Indentures, Section
2.04)
Each Pass Through Trust will hold Equipment Trust Certificates upon which
principal is payable through mandatory sinking fund redemptions on January 15
or July 15, or both, of each year, commencing on January 15, 1998 in the case
of each series of Equipment Trust Certificates, according to the schedule of
principal amounts to be redeemed on each sinking fund redemption date set
forth below and in each case subject to the Intercreditor Agreement. The
schedules set forth below for the Equipment Trust Certificates for Aircraft
N583FE and N584FE are subject to adjustment in compliance with the Mandatory
Economic Terms.
S-46
<PAGE>
PASS THROUGH TRUST, 1997-1-A
7.50% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATE N670FE N671FE N672FE N673FE N674FE N581FE N583FE N584FE N587FE
------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 15, 1998..... $ 292,850 $ 251,178 $ 192,704 $ 237,020 $ 178,525 $ 705,440 $ 0 $ 0 $ 724,290
July 15, 1998........ 374,190 415,862 474,776 429,968 488,462 0 0 0 468
January 15, 1999..... 155,254 131,798 350,565 469,348 405,194 712,440 58,080 748,200 750,760
July 15, 1999........ 511,786 535,242 316,915 198,307 262,461 0 0 0 0
January 15, 2000..... 149,287 121,651 339,643 456,622 391,578 712,440 711,706 748,266 750,760
July 15, 2000........ 517,753 545,389 327,837 211,033 276,076 0 0 0 0
January 15, 2001..... 245,388 213,402 408,040 515,875 449,906 712,440 711,706 748,266 750,760
July 15, 2001........ 421,652 453,638 259,440 151,779 217,749 0 0 0 0
January 15, 2002..... 447,707 411,194 581,596 667,654 612,950 712,440 711,706 748,266 750,760
July 15, 2002........ 219,333 255,846 85,884 0 54,705 0 0 0 0
January 15, 2003..... 667,040 667,040 667,480 667,654 667,654 712,440 710,468 0 750,760
July 15, 2003........ 0 0 0 0 0 0 1,238 748,266 0
January 15, 2004..... 667,040 667,040 667,480 667,654 667,654 356,220 0 0 750,760
July 15, 2004........ 0 0 0 0 0 356,220 711,706 748,266 0
January 15, 2005..... 667,040 667,040 667,480 667,654 667,654 660,860 0 0 0
July 15, 2005........ 0 0 0 0 0 51,580 711,710 748,266 750,762
January 15, 2006..... 667,040 667,040 667,480 667,654 667,654 356,220 0 0 750,760
July 15, 2006........ 0 0 0 0 0 356,220 711,707 748,271 0
January 15, 2007..... 667,040 667,040 667,480 403,118 350,625 712,440 711,706 0 750,760
July 15, 2007........ 0 0 0 264,537 317,030 0 0 748,266 0
January 15, 2008..... 667,040 667,040 667,480 667,654 667,654 712,440 711,707 748,267 750,760
July 15, 2008........ 0 0 0 0 0 0 0 0 0
January 15, 2009..... 667,040 667,040 667,480 667,654 667,754 712,440 711,707 748,267 750,760
July 15, 2009........ 0 0 0 0 0 0 0 0 0
January 15, 2010..... 667,040 667,040 667,480 667,654 667,654 712,440 711,706 748,266 2,078,026
July 15, 2010........ 0 0 0 0 0 0 0 0 0
January 15, 2011..... 667,040 667,040 667,480 667,654 667,654 712,440 711,706 748,267 5,678,550
July 15, 2011........ 0 0 0 0 0 0 0 0 0
January 15, 2012..... 667,040 667,040 667,480 667,654 667,654 712,440 3,979,330 3,115,804 6,121,034
July 15, 2012........ 0 0 0 0 0 0 0 0 0
January 15, 2013..... 2,910,012 3,511,558 3,890,457 4,216,042 4,556,464 4,852,281 5,672,274 5,358,428 6,597,998
July 15, 2013........ 0 0 0 0 0 0 0 0 0
January 15, 2014..... 1,987,488 1,240,715 754,478 352,513 0 5,917,242 6,114,269 5,775,968 7,112,128
July 15, 2014........ 0 0 0 0 0 80,029 0 0 0
January 15, 2015..... 5,780,164 5,752,472 5,701,038 5,685,189 5,667,502 6,142,140 6,590,706 6,226,044 941,144
July 15, 2015........ 0 0 0 0 0 313,361 0 0 0
January 15, 2016..... 6,230,567 6,200,717 6,145,275 6,128,191 6,109,126 6,384,222 3,264,862 6,461,356 0
July 15, 2016........ 0 0 0 0 0 564,520 0 0 0
January 15, 2017..... 6,438,169 6,640,938 6,624,128 6,605,712 6,585,161 681,605 0 0 0
January 15, 2018..... 0 0 246,424 380,206 449,600 0 0 0 0
</TABLE>
S-47
<PAGE>
PASS THROUGH TRUST, 1997-1-B
7.52% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATE N670FE N671FE N672FE N673FE N674FE N581FE N583FE N584FE N587FE
------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 15, 1998..... $ 250,140 $ 250,140 $ 250,055 $ 139,870 $ 161,870 $ 118,915 $ 0 $ 0 $ 786
January 15, 1999..... 250,140 250,140 250,305 250,371 250,371 267,165 280 147,200 281,534
January 15, 2000..... 250,140 250,140 250,305 250,371 250,371 267,165 266,890 280,600 281,534
January 15, 2001..... 250,140 250,140 250,305 250,371 250,371 267,165 266,890 280,600 281,534
January 15, 2002..... 250,140 250,140 250,305 250,371 250,371 267,165 266,890 280,600 281,534
January 15, 2003..... 250,140 250,140 250,305 250,371 250,371 267,165 266,890 9,011 281,534
July 15, 2003........ 0 0 0 0 0 0 0 271,589 0
January 15, 2004..... 250,140 250,140 250,305 250,371 250,371 267,165 0 0 281,534
July 15, 2004........ 0 0 0 0 0 0 266,890 280,600 0
January 15, 2005..... 250,140 250,140 250,305 250,371 250,371 267,165 0 0 0
July 15, 2005........ 0 0 0 0 0 0 266,890 280,600 281,540
January 15, 2006..... 250,140 250,140 250,305 250,371 250,371 133,583 0 0 281,536
July 15, 2006........ 0 0 0 0 0 133,582 266,890 280,600 0
January 15, 2007..... 250,140 250,140 250,305 250,371 250,371 267,165 266,890 0 1,684,506
July 15, 2007........ 0 0 0 0 0 0 0 280,600 0
January 15, 2008..... 250,140 250,140 250,305 250,371 250,371 267,165 266,890 280,600 2,533,230
January 15, 2009..... 250,140 250,140 250,305 250,371 250,371 1,339,061 841,573 1,680,218 4,135,478
January 15, 2010..... 250,140 250,140 336,300 683,379 1,026,373 2,158,388 3,815,854 2,108,147 3,189,720
January 15, 2011..... 2,179,510 2,755,586 2,884,537 2,868,958 2,862,630 3,441,339 4,169,481 2,962,459 0
January 15, 2012..... 3,178,951 3,067,959 3,168,600 3,243,783 3,146,944 2,766,370 1,282,776 1,855,089 0
January 15, 2013..... 2,059,773 1,433,450 1,009,716 669,984 190,066 714,277 0 0 0
January 15, 2016..... 0 0 0 0 0 0 299,026 249,863 0
January 15, 2017..... 277,926 42,957 0 0 0 0 0 2,087,624 0
January 15, 2018..... 1,559,020 1,955,228 2,112,437 2,047,945 2,288,036 0 0 0 0
</TABLE>
PASS THROUGH TRUST, 1997-1-C
7.65% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATE N670FE N671FE N672FE N673FE N674FE N581FE N583FE N584FE N587FE
------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 15, 1998..... $ 190,520 $ 115,520 $ 0 $ 0 $ 0 $ 612 $ 404,461 $ 102,980 $ 0
January 15, 1999..... 333,520 333,520 75,480 0 0 422,853 1,238,436 404,926 544,208
January 15, 2000..... 333,520 333,520 333,740 333,147 333,147 487,095 364,600 316,709 599,356
January 15, 2001..... 333,520 333,520 333,740 333,827 333,827 601,601 470,480 422,760 728,258
January 15, 2002..... 333,520 333,520 333,740 346,056 333,827 721,202 579,879 532,275 861,394
January 15, 2003..... 427,042 385,819 530,847 606,354 551,201 850,280 699,282 1,670,428 1,005,202
January 15, 2004..... 757,173 754,137 721,692 708,573 709,532 1,345,453 1,802,545 740,723 1,160,006
January 15, 2005..... 865,719 859,087 839,540 833,112 829,238 818,083 917,977 957,930 1,967,524
January 15, 2006..... 835,803 829,358 808,994 802,110 798,676 1,767,096 3,200,096 998,524 3,279,410
July 15, 2006........ 0 0 0 0 0 0 0 2,326,313 0
January 15, 2007..... 3,783,765 3,774,211 3,739,396 3,718,121 3,713,379 2,965,098 687,252 633,363 300,642
January 15, 2008..... 676,225 670,131 652,598 648,079 645,550 2,280,789 1,985,262 1,052,911 0
January 15, 2009..... 1,788,770 1,727,695 1,528,250 1,454,348 1,415,654 747,838 1,637,730 451,158 0
January 15, 2010..... 1,742,978 1,745,042 1,665,821 1,321,136 981,208 0 0 0 0
January 15, 2011..... 758,530 169,963 0 0 0 0 0 0 0
January 15, 2013..... 0 0 0 0 123,763 0 0 0 0
January 15, 2014..... 3,372,395 4,092,957 4,531,162 4,918,137 5,253,998 0 0 0 0
</TABLE>
S-48
<PAGE>
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 will
be paid on the next succeeding Business Day without additional interest.
(Indentures, Section 3.01)
SUBORDINATION
Series B Equipment Trust Certificates issued in respect of any Aircraft will
be subordinated in right of payment to Series A Equipment Trust Certificates
issued in respect of such Aircraft. Series C Equipment Trust Certificates
issued in respect of any Aircraft will be subordinated in right of payment to
Series A and B Equipment Trust Certificates issued in respect of such
Aircraft. On each distribution date, payments of interest and principal due on
Series A Equipment Trust Certificates issued in respect of any Aircraft will
be made prior to payments of interest and principal due on Series B Equipment
Trust Certificates issued in respect of such Aircraft. Payments of interest
and principal due on Series B Equipment Trust Certificates will be made prior
to payments of interest and principal due on Series C Equipment Trust
Certificates issued in respect of such Aircraft. (Indentures, Section 2.17)
S-49
<PAGE>
LOAN TO VALUE RATIOS OF EQUIPMENT TRUST CERTIFICATES
The following table sets forth loan to Aircraft value ratios for the
Equipment Trust Certificates issued in respect of each Aircraft as of the
dates specified and was obtained by dividing (i) the outstanding balance
(assuming no payment default) of such Equipment Trust Certificates determined
immediately after giving effect to the payments scheduled to be made on each
such date by (ii) the assumed value (the "Assumed Aircraft Value") of the
Aircraft securing such Equipment Trust Certificates. The tables set forth
below for the Equipment Trust Certificates relating to Aircraft N583FE and
N584FE are subject to adjustment in compliance with the Mandatory Economic
Terms.
This table is based on the assumption that the value of each Aircraft
included in the Assumed Aircraft Value opposite the initial Regular
Distribution Date included in the table depreciates by 2% per year until the
fifteenth year after the delivery of such Aircraft, by 3% per year thereafter
until the twentieth year after the year of such delivery and by 4% per year
thereafter. In the case of the McDonnell Douglas MD-11F aircraft, such periods
are measured from the delivery date to the Corporation after modification
rather than the original delivery date of the Aircraft to American Airlines.
Other rates or methods of depreciation may result in materially different
loan-to-value ratios. No assurance can be given that the depreciation rates
and method assumed for the purpose of the table are the ones most likely to
occur or as to the actual future value of any Aircraft. The information in
this table should not be considered a forecast or prediction of expected or
likely loan to Aircraft value ratios but simply a mathematical calculation
based on one set of assumptions. The schedules set forth below for Aircraft
N583FE and N584FE are subject to adjustment in compliance with the Mandatory
Economic Terms.
<TABLE>
<CAPTION>
N670FE N671FE
--------------------------- ---------------------------
EQUIPMENT EQUIPMENT
TRUST TRUST
CERTIFICATE CERTIFICATE
OUTSTANDING ASSUMED LOAN OUTSTANDING ASSUMED LOAN
BALANCE AIRCRAFT TO BALANCE AIRCRAFT TO
(IN VALUE (IN VALUE (IN VALUE (IN VALUE
DATE MILLIONS) MILLIONS) RATIO MILLIONS) MILLIONS) RATIO
---- ----------- --------- ----- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
May 28, 1997........... $62.39 $83.38 74.8% $62.32 $83.38 74.7%
July 15, 1998.......... 61.28 81.71 75.0 61.28 81.71 75.0
July 15, 1999.......... 60.03 80.04 75.0 60.03 80.04 75.0
July 15, 2000.......... 58.78 78.38 75.0 58.78 78.38 75.0
July 15, 2001.......... 57.53 76.71 75.0 57.53 76.71 75.0
July 15, 2002.......... 56.28 75.04 75.0 56.28 75.04 75.0
July 15, 2003.......... 54.94 73.37 74.9 54.98 73.37 74.9
July 15, 2004.......... 53.26 71.71 74.3 53.31 71.71 74.3
July 15, 2005.......... 51.48 70.04 73.5 51.53 70.04 73.6
July 15, 2006.......... 49.73 68.37 72.7 49.78 68.37 72.8
July 15, 2007.......... 45.03 66.70 67.5 45.09 66.70 67.6
July 15, 2008.......... 43.43 65.04 66.8 43.51 65.04 66.9
July 15, 2009.......... 40.73 63.37 64.3 40.86 63.37 64.5
July 15, 2010.......... 38.07 61.70 61.7 38.20 61.70 61.9
July 15, 2011.......... 34.46 60.03 57.4 34.61 60.03 57.6
July 15, 2012.......... 30.62 58.37 52.5 30.87 58.37 52.9
July 15, 2013.......... 25.65 55.86 45.9 25.93 55.86 46.4
July 15, 2014.......... 20.29 53.36 38.0 20.59 53.36 38.6
July 15, 2015.......... 14.51 50.86 28.5 14.84 50.86 29.2
July 15, 2016.......... 8.28 48.36 17.1 8.64 48.36 17.9
July 15, 2017.......... 1.56 45.86 3.4 1.96 45.86 4.3
July 15, 2018.......... 0.00 0.00 NA 0.00 0.00 NA
</TABLE>
S-50
<PAGE>
<TABLE>
<CAPTION>
N672FE N673FE
--------------------------- ---------------------------
EQUIPMENT EQUIPMENT
TRUST TRUST
CERTIFICATE CERTIFICATE
OUTSTANDING ASSUMED LOAN OUTSTANDING ASSUMED LOAN
BALANCE AIRCRAFT TO BALANCE AIRCRAFT TO
(IN VALUE (IN VALUE (IN VALUE (IN VALUE
DATE MILLIONS) MILLIONS) RATIO MILLIONS) MILLIONS) RATIO
---- ----------- --------- ----- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
May 28, 1997........... $61.98 $83.44 74.3% $61.81 $83.46 74.1%
July 15, 1998.......... 61.07 81.77 74.7 61.01 81.79 74.6
July 15, 1999.......... 60.07 80.10 75.0 60.09 80.12 75.0
July 15, 2000.......... 58.82 78.43 75.0 58.84 78.45 75.0
July 15, 2001.......... 57.57 76.76 75.0 57.59 76.78 75.0
July 15, 2002.......... 56.32 75.09 75.0 56.32 75.11 75.0
July 15, 2003.......... 54.87 73.42 74.7 54.80 73.44 74.6
July 15, 2004.......... 53.23 71.75 74.2 53.17 71.77 74.1
July 15, 2005.......... 51.47 70.09 73.4 51.42 70.10 73.3
July 15, 2006.......... 49.75 68.42 72.7 49.70 68.43 72.6
July 15, 2007.......... 45.09 66.75 67.6 45.06 66.77 67.5
July 15, 2008.......... 43.52 65.08 66.9 43.50 65.10 66.8
July 15, 2009.......... 41.07 63.41 64.8 41.12 63.43 64.8
July 15, 2010.......... 38.40 61.74 62.2 38.45 61.76 62.3
July 15, 2011.......... 34.85 60.07 58.0 34.92 60.09 58.1
July 15, 2012.......... 31.02 58.40 53.1 31.00 58.42 53.1
July 15, 2013.......... 26.11 55.90 46.7 26.12 55.92 46.7
July 15, 2014.......... 20.83 53.40 39.0 20.85 53.41 39.0
July 15, 2015.......... 15.13 50.90 29.7 15.16 50.91 29.8
July 15, 2016.......... 8.98 48.39 18.6 9.03 48.40 18.7
July 15, 2017.......... 2.36 45.89 5.1 2.43 45.90 5.3
July 15, 2018.......... 0.00 0.00 NA 0.00 0.00 NA
<CAPTION>
N674FE N581FE
--------------------------- ---------------------------
EQUIPMENT EQUIPMENT
TRUST TRUST
CERTIFICATE CERTIFICATE
OUTSTANDING ASSUMED LOAN OUTSTANDING ASSUMED LOAN
BALANCE AIRCRAFT TO BALANCE AIRCRAFT TO
(IN VALUE (IN VALUE (IN VALUE (IN VALUE
DATE MILLIONS) MILLIONS) RATIO MILLIONS) MILLIONS) RATIO
---- ----------- --------- ----- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
May 28, 1997........... $61.84 $83.46 74.1% $61.83 $89.06 69.4%
July 15, 1998.......... 61.01 81.79 74.6 61.01 87.27 69.9
July 15, 1999.......... 60.09 80.12 75.0 59.61 85.49 69.7
July 15, 2000.......... 58.84 78.45 75.0 58.14 83.71 69.5
July 15, 2001.......... 57.59 76.78 75.0 56.56 81.93 69.0
July 15, 2002.......... 56.33 75.11 75.0 54.86 80.15 68.4
July 15, 2003.......... 54.86 73.44 74.7 53.03 78.37 67.7
July 15, 2004.......... 53.24 71.77 74.2 50.70 76.59 66.2
July 15, 2005.......... 51.49 70.10 73.4 48.90 74.81 65.4
July 15, 2006.......... 49.77 68.43 72.7 46.16 73.03 63.2
July 15, 2007.......... 45.14 66.77 67.6 42.21 71.24 59.3
July 15, 2008.......... 43.58 65.10 66.9 38.95 69.46 56.1
July 15, 2009.......... 41.24 63.43 65.0 36.15 67.68 53.4
July 15, 2010.......... 38.57 61.76 62.5 33.28 65.90 50.5
July 15, 2011.......... 35.04 60.09 58.3 29.13 64.12 45.4
July 15, 2012.......... 31.22 58.42 53.4 25.65 62.34 41.1
July 15, 2013.......... 26.35 55.92 47.1 20.08 59.67 33.7
July 15, 2014.......... 21.10 53.41 39.5 14.09 57.00 24.7
July 15, 2015.......... 15.43 50.91 30.3 7.63 54.32 14.0
July 15, 2016.......... 9.32 48.40 19.3 0.68 51.65 1.3
July 15, 2017.......... 2.74 45.90 6.0 0.00 0.00 NA
July 15, 2018.......... 0.00 0.00 NA 0.00 0.00 NA
</TABLE>
S-51
<PAGE>
<TABLE>
<CAPTION>
N583FE N584FE
--------------------------- ---------------------------
EQUIPMENT EQUIPMENT
TRUST TRUST
CERTIFICATE CERTIFICATE
OUTSTANDING ASSUMED LOAN OUTSTANDING ASSUMED LOAN
BALANCE AIRCRAFT TO BALANCE AIRCRAFT TO
(IN VALUE (IN VALUE (IN VALUE (IN VALUE
DATE MILLIONS) MILLIONS) RATIO MILLIONS) MILLIONS) RATIO
---- ----------- --------- ----- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
May 28, 1997........... $61.02 $88.96 68.6% $60.89 $93.53 65.1%
July 15, 1997.......... 61.02 88.96 68.6 60.89 93.53 65.1
July 15, 1998.......... 60.61 87.18 69.5 60.79 91.66 66.3
July 15, 1999.......... 59.32 85.40 69.5 59.49 89.79 66.3
July 15, 2000.......... 57.97 83.63 69.3 58.14 87.92 66.1
July 15, 2001.......... 56.53 81.85 69.1 56.69 86.05 65.9
July 15, 2002.......... 54.97 80.07 68.7 55.13 84.18 65.5
July 15, 2003.......... 53.29 78.29 68.1 52.43 82.31 63.7
July 15, 2004.......... 50.51 76.51 66.0 50.66 80.44 63.0
July 15, 2005.......... 48.61 74.73 65.1 48.67 78.57 62.0
July 15, 2006.......... 44.43 72.95 60.9 44.32 76.70 57.8
July 15, 2007.......... 42.77 71.17 60.1 42.66 74.83 57.0
July 15, 2008.......... 39.80 69.39 57.4 40.58 72.96 55.6
July 15, 2009.......... 36.61 67.61 54.2 37.70 71.09 53.0
July 15, 2010.......... 32.08 65.83 48.7 34.84 69.21 50.3
July 15, 2011.......... 27.20 64.05 42.5 31.13 67.34 46.2
July 15, 2012.......... 21.94 62.27 35.2 26.16 65.47 40.0
July 15, 2013.......... 16.27 59.61 27.3 20.80 62.67 33.2
July 15, 2014.......... 10.15 56.94 17.8 15.02 59.86 25.1
July 15, 2015.......... 3.56 54.27 6.6 8.80 57.06 15.4
July 15, 2016.......... 0.00 0.00 NA 2.09 54.25 3.8
July 15, 2017.......... 0.00 0.00 NA 0.00 0.00 NA
July 15, 2018.......... 0.00 0.00 NA 0.00 0.00 NA
<CAPTION>
N587FE
---------------------------
EQUIPMENT
TRUST
CERTIFICATE
OUTSTANDING ASSUMED LOAN
BALANCE AIRCRAFT TO
(IN VALUE (IN VALUE
DATE MILLIONS) MILLIONS) RATIO
---- ----------- --------- -----
<S> <C> <C> <C>
May 28, 1997........... $61.75 $93.85 65.8%
July 15, 1997.......... 61.75 93.85 65.8
July 15, 1998.......... 61.03 91.97 66.4
July 15, 1999.......... 59.45 90.09 66.0
July 15, 2000.......... 57.82 88.21 65.5
July 15, 2001.......... 56.06 86.34 64.9
July 15, 2002.......... 54.17 84.46 64.1
July 15, 2003.......... 52.13 82.58 63.1
July 15, 2004.......... 49.94 80.71 61.9
July 15, 2005.......... 46.94 78.83 59.5
July 15, 2006.......... 42.62 76.95 55.4
July 15, 2007.......... 39.89 75.08 53.1
July 15, 2008.......... 36.60 73.20 50.0
July 15, 2009.......... 31.72 71.32 44.5
July 15, 2010.......... 26.45 69.45 38.1
July 15, 2011.......... 20.77 67.57 30.7
July 15, 2012.......... 14.65 64.75 22.6
July 15, 2013.......... 8.05 61.94 13.0
July 15, 2014.......... 0.94 59.12 1.6
July 15, 2015.......... 0.00 0.00 NA
July 15, 2016.......... 0.00 0.00 NA
July 15, 2017.......... 0.00 0.00 NA
July 15, 2018.......... 0.00 0.00 NA
</TABLE>
S-52
<PAGE>
PREFUNDING PERIOD
During the period between the date of issuance of the related Equipment
Trust Certificates and the delivery date of eight aircraft, the related
Equipment Trust Certificates will not be secured by such Aircraft or the
related Lease, but will be secured by the related Collateral Account. Pursuant
to the related Indentures, the Owner Trustee will deposit the proceeds from
the sale of the related Equipment Trust Certificates into the related
Collateral Account for the benefit of the Indenture Trustee. Funds deposited
in each Collateral Account will be invested in Specified Investments.
(Participation Agreements, Section 17.02 for Federal Express Corporation Trust
Nos. N670FE, N671FE, N672FE, N673FE, N674FE, N581FE, N583FE and N584FE)
The Corporation will pay to the Indenture Trustee any losses on the
Specified Investments and any earnings on such Collateral Account will be paid
to the Corporation on the related delivery date. The Corporation will pay (i)
interest due on the related Equipment Trust Certificates on each Regular
Distribution Date during the related Prefunding Period and (ii) interest due
on the first Regular Distribution Date after the related delivery date for the
period from the preceding Regular Distribution Date (or, if none, the date of
issuance of the Equipment Trust Certificates) to the related delivery date.
(Participation Agreements, Section 17.02 for Federal Express Corporation Trust
Nos. N670FE, N671FE, N672FE, N673FE, N674FE, N581FE, N583FE and N584FE)
On the delivery date of the A300F4-605R aircraft, upon satisfaction or
waiver of the conditions to the Indenture Trustee's release of amounts in the
related 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 related Collateral Account net of
investment earnings (the excess of which will be paid to the Corporation on
the related delivery date). (Indentures, Sections 2.13, 2.14 and 2.15;
Participation Agreements, Section 17.02 for Federal Express Corporation Trust
Nos. N670FE, N671FE, N672FE, N673FE and N674FE)
If the related Owner Participant does not make available its portion of the
purchase price on the delivery date of the A300F4-605R aircraft or the
Corporation does not enter into the related Lease on or prior to the related
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 related Collateral Account to the Corporation to pay a portion of the
purchase price for such Aircraft. (Participation Agreements, Section 3.05 for
Federal Express Corporation Trust Nos. N670FE, N671FE, N672FE, N673FE and
N674FE)
With respect to the three undelivered McDonnell Douglas MD-11F aircraft, if
(i) the modification of such Aircraft has not been completed and such Aircraft
delivered on or prior to the related Cut-off Date, (ii) the related Owner
Participant does not make available its committed portion of the purchase
price for such Aircraft or (iii) in the case of two of such Aircraft, the
Corporation fails to obtain a commitment from any prospective Owner
Participant, the related Equipment Trust Certificates will be prepaid in whole
on or before the 15th day following the Cut-off Date for such Aircraft. The
Series C Equipment Trust Certificates relating to these two Aircraft may also
be subject to prepayment in part, no later than 20 days after the date on
which a prospective Owner Participant participates in the purchase of such
Aircraft, in connection with any reoptimization (subject to the Mandatory
Economic Terms) negotiated with such prospective Owner Participant.
(Participation Agreements, Sections 2.03 and 3.05 for Federal Express
Corporation Trust Nos. N581FE, N583FE and N584FE)
S-53
<PAGE>
If such Equipment Trust Certificates are subject to prepayment as described
above, the Corporation will be obligated to pay to the Indenture Trustee,
together with any losses on the investments in the related Collateral Account
on or before the 15th day after the related Cut-off Date, such additional
amounts as will be required to pay the amount of interest accrued and unpaid
on such Equipment Trust Certificates through the date of such prepayment.
(Participation Agreements, Section 17.02 for Federal Express Corporation Trust
Nos. N670FE, N671FE, N672FE, N673FE, N674FE, N581FE, N583FE and N584FE)
PREPAYMENT
Prepayment with Premium. For any Aircraft, the related Equipment Trust
Certificates may be prepaid in whole, but not in part, at any time and will be
prepaid (i) in connection with a refinancing of such Equipment Trust
Certificates at the Corporation's election or at the election of the related
Owner Trustee with the written consent of the Corporation (and the Owner
Participant, in the case of five Indentures), or (ii) on any scheduled rent
payment date under the related Lease after December 31, 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 will 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 the related
Premium Termination Date, a make-whole premium (the "Make-Whole Premium").
(Indentures, Section 6.02)
"Make-Whole Premium" means, with respect to any Equipment Trust Certificate,
the amount (as determined by an independent investment banker selected by the
Corporation and reasonably acceptable to the Indenture Trustee and related
Owner Participant) by which (i) the present value of the remaining scheduled
payments of principal and interest to maturity of such Equipment Trust
Certificate computed by discounting such payments on a semiannual basis on
each Regular Distribution Date (assuming a 360-day year of twelve 30-day
months) using a discount rate equal to the Treasury Yield exceeds (ii) the
outstanding principal amount of such Equipment Trust Certificate plus accrued
interest.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means,
at the time of determination with respect to any Equipment Trust Certificate,
the interest rate (expressed as a semi-annual equivalent and as a decimal and,
in the case of United States Treasury bills, converted to a bond equivalent
yield) determined to be the per annum rate equal to the semi-annual yield to
maturity for United States Treasury securities maturing on the Average Life
Date of such Equipment Trust Certificate and trading in the public securities
markets either as determined by interpolation between the most recent weekly
average yield to maturity for two series of United States Treasury securities,
trading in the public securities markets, (i) one maturing as close as
possible to, but earlier than, the Average Life Date of such Equipment Trust
Certificate and (ii) the other maturing as close as possible to, but later
than, the Average Life Date of such Equipment Trust Certificate, in each case
as published in the most recent H.15 (519) or, if a weekly average yield to
maturity for United States Treasury securities maturing on the Average Life
Date of such Equipment Trust Certificate is reported on the most recent H.15
(519), such weekly average yield to maturity as published in such H.15 (519).
"H.15 (519)" means the weekly statistical release designated as such, or any
successor publication, published by the Board of Governors of the Federal
Reserve System. The date of determination of a Make-Whole Premium will be the
third Business Day prior to the applicable prepayment date and the "most
recent H.15 (519)" means the H.15 (519) published prior to the close of
business on the third Business Day prior to the applicable prepayment date.
S-54
<PAGE>
"Average Life Date" for any Equipment Trust Certificate is the date which
follows the prepayment date by a period equal to the Remaining Weighted
Average Life of such Equipment Trust Certificate. "Remaining Weighted Average
Life" means on a given date with respect to any Equipment Trust Certificate
the number of days equal to the quotient obtained by dividing (i) the sum of
each of the products obtained by multiplying (a) the amount of each then
remaining scheduled payment of principal of such Equipment Trust Certificate
by (b) the number of days from and including such prepayment date to but
excluding the dates on which each such payment of principal is scheduled to be
made; by (ii) the then outstanding principal amount of such Equipment Trust
Certificate.
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 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 upon not less than
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 the case of five Indentures, if the related Aircraft have not been
delivered by the manufacturer thereof by the related Cut-off Date, then the
Equipment Trust Certificates issued under such Indenture will be prepaid in
full on or before the fifteenth day after the related Cut-off Date. On such
date, the Indenture Trustee will apply the proceeds of the related 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 and unpaid interest thereon. (Indentures, Sections 2.16
and 6.02 for Federal Express Corporation Trust Nos. N670FE, N671FE, N672FE,
N673FE and N674FE)
In the case of the Indentures relating to the three undelivered McDonnell
Douglas MD-11F aircraft, if (i) the modification of such Aircraft has not been
completed and such Aircraft delivered on or prior to the related Cut-off Date,
(ii) the related Owner Participant does not make available its
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committed portion of the purchase price for such Aircraft or (iii) in the case
of two of such Aircraft, the Corporation fails to obtain a commitment from any
prospective Owner Participant, the related Equipment Trust Certificates will
be prepaid in full on or before the 15th day following the Cut-off Date for
such Aircraft. The Series C Equipment Trust Certificates relating to these two
Aircraft may also be subject to prepayment in part, no later than 20 days
after the date on which a prospective Owner Participant participates in the
purchase of such Aircraft, in connection with any reoptimization (subject to
the Mandatory Economic Terms) negotiated with such prospective Owner
Participant. (Participation Agreements, Sections 2.03 and 3.05; Indentures,
Sections 2.16 and 6.02 for Federal Express Corporation Trust Nos. N581FE,
N583FE and N584FE)
INVESTMENT OF FUNDS
The proceeds from the sale of the Equipment Trust Certificates deposited in
each 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 highest rating assigned by such rating
organization;
(c) investments in negotiable certificates of deposit, time deposits,
banker's acceptances, commercial paper or other direct obligations of,
or obligations guaranteed by, commercial banks organized under the laws
of the United States or of any political subdivision thereof (or any
U.S. branch of a foreign bank) with issuer ratings of at least B/C by
Thomson Bankwatch, having maturities no later than 90 days following
the date of such investment;
(d) overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers; or
(e) 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 or 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 no later than 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 related 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 no later than 14 days after the rescheduled
delivery date or, if no notice of rescheduled delivery date has been given, no
later than 14 days after the related Cut-off Date. (Indentures, Section 2.14
for Federal Express Corporation Trust Nos. N670FE, N671FE, N672FE, N673FE,
N674FE, N581FE, N583FE and N584FE)
Funds (other than funds in the related 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
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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") generally include:
(a) any Lease Event of Default under the Lease related to such Indenture
(other than a Lease Event of Default arising solely as a result of the
failure to make certain payments to the related Owner Participant or
the Owner Trustee which are excluded from the Lien of the related
Indenture which will constitute an Indenture Event of Default under any
such Indenture upon notification by the related Owner Participant) (see
"The Leases--Lease Events of Default" below);
(b) any failure by the Owner Trustee other than by reason of a Lease Event
of Default or a default under the related Lease (i) to pay principal,
interest or Make-Whole Premium, if any, with respect to any related
Equipment Trust Certificates when due, continued for 10 Business Days
or (ii) to pay any other amounts when due under such Indenture or the
Equipment Trust Certificates issued thereunder continued for 30 days
after demand for such payment is given to the Owner Trustee and the
Owner Participant by the Indenture Trustee or by holders of not less
than 25% in aggregate principal amount of related outstanding Equipment
Trust Certificates;
(c) any representation or warranty made by State Street Bank and Trust
Company of Connecticut, National Association (or Wilmington Trust
Company, in the case of two Indentures), the related 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 if such
misrepresentation can be subsequently corrected and if such correction
is being sought diligently 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 State Street Bank and Trust Company of Connecticut,
National Association (or Wilmington Trust Company, in the case of two
Indentures), the related 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 any Guarantor; or
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(f) any Guaranty or Owner Trustee guaranty ceases to be a valid and
enforceable obligation of any 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) within a specified period then
(i) the failure of the Corporation to make such payment 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. The related Owner
Participant and the Owner Trustee, collectively, may not cure more than three
such consecutive 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 and the Liquidity Provider is required with respect to a waiver of
such a default in the payment of the principal of, Make-Whole Premium, if any,
interest or other amounts on any such Equipment Trust
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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 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 VII 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 five
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))
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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 of acceleration, 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 acceleration) have been cured or waived. (Indentures, Sections
7.02(b) and (c))
In the event of the bankruptcy of the related Owner Participant, it is
possible that, notwithstanding the fact that the applicable Aircraft is or are
owned by the Owner Trustee in trust, such Aircraft and the related Lease and
the related Equipment Trust Certificates might become part of the bankruptcy
proceeding. In such event, payments under such Lease or Equipment Trust
Certificates might be interrupted and the ability of the Indenture Trustee to
exercise its remedies under such Indenture might be restricted, although the
Indenture Trustee would retain its status as a secured creditor in respect of
such Lease and Aircraft.
At any time while any Equipment Trust Certificates have become due and
payable pursuant to the remedies provisions in the related Indenture, the
Owner Participant of the related Owner Trust may direct the Owner Trustee to
pay to the Indenture Trustee for distribution to the holders of such Equipment
Trust Certificates an amount equal to the aggregate unpaid principal amount of
all such Equipment Trust Certificates plus all accrued and unpaid interest
thereon to the date of payment and all other amounts due to the Indenture
Trustee under the related Indenture, but without Make-Whole Premium. If such
payment by the Owner Trustee to the Indenture Trustee is made, the Equipment
Trust Certificates will cease to accrue interest from and after the date of
payment. (Indentures, Sections 6.02 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
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conferred on the Indenture Trustee. The Indenture Trustee is entitled to be
indemnified by the holders of the Equipment Trust Certificates issued under
such Indenture before proceeding so to act and the Indenture Trustee may not
be held liable for acting in good faith. (Indentures, Section 7.10 and Article
XI)
If an Indenture Event of Default occurs and is continuing, any sums held or
received by the Indenture Trustee under the related Indenture may be applied
to reimburse the Indenture Trustee for any tax, expense, charge or other loss
incurred by it and to pay any other amounts due the Indenture Trustee prior to
any payments to holders of the Equipment Trust Certificates with respect to
which such Indenture Event of Default relates. (Indentures, Section 5.03)
Section 1110 of the Bankruptcy Code. Section 1110 of the Bankruptcy Code
provides that the right of lessors, conditional vendors and holders of
security interests with respect to aircraft capable of carrying 10 or more
individuals or 6,000 pounds or more of cargo used by air carriers operating
under certificates issued by the Secretary of Transportation under Chapter 447
of the Transportation Code to take possession of such aircraft in compliance
with provisions of the lease, conditional sale contract or security agreement,
as the case may be, is not affected by:
(i) the automatic stay provision of the Bankruptcy Code, which provision
enjoins the taking of any action against a debtor by a creditor;
(ii) the provision of the Bankruptcy Code allowing the trustee in
reorganization or the debtor-in-possession to use, sell or lease
property of the debtor;
(iii) the confirmation of a plan by the bankruptcy court; and
(iv) any power of the bankruptcy court to enjoin a repossession.
Section 1110 provides, however, that the right of a lessor, conditional vendor
or holder of a security interest to take possession of an aircraft in the
event of a default may not be exercised for 60 days following the date of
commencement of the reorganization proceedings (unless specifically permitted
by the bankruptcy court) and may not be exercised at all if, within such 60-
day period, the trustee in reorganization or the debtor-in-possession agrees
to perform the debtor's obligations that become due on or after such date and
cures all existing defaults (other than defaults resulting solely from the
financial condition, bankruptcy, insolvency or reorganization of the debtor).
The Corporation has been advised by its special counsel that the Owner
Trustee, as lessor under the related Lease, and the Indenture Trustee, as
assignee of such Owner Trustee's rights under such Lease pursuant to the
related Indenture, are entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to the related Aircraft.
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
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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) See also "Description of Pass
Through Certificates--Obligations to Purchase Equipment Trust Certificates" in
this Prospectus Supplement for a discussion of the changes that may be made to
the documents relating to two McDonnell Douglas MD-11F aircraft.
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 and the Liquidity Provider, 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 and amounts due
the Liquidity Provider as and when due and payable;
(iv) to the extent payable to such holder, extend the time of, or reduce
the aggregate amount of, or release the Corporation from its
obligation to pay, rent, stipulated loss value or any other amounts
payable under, or as provided in, such Lease upon the occurrence of an
Event of Loss or termination value and any other amounts payable
under, or as provided in, such Lease upon the termination of the Lease
with respect to the applicable Aircraft;
(v) create any security interest with respect to the property subject to
the Lien of such Indenture ranking prior to or on a parity with the
security interest created by such Indenture or deprive the holder of
any such Equipment Trust Certificate of the Lien of such Indenture upon
the property subject thereto; or
(vi) reduce the percentage of the aggregate principal amount of such
Equipment Trust Certificates necessary to modify or amend any
provision of such Indenture or to waive compliance therewith.
(Indentures, Section 8.01 and Article XIII)
THE INDENTURE TRUSTEE
Each Indenture provides that in the case of any Indenture Event of Default
thereunder, the Indenture Trustee will exercise such of the rights and powers
vested in it by such Indenture, and use
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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 is 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 such holder has 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
The statements under this caption are summaries of the Lease relating to
each Aircraft. The prospective Owner Participants for two of the McDonnell
Douglas MD-11F aircraft may request revisions to the related Leases so that
the terms of such Leases may differ from the description of such Leases set
forth below.
General. The four McDonnell Douglas MD-11F aircraft were delivered new to
American Airlines between April 1991 and April 1992 and were or will continue
to be operated in American's commercial passenger transportation service prior
to purchase thereof by the Corporation. One of these Aircraft was converted
from passenger configuration to freighter configuration and purchased by the
related Owner Trustee in December 1996. The other three McDonnell Douglas MD-
11F aircraft are expected to be converted and purchased by the related Owner
Trustee between May 1997 and January 1998. The Airbus A300F4-605R aircraft are
expected to be delivered new by the manufacturer and leased by the Corporation
from the related Owner Trustee between June and September 1997. As of April
30, 1997, the Corporation operated 22 McDonnell Douglas MD-11F aircraft and 19
Airbus A300F4-605R aircraft under lease.
Terms and Rentals. One of the Aircraft has been, and the other Aircraft are
expected to 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 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 15 and July 15. Such payments, together with
certain other payments that the Corporation is obligated to make or cause to
be made under the related Lease, 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 and
Liquidity Obligations under the related Liquidity Facility. (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,
Section 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.
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The Corporation will also pay to the Indenture Trustee any losses on the
Specified Investments and any earnings on such Collateral Account will be paid
to the Corporation. The Corporation will pay (i) interest due on the related
Equipment Trust Certificates on each Regular Distribution Date during the
related Prefunding Period and (ii) interest due on the first Regular
Distribution Date after the delivery date for the period from the preceding
Regular Distribution Date (or, if none, the date of issuance of the Equipment
Trust Certificates) to the delivery date. (Participation Agreements, Section
17.02 for Federal Express Corporation Trust Nos. N670FE, N671FE, N672FE,
N673FE, N674FE, N581FE, N583FE and N584FE)
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). 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 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 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 and
utility of any Engine, or impair the condition or state of airworthiness below
the value, remaining useful life, utility, condition and airworthiness
immediately prior to such alteration, modification, addition or removal
assuming that such Aircraft was then in 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 (or, in the case of three Aircraft, the aggregate original
cost) 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 December 13, 2004, in the case of one Lease,
and at any time, in the case of the other eight Leases, any Aircraft or any
Engine to certain United States air carriers; and (ii) after December 13,
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2004, in the case of six Leases and at anytime in the case of three Leases,
any Aircraft and 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
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 three Leases, and not prior
to the expiration of the term of the related Lease, in the case of six 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 generally:
(i) liens for taxes either not yet due or being contested in good faith by
appropriate proceedings, so long as such Liens or proceedings do not
involve any material danger of the sale, forfeiture or loss of the
trust estate of the Owner Trustee, the Aircraft or any interest therein
or any material risk of civil liabilities or any risk of the assertion
of criminal charges against the Owner Trustee, the related Owner
Participant, the Indenture Trustee or the holder of any Equipment
Certificate;
(ii) materialmen's, mechanic's, workmen's, repairmen's, employees' or other
like Liens arising against the Corporation in the ordinary course of
business for amounts the payment of which is either not yet due or is
being contested in good faith by appropriate proceedings, so long as
such Liens or proceedings do not involve any material danger of the
sale, forfeiture or loss of the trust estate of the Owner Trustee, the
Aircraft or any interest therein; and
(iii) liens arising from judgments or awards against the Corporation with
respect to which (x) at the time an appeal or proceeding for review
is being prosecuted in good faith and with respect to which there
shall have been secured a stay of execution pending such appeal or
proceeding for review and then only for the period of such stay and
(y) there is not, and such proceedings do not involve, any material
danger of the sale, forfeiture or loss of the trust estate of the
Owner Trustee, the Aircraft or any interest therein. (Leases, Section
6.01)
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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
four Leases, and aircraft and engines of the same type and model, in
the case of the other five 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.
The Corporation may self-insure with respect to comprehensive airline
liability insurance and all-risk ground and flight aircraft hull insurance, 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 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 five Aircraft, the Corporation must
maintain war risk insurance if the Aircraft are operated in a war zone or a
recognized area of armed hostilities unless the Corporation obtains
indemnification or insurance from the United States government. For four
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 four 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 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 December 31, 2001 (the earliest
date under any Lease) on at least 90 days' 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
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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 six 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, may revoke its notice of
termination with respect to such Aircraft not less than ten days prior to the
proposed termination date. (Leases, Article 10)
Generally, the Corporation may, at any time upon 30 days' prior notice,
substitute for any Engine not then installed or held for use on the related
Aircraft another engine of the same make and model (or, under certain
circumstances, engines of another manufacturer) and having a value and utility
at least equal to, and being in as good operating condition as, such Engine,
assuming such Engine was of the value, utility and remaining useful life, 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) commonly used in the commercial aviation industry on MD-11F airframes or
(ii) utilized by the Corporation on a significant number of other Airbus
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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 about December 2001 (the earliest date under any
Lease) (ii) under certain circumstances, on a scheduled rent payment date, if
the Corporation is required at any time after December 2001 (the earliest date
under any 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
after June 2004 (the earliest date under any 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 and interest and
Make-Whole Premium, if any, on, such Equipment Trust Certificates or (y) in
most instances 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 this
Prospectus Supplement. (Leases, Section 4.02; Participation Agreements,
Section 7.11)
At the end of the term of each Lease, after the final maturity of the
related Equipment Trust Certificates, the Corporation has certain options to
renew such Lease or purchase the related Aircraft. (Leases, Article 4)
Events of Loss. If an Event of Loss (as defined below) occurs with respect
to an Aircraft, the Corporation is obligated, within 60 days of the occurrence
of such Event of Loss, to elect either (i) to pay to the Owner Trustee the
applicable stipulated loss value (which is an amount at least sufficient to
pay in full the aggregate unpaid principal amount of the related Equipment
Trust Certificates plus accrued but unpaid interest thereon) together with
certain other amounts which under any circumstances will be sufficient to
satisfy all amounts due to the holders of such Equipment Trust Certificates
under the related Indenture and Participation Agreement or (ii) so long as no
Lease Event of Default, 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 will
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 (the longest period under any Lease) following receipt in full of
insurance proceeds or requisition proceeds in connection with such Event of
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Loss (or if later, the 15th day following the end of the 60-day election
period discussed above, in the case of five Leases) 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,
1997, 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 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 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) commonly used in the commercial aviation industry on MD-11F airframes or
(ii) 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)
Although there are differences among the Leases, an "Event of Loss" with
respect to an Aircraft or Engine generally 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;
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(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 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.
Lease Events of Default. Although there are differences among the Leases,
events of default under each Lease (each, a "Lease Event of Default")
generally include the following events, in each case, occurring after the
related delivery date:
(a) failure by the Corporation to make any scheduled rental payment or any
payment of applicable stipulated loss value or termination value within
ten Business Days (the longest period under any Lease) 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
eight Leases 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,
in the case of six Leases, 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 only 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
(the longest period under any Lease) (or with respect to war risk
coverage, seven days or such shorter time as may be standard in the
industry) after receipt by the Owner Trustee of notice of such lapse or
cancellation and the date that such lapse or cancellation is effective
as to the Owner Trustee, provided that, for three Leases, 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 six Leases, such failure, lapse or
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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 six 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 four
Leases, 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 four Leases, the Corporation has actual
knowledge of, such misstatement, except in the case of six 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)
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 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 Subordination Agent, the Owner Participant and the
Owner Trustee, and certain parties affiliated with the foregoing (but not
including the Pass Through Trustee, except as otherwise
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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. (Participation Agreements, Articles 8
and 9).
Each Owner Participant is obligated to reimburse the Corporation, the
Indenture Trustee, the Subordination Agent 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)). The payment and performance obligations of the Owner
Participant relating to seven 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, if
any, each Owner Participant may convey all of its right, title and interest
relating to the applicable Aircraft. (Participation Agreements, Section
7.03(d) for Federal Express Corporation Trust Nos. N670FE, N671FE, N672FE,
N673FE and N674FE and Trust Agreement, Article 5 for Federal Express
Corporation Trust Nos. N581FE, N583FE, N584FE and N587FE)
REGISTRATION OF THE AIRCRAFT
The Aircraft have been or 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, except for two
Owner Participants which have instituted certain trust arrangements to comply
with applicable registration requirements. 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)
The Corporation may, under certain circumstances and subject to certain
limitations, after December 31, 2003, 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.
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FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Davis Polk & Wardwell, special 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. 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 themselves be subject to federal income
taxation. Each Certificateholder will be required to report on its federal
income tax return its pro rata share of the entire income from each of the
Equipment Trust Certificates and any other property held in the related Pass
Through Trust, in accordance with such Certificateholder's method of
accounting.
A purchaser of an interest in a Pass Through Certificate should 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
Trust Certificates and other property in proportion to their fair market
values at the time of purchase of the Pass Through Certificate. The
Corporation anticipates that when all the Equipment Trust Certificates have
been acquired by the related Pass Through Trust the purchase price paid for a
Pass Through Certificate of such Pass Through Trust by an original purchaser
of such Pass Through Certificate should be allocated among the Equipment Trust
Certificates held in such Pass Through Trust in proportion to their respective
principal amounts.
If an Equipment 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
its 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 Trust Certificate is considered to have
been held for more than one year. Net capital gains of individuals are, under
certain circumstances, taxed at lower rates than items of ordinary income.
With respect to the Equipment Trust Certificates, an Owner Participant's
conveyance of its interest in an Owner Trust should not constitute a taxable
event to the holders of interests in the related Equipment Trust Certificates.
However, if the Corporation were to assume an Owner Trust's obligations under
the related Equipment Trust Certificates upon a purchase of the related
Aircraft by the Corporation, such assumption would be treated for federal
income tax purposes as a taxable exchange of the respective Equipment Trust
Certificates resulting in the recognition of taxable gain or loss under the
rules discussed above. For this purpose the 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 Trust Certificates at such time.
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SALES OR EXCHANGES OF PASS THROUGH CERTIFICATES
A Certificateholder that sells or exchanges a Pass Through Certificate will
be considered to have sold its 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.
EFFECT OF SUBORDINATION OF SUBORDINATED CERTIFICATEHOLDERS
If any Pass Through Trust with respect to a Class is subordinated with
respect to other Pass Through Trusts of the same Class (such Pass Through
Trusts being the "Subordinated Trusts" and the related Pass Through
Certificates being the "Subordinated Certificates") receives less than the
full amount of the receipts of principal or interest paid with respect to the
Equipment Trust Certificates held by it (any shortfall in such receipts being
the "Shortfall Amounts") because of the subordination of the Equipment Trust
Certificates held by such Pass Through Trust under the Intercreditor
Agreement, the corresponding owners of beneficial interests in the
Subordinated Certificates (the "Subordinated Certificateholders") would
probably be treated for federal income tax purposes as if they had (1)
received as distributions their full share of such receipts, (2) paid over to
the relevant preferred class of Certificateholders an amount equal to their
share of such Shortfall Amount and (3) retained the right to reimbursement of
such amounts to the extent of future amounts payable to such Subordinated
Certificateholders with respect to such Shortfall Amount.
Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest
or other income of the corresponding Subordinated Trust that was a component
of the Shortfall Amount, even though such amount was in fact paid to the
relevant preferred class of Certificateholders, (2) a loss would only be
allowed to such Subordinated Certificateholders when their right to receive
reimbursement of such Shortfall Amount became worthless (i.e., when it becomes
clear that funds will not be available from any source to reimburse such loss)
and (3) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to Subordinated Certificateholders
because such amount was previously included in income. These results should
not significantly affect the inclusion of income for Subordinated
Certificateholders on the accrual method of accounting, but could accelerate
inclusion of income to Subordinated Certificateholders on the cash method of
accounting by, in effect, placing them on the accrual method.
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 UTAH 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 national banking association with its
principal corporate trust office in Salt Lake City, Utah. Ray, Quinney &
Nebeker, counsel to the Pass Through Trustee, has advised the Corporation
that, in its opinion, under currently applicable Utah 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 Utah: (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 Utah 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, Utah 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 Utah 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
States 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 a plan subject to ERISA, an individual
retirement account or plan subject to Section 4975 of the Code or an entity
which may be deemed to hold the assets of any such plan (collectively, "ERISA
Plans") 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 the Code). Such transactions may require
"correction" and may cause an 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 manufacturers of the Aircraft, the
holders of the Equipment Trust 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
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available is applicable to such person's purchase and holding of the Pass
Through Certificates (or a participation interest therein).
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 ("PTCE") 90-1,
regarding investments by insurance company pooled separate accounts; PTCE 91-
38, regarding investments by bank collective investment funds; PTCE 84-14,
regarding transactions effected by a qualified professional asset manager;
PTCE 95-60, regarding investments by insurance company general accounts or
PTCE 96-23, regarding investments by an in-house professional asset manager.
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 issued individual
administrative exemptions to certain of the Underwriters which are
substantially the same as the administrative exemption issued to Morgan
Stanley & Co. Incorporated (Prohibited Transaction Exemption 90-24 et al.,
Exemption Application No. D-8019 et al., 55 Fed. Reg. 20,548 (1990) (the
"Underwriter Exemption")) which generally exempts from certain of the
Prohibited Transaction rules the initial purchase, the holding and the
subsequent resale by an ERISA Plan of certificates in certain pass through
trusts, the assets of which pass through trust consist of secured credit
instruments that bear interest or are purchased at a discount in transactions
by or between business entities (including qualified equipment trust
certificates secured by leases). The limited relief provided by the DOL in the
Underwriter Exemption is subject to several other conditions, including a
requirement that certificates acquired by an ERISA Plan under the Underwriter
Exemption have received a rating at the time of acquisition by the ERISA Plan
that is in one of the three highest rating categories from either Standard &
Poor's or Moody's. Under the Underwriter Exemption, an equipment trust
certificate secured by a lease will be considered qualified only under certain
circumstances. The Underwriter Exemption also requires that the acquisition of
certificates by an ERISA Plan be on terms (including the price for the
certificate) that are at least as favorable to an ERISA Plan as they would be
in an arm's-length transaction with an unrelated party, and that the rights
and interests evidenced by the certificates must not be subordinated to the
rights and interests evidenced by other certificates of the same trust estate.
The DOL has indicated informally that the Underwriter Exemption is not
available if the assets of a pass through trust include a prefunding account.
The DOL is considering an amendment to the Underwriter Exemption that may
permit such a prefunding account in certain limited circumstances. Such
restrictions on prefunding accounts may not be applicable in certain
circumstances where, (i) at the time an ERISA Plan acquires pass through
certificates, all of the otherwise eligible assets of the trust are identified
and are deemed to constitute a fixed pool, even though such assets, for
administrative or other reasons, are not transferred to the trust at that
time, or (ii) although certain of the equipment securing equipment trust
certificates held by the trust have not been delivered on the date of the
issuance of such equipment trust certificates, such equipment trust
certificates otherwise constitute, at the time an ERISA Plan acquires the pass
through certificates, secured credit instruments that bear interest. However,
there can be no assurance that the DOL would agree that the prefunding
restrictions would not apply in such a case.
It is clear that the Underwriter Exemption will not apply to subordinated
classes of certificates, such as the Class B Pass Through Certificates or the
Class C Pass Through Certificates. It also appears that the Underwriter
Exemption will not apply to the purchase by Class B Certificateholders or
Class C Certificateholders of Class A Pass Through Certificates in connection
with the exercise of their rights upon the occurrence and during the
continuance of a Triggering Event. In addition, for the reasons noted above,
no assurance can be given that the Underwriter Exemption will otherwise apply
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with respect to any particular transaction involving the Class A Pass Through
Certificates or the assets of the Class A Trust.
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 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. In order to
avoid such prohibited transactions, each investing ERISA Plan, by purchasing
the Pass Through Certificates, will be deemed to have directed the Pass
Through Trust to invest in the assets held in such trust. 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.
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. By its purchase and acceptance of a Pass Through Certificate,
each Certificateholder will be deemed to have represented and warranted that
either (i) no ERISA Plan assets have been used to purchase such Pass Through
Certificate, or (ii) one or more prohibited transaction statutory or
administrative exemptions applies such that the use of such ERISA Plan assets
to purchase and hold such Pass Through Certificate will not constitute a non-
exempt Prohibited Transaction.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") among the Corporation and Morgan Stanley & Co.
Incorporated, First Chicago Capital Markets, Inc., Goldman, Sachs & Co. and
J.P. Morgan Securities Inc. (the "Underwriters") relating to the Pass Through
Certificates, the Corporation has agreed to cause each Pass Through Trust to
sell to each of the Underwriters, and each of such Underwriters has severally
agreed to purchase the respective aggregate amounts of Pass Through
Certificates set forth after their names below. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters will be obligated to purchase
all of the Pass Through Certificates if any Pass Through Certificates are
purchased thereunder.
<TABLE>
<CAPTION>
TOTAL
PERCENTAGE OF AGGREGATE
AGGREGATE AMOUNT OF
AMOUNT OF PASS THROUGH
UNDERWRITER EACH CLASS CERTIFICATES
----------- ------------- ------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated................... 25% $138,962,000
First Chicago Capital Markets, Inc.................. 25 138,959,000
Goldman, Sachs & Co................................. 25 138,959,000
J.P. Morgan Securities Inc.......................... 25 138,959,000
--- ------------
Total............................................. 100% $555,839,000
=== ============
</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 Class to the public
at the public offering price for such Class 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 Class 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 Class
set forth below. After the initial public offering, the public offering prices
and such concessions may be changed.
<TABLE>
<CAPTION>
PASS
THROUGH
CERTIFICATE CONCESSION REALLOWANCE
CLASS TO DEALERS CONCESSION
----------- ---------- -----------
<S> <C> <C>
1997-1-A 0.40% 0.25%
1997-1-B 0.40% 0.25%
1997-1-C 0.40% 0.25%
</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.
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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 certain 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.
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 Shearman & Sterling, 599 Lexington Avenue, New York, New York
10022. Both Davis Polk & Wardwell and Shearman & Sterling 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 Ray, Quinney &
Nebeker, counsel for First Security Bank, National Association, as Pass
Through Trustee and in its individual capacity, as to the authorization,
execution and delivery of the Pass Through Agreement, each Series Supplement
and the Pass Through Certificates by First Security Bank, National
Association. At May 21, 1997, Mr. Hearn owned no shares of the Corporation's
common stock and held options to purchase 41,600 shares of such common stock.
Of the options granted, 13,850 were vested at such date.
EXPERTS
The consolidated financial statements and schedules of the Corporation
included or incorporated by reference in the Corporation's Annual Report on
Form 10-K for the year ended May 31, 1996 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, 1996, November 30, 1996 and February 28, 1997, 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.
The references to AISI, SH&E and MBA, and to their respective appraisal
reports, dated as of April 24, 1997 in the case of AISI, April 24, 1997 in the
case of SH&E and April 23, 1997 in the case of MBA, are included herein in
reliance upon the authority of each such firm as an expert with respect to the
matters contained in its appraisal report.
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APPENDIX I
GLOSSARY OF CERTAIN TERMS
The following is a glossary of certain terms used in this Prospectus
Supplement. The definitions of terms used in this glossary that are also used
in the Pass Through Agreement, the Series Supplements, the Indentures, the
Intercreditor Agreement, the Liquidity Facilities or the Leases are qualified
in their entirety by reference to the definitions of such terms contained
therein.
"Aircraft" means four McDonnell Douglas MD-11F aircraft and five Airbus
A300F4-605R aircraft, including the Engines relating thereto, leased, or
expected to be leased, by the related Owner Trustee to the Corporation
pursuant to one of nine separate Leases, and, collectively, means all of the
foregoing.
"Authenticating Agent" means, for each Pass Through Trust, First Security
Bank, National Association.
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. et
seq.), as amended, or any successor thereto.
"Business Day" means any day other than a Saturday, a Sunday or other day on
which commercial banks in Salt Lake City, Utah, New York City, Memphis,
Tennessee or the city in which the office or agency in the United States is
maintained by the Pass Through Trustee for the payment of the Pass Through
Certificates are authorized or required by law to close.
"Cash Account" means, for each Pass Through Trust, an eligible deposit
account in the name of the Subordination Agent into which all amounts drawn
under the related Liquidity Facility will be deposited.
"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 Utah Taxes" and "Federal Income Tax
Consequences" in this Prospectus Supplement, also means persons having a
beneficial interest in a Pass Through Certificate.
"Class" means the Federal Express Corporation Pass Through Certificates,
1997-1-A, Federal Express Corporation Pass Through Certificates, 1997-1-B or
Federal Express Corporation Pass Through Certificates, 1997-1-C.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Collection Account" means an eligible deposit account established by the
Subordination Agent which the Subordination Agent will make deposits in and
withdrawals from in accordance with the Intercreditor Agreement.
"Collateral Account" means the Collateral Account established pursuant to
the Indentures for Federal Express Corporation Trust Nos. N670FE, N671FE,
N672FE, N673FE, N674FE, N581FE, N583FE and N584FE into which the proceeds of
the 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 90 days after the scheduled delivery date for any
Aircraft.
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"DTC" means The Depository Trust Company.
"Engine" means, for each 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 more of the
Indentures pursuant to which the Equipment Trust Certificates constituting
Trust Property of such Pass Through Trust are issued.
"Event of Loss" means, for any Aircraft, each of the events designated as
such in the related Lease. For a description of certain events constituting an
Event of Loss, see "Description of the Equipment Trust Certificates-The
Leases-Events of Loss."
"Final Expected Distribution Date" means January 15, 2018 for the Class A
Pass Through Certificates, January 15, 2018 for the Class B Pass Through
Certificates and January 15, 2014 for the Class C Pass Through Certificates.
"Final Legal Distribution Date" means July 15, 2019 for the Class A Pass
Through Certificates, July 15, 2019 for the Class B Pass Through Certificates
and January 15, 2014 for the Class C Pass Through Certificates.
"Guarantor" and "Guaranty" means when the payment and performance
obligations of the Owner Participant relating to an Aircraft have been
guaranteed by an entity affiliated with such Owner Participant, respectively,
the "guarantor" issuing such "guaranty."
"Indenture" means each of the nine 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 First Security Bank, National Association in its
capacity as indenture trustee under each Indenture and any successor
thereunder.
"Intercreditor Agreement" means the agreement among the Pass Through
Trustee, the Subordination Agent and the Liquidity Provider for the Class A
and Class B Pass Through Certificates.
"Lease" means each of nine 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.
A-I-2
<PAGE>
"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.
"Liquidity Provider" means for the Class A and Class B Pass Through Trusts,
Kredietbank N.V., acting through its New York branch.
"Operative Agreements" means, for any Aircraft, Indenture, Equipment Trust
Certificates, Participation Agreement, Lease, Trust Agreement, Intercreditor
Agreement, Liquidity Facility 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 State Street Bank and Trust Company of Connecticut,
National Association in its capacity as owner trustee of seven separate Owner
Trusts and Wilmington Trust Company in its capacity as owner trustee of the
other two Owner Trusts.
"Participation Agreement" means the agreement among the Corporation, the
Indenture Trustee, the Owner Trustee, the Pass Through Trustee, the
Subordination Agent, the related Owner Participant and the holders of the
original loan certificates and the original indenture trustee (in the case of
Federal Express Corporation Trust No. N587FE), 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
May 1, 1997, between the Corporation and First Security Bank, National
Association, in accordance with which the Pass Through Trusts will be formed
pursuant to the Series Supplements.
"Pass Through Certificates" means the Federal Express Corporation Pass
Through Certificates, 1997-1-A, Federal Express Corporation Pass Through
Certificates, 1997-1-B and Federal Express Corporation Pass Through
Certificates, 1997-1-C, 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 1997-1 Pass Through
Trust Class A, Federal Express Corporation 1997-1 Pass Through Trust Class B
and Federal Express Corporation 1997-1 Pass Through Trust Class C, each to be
formed pursuant to the related Series Supplement in accordance with the Pass
Through Agreement.
"Pass Through Trustee" means First Security Bank, National Association 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, First Security Bank,
National Association.
"Registrar" means, for each Pass Through Trust, First Security Bank,
National Association.
"Regular Distribution Date" means, for each Pass Through Trust, January 15
and July 15 of each year, commencing July 15, 1997.
A-I-3
<PAGE>
"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 Supplement" means each of Series Supplement 1997-1-A, Series
Supplement 1997-1-B and Series Supplement 1997-1-C 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 Class of Pass Through Certificates will be issued.
"Special Distribution Date" means any Business Day on which a Special
Payment is to be distributed.
"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.
"Subordination Agent" means First Security Bank, National Association.
"Threshold Rating" means a short-term unsecured debt rating of P-1 by
Moody's and A-1+ by Standard & Poor's or, in the event a person's short-term
unsecured debt is not rated by the Rating Agencies, a long-term unsecured debt
rating by the Rating Agencies, at least equal to the initial rating by each of
the Rating Agencies on the Class A Pass Through Certificates.
"Transportation Code" means Title 49 of the United States Code, as amended.
"Triggering Event" means (i) the occurrence of an Indenture Event of Default
under all Indentures resulting in a PTC Event of Default with respect to the
most senior Class of Pass Through Certificates then outstanding; (ii) the
acceleration of, or failure to pay at final maturity, all of the outstanding
Equipment Trust Certificates; or (iii) certain bankruptcy or insolvency events
involving the Corporation.
"Trust Property" means, for each Pass Through Trust: (i) the Equipment Trust
Certificates held in such Pass Through Trust; (ii) the rights of such Pass
Through Trust under the Intercreditor Agreement (including all monies
receivable in respect of such rights); (iii) except for the Class C Trust, all
monies receivable under the Liquidity Facility for such Pass Through Trust;
and (iv) funds from time to time deposited with the Pass Through Trustee in
accounts relating to such Pass Through Trust.
The following capitalized terms are defined on the following pages of this
Prospectus Supplement:
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
Adjusted Expected Distributions............................................ S-21
Aggregate LTV Collateral Amount............................................ S-21
AISI....................................................................... S-6
Appraisals................................................................. S-27
Appraised Current Market Value............................................. S-22
Appraisers................................................................. S-6
Assumed Aggregate Aircraft Value........................................... S-7
Assumed Aircraft Value..................................................... S-50
Average Life Date.......................................................... S-55
Controlling Party.......................................................... S-23
Current Distribution Date.................................................. S-20
Distribution Date.......................................................... S-20
</TABLE>
A-I-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DOL........................................................................ S-76
Downgrade Drawing.......................................................... S-19
ERISA Plan................................................................. S-75
Expected Distributions..................................................... S-20
Final Distributions........................................................ S-23
Final Drawing.............................................................. S-40
H.15 (519)................................................................. S-54
Initial Average Life....................................................... S-5
Interest Drawings.......................................................... S-17
Liquidity Events of Default................................................ S-40
Liquidity Expenses......................................................... S-42
Liquidity Facility......................................................... S-17
Liquidity Obligations...................................................... S-18
LTV Appraisal.............................................................. S-22
LTV Collateral Amount...................................................... S-22
LTV Ratio.................................................................. S-22
LTVs....................................................................... S-7
Make-Whole Premium......................................................... S-54
MBA........................................................................ S-6
Minimum Sale Price......................................................... S-24
Moody's.................................................................... S-19
Non-Extension Drawing...................................................... S-19
Non-Performing Equipment Trust Certificate................................. S-18
Owner Participant.......................................................... S-26
Performing Certificate Deficiency.......................................... S-18
Performing Equipment Trust Certificate..................................... S-18
Prefunding Period.......................................................... S-2
Pool Balance............................................................... S-32
Pool Factor................................................................ S-32
Premium Termination Date................................................... S-14
Prohibited Transactions.................................................... S-75
PTC Event of Default....................................................... S-12
PTCE....................................................................... S-76
Rating Agencies............................................................ S-19
Remaining Weighted Average Life............................................ S-55
Replacement Facility....................................................... S-38
Required Amount............................................................ S-17
Securities Act............................................................. S-1
SH&E....................................................................... S-6
Shortfall Amounts.......................................................... S-74
Specified Investments...................................................... S-56
Standard & Poor's.......................................................... S-19
Stated Interest Rate....................................................... S-2
Subordinated Certificateholders............................................ S-74
Subordinated Certificates.................................................. S-74
Subordinated Trusts........................................................ S-74
Treasury Yield............................................................. S-54
Underwriter Exemption...................................................... S-76
Underwriters............................................................... S-78
Underwriting Agreement..................................................... S-78
</TABLE>
A-I-5
<PAGE>
APPENDIX II
SUMMARY OF AIRCRAFT APPRAISALS
[LOGO FOR AIRCRAFT INFORMATION
SERVICES, INC. APPEARS HERE]
24 April 1997
Mr. Robert Henning
Assistant Treasurer
FedEx Corporation
2007 Corporate Avenue
4th Floor
Memphis, TN 38132
Subject: AISI Report No. A7S008BVO - B
AISI Short Form Base Market Appraisal
Five A300F4-605R and Four MD-11F Aircraft
Dear Mr. Henning:
As requested, Aircraft Information Services, Inc. (AISI) is pleased to offer
FedEx Corporation our opinion of the sight unseen base market value of five
A300F4-605R and four MD-11F Aircraft as identified in section 2 of this report.
1. METHODOLOGY AND DEFINITIONS
The historical standard term of reference for commercial aircraft value has been
'half-life fair market value' of an 'average' aircraft. However, 'fair market
value' could mean a fair value in the given market or a value in a hypothetical
'fair' or balanced market, and the two definitions are not equivalent. Recently,
the term 'base value' has been created to describe the theoretical balanced
market condition and to avoid the potentially misleading term 'fair market
value' which has now become synonymous with the term 'current market value' or a
'fair' value in the actual current market. AISI value definitions are consistent
with those of the International Society of Transport Aircraft Trading (ISTAT)
of 01 January 1994; AISI is a member of that organization and employs an ISTAT
Certified Senior Aircraft Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing and
informed buyer and seller, neither under compulsion to buy or sell, for a single
unit cash transaction with no hidden value or liability, and with supply and
demand of the sale item roughly in balance. Base values are typically given for
aircraft in 'new' condition, 'average half-life' condition, or in a specifically
described condition unique to a single aircraft at a specific time. An 'average'
aircraft is an operable airworthy aircraft in average physical condition and
with average accumulated flight hours and cycles, with clear title and standard
unrestricted certificate of airworthiness, and registered in an authority which
does not represent a penalty to aircraft value or liquidity, with no damage
history and with inventory configuration and level of modification which is
normal for its intended use and age. AISI assumes average condition unless
otherwise specified in this report. 'Half-life' condition assumes that every
component or maintenance service which has a prescribed interval that determines
its service life, overhaul interval or interval between maintenance services, is
at a condition which is one-half of the total interval.
Headquarters, 23232 Peralta Drive, Suite 115, Laguna Hills, CA 92653
TEL: 714-830-0101 FAX: 714-830-1101
A-II-1
<PAGE>
[LOGO FOR AISI
APPEARS HERE]
24 April 1997
AISI File No. A7S008BVO - B
Page -2-
AISI defines a 'current market value' or 'fair market value' as that value which
reflects the real market conditions, whether at, above or below the base value
conditions. Definitions of aircraft condition, buyer/seller qualifications and
type of transaction remain unchanged from that of base value. Current market
value takes into consideration the status of the economy in which the aircraft
is used, the status of supply and demand for the particular aircraft type, the
value of recent transactions and the opinions of informed buyers and sellers.
Current market value assumes that there is no short term time constraint to buy
or sell.
AISI encourages the use of base values only to consider historical trends, as a
basis for long term future value considerations, or to consider how actual
market values vary from theoretical base values. Base values are less volatile
than current market values and tend to diminish regularly with time. Base values
are normally inappropriate to determine near term values. AISI encourages the
use of current market values to consider the probable near term value of an
aircraft.
2. VALUATION
The base market valuations are presented below subject to the assumptions,
definitions and disclaimers herein. The A300F4-605R aircraft valuations are for
better than half-life condition due to their age.
================================================================================
BASE
MARKET VALUE
AIRCRAFT DATE OF 1997
TYPE QUANTITY BUILD ENGINES CONDITION U.S. DOLLARS
================================================================================
A300F4-605R 2 Jun 97 CF6-80C2A5 New $84,000,000
================================================================================
A300F4-605R 1 Aug 97 CF6-80C2A5 New $84,000,000
================================================================================
A300F4-605R 2 Sep 97 CF6-80C2A5 New $84,000,000
================================================================================
MD-11F 1 Mar 92 CF6-80C2 Half Life $98,700,000
================================================================================
MD-11F 1 May 91 CF6-80C2 Half Life $94,200,000
================================================================================
MD-11F 1 Apr 91 CF6-80C2 Half Life $94,200,000
================================================================================
MD-11F 1 Apr 92 CF6-80C2 Half Life $98,700,000
================================================================================
A-II-2
<PAGE>
[LOGO FOR AISI
APPEARS HERE]
24 April 1997
AISI File No. A7S008BVO - B
Page -3-
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft.
AISI has no past, present, or anticipated future interest in the subject
aircraft. The conclusions and opinions expressed in this report are based on
published information, information provided by others, reasonable
interpretations and calculations thereof and are given in good faith. Such
conclusions and opinions are judgments that reflect conditions and values which
are current at the time of this report. The values and conditions reported upon
are subject to any subsequent change. AISI shall not be liable to any party for
damages arising out of reliance or alleged reliance on this report, or for any
parties action or failure to act as a result of reliance or alleged reliance
on this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ FRED E. BEARDEN
- ----------------------------
Fred E. Bearden
President
FB/JDM/jm
A-II-3
<PAGE>
[LETTERHEAD OF MORTEN BEYER AND
ASSOCIATES APPEARS HERE]
April 23, 1997
Mr. Robert D. Henning
Assistant Treasurer
FedEx Corporation
2007 Corporate Avenue, 4th Floor
Memphis, TN 38132
Dear Mr. Henning:
Federal Express (FedEx) has requested that Morten Beyer and Associates
(MBA) render its expert opinion as to the current Base Value of three Airbus
A300F4-600R and four McDonnell Douglas MD-11F all-cargo aircraft as more
particularly described herein.
MBA did not inspect these aircraft physically or examine their records, but
relied upon information furnished by FedEx and Morgan Stanley.
The three A300F4-600R aircraft will be delivered new from the manufacturer
in June, August and September 1997, and are valued as of their scheduled
delivery dates. The four MD-11Fs were delivered new to American Airlines in
passenger configuration between April 1991 and April 1992, and will have been
operated in that mode until sale to FedEx for delivery at various dates between
December 1996 and January 1998, as hereinafter set forth. The MD-11s are
scheduled to be converted to all-cargo configuration after delivery to FedEx by
SabreTech, of Phoenix, AZ, under a program licensed by McDonnell Douglas. MBA
is familiar with the conversion program and has visited the SabreTech facility
and observed an MD-11 undergoing conversion. MBA has assumed that the MD-11
airframes and engines are effectively in "half-time" condition, as that term is
generally understood.
We appraise the Airbus A300F4-600R aircraft as of date of delivery to FedEx
at the Base Values set forth following:
DELIVERY DATE BASE VALUE AT DELIVERY
------------- ----------------------
June 1997 $82,640,000
August 1997 82,805,000
September 1997 82,870,000
We appraise the MD-11Fs at date of delivery to FedEx in fully modified
cargo configuration, and in half-time maintenance status, at the following Base
Values:
A-II-4
<PAGE>
DELIVERY DATE BUILD DATE BASE VALUE
------------- ---------- ----------
December 1996 March 1992 $94,735,000
May 1997 May 1991 92,365,000
September 1997 April 1991 92,090,000
January 1998 April 1992 95,000,000
The foregoing values include all Buyer Furnished Equipment (BFE) and are
for aircraft in full compliance with FAA requirements for the issuance of a US
Airworthiness Certificate.
THE AIRCRAFT
The A300F4-600R high gross Airbus freighter became a major factor in the
all-cargo market with FedEx's 25-plane order, built from the start as an all-
cargo aircraft without windows or passenger amenities. The aircraft being
acquired by FedEx and appraised herewith incorporate the following features:
. A payload of 111,700 to 120,100 pounds.
. A capacity for 19 large pallets and 10 LD-3 cargo containers.
. A range of up to 3,050 statute miles with full payload.
The aircraft is equipped with two General Electric CF6-80C2A5F engines with
61,500 pounds of thrust. This is the most common engine and it is also used by
American in its 35-plane fleet of -600R aircraft.
The MD-11F freighter version is becoming increasingly popular with cargo
airlines. The MD-11 is, in many ways, a better freighter than it is a passenger
aircraft. Out of a total order book of 180 MD-11s, 25 were built as combies or
convertibles, and 21 as pure freighters. American has sold 11 of its 17 MD-11s
to be converted to cargo, including the four aircraft subject to this appraisal.
FedEx purchased 19 MD-11Fs new, and has taken delivery of all of them. The
aircraft being acquired and converted will be added to this fleet. Additional
conversions by other passenger carriers to cargo configurations are expected.
The FedEx converted MD-11F freighter features:
. A maximum takeoff gross weight of 630,500 pounds.
. A main deck cargo capacity of 26 88" or 96" x 125" pallets.
. A lower deck capacity of six pallets and 14 LD-3 containers.
. Cargo space of 20,886 cubic feet.
. A maximum cargo payload of 201,851 pounds.
. A full payload range of 4,545 statute miles.
A-II-5
<PAGE>
This permits FedEx to utilize the MD-11Fs in both trans-Pacific and trans-
Atlantic cargo operations, utilizing the most direct routes. The MD-11F has a
range premium over both the B-747-100 and -200Fs, as well as a weight payload
which is almost as great. The three engines and two-man crew contribute to
greater fuel efficiency and reduced cost.
THE MARKET
The subject aircraft are efficient in FedEx service despite their high
acquisition costs due to the Company's high yield express package services which
make aircraft acquisition costs virtually immaterial. FedEx demands reliability
and aircraft performance/payload/range/capacity to meet its high standards, and
thus, the emphasis is on acquiring aircraft such as the A300 and the MD-11F.
Further, FedEx plans to operate aircraft such as these for as many as 50 years,
fully recouping its investment over a longer than normal life for passenger
jets.
When one considers the possibility of placing these aircraft with other
carriers in the unlikely event of a default by FedEx, it must be recognized
that, to a large extent, FedEx is the market. We believe:
. The likelihood of FedEx defaulting is extremely remote.
. Should FedEx withdraw from the market, another carrier would have to
fill its shoes. UPS, DHL and Airborne all provide comparable services,
and would need FedEx's aircraft in order to meet demand.
. Six other international airlines already operate MD-11Fs and all are
potential candidates to buy any aircraft which come on the market. Ten
additional airlines operate DC-10-30 freighters, and are also candidates
to buy MD-11s in the event additional life is required or expansion
needed.
. Worldwide governments are buying civilian jet freighters constantly to
adapt to defense needs, as cargo, tanker and troop transport aircraft.
While liquidation of FedEx's MD-11F fleet would not be immediate, client
airlines could be found over a reasonable period of time to lease or buy the
aircraft.
The market for the A300F4-600Rs in many ways is similar to that for the MD-
11F. FedEx "makes the market," with the only order from the -600R freighter.
(There were previous orders by ten other carriers for 25 earlier model A300 and
A310 freighters/ convertibles.) There is now an active market for A300 and A310
conversions from passenger to cargo, and FedEx has bought a total of 22 of these
aircraft.
The biggest market for the A300F4-600R will, over time, be the replacement
of DC-8-70 series aircraft and, to a lesser extent, older DC-8-60 and B-707-320
series aircraft. The A300 passenger aircraft has an extensive operator base,
which facilitates marketability throughout the world. There are 50 international
carriers operating A300 aircraft, some of whom use designated freighter
aircraft. This is a large potential market
A-II-6
<PAGE>
which assures a broad range of opportunities in the event FedEx defaults and its
A300s become available.
As earlier stated in the case of the MD-11Fs, in the unlikely event that
FedEx were to default on its services, there would be an immediate requirement
for alternative services to meet the lift that FedEx provides. FedEx's aircraft
would be the only readily available supply in the quantity required.
In summary, MBA believes the FedEx A300s to be an indispensable ingredient
of the US and international air cargo lift infrastructure and, therefore, these
aircraft have a strong continuing market value irrespective of the continued
existence of FedEx.
COVENANTS
This report has been prepared for the exclusive use of FedEx Corporation and
Morgan Stanley, and shall not be provided to other parties by MBA without the
express consent of FedEx or Morgan Stanley.
MBA certifies that this report has been independently prepared and that it
fully and accurately represents MBA's opinion, as of the date of this report, of
the Current Fair Market Value of the subject aircraft. MBA further certifies
that it does not have, and does not expect to have, any financial or other
interest in the subject or similar aircraft.
This report represents the opinion of MBA and is intended to be advisory only
in nature. Therefore, MBA assumes no responsibility or legal liability for any
actions taken or not taken by FedEx, Morgan Stanley or any other party with
regard to the subject aircraft. By accepting this report, all parties agree
that MBA shall bear no such responsibility or legal liability.
Sincerely,
/s/ MORTEN S. BEYER
---------------------------------
Morten S. Beyer
President
ISTAT Certified Senior Appraiser
A-II-7
<PAGE>
BASE VALUE APPRAISAL OF
FIVE AIRBUS INDUSTRIE A300F4-600R AIRCRAFT AND
FOUR MCDONNEL DOUGLAS MD-11F AIRCRAFT
Prepared for:
FEDEX
Prepared by:
SH&E
901 Park Avenue
New York, NY 10016
Tel. (212) 682-8455
Fax (212) 986-1825
April 24, 1997
A-II-8
<PAGE>
TABLE OF CONTENTS
1. INTRODUCTION.................................................. 2
2. DETERMINATION & ASSUMPTIONS................................... 2
2.1 Determination............................................. 2
2.2 Assumptions............................................... 3
3. VALUE DETERMINATION........................................... 4
3.1 Methodology Summary....................................... 4
3.2 Base Value................................................ 5
4. LIMITATIONS................................................... 6
A-II-9
<PAGE>
1. INTRODUCTION
FedEx Corporation ("FedEx") has retained Simat, Helliesen & Eichner,
Inc. ("SH&E") to furnish an opinion as to the Base Value ("BV") of five (5)
Airbus Industrie A300F4-600R freighter aircraft and four (4) McDonnell Douglas
MD-11F freighter aircraft (the "Subject Aircraft").
2. DETERMINATION & ASSUMPTIONS
2.1 DETERMINATION
SH&E has determined the following values for the Subject Aircraft:
- --------------------------------------------------------------------------------
Aircraft Type(1) Serial # Reg. # Engine Type Expected or Actual Half-life Base
Date of Manufacture Value ($mil)
- --------------------------------------------------------------------------------
A300F4-600R N/A N/A CF6-80C2A5 June, 1997 $83.5
A300F4-600R N/A N/A CF6-80C2A5 June, 1997 $83.5
A300F4-600R N/A N/A CF6-80C2A5 August, 1997 $83.5
A300F4-600R N/A N/A CF6-80C2A5 September, 1997 $83.5
A300F4-600R N/A N/A CF6-80C2A5 September, 1997 $83.5
MD-11F 48419 N581FE CF6-80C2 June, 1990 $80.6
MD-11F 48421 N583FE CF6-80C2 July, 1990 $80.6
MD-11F 48436 N584FE CF6-80C2 November, 1991 $86.9
MD-11F 48489 N587FE CF6-80C2 February, 1992 $88.1
-------------------------------------------------------------------------------
- --------------
(1) The subject A300F4-600R aircraft were ordered by Federal Express as
production freighters and have not yet been delivered. The subject MD-
11F aircraft were previously operated in a passenger configuration by
American Airlines. As of March, 1997, N587FE had been converted to a
freighter by Dimension Aviation and the remaining MD-11 aircraft will be
converted by January, 1998.
2
A-II-10
<PAGE>
2.2 ASSUMPTIONS
. SH&E has valued the Subject Aircraft as full freighters, although three of
the MD-11 aircraft have not yet been converted and the A300F4-600R aircraft
have not yet been delivered to Federal Express. Failure to convert the
Subject Aircraft as freighters would have a material negative impact on the
values stated herein.
. SH&E has not performed a physical inspection of the Subject Aircraft.
. SH&E's values assume the Subject Aircraft meet or will meet all
specifications and performance capabilities for standard delivered aircraft.
. SH&E assumed that the Subject Aircraft are in full compliance with all
Airworthiness Directives and Service Bulletins.
. SH&E has assumed that the MD-11 aircraft are fully serviceable and in a
condition similar to aircraft of comparable age and type.
. SH&E assumed that the MD-11 aircraft have been stored in accordance with
McDonnell Douglas' approved storage program.
3
A-II-11
<PAGE>
3. VALUE DETERMINATION
3.1 METHODOLOGY SUMMARY
SH&E has studied many aircraft transactions over the past 30 years. This
list includes a wide variety of turbojet, turbofan, turboprop and propeller
powered two, three and four-engined transports. Models studied have covered many
types, including: Boeing 707,727,737,747,757,767 and 777 aircraft; McDonnell
Douglas DC-8, DC-9, MD-80, MD-90, DC-10 and MD-11; Airbus A300, A310, A320, A330
and A340 models; Lockheed L-1011; BAC 1-11; and various turboprop models,
including most major commuter aircraft.
The SH&E valuation approach starts by determining a half-life value. The
term "half-life" represents an asset whose major components have used 50 percent
of the time between scheduled or expected overhauls. This initial appraisal can
then be adjusted (positive or negative) for each individual unit to reflect the
asset's maintenance status relative to next overhaul. In most cases, the Base
Value of an asset assumes its physical condition is average and its maintenance
time status is a mid-life (or benefiting from an above-average maintenance
status if it is new or nearly new, as the case may be).
In the case of new aircraft, the above half-life values are automatically
adjusted upwards to reflect the fact that the aircraft has the full span of
maintenance overhaul intervals available. Consequently, SH&E's initial
depreciation of new aircraft is considerably greater than for a used aircraft,
thereby accounting for both the change in its maintenance status and its
intrinsic depreciation.
SH&E half-life values are determined on a semi-annual basis by reviewing
recent past sales, availability trends, technological aspects, environmental
contraints and maintenance requirements.
4
A-II-12
<PAGE>
3.2 BASE VALUE
The Base Value is the appraiser's opinion of the underlying economic value
of an asset in an open, unrestricted and stable market environment with a
reasonable balance of supply and demand, assuming full consideration of its
"highest and best use." An asset's Base Value is founded in the historical trend
of values and in the projection of value trends and presumes an arm's-length,
cash transaction between willing, able and knowledgeable parties, acting
prudently, with an absence of duress and with a reasonable period of time
available for marketing.
Since Base Value pertains to a somewhat idealized asset and market
combination it may not necessarily reflect the actual value of the asset in
question, but is a nominal starting value to which adjustments may be applied to
determine an actual value.
The Base Value of each asset is derived from SH&E's valuation models. The
SH&E models provide trend lines derived from known transactions, econometric
factors affecting asset values, and economic life estimates. Because it is
related to long-term market trends, the Base Value definition is normally
applied to analyses of historical values and projections of residual values.
5
A-II-13
<PAGE>
4. LIMITATIONS
SH&E used information supplied by FedEx and Morgan Stanley together with
in-house data accumulated through other recent studies of aircraft transactions.
SH&E's opinions are based upon historical relationships and expectations
that it believes are reasonable. Some of the underlying assumptions, including
those described above are detailed explicitly or implicitly elsewhere in this
report, may not materialize because of unanticipated events and circumstances.
SH&E's opinions could, and would, vary materially, should any of the above
assumptions prove to be inaccurate.
The opinions expressed herein are not given for, or as an inducement or
endorsement for, any financial transactions. They are prepared for the exclusive
use of the addressee. The report is not to be furnished to any third party
without the written permission of SH&E. SH&E accepts no responsibility for
damages, if any, that result from decisions made or actions taken based on this
report.
This report does not address ownership of, nor title to, the appraised
property and reflects SH&E's expert opinion and best judgment based upon the
information available to it at the time of its preparation. SH&E does not have,
and does not expect to have, any financial interest in the appraised property.
For SH&E:
/s/ CLIVE G. MEDLAND
------------------------------
Clive G. Medland
Vice President
Certified Appraiser
International Society of
Transport Aircraft Trading
6
A-II-14
<PAGE>
PROSPECTUS
- ----------
[LOGO OF FEDERAL EXPRESS APPEARS HERE]
PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES
---------------
Up to $813,872,000 aggregate amount of Pass Through Certificates (the
"Pass Through Certificates") may be offered for sale from time to time
pursuant to this Prospectus and one or more Prospectus Supplements. The Pass
Through Certificates may be offered in one or more Series in amounts, at
prices and on terms to be determined at the time of sale. For each Series of
Pass Through Certificates offered pursuant to this Prospectus and a Prospectus
Supplement, a separate Pass Through Trust will be formed pursuant to the Pass
Through Trust Agreement (the "Pass Through Agreement") between Federal Express
Corporation (the "Corporation") and State Street Bank and Trust Company, 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, except as may be contained in any intercreditor agreement,
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, final maturity date and ranking in respect of
priority of payment. Unless otherwise specified in the applicable Prospectus
Supplement, 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 ranking and
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 April 28, 1997.
<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.
Unless otherwise specified in the applicable Prospectus Supplement, 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, if specified in
the applicable Prospectus Supplement, by other security (which may include a
letter of credit). Funds in such collateral account, together with any 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 will be issued in registered form only and,
unless otherwise specified in the applicable Prospectus Supplement, will 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 will 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
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov. and 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, 1996 filed August 9, 1996.
2. The Corporation's Quarterly Reports on Form 10-Q for the fiscal quarters
ended August 31, 1996, November 30, 1996 and February 28, 1997 filed
October 10, 1996, January 14, 1997 and April 11, 1997, respectively.
3. The Corporation's Current Reports on Form 8-K dated June 5, 1996, June
7, 1996, August 16, 1996, October 17, 1996 and March 4, 1997 filed June
10, 1996, June 21, 1996, August 28, 1996, October 22, 1996 and April 21,
1997, respectively.
All documents filed by the Corporation pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and before
the termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Prospectus, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
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.
3
<PAGE>
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: Rebecca M. Halvorson, Managing
Director--Investor Relations, Federal Express Corporation, by mail at Box 727,
Memphis, Tennessee 38194-1854 or by telephone at (901) 395-5038.
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>
NINE MONTHS ENDED
YEAR ENDED MAY 31 FEBRUARY 29 FEBRUARY 28
------------------------ ----------- -----------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges (a) (b) 1.4x 1.7x 2.0x 1.9x 1.8x 1.9x
</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 (the "Pass
Through Agreement") between the Corporation and the Pass Through Trustee, for
the benefit of the registered holders (the "Certificateholders") of the series
(a "Series") of certificates (the "Pass Through Certificates") evidencing
fractional undivided interests in such Pass Through Trust. The property held
in each Pass Through Trust (the "Trust Property") will consist of (a)
equipment purchase certificates issued in connection with the purchase by the
Corporation of one or more aircraft (the "Owned Aircraft Certificates") or (b)
equipment trust certificates issued in connection with one or more leveraged
lease transactions (the "Leased Aircraft Certificates" and, together with the
Owned Aircraft Certificates, the "Equipment Certificates"), as specified in
the applicable Prospectus Supplement.
As more fully described below under "Use of Proceeds," in connection with
each purchase or leveraged lease transaction, one or more Equipment
Certificates may be issued, each of which may have different interest rates,
final maturity dates and rankings in respect of priority of payment.
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
4
<PAGE>
(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 identical priority of payment relative to each
of the other Equipment Certificates held by such Pass Through Trust. The
latest maturity date for such Equipment Certificates will occur on or before
the final distribution date applicable to such Pass Through Certificates.
For each Pass Through Trust, the aggregate amount of the related Series of
Pass Through Certificates will equal the aggregate principal amount of the
Equipment Certificates constituting the Trust Property of such Pass Through
Trust. The Pass Through Trustee will distribute the amount of payments of
principal, premium, if any, and interest, received by it as holder of the
Equipment Certificates to the Certificateholders of the Pass Through Trust in
which such Equipment Certificates are held. See "Description of the Pass
Through Certificates" and "Description of the Equipment Certificates."
USE OF PROCEEDS
Each Series of Pass Through Certificates offered pursuant to this
Prospectus and a related Prospectus Supplement will be issued to facilitate
(a) the financing of the aggregate principal amount of debt to be issued, or
the refinancing of the aggregate principal amount of the debt previously
issued, by the Corporation with respect to each of the aircraft that have been
or will be purchased and owned by the Corporation (the "Owned Aircraft"), as
specified in the applicable Prospectus Supplement, or (b) the financing or
refinancing of the debt portion and, in certain cases, refinancing some of the
equity portion of one or more separate leveraged lease transactions entered
into or to be entered into by the Corporation, as lessee, with respect to each
of the aircraft that have been or will be leased by the Corporation (the
"Leased Aircraft" and, together with the Owned Aircraft, the "Aircraft"), as
specified in the applicable Prospectus Supplement. Each Prospectus Supplement
will specify the type and model of each Aircraft relating to the Pass Through
Certificates offered thereby, the engines with which such Aircraft is equipped
and whether such Aircraft was or will be delivered new by the manufacturer to
the Corporation or the Owner Trustee, as the case may be, or whether such
Aircraft is already in use in the Corporation's fleet.
The proceeds from the sale of such Pass Through Certificates will be used
by the Pass Through Trustee on behalf of the related Pass Through Trust (a) to
purchase Owned Aircraft Certificates or (b) to purchase Leased Aircraft
Certificates. The Owned Aircraft Certificates will be issued with recourse to
the Corporation to finance or refinance all or a portion of the purchase price
(as specified in the applicable Prospectus Supplement) for one or more Owned
Aircraft which have been or will be purchased and owned by the Corporation.
The Leased Aircraft Certificates will be issued as nonrecourse obligations by
First Security Bank, National Association, or another bank or 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.
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,
together with interest
5
<PAGE>
accrued thereon, but without premium. See "Description of the Pass Through
Certificates--Special Payment Upon Unavailability of Trust Property."
Unless otherwise specified in the applicable Prospectus Supplement, 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.
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, final maturity date and ranking in respect of priority of
payment, 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, final
maturity dates and rankings in respect of priority of payment, of the
Equipment Certificates held by each Pass Through Trust will be described in
the applicable Prospectus Supplement.
6
<PAGE>
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.
[CHART APPEARS HERE]
7
<PAGE>
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
In connection with each offering of Pass Through Certificates, one or more
separate Pass Through Trusts will be formed, and one or more corresponding
Series of Pass Through Certificates will be issued, pursuant to the Pass
Through Agreement and one or more separate Series Supplements to be entered
into between the Corporation and the Pass Through Trustee. The following
summary relates to the Pass Through Agreement and each of the Series
Supplements, the Pass Through Trusts to be formed thereby and the Pass Through
Certificates to be issued by each Pass Through Trust, except as otherwise
described in the applicable Prospectus Supplement.
The discussion that follows is a summary and does not purport to be
complete. The summary includes descriptions of the material terms of the Pass
Through Agreement the form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Series
Supplement relating to each Series of Pass Through Certificates and the forms
of the related Indentures, Participation Agreements, Leases if the Pass
Through Certificates relate to Leased Aircraft, Intercreditor Agreement, if
any, Liquidity Facility, if any, Trust Agreements and Collateral Agreements,
if any, will be filed as exhibits to a post-effective amendment to this
Registration Statement, a Current Report on Form 8-K, a Quarterly Report on
Form 10-Q or an Annual Report on Form 10-K, as applicable, to be filed with
the Commission in connection with the issuance of each such Series of Pass
Through Certificates. This summary makes use of terms defined in and is
qualified in its entirety by reference to the Pass Through Agreement.
Each Prospectus Supplement will include a glossary of certain defined
terms used in connection with the Pass Through Certificates offered thereby
and the related Equipment Certificates. To the extent that any provision in
any Prospectus Supplement is inconsistent with any provision of this summary,
the provision of such Prospectus Supplement will control.
GENERAL
The Pass Through Certificates will be issued in fully registered form only
and, unless otherwise 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 and, if specified in the applicable
Prospectus Supplement, rights under any intercreditor agreement relating to
cross-subordination arrangements and monies receivable under any liquidity
facility. 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
8
<PAGE>
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:
(a) 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;
(b) the payment priority of such Equipment Certificates in relation to
any other Equipment Certificates issued with respect to the related
Aircraft;
(c) any additional security or liquidity enhancements therefor;
(d) any intercreditor issues between or among the holders of Equipment
Certificates having different priorities issued by the same Owner
Trustee; and
(e) other specific terms of the Equipment Certificates during any Pre-
Funding Period;
(6) a description of the related Aircraft, including whether the Aircraft
is a Leased Aircraft or an Owned Aircraft;
(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;
(10) a description of any cross-default or cross-collateralization
provisions in the related Indenture;
(11) a description of any subordination provisions among the holders of
Pass Through Certificates, including any cross-subordination
provisions among the holders of Pass Through Certificates in separate
Pass Through Trusts;
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(12) any additional security or liquidity facilities for the Pass Through
Certificates; and
(13) any other special terms pertaining to such Pass Through Certificates.
(Pass Through Agreement, Article II)
The Equipment Certificates issued under an Indenture may be held in more
than one Pass Through Trust and one Pass Through Trust may hold Equipment
Certificates issued under more than one Indenture. Unless otherwise provided
in the applicable Prospectus Supplement, only Equipment Certificates having
the same priority of payment (the Equipment Certificates of any such priority,
a "Class") may be held in the same Pass Through Trust.
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
Unless otherwise 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 or more fully registered global certificates. Each global certificate will
be deposited with, or on behalf of, DTC, and registered in its name or in the
name of Cede, its nominee. No Certificateholder will be entitled to receive a
certificated Pass Through Certificate, except as set forth below.
DTC has advised the Corporation that DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was
created to hold securities for its participants ("DTC Participants") and to
facilitate the clearance and settlement of securities transactions between DTC
Participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. DTC Participants include securities brokers
and dealers, banks, trust companies and clearing corporations. Access to DTC's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a participant, either directly or indirectly.
Certificateholders that are not DTC Participants but desire to purchase,
sell or otherwise transfer ownership of, or other interests, in Pass Through
Certificates may do so only through DTC
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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.
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
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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.
Unless otherwise specified in the applicable Prospectus Supplement, during the
Pre-Funding Period, if any, for such Leased Aircraft, however, the related
Collateral Account, together with any 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.
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"). Subject to
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the effect of any cross-subordination provisions set forth in the applicable
Prospectus Supplement, 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. (Pass Through Agreement, Section 5.02)
If a Scheduled Payment is not received by the Pass Through Trustee on or
before a Regular Distribution Date but is received within seven 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. Subject to the effect of any cross-
subordination provisions set forth in the applicable Prospectus Supplement,
each such Certificateholder will be entitled to receive a pro rata share of
any such distribution. (Pass Through Agreement, Article I; Sections 5.01 and
5.02) If a Scheduled Payment is received more than seven Business Days after
the applicable Regular Distribution Date, it will be treated as a Special
Payment and will be distributed as described below.
Subject to the effect of any cross-subordination provisions set forth in
the applicable Prospectus Supplement, 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), (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"), except that unless otherwise
specified in the applicable Prospectus Supplement payments received by the
Pass Through Trustee following default in respect of the Equipment
Certificates on a Regular Distribution Date as a result of a drawing under any
liquidity facility specified in the applicable Prospectus Supplement, provided
for the benefit of the Certificateholders, will be distributed on such Regular
Distribution Date. 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. Subject to the effect of any cross-subordination provisions set
forth 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.
Unless otherwise specified in the applicable Prospectus Supplement,
"Permitted Investments" are (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 highest rating assigned by such rating 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. (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
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Pass Through Trust will be recomputed after giving effect thereto and notice
thereof will be mailed to the Certificateholders of such Pass Through Trust.
Each Pass Through Trust will have a separate Pool Factor.
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Balance" for each Pass Through Trust indicates, as of any date, the
aggregate unpaid principal amount of the Equipment Certificates held in such
Pass Through Trust on such date plus any amounts in respect of principal on
such Equipment Certificates held by the Pass Through Trustee and not yet
distributed plus any amounts transferred to the Corporation and deposited in a
deposit trust account in connection with a delayed purchase of the Equipment
Certificates. The Pool Balance for each Pass Through Trust as of any
Distribution Date will be computed after giving effect to the payment of
principal, if any, on the Equipment Certificates held in such Pass Through
Trust and the distribution thereof being made on that date. (Pass Through
Agreement, Article I)
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Factor" for each Pass Through Trust as of any Distribution Date is the
quotient (rounded to the seventh decimal place) computed by dividing (i) the
Pool Balance, by (ii) the aggregate original principal amount of the Equipment
Certificates held in such Pass Through Trust. The Pool Factor for each Pass
Through Trust as of any Distribution Date shall be computed after giving
effect to the payment of principal, if any, on the Equipment Certificates held
in such Pass Through Trust and the distribution thereof being made on that
date. The Pool Factor for each Pass Through Trust will initially be 1.0000000;
thereafter, the Pool Factor for each Pass Through Trust will decline as
described above to reflect reductions in the Pool Balance of such Pass Through
Trust. For any Pass Through Trust, the amount of any Certificateholder's pro
rata share of the Pool Balance of such Pass Through Trust can be determined by
multiplying the original denomination of such Certificateholder's Pass Through
Certificate by the Pool Factor for such Pass Through Trust as of the
applicable Distribution Date. (Pass Through Agreement, Article I)
STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Pass Through Trustee will include with each
distribution of a Scheduled Payment or Special Payment to Certificateholders
of record of the related Pass Through Trust a statement, giving effect to such
distribution being made on such Distribution Date, setting forth the following
information (per $1,000 in aggregate amount of Pass Through Certificates for
such Pass Through Trust, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and allocable to
premium, if any;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor for such Pass Through Trust.
(Pass Through Agreement, Section 5.03)
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)
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above with respect to each such Pass Through Trust for such calendar year or,
in the event such person was a Certificateholder during a portion of such
calendar year, for the applicable portion of such calendar year. Such report
and such other items will be prepared on the basis of information supplied to
the Pass Through Trustee by the DTC Participants, and shall be delivered by
the Pass Through Trustee to such DTC Participants to be available for
forwarding by such DTC Participants to Certificateholders in the manner
described above. (Pass Through Agreement, Section 5.03)
At such time, if any, as the Pass Through Certificates of a related Pass
Through Trust are issued in certificated form, the related Pass Through
Trustee will prepare and deliver the information described above to each
Certificateholder of record of such Trust as the name and period of record
ownership of such Certificateholder appears on the records on the registrar
for such Pass Through Trust.
VOTING OF EQUIPMENT CERTIFICATES
Subject to the effect of any cross-subordination provisions and any
intercreditor provisions described in the applicable Prospectus Supplement,
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) If specified in the
applicable Prospectus Supplement, the right of the Pass Through Trustee to
vote and give consents and waivers with respect to the Equipment Certificates
held in the related Pass Through Trust may, in the circumstances set forth in
an intercreditor agreement to be executed by such Pass Through Trustee, be
exercisable by another person specified in such Prospectus Supplement.
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"). With respect to any Equipment Certificates which are
supported by a liquidity facility, the Events of Default or Indenture Events
of Default may include events of default under such liquidity facility.
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, unless otherwise specified in the applicable Prospectus
Supplement. Consequently, unless otherwise specified in the applicable
Prospectus Supplement, 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
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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. If the
applicable Prospectus Supplement contains the terms of any cross-subordination
provisions among Certificateholders of separate Pass Through Trusts, payments
made pursuant to a related Indenture under which no Indenture Event of Default
has occurred will be distributed first to the holders of Pass Through
Certificates issued under the Pass Through Trust which holds the most senior
Equipment Certificates issued under all related Indentures.
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, subject to any intercreditor
agreement, that if an Indenture Event of Default under an Indenture relating
to Equipment Certificates held in a Pass Through Trust shall have occurred and
be continuing, the Pass Through Trustee may vote all of the Equipment
Certificates issued under such Indenture that are held in such Pass Through
Trust, and upon the direction of the Certificateholders evidencing fractional
undivided interests aggregating not less than a majority in interest of such
Pass Through Trust, shall vote a corresponding majority of such Equipment
Certificates, in each case in favor of directing the Indenture Trustee to
declare the unpaid principal amount of all Equipment Certificates issued under
such Indenture and any accrued and unpaid interest thereon to be due and
payable. The Pass Through Agreement also provides, subject to any
intercreditor agreement, 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. In addition, if cross-subordination provisions are applicable to
the Pass Through Certificates, the ability of the Certificateholders of any
one Pass Through Trust holding Equipment Certificates issued under related
Indentures to cause the Indenture Trustee to accelerate such Equipment
Certificates or to direct the exercise of remedies by the Indenture Trustee
under the related Indenture will depend, in part, on the Class of Equipment
Certificates held in such Pass Through Trust.
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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)
If an intercreditor agreement applies, a Certificateholder will have
certain rights, as described in the applicable Prospectus Supplement, to
purchase the class of Pass Through Certificates senior to the Pass Through
Certificates held by the purchasing Certificateholders. (Pass Through
Agreement, Section 7.01)
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 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
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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 or any
intercreditor agreement at the request of such Certificateholders. (Pass
Through Agreement, Section 8.03)
Subject to any intercreditor agreement, 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 (x) may on behalf of all the Certificateholders of such Pass
Through Trust or (y) if the Pass Through Trustee is the controlling party
under an intercreditor agreement, may direct the Pass Through Trustee to
instruct the applicable Indenture Trustee to, waive any past default or Event
of Default with respect to such Pass Through Trust and thereby annul any
direction given by such Certificateholders to the Pass Through Trustee or the
Indenture Trustee with respect thereto, except (i) a default in payment of the
principal of, premium, if any, or interest on any of the Equipment
Certificates held in such Pass Through Trust and (ii) a default in respect of
any covenant or provision of the Pass Through Agreement or the related Series
Supplement that cannot be modified or amended without the consent of each
Certificateholder of such Pass Through Trust affected thereby. Any such
waiver, however, will be effective to waive any such past default or Event of
Default if, but only if, the correlative Indenture Event of Default has been
waived under the related Indenture by the requisite holders of the Equipment
Certificates outstanding thereunder. (Pass Through Agreement, Section 7.10)
Each Indenture will provide that, with certain exceptions, the holders of
a majority in aggregate unpaid principal amount of the Equipment Certificates
issued thereunder may on behalf of all such holders waive any past default or
Indenture Event of Default thereunder. If, as described above, the
Certificateholders of a Pass Through Trust elect to waive a past default or
Event of Default with respect to such Pass Through Trust, the principal amount
of the Equipment Certificates issued under the related Indenture and held in
such Pass Through Trust will be counted in favor of the waiver of the
corresponding past default or Indenture Event of Default under the related
Indenture when the Indenture Trustee determines whether such past default or
Indenture Event of Default has been
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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, any intercreditor agreement or any Liquidity
Facility, or make any other provisions in regard to matters or
questions arising thereunder that will not adversely affect the
interests of the related Certificateholders;
(vi) correct or amplify the description of property that constitutes Trust
Property or the conveyance of such property to the Pass Through
Trustee;
(vii) evidence and provide for a successor Pass Through Trustee for some or
all of the Pass Through Trusts;
(viii) modify, eliminate or add to the provisions of the Pass Through
Agreement or any Series Supplement to the extent necessary to
continue to qualify such Pass Through Agreement or such Series
Supplement under the Trust Indenture Act or any similar Federal
statute enacted thereafter;
(ix) make any other amendments or modifications which shall only apply to
any Pass Through Trust established thereafter; and
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(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, any intercreditor
agreement or any Liquidity Facility 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;
(e) waive, amend or modify the priority of distributions of any
intercreditor agreement in a manner adverse to the Certificateholders;
or
(f) cause the Pass Through Trust to become taxable as an "association"
within the meaning of Treasury Regulation Section 301.7701-4. (Pass
Through Agreement, Section 11.02)
MODIFICATION, CONSENTS AND WAIVERS UNDER THE INDENTURE AND RELATED AGREEMENTS
If the Pass Through Trustee, as the holder of any Equipment Certificates
held in a Pass Through Trust, receives a request for its consent to any
amendment, modification or waiver under the Indenture, or other document
relating to such Equipment Certificates (including any Lease with respect to
Leased Aircraft Certificates), the Pass Through Trustee will mail a notice of
such proposed amendment, modification or waiver to each Certificateholder of
such Pass Through Trust as of the date of such notice. The Pass Through
Trustee will request instructions from such Certificateholders as to whether
or not to consent to such amendment, modification or waiver. The Pass Through
Trustee will vote or consent with respect to such Equipment Certificates in
the same proportion as the Pass Through Certificates of such Pass Through
Trust are actually voted by such Certificateholders by a certain date. If an
Event of Default relating to such Indenture has occurred and is continuing
under such Pass Through Trust, the Pass Through Trustee may, in the absence of
instructions from Certificateholders holding a majority in interest of such
Pass Through Trust and subject to any intercreditor agreement, in its own
discretion consent to such amendment,
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modification or waiver, and may so notify the Indenture Trustee. (Pass Through
Agreement, Section 11.08)
CROSS-SUBORDINATION ISSUES
The Equipment Certificates issued under an Indenture may be held in more
than one Pass Through Trust and one Pass Through Trust may hold Equipment
Certificates issued under more than one related Indenture. Unless otherwise
provided in the applicable Prospectus Supplement, only Equipment Certificates
of the same Class may be held in the same Pass Through Trust. In addition, the
Pass Through Trustee may enter into an intercreditor agreement which provides
that payments made on account of a subordinate Class of Equipment Certificates
issued under a related Indenture may, under circumstances described in the
applicable Prospectus Supplement, be subordinated to the prior payment of all
amounts owing to Certificateholders of a Pass Through Trust which holds senior
Equipment Certificates issued under all related Indentures. The applicable
Prospectus Supplement related to an issuance of Pass Through Certificates will
describe any such intercreditor agreement and the cross-subordination
provisions and any related terms, including the percentage of
Certificateholders under any Pass Through Trust which are permitted to (i)
grant waivers of defaults under any related Indenture, (ii) consent to the
amendment or modification of any related Indentures or (iii) direct the
exercise of remedial actions under any related Indentures.
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
Unless otherwise specified in the applicable Prospectus Supplement, 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. (Pass Through Agreement, Article I and Section 2.02)
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
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to the purchase price of such Equipment Certificates to be transferred from
the deposit trust account to the Pass Through Trustee on the date for such
delayed purchase. On the initial Regular Distribution Date, the Corporation
will pay to the Pass Through Trustee an amount equal to the interest that
would have accrued on any Equipment Certificates purchased after the date of
the issuance of such Pass Through Certificates from the date of the issuance
of such Pass Through Certificates to, but excluding, the date of the purchase
of such Equipment Certificates by the Pass Through Trustee. (Pass Through
Agreement, Section 2.02)
SPECIAL PAYMENT UPON UNAVAILABILITY OF TRUST PROPERTY
For any Pass Through Trust, to the extent that any of the proceeds from
the sale of the related Pass Through Certificates are not applied on or prior
to the date specified in the applicable Prospectus Supplement to purchase the
Equipment Certificates that were contemplated to be held in such Pass Through
Trust, the Corporation will cause an amount equal to such unapplied proceeds
to be paid from the deposit trust account to the Pass Through Trustee. The
Pass Through Trustee will distribute such proceeds to the Certificateholders
of such Pass Through Trust on a pro rata basis upon not less than 20 days'
prior notice to them as a Special Payment on the date specified in the
applicable Prospectus Supplement, together with interest thereon at a rate
equal to the rate applicable to such Pass Through Certificates, but without
premium. The Corporation will also pay to the Pass Through Trustee on such
date an amount equal to such interest. The Corporation will be responsible for
any losses in the deposit trust account. (Pass Through Agreement, Section
2.02)
LIQUIDITY FACILITY
The applicable Prospectus Supplement may provide that one or more payments
of interest on the Pass Through Certificates of one or more Series will be
supported by a liquidity facility issued by an institution identified in such
Prospectus Supplement (the "Liquidity Facility"). The provider of such
liquidity facility will have a claim senior to the Certificateholders' as
specified in the Prospectus Supplement.
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, State
Street Bank and Trust Company will be the Indenture Trustee under the
Indentures under which the Equipment Certificates have been or will be issued.
State Street Bank and Trust Company 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, State
Street Bank and Trust Company 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. (Pass Through
Agreement, Section 10.01)
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In the case of the resignation or removal of the Pass Through Trustee, the
Corporation or 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 negligence or by reason of a
breach of any of its representations or warranties set forth in the Pass
Through Agreement or the applicable Series Supplement or any related
documents. In certain circumstances, the Pass Through Trustee will be entitled
to be reimbursed from the applicable Pass Through Trust for any tax (other
than income or similar taxes) incurred in its trust capacity in connection
with the administration of any Pass Through Trust. (Pass Through Agreement,
Articles VIII and IX).
DESCRIPTION OF THE EQUIPMENT CERTIFICATES
The discussion that follows is a summary that does not purport to be
complete and is qualified in its entirety by the detailed information
appearing in the applicable Prospectus Supplement. The following summary
includes descriptions of the material terms of the Equipment Certificates and
the Indentures. Except as otherwise indicated below or as described in the
applicable Prospectus Supplement, the following summary will apply to the
Equipment Certificates, the Indenture and the Participation Agreement relating
to each Aircraft, the Lease for Leased Aircraft 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, the Participation Agreements, the Leases, if
any, 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
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under each Owned Aircraft Indenture to make payments of principal of, premium,
if any, and interest on the related Owned Aircraft Certificates.
For each Leased Aircraft, the related Leased Aircraft Certificates will be
issued as nonrecourse obligations by the Owner Trustee, in each case acting
for a separate Owner Trust for the benefit of an Owner Participant, and will
be authenticated under a Leased Aircraft Indenture by the Indenture Trustee.
All of the Leased Aircraft Certificates issued under the same Leased Aircraft
Indenture will relate to and, after any related Pre-Funding Period, as
discussed below under "Delayed Lease Commencement," will be secured by a
specific Leased Aircraft and will not be secured by any other Aircraft. In
each case, the Owner Trustee will lease the related Leased Aircraft to the
Corporation pursuant to a separate Lease between such Owner Trustee and the
Corporation. See "Delayed Lease Commencement" below for a discussion of the
circumstances under which the Lease for an Aircraft may commence after the
date of issuance of the related Leased Aircraft Certificates.
The Leased Aircraft subject to each Lease and the Leased Aircraft
Certificates issued under the related Leased Aircraft Indenture will be
specified in the applicable Prospectus Supplement. Upon the commencement of
the Lease for any Leased Aircraft, the Corporation will be obligated to make
rental payments under such Lease that will be sufficient to pay the principal
of and accrued interest on the related Leased Aircraft Certificates when and
as due and payable except that, with respect to a Delayed Lease Aircraft (as
defined below), on the first scheduled payment date after the related Pre-
Funding Period, any difference between the rental payment due on such date by
the Corporation and the scheduled payment of principal, if any, and interest
then due on such Leased Aircraft Certificates will be payable from the related
Collateral Account and 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.
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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.
Unless otherwise specified in the applicable Prospectus Supplement, during any
Pre-Funding Period for such Leased Aircraft, however, the related Collateral
Account, together with any 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 to the
Certificateholders of such Pass Through Trust 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.
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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.
Unless otherwise specified in the applicable Prospectus Supplement, there
will be no cross-collateralization provisions in the Indentures and
consequently, unless so specified, 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.
Unless otherwise specified in the applicable Prospectus Supplement, there will
be no cross-default provisions in the Indentures and consequently, unless so
specified, 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
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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 or other facility 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 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
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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."
Unless otherwise specified in the applicable Prospectus Supplement, in the
case of Leased Aircraft Certificates relating to a Delayed Lease Aircraft, the
proceeds from sale of such Leased Aircraft Certificates to the applicable Pass
Through Trusts, after deducting certain expenses of the offering of the
related Pass Through Certificates, will be deposited by the Owner Trustee, on
the date of such sale, in a collateral account (a "Collateral Account")
established pursuant to 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 pursuant to the related Collateral Agreement or Indenture in U.S.
government obligations or such other obligations 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
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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.
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
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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.
RANKING OF EQUIPMENT CERTIFICATES
Some of the Equipment Certificates related to one or more Aircraft, as
described in the applicable Prospectus Supplement, may be subordinated and
junior in right of payment to other Equipment Certificates related to the same
Aircraft. The terms of such subordination, if any, will be described in the
applicable Prospectus Supplement.
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.
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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. Unless otherwise
specified in the applicable Prospectus Supplement, there will be no cross-
default provisions in the Indentures and, unless so specified, events
resulting in an Indenture Event of Default under any particular Indenture will
not necessarily result in an Indenture Event of Default under any other
Indenture.
THE LEASES
Upon the commencement of any Lease, the following terms will be applicable:
Terms and Rentals. Each Leased Aircraft will be leased separately by the
related Owner Trustee to the Corporation for a term commencing on the date of
the delivery of the related Leased Aircraft to such Owner Trustee and expiring
on a date not earlier than the latest maturity date of the Leased Aircraft
Certificates issued with respect to such Leased Aircraft, unless previously
terminated or extended, as permitted by the related Lease. The scheduled
rental payments by the Corporation under each Lease will be payable on the
dates specified in the applicable Prospectus Supplement. The respective
payments will be assigned under the related Leased Aircraft Indenture by the
Owner Trustee to the Indenture Trustee to provide the funds necessary to make
payments of principal and interest due from such Owner Trustee on the Leased
Aircraft Certificates issued under such Leased Aircraft Indenture. Although in
certain cases the scheduled rental payments under the Leases may be adjusted,
under no circumstances will such payments that the Corporation will be
unconditionally obligated to make or cause to be made under any Lease be less
than the scheduled payments of principal and interest on the Leased Aircraft
Certificates issued under the Leased Aircraft Indenture relating to such
Lease. See "Payments and Limitations of Liability" above.
For any Delayed Lease Aircraft, upon the commencement of the Lease for
such Aircraft and after the related Pre-Funding Period, the Corporation will
be obligated to make scheduled rental payments under the related Lease that
will be sufficient to pay in full when due all principal of and interest on,
to the extent accrued from and after the related Pre-Funding Period, the
related Leased Aircraft Certificates, except that on the first scheduled
payment date after the related Pre-Funding Period, the difference between the
rental payment due on such date by the Corporation and the scheduled payment
of principal, if any, and interest then due on such Leased Aircraft
Certificates will be payable from the related Collateral Account and any
related Additional Collateral. See "Payments and Limitations of Liability"
above. Scheduled payments of principal and interest on the Leased Aircraft
Certificates will be made on the dates specified in the applicable Prospectus
Supplement.
Net Lease. The Corporation's obligations under each Lease in respect of
the related Leased Aircraft will be those of a lessee under a "net lease."
Accordingly, the Corporation will be obligated to pay all costs of operating
the Leased Aircraft and, at its expense, to maintain, service, repair and
overhaul the Leased Aircraft so as to keep the Leased Aircraft in good
condition, ordinary wear and tear excepted, and to enable the airworthiness
certification thereof to be maintained in good standing at all times under the
Transportation Code or, under certain circumstances, under the applicable
requirements of the aeronautical authority of another country of registry. If,
however, the Leased Aircraft loses its airworthiness certification and such
loss is curable, and the Corporation,
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using its reasonable best efforts, undertakes such cure promptly, diligently
and continuously, then the Corporation will not be in default with respect to
such obligation.
Generally, the Corporation will be obligated to replace or cause to be
replaced all parts that may from time to time be incorporated or installed in
or attached to any Leased Aircraft (including in or on any engine) and that
may become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use. The Corporation will have
the right to make other alterations, modifications and additions to a Leased
Aircraft so long as such alterations, modifications or additions do not
materially decrease the value or utility of such Leased Aircraft or impair its
condition or airworthiness below its value, utility, condition and
airworthiness immediately prior to such alteration, modification or addition,
assuming that such Leased Aircraft was then in the condition and airworthiness
required by the related Lease. Also, in certain circumstances, the Corporation
will be permitted to remove parts (without replacement) from a Leased Aircraft
or any engine (and therefore from the Lien of the applicable Indenture) if the
Corporation deems such parts to be obsolete or no longer suitable or
appropriate for use on such Leased Aircraft so long as such removals do not
decrease the utility, condition or airworthiness of such Leased Aircraft or
any such engine, although the value of such Leased Aircraft or any such engine
may be reduced by such removal. The applicable Prospectus Supplement will
contain a description of certain limitations, if any, applicable to provisions
described above.
Insurance. Unless otherwise indicated in the applicable Prospectus
Supplement, the Corporation will be obligated to carry insurance with insurers
of recognized responsibility with respect to each Leased Aircraft, at its own
cost and expense, in such amounts, against such risks, with such deductibles
or retentions (i) in the case of hull insurance, as the Corporation
customarily maintains with respect to other aircraft in the Corporation's
fleet of the same type and model and operating on the same routes as the
respective Leased Aircraft and (ii) in the case of liability insurance, as is
usually carried by similar corporations engaged in the same or similar
business and similarly situated as the Corporation, owning or operating
aircraft similar to the Aircraft. The Corporation will be permitted to
maintain coverage below certain stipulated values and may be permitted to
self-insure (including by way of deductibles and retentions) in certain
circumstances, subject to certain limits. Therefore, there is no assurance
that any insurance will be carried in the future, or, if it is carried, as to
the amount of such insurance.
The Corporation and any permitted sublessee of a Leased Aircraft will be
named as insured parties under all insurance policies required by the related
Lease. The Indenture Trustee, Owner Trustee and related Owner Participant will
be named additional insureds, which will afford each of them the rights but
not the obligations of an additional insured. Unless otherwise specified in
the applicable Prospectus Supplement, liability insurance proceeds will be
distributed to the respective parties as their interests may appear and hull
insurance proceeds will be distributed to the Indenture Trustee if the amount
of such proceeds exceeds certain specified amounts. The applicable Prospectus
Supplement will contain a description of certain limitations, if any,
applicable to provisions described in this paragraph.
Lease Events of Default; Remedies. The applicable Prospectus Supplement
will describe the Lease Events of Default under the related Leases, the
remedies that the Owner Trustee may exercise with respect to the related
Leased Aircraft, and other provisions relating to the occurrence of a Lease
Event of Default and the exercise of remedies.
THE PARTICIPATION AGREEMENTS
The Corporation will be required to indemnify each Indenture Trustee and,
in the case of Leased Aircraft Certificates, each Owner Participant and each
Owner Trustee, and certain parties affiliated with the foregoing (but not
including holders of the Equipment Certificates or the
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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.
LIQUIDITY FACILITY
The applicable Prospectus Supplement may provide that one or more payments
of interest on the related Equipment Certificates of one or more Series or
distributions made by the Pass Through Trustee of the related Pass Through
Trust will be supported by a liquidity facility issued by an institution
identified in the applicable Prospectus Supplement. Unless otherwise provided
in the applicable Prospectus Supplement, the provider of the liquidity
facility will have a senior claim upon the assets securing the Equipment
Certificates.
INTERCREDITOR ISSUES
Equipment Certificates may be issued in different Classes, which means
that the Equipment Certificates may have different payment priorities even
though issued by the same Owner Trustee and relate to the same Aircraft. In
such event, the applicable Prospectus Supplement will describe the priority of
distributions among such Equipment Certificates (and any liquidity facilities
therefor), the ability of any Class to exercise and enforce any or all
remedies with respect to the related Aircraft (and, if the Equipment
Certificates are Leased Aircraft Certificates, the Lease related thereto) and
certain other intercreditor terms and provisions.
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
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Revenue Code of 1986, as amended (the "Code"), and each Certificateholder will
be treated as the owner of a pro rata undivided interest in each of the
Equipment Certificates and any other property held in the related Pass Through
Trust. Each Certificateholder will be required to report on its federal income
tax return its pro rata share of the entire income from each of the Equipment
Certificates and any other property held in the related Pass Through Trust, in
accordance with such Certificateholder's method of accounting.
A purchaser of an interest in a Pass Through Certificate will be treated
as purchasing an interest in each Equipment Certificate and any other property
in the related Pass Through Trust at a price determined by allocating the
purchase price paid for the Pass Through Certificate among such Equipment
Certificates and other property in proportion to their fair market values at
the time of purchase of the Pass Through Certificate. Unless otherwise
indicated in a Prospectus Supplement, the Corporation anticipates that when
all the Equipment Certificates have been acquired by the related Pass Through
Trust the purchase price paid for a Pass Through Certificate of such Pass
Through Trust by an original purchaser of such Pass Through Certificate should
be allocated among the Equipment Certificates held in such Pass Through Trust
in proportion to their respective principal amounts.
If an Equipment Certificate held by a Pass Through Trust is prepaid 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, an Owner Participant's
conveyance of its interest in an Owner Trust should not constitute a taxable
event to the holders of interests in the related Leased Aircraft Certificates.
However, if the Corporation were to assume an Owner Trust's obligations under
the related Leased Aircraft Certificates upon a purchase of the related
Aircraft by the Corporation, or an Owner Trust were to assume the Company's
obligations under Owned Aircraft Certificates upon a conversion of an Owned
Aircraft to a Leased Aircraft, such assumption would be treated for federal
income tax purposes as a taxable exchange of the respective Equipment
Certificates resulting in the recognition of taxable gain or loss under the
rules discussed above. For this purpose the amount realized, as determined
under current Treasury regulations on original issue discount, will be equal
to the fair market value of the Certificateholder's pro rata share of the
respective Equipment Certificates at such time.
SALES OR EXCHANGES OF PASS THROUGH CERTIFICATES
A Certificateholder that sells or exchanges a Pass Through Certificate
will be considered to have sold his pro rata portion of the property held by
the Pass Through Trust, and will recognize gain or loss on the basis discussed
in the preceding paragraph.
EFFECT OF SUBORDINATION OF SUBORDINATED CERTIFICATEHOLDERS
If any Pass Through Trust with respect to a Series is subordinated with
respect to other Pass Through Trusts of the same Series (such Pass Through
Trusts being the "Subordinated Trusts" and the related Pass Through
Certificates being the "Subordinated Certificates") receives less than the
full amount of the receipts of principal or interest paid with respect to the
Equipment Certificates held by it (any shortfall in such receipts being the
"Shortfall Amounts") because of the subordination of the Equipment
Certificates held by such Pass Through Trust under the Intercreditor
Agreement, the corresponding owners of beneficial interests in the
Subordinated Certificates (the "Subordinated
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Certificateholders") would probably be treated for federal income tax purposes
as if they had (1) received as distributions their full share of such
receipts, (2) paid over to the relevant preferred class of Certificateholders
an amount equal to their share of such Shortfall Amount and (3) retained the
right to reimbursement of such amounts to the extent of future amounts payable
to such Subordinated Certificateholders with respect to such Shortfall Amount.
Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest
or other income of the corresponding Subordinated Trust that was a component
of the Shortfall Amount, even though such amount was in fact paid to the
relevant preferred class of Certificateholders, (2) a loss would only be
allowed to such Subordinated Certificateholders when their right to receive
reimbursement of such Shortfall Amount became worthless (i.e., when it becomes
clear that funds will not be available from any source to reimburse such loss)
and (3) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to Subordinated Certificateholders
because such amount was previously included in income. These results should
not significantly affect the inclusion of income for Subordinated
Certificateholders on the accrual method of accounting, but could accelerate
inclusion of income to Subordinated Certificateholders on the cash method of
accounting by, in effect, placing them on the accrual method.
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.
PRE-FUNDING
The foregoing discussion does not address the tax consequences to a
Certificateholder with respect to any Pre-Funding arrangement. Such discussion
will be set forth in the applicable Prospectus Supplement.
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
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(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
States 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
Unless otherwise indicated in the applicable Prospectus Supplement, Pass
Through Certificates may not be purchased by, or with the assets of, any
employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or individual retirement account
or plan subject to Section 4975 of the Code. Certain governmental plans and
non-electing church plans, however, are not subject to Title I of ERISA or
Section 4975 of the Code and, therefore, may purchase the Pass Through
Certificates.
PLAN OF DISTRIBUTION
The Pass Through Certificates may be sold to or through underwriters,
directly to other purchasers or through agents.
The distribution of the Pass Through Certificates may be effected from
time to time in one or more transactions at a fixed price or prices, which may
be changed, or at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices.
In connection with the sale of Pass Through Certificates, underwriters or
agents may receive compensation from the Corporation or from purchasers of
Pass Through Certificates for whom they may act as agents in the form of
discounts, concessions or commissions. Underwriters may sell Pass Through
Certificates to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters or
commissions from the purchasers for whom they may act as agents. Underwriters,
dealers and agents that participate in the distribution of Pass Through
Certificates may be deemed to be underwriters, and any discounts or
commissions received by them from the Corporation and any profit on the resale
of Pass Through Certificates by them may be deemed to be underwriting
discounts and commissions, under the Securities Act. Any such underwriter or
agent will be identified, and any such compensation received from the
Corporation will be described, in the applicable Prospectus Supplement.
Offers to purchase Pass Through Certificates may be solicited directly and
the sale thereof may be made directly to institutional investors or others,
who may be deemed to be underwriters within the meaning of the Securities Act
with respect to any resale thereof. The terms of any such sales will be
described in the Prospectus Supplement relating thereto.
Under agreements which may be entered into by the Corporation,
underwriters and agents who participate in the distribution of Pass Through
Certificates may be entitled to indemnification by the Corporation against
certain liabilities, including liabilities under the Securities Act.
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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 April 21, 1997, Mr. Hearn owned zero shares of the Corporation's
common stock and had been granted options to purchase 41,600 shares of the
Corporation's common stock. Of the options granted, 13,850 were vested at such
date.
EXPERTS
The consolidated financial statements and schedules of the Corporation
included or incorporated by reference in the Corporation's Annual Report on
Form 10-K for the year ended May 31, 1996 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, 1996, November 30, 1996 and February 28, 1997,
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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