Rule No. 424(b)(5)
Registration No. 333-49411
PROSPECTUS SUPPLEMENT (Subject to Completion, dated June 19, 1998)
(To Prospectus dated June 11, 1998)
$834,408,633
LOGO
1998-1 Pass Through Trusts
PASS THROUGH CERTIFICATES, SERIES 1998-1
----------
Each Pass Through Certificate will represent a fractional undivided
interest in one of three Federal Express Corporation 1998-1 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, (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 for the benefit
of the holders of the Pass Through Certificates. Each Liquidity Facility
will be provided by Kreditanstalt fur Wiederaufbau ("KfW") 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, on such Pass Through Certificates, or
principal or premium or interest on the Pass Through Certificates relating
to any other Pass Through Trust. Upon each advance made by the Liquidity
Provider under a Liquidity Facility, the Subordination Agent will be
obligated to reimburse (to the extent funds are available) the Liquidity
Provider for the amount of such advance, together
(continued on following page)
SEE "RISK FACTORS" COMMENCING ON PAGE S-26 FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS
----------
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>
Principal Interest Final Expected Public Offering
----------------- ---------- -------------------- -----------------
Pass Through Certificates Amount* Rate Distribution Date* Price (1)(2)
- ------------------------------- ----------------- ---------- -------------------- -----------------
<S> <C> <C> <C> <C>
1998-1-A $457,659,698 % January 15, 2022 100%
1998-1-B 178,317,003 January 15, 2019 100
1998-1-C 198,431,933 January 15, 2016 100
</TABLE>
----------
(*) Indicative only and subject to change.
(1) Plus accrued interest, if any, at the applicable rate from , 1998.
(2) The underwriting commissions aggregate $ . The underwriting
commissions, and certain other expenses relating to the offering
estimated at $ , 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 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 , 1998.
----------
MORGAN STANLEY DEAN WITTER
CHASE SECURITIES INC.
CITICORP SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN & CO.
, 1998
Information contained herein is subject to completion or amendment. These
securities may not be sold nor may offers to buy be accepted prior to the
delivery of a final Prospectus Supplement. This Prospectus Supplement and the
Prospectus to which it relates shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to the registration or qualification under the securities laws
of any such state.
(continued from previous page)
with interest thereon. The obligation to reimburse the Liquidity
Provider under each Liquidity Facility will rank pari passu with the
Subordination Agent's reimbursement obligations relating to the other Liquidity
Facility, and will rank senior to the related Pass Through Certificates in right
of payment.
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 thirteen 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 five McDonnell Douglas MD-11F Aircraft and eight Airbus A300F4-605R
Aircraft. Two of the McDonnell Douglas MD-11F Aircraft were delivered new to
American Airlines in August 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 two McDonnell Douglas MD-11F
Aircraft was purchased by the related Owner Trustee in May 1998, and the other
is expected to be purchased by the related Owner Trustee in September 1998. The
other three McDonnell Douglas MD-11F Aircraft and seven of the Airbus
A300F4-605R Aircraft are expected to be delivered by the manufacturer new to the
related Owner Trustee between July 1998 and June 1999 (unless the Corporation is
required to purchase such Aircraft as described herein). The other Airbus
A300F4-605R Aircraft was purchased new from the manufacturer by the related
Owner Trustee in June 1998. The Aircraft were, or are expected to be, leased to
the Corporation by the related Owner Trustee at the time of such purchase. The
trust property of each Owner Trust will consist of the related Aircraft (or,
during the related Prefunding Period, if any, the amounts in the related
Collateral Account and the obligation of the Corporation to pay any shortfall
therein), and the rights of such Owner Trustee under the related Lease and other
documentation.
The Equipment Trust Certificates for each of the Aircraft will be issued in
three series under the related Indenture as nonrecourse obligations of State
Street Bank and Trust Company of Connecticut, National Association, acting not
in its individual capacity but solely as Owner Trustee of each separate Owner
Trust, and will be purchased from the Owner Trustee by the Pass Through Trustee.
For each Pass Through Trust, all of the Equipment Trust Certificates purchased
by the Pass Through Trustee will have identical interest rates, in each case
equal to the rate applicable to the Pass Through Certificates of such Pass
Through Trust set forth on the cover of this Prospectus Supplement, and will
have a maturity date on or before the Final Expected Distribution Date for such
Pass Through Trust. Although the Equipment Trust Certificates will not be
obligations of, or guaranteed by, the Corporation, except as described below,
the amounts payable by the Corporation under the Lease for each Aircraft and 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.
During the period between the date of issuance of the Equipment Trust
Certificates by the Owner Trustee for eleven of the Owner Trusts and the
delivery date of the related Aircraft, which is expected to occur from July
1998 through June 1999, 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 of 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 and Moody's, 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 law 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 in any case has capital, surplus and undivided
profits aggregating at least $500 million. The Corporation will pay to the
Subordination Agent on demand any losses on such investments. On the delivery
date of an Aircraft the Indenture Trustee will release all or a portion of the
amounts in the related Collateral Account upon satisfaction or waiver of the
conditions specified in the related Participation Agreement, and will apply
such proceeds to pay a portion of the purchase price for such Aircraft and, in
certain circumstances discussed below, to increase the amounts in one or more
other Collateral Accounts relating to undelivered Aircraft.
With respect to the seven undelivered Airbus A300F4-605R Aircraft and
three of the undelivered McDonnell Douglas MD-11F Aircraft, the Corporation is
obligated to cause the proceeds of sale of 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 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 amounts in the related Collateral
Account to the Corporation to pay a portion of the purchase price for such
Aircraft. With respect to the one other undelivered McDonnell Douglas MD-11F
Aircraft, the related Equipment Trust Certificates will be prepaid in whole on
the fifteenth 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, or (ii) the Corporation fails to obtain a
commitment from any prospective Owner Participant or for any other reason the
lease of such Aircraft is not consummated. The Series C Equipment Trust
Certificates relating to eleven Aircraft may also be subject to prepayment in
part on the Series C Prepayment Date in connection with any reoptimization
(subject to the Mandatory Economic Terms) negotiated with the related
prospective Owner Participant. Any amounts received by a Pass Through Trustee
in connection with any prepayment of Equipment Trust Certificates held in the
related Pass Through Trust will be distributed on a Special Distribution Date,
subject to the Intercreditor Agreement.
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 January 15, 1999, 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, or both, of
each year 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 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 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).
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
Page
-------
Prospectus Summary......................................... S-5
Federal Express Corporation................................ S-25
Use of Proceeds............................................ S-25
Risk Factors............................................... S-26
Description of the Pass Through Certificates............... S-29
Description of the Liquidity Facilities.................... S-38
Description of the Intercreditor Agreement................. S-42
Description of the Aircraft and the Appraisals............. S-45
Description of the Equipment Trust Certificates............ S-47
Federal Income Tax Consequences............................ S-71
Certain Utah Taxes......................................... S-71
ERISA Considerations....................................... S-71
Underwriting............................................... S-74
Legal Matters.............................................. S-75
Experts.................................................... S-75
Glossary of Certain Terms.................................. A-I
Aircraft Appraisals........................................ A-II
Equipment Trust Certificate Payments....................... A-III
Loan To Value Ratios....................................... A-IV
Prospectus
Available Information...................................... 4
Reports to Pass Through Certificateholders................. 4
Incorporation of Certain Documents by Reference............ 4
Federal Express Corporation................................ 5
Ratio of Earnings to Fixed Charges......................... 5
Risk Factors............................................... 5
Outline of Pass Through Trust Structure.................... 7
Use of Proceeds............................................ 8
Diagram of Payments........................................ 9
Description of the Pass Through Certificates............... 11
Description of the Equipment Certificates.................. 26
Federal Income Tax Consequences............................ 37
Certain Utah Taxes......................................... 38
ERISA Considerations....................................... 39
Plan of Distribution....................................... 39
Legal Matters.............................................. 40
Experts.................................................... 40
Glossary of Certain Terms.................................. 41
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. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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.
Summary of Terms of Pass Through Certificates(*)
<TABLE>
Class A Class B Class C
Pass Through Pass Through Pass Through
Certificates Certificates Certificates
---------------------- ---------------------- -------------------
<S> <C> <C> <C>
Aggregate Face Amount..................... $457,659,698 $178,317,003 $198,431,933
Ratings:
Moody's.............................. Aa2 A1 Baa1
Standard & Poor's.................... AAA AA- BBB+
Initial Loan to Aircraft Value
(cumulative)(1)......................... 38.7% 53.2% 69.1%
Expected Principal Distribution Window
(in years).............................. 1.0-23.5 0.5-20.5 0.5-17.5
Initial Average Life (in years)........... 14.7 13.0 11.9
Regular Distribution Dates................ January 15 and January 15 and January 15 and
July 15 July 15 July 15
Final Expected Distribution Date.......... January 15, 2022 January 15, 2019 January 15, 2016
Final Legal Distribution Date............. July 15, 2023 July 15, 2020 January 15, 2016
Section 1110 Protection(2)................ Yes Yes Yes
Liquidity Facility Coverage............... 3 successive 3 successive None
interest payments interest payments
Initial Liquidity Facility Amount(3)...... $ $ None
- ----------
(*) The aggregate face amount, the ratings, the initial loan to aircraft
value ratio, the expected principal distribution window, the initial
average life, the final expected distribution date and the final legal
distribution date for each Class of Pass Through Certificates are
indicative only and subject to change.
(1) Determined as of July 15, 1999, assuming that all Aircraft are
delivered prior to such date, that the maximum principal amount of
Equipment Trust Certificates is issued with respect to each Aircraft
and that no portion of the Class C Equipment Trust Certificates has
been prepaid.
(2) Following delivery of the related Aircraft, the benefits of Section
1110 of the Bankruptcy Code will be available to the Indenture
Trustee.
(3) 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).
</TABLE>
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>
Principal
Delivery Date or Amount of
Aircraft Expected Latest Equipment Equipment
Tail Delivery Trust Certificates Trust Appraised
Number Aircraft Type Date(1) Maturity Date* Certificates (3)* Value
- --------- ---------------------------- ----------------- ------------------ ---------------------- --------------
<S> <C> <C> <C> <C> <C>
N585FE McDonnell Douglas MD-11F September 1998(2) January 15, 2020 $ 60,644,923 $ 89,200,000
N590FE McDonnell Douglas MD-11F May 1998(2) January 15, 2020 57,634,266 87,000,000
N620FE McDonnell Douglas MD-11F March 1999 January 15, 2022 76,000,000 112,200,000
N621FE McDonnell Douglas MD-11F June 1999 January 15, 2022 76,800,000 112,600,000
N623FE McDonnell Douglas MD-11F June 1999 January 15, 2022 76,800,000 112,600,000
N675FE Airbus A300F4-605R June 1998 January 15, 2018 63,057,000 84,076,000
N676FE Airbus A300F4-605R July 1998 January 15, 2021 60,009,012 84,250,333
N677FE Airbus A300F4-605R August 1998 January 15, 2021 61,138,641 84,424,667
N678FE Airbus A300F4-605R September 1998 January 15, 2019 58,210,872 84,500,000
N679FE Airbus A300F4-605R October 1998 January 15, 2020 59,269,242 84,500,000
N680FE Airbus A300F4-605R November 1998 January 15, 2020 60,387,805 84,500,000
N681FE Airbus A300F4-605R May 1999 January 15, 2020 62,299,587 86,836,667
N682FE Airbus A300F4-605R June 1999 January 15, 2020 62,157,287 86,915,333
---------------------- --------------
$834,408,633 $1,193,603,000
====================== ==============
</TABLE>
- ----------
(*) Indicative only and subject to change.
(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) These two McDonnell Douglas MD-11F Aircraft were originally delivered new
to American Airlines in April 1992 and August 1991, respectively.
(3) The principal amount of the Series C Equipment Trust Certificate relating
to each of eleven Aircraft may be increased or decreased. The aggregate
principal amount of Series C Equipment Trust Certificates relating to all
eleven such Aircraft, however, may not be increased, but may be decreased,
in which case a portion of the Series C Equipment Trust Certificates will
be prepaid on the Series C Prepayment Date.
The appraised value of each Aircraft set forth above equals 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: AISI, as of June 3, 1998, MBA as of June 5, 1998 and SH&E as of
June 9, 1998.
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.
Loan To Aircraft Value Ratios
The following table sets forth loan to aircraft value ratios (also
referred to as LTVs) for each Class of Pass Through Certificates as of the
July 15, 1999 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 Aggregate Aircraft Value on such Regular
Distribution Date based on the assumptions set forth below.
This table is based on the assumption (the "Depreciation Assumption")
that the value of each Aircraft included in the Assumed Aggregate Aircraft
Value opposite the initial Regular Distribution Date depreciates by
approximately 3% of the initial appraised value per year until the twentieth
year after the year of delivery of such Aircraft by the manufacturer and by 4%
per year thereafter. 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. In
addition, the initial appraised value of each Aircraft equals the lesser of
the average and the median value of such 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. 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.
<TABLE>
<CAPTION>
Class A Class B Class C
Assumed Class A Pass Pass Class B Pass Pass Class C Pass Pass
Aggregate Through Through Through Through Through Through
Aircraft Certificates Certificates Certificates Certificates Certificates Certificates
Date Value(1) Pool Balance(2) LTV(2) Pool Balance(2) LTV(2) Pool Balance(2) LTV(2)
---- ---------- ---------------- ------------ --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
July 15, 1999 $ 1,176,918,258 $ 455,410,580 38.7% $ 171,207,367 53.2% $ 186,674,776 69.1%
July 15, 2000 1,139,828,956 447,655,286 39.3 167,271,849 53.9 181,077,657 69.8
July 15, 2001 1,102,739,654 435,600,350 39.5 163,534,997 54.3 179,008,529 70.6
July 15, 2002 1,065,650,352 421,591,841 39.6 158,053,112 54.4 174,392,451 70.8
July 15, 2003 1,028,561,049 406,910,020 39.6 152,591,257 54.4 168,908,815 70.8
July 15, 2004 991,471,747 392,228,199 39.6 147,085,575 54.4 160,919,764 70.6
July 15, 2005 954,382,445 377,546,378 39.6 141,579,892 54.4 150,027,121 70.1
July 15, 2006 917,293,143 362,864,557 39.6 136,074,209 54.4 141,770,288 69.8
July 15, 2007 880,203,841 348,182,736 39.6 128,219,614 54.1 134,209,960 69.4
July 15, 2008 843,114,539 333,500,916 39.6 117,600,333 53.5 129,899,312 68.9
July 15, 2009 806,025,237 318,819,095 39.6 106,809,596 52.8 125,046,470 68.3
July 15, 2010 768,935,935 300,850,471 39.1 101,519,818 52.3 122,063,267 68.2
July 15, 2011 731,846,633 281,341,152 38.4 97,152,409 51.7 115,447,198 67.5
July 15, 2012 693,656,065 260,984,408 37.6 92,443,334 51.0 106,966,423 66.4
July 15, 2013 654,377,692 246,951,914 37.7 85,772,636 50.8 86,743,920 64.1
July 15, 2014 615,099,319 235,289,364 38.3 77,570,513 50.9 57,872,691 61.0
July 15, 2015 575,820,946 223,626,815 38.8 65,538,433 50.2 28,382,809 56.7
July 15, 2016 536,542,574 207,547,938 38.7 53,708,375 50.3 0 NA
July 15, 2017 497,264,201 172,248,571 34.6 33,005,510 46.4 0 NA
July 15, 2018 424,355,428 127,976,066 30.2 14,235,627 40.7 0 NA
July 15, 2019 354,647,585 79,079,831 22.3 0 NA 0 NA
July 15, 2020 175,440,000 34,404,291 19.6 0 NA 0 NA
July 15, 2021 107,968,000 14,466,041 13.4 0 NA 0 NA
July 15, 2022 0 0 NA 0 NA 0 NA
</TABLE>
- ----------
(1) This amount includes the value of all thirteen Aircraft.
(2) The information relating to periodic Pool Balances and resulting LTVs
for each Class of Pass Through Certificates is indicative only and
subject to change.
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]
The Offering
The Offering.................. The Pass Through Certificates offered hereby
consist of Class A Pass Through Certificates
in the aggregate amount of $ , Class B Pass
Through Certificates in the aggregate amount
of $ , and Class C Pass Through Certificates
in the aggregate amount of $ .
The Class A, Class B and Class C Pass Through
Certificates will each be issued by a separate
Pass Through Trust (Federal Express
Corporation 1998-1 Pass Through Trust Class A,
Class B and Class C, respectively), to be
formed pursuant to the Pass Through Trust
Agreement as supplemented by Series Supplement
1998-1-A, Series Supplement 1998-1-B and
Series Supplement 1998-1-C, 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 for
the benefit of 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...................... KfW 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
will consist, except as provided herein, of (i)
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 thirteen separate
Owner Trusts for five McDonnell Douglas MD-11F
Aircraft and eight 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.
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 January
15, 1999.
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 January 15, 1999, 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
, 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. See "Description of
the Pass Through Certificates--Payments and
Distributions" in this Prospectus Supplement.
Distributions of Special
Payments.................... For any Pass Through Trust, any Special Payments
will be distributed on a Special Distribution
Date, in each case subject to the Intercreditor
Agreement. If the Equipment Trust Certificates
held in such Pass Through Trust are to be
redeemed or purchased in whole prior to their
respective maturities or if the related Pass
Through Trustee receives sufficient notice of
such Special Payment, such Pass Through Trustee
will provide not less than 15 days' notice prior
to the date such Special Payment is to be
distributed. For any other Special Payment,
notice will be mailed as soon as practicable.
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.
Prefunding Period............. For eleven of the Indentures, the Aircraft
related thereto (seven A300F4-605R Aircraft and
four McDonnell Douglas 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 July 1998 and June 1999, and the
Corporation is seeking commitments from
prospective Owner Participants for each such
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 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 seven undelivered Airbus
A300F4-605R Aircraft and three of the
undelivered McDonnell Douglas MD-11F 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 Indenture relating to the one other
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 or (ii) the
Corporation fails to obtain a commitment from
any prospective Owner Participant or for any
other reason the lease of such Aircraft is not
consummated.
Purchase Rights of
Certificateholders.......... Upon the occurrence and during the continuation
of a Triggering Event, (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.
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, if
any.
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 a Make-Whole
Premium, if any, if (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 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.
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 seven
undelivered Airbus A300F4-605R Aircraft and
three of the undelivered McDonnell Douglas
MD-11F Aircraft, the manufacturer of the related
Aircraft has not delivered the Aircraft on or
prior to the related Cut-off Date, or (ii) in
the case of the Indenture relating to the one
other 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
Corporation fails to obtain a commitment from
any prospective Owner Participant or for any
other reason the lease of such Aircraft is not
consummated.
The Series C Equipment Trust Certificates
relating to eleven Aircraft may also be
subject to prepayment in part on the Series C
Prepayment Date in connection with any
reoptimization (subject to the Mandatory
Economic Terms) negotiated with the related
prospective Owner Participant, at a price
equal to the principal amount of such Series C
Equipment Trust Certificates to be prepaid
together with accrued but unpaid interest
thereon, but without premium.
Equipment Trust Certificates:
Security.................... The Equipment Trust Certificates for each
Aircraft will be issued under the related
Indenture as nonrecourse obligations of the
related Owner Trustee. The property of each
Owner Trust will consist of the related Aircraft
(or, during any related Prefunding Period, the
amounts in the related Collateral Account and
the obligation of the Corporation to pay any
shortfall therein) and the rights of such Owner
Trustee under the related Lease and other
documentation.
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 eleven Indentures subject
to a Prefunding Period as described above, the
principal amount of the Equipment Trust
Certificates issued by the related Owner
Trustee under such Indenture will be secured
prior to delivery of the related Aircraft by
the related Collateral Account, which will be
funded by the proceeds of sale of such
Equipment Trust Certificates. Funds deposited
in the related Collateral Account will be
invested in one or more Specified Investments.
The Corporation will pay to the Subordination
Agent any losses on the Specified Investments,
and excess earnings on the investments in such
Collateral Account will be paid to the
Corporation after all distributions from the
Collateral Account to the related Indenture
Trustee required under the Operative
Agreements have been made. The Corporation
will pay (i) interest due on the related
Equipment Trust Certificates on each Regular
Distribution Date during the related
Prefunding Period, (ii) interest due on the
related Equipment Trust Certificates 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 such Equipment
Trust Certificates) to the related delivery
date and (iii) interest due on any Series C
Equipment Trust Certificates which are
outstanding on any Regular Distribution Date
occurring after the delivery date of the
related Aircraft but which are required to be
prepaid on the Series C Prepayment Date, in
each case to the extent such interest due is in
excess of any earnings on investments in the
Collateral Account for the period of accrual
of such interest.
The Corporation will pay to the related
Indenture Trustee the excess, if any, of the
portion of the purchase price for any Aircraft
required to be paid by the related 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 Subordination Agent on
the date of such 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 any of the thirteen Indentures
and, consequently, the Equipment Trust
Certificates issued in respect of any one
Aircraft will be secured only by that Aircraft
and will not be secured by any other Aircraft
or the Lease related to such other Aircraft.
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 Indentures with respect to such other
Aircraft and the Equipment Trust Certificates
relating to such other Aircraft will continue
to be held on behalf of the applicable Pass
Through Trusts. 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.
With respect to the eleven undelivered
Aircraft, if at the time of delivery of any
such Aircraft, amounts withdrawn from the
related Collateral Account are not required by
the related Indenture Trustee to pay a portion
of the purchase price of such Aircraft, the
outstanding principal amount of the Series C
Equipment Trust Certificates relating to one
or more undelivered Aircraft may be increased,
and the outstanding principal amount of the
Series C Equipment Trust Certificates relating
to the delivered Aircraft correspondingly
decreased. In such case the amounts so
withdrawn and not required for such purchase
shall be used by the Indenture Trustee to
increase the amounts in the Collateral
Accounts related to such undelivered Aircraft.
Alternatively, the related Indenture Trustee
may retain any amounts not required for
purchase of such Aircraft in the related
Collateral Account. Such retained amounts
will secure a portion of the Series C
Equipment Trust Certificates, which will be
subject to prepayment on the Series C
Prepayment Date. Prior to the Series C
Prepayment Date, the outstanding principal
amount of Series C Equipment Trust
Certificates relating to one or more
undelivered Aircraft may be increased and the
outstanding principal amount of the Series C
Equipment Trust Certificates secured by the
amounts retained in the related Collateral
Account may be correspondingly decreased
(provided that the aggregate principal amount
of Series C Equipment Trust Certificates
relating to all eleven Aircraft subject to a
Prefunding Period may not be increased). In
such case the related Indenture Trustee will
apply a corresponding portion of such retained
amounts to increase the amounts in the
Collateral Accounts related to such
undelivered Aircraft. The retained amounts in
the respective Collateral Accounts will be
used to prepay a portion of the related Series
C Equipment Trust Certificates on the Series C
Prepayment Date, and the Corporation will be
obligated to pay to the Subordination Agent on
the date of such prepayment any previously
unreimbursed 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 Series C Equipment Trust Certificates on
such date.
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 following delivery of such 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 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 (also referred
to as Interest Drawings) solely for the payment
of interest when due in an aggregate 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 $
and $ , 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
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 will
rank pari passu with the Liquidity Obligations
relating to any other Liquidity Facility 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.
If at any time (i) in the case of the initial
Liquidity Provider, the long-term unsecured debt
rating of the initial Liquidity Provider issued
by either Moody's or Standard & Poor's is lower
than the Threshold Rating or (ii) in the case of
any replacement Liquidity Provider, the
short-term unsecured debt rating of a Liquidity
Provider issued by Moody's or Standard & Poor's
is lower than the Threshold Rating 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, in either case, 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 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 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 at least 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 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
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, 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 Liquidity
Expenses, Liquidity Obligations and
replenishment of the Cash Accounts; (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.
(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 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.
"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 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 %, for the Class B Pass
Through Certificates % and for the Class
C Pass Through Certificates %.
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 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.
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
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.
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 the
Prospectus.
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 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.
Pass Through Standard &
Certificates Moody's Poor's
-------------- ------- ----------
Class A
Class B
Class C
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....................
Standard &
Moody's Poor's
------- ----------
Long-term............. Aaa AAA
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 of Liquidity
Provider....................
Standard &
Moody's Poor's
------- ----------
Short-term............ P-1 A-1+
Long-term............. Aa3 AA-
FEDERAL EXPRESS CORPORATION
The Corporation is a wholly-owned subsidiary of FDX
Corporation. The Corporation offers a wide range of express services for the
time-definite transportation of documents, packages and freight throughout the
world using an extensive fleet of aircraft and vehicles and leading-edge
information technologies. Corporate headquarters are located at 2005 Corporate
Avenue, Memphis, Tennessee 38132, telephone (901) 369-3600.
USE OF PROCEEDS
All of the proceeds from the sale of the Pass Through
Certificates will be used by the Pass Through Trustee to purchase at par all
of the Equipment Trust Certificates to be issued by the related Owner Trustee
for each of thirteen separate Owner Trusts under a separate Indenture between
the related Indenture Trustee, not in its individual capacity but solely as
the indenture trustee, and the related Owner Trustee.
For the eleven undelivered 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 the two delivered Aircraft (N590FE and
N675FE), 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 certificate 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 certificate is
$57,634,265.63 with respect to N590FE and $63,057,000.00 with respect to
N675FE. 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. The original loan certificate with
respect to N590FE has a maturity date of January 15, 2020, and the original
loan certificate with respect to N675FE has a maturity date of January 15,
2019. Morgan Guaranty Trust Company of New York, an affiliate of one of the
Underwriters, will receive $57,634,265.63 of the proceeds of this offering in
repayment of the outstanding loan certificate with respect to N590FE, and
$63,057,000.00 of the proceeds of this offering in repayment of the
outstanding loan certificate with respect to N675FE. 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 related Owner Participant named in the related Trust Agreement 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 eleven 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 July 1998 and
June 1999. For the seven undelivered Airbus A300F4-605R Aircraft and three of
the undelivered McDonnell Douglas MD-11F Aircraft, the Corporation is
obligated to 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 one other 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,
or (ii) the Corporation fails to obtain a commitment from any prospective
Owner Participant or for any other reason the lease of such Aircraft is not
consummated, the related Equipment Trust Certificates will be prepaid in whole
on the 15th day following the related Cut-off Date for such Aircraft. The
amounts received by each Pass Through Trustee in connection with such
prepayment will be distributed on a Special Distribution Date, as described in
"Description of the Pass Through Certificates--Payments and Distributions."
RISK FACTORS
In addition to the information contained elsewhere in this
Prospectus Supplement and the Prospectus, including the risk factors contained
therein, prospective investors should consider carefully the factors set forth
below in connection with an investment in the Pass Through Certificates.
Appraisals and Realizable Value of Aircraft
The appraised value of each Aircraft equals the lesser of the
average and the median value of such Aircraft as appraised by the Appraisers.
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 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 " " by
Moody's and " " by Standard & Poor's; the Class B Pass Through Certificates
be rated " " by Moody's and " " by Standard & Poor's; and the Class C Pass
Through Certificates be rated " " by Moody's and " " 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 two
of the Aircraft and is seeking commitments from prospective Owner Participants
for seven of the Airbus A300F4-605R Aircraft and four 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 related 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 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.
Event Risk
The Equipment Trust Certificates in any Pass Through Trust, and
therefore the related Pass Through Certificates, will not have the benefit of
any debt covenants or provisions in the Indentures related to such Equipment
Trust Certificates or Pass Through Certificates that would afford the holders
thereof protection in the event of a highly leveraged transaction involving
the Corporation.
Absence of a Public Market for the Pass Through Certificates
Prior to their issuance, there will have been no public market
for the Pass Through Certificates of any series and there can be no assurance
that one will develop. The Corporation does not intend to apply for the
listing of any series of Pass Through Certificates on a national securities
exchange. There can be no assurance as to the liquidity of the public market
for the Pass Through Certificates or that any active public market for the
Pass Through Certificates will develop or continue. If an active public market
does not develop or continue, the market price and liquidity of the Pass
Through Certificates may be adversely affected.
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 has been
filed with the Commission as an exhibit to the Current Report on Form 8-K
dated May 12, 1997. 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 Commission in connection with this offering.
The Pass Through Certificates offered hereby will be issued by
Federal Express Corporation 1998-1 Pass Through Trust Class A, Class B and
Class C, respectively, to be formed pursuant to the Pass Through Agreement and
Series Supplement 1998-1-A, Series Supplement 1998-1-B or Series Supplement
1998-1-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 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.
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, 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 January
15, 1999, 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
, 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.
Special Payments on any Equipment Trust Certificates received by
a Pass Through Trust will be distributed on the applicable Special Distribution
Date. For any Pass Through Trust, the Pass Through Trustee or its designee 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. Subject to the effect of the
cross-subordination provisions set forth under "Description of the Pass Through
Certificates-Subordination" in this Prospectus Supplement, each such
Certificateholder will be entitled to receive a pro rata share of any such
distribution. (Pass Through Agreement, Section 5.02)
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.
For each Pass Through Trust, the applicable Special
Distribution Date 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)
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 (and assuming there
will be no change in the payment terms of the Equipment Trust Certificates
relating to any of the eleven Aircraft for which the Corporation is seeking
commitments from prospective Owner Participants), 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.
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 any of the eleven Aircraft for which the Corporation
is seeking commitments from prospective Owner Participants), 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
1998-1-A 1998-1-B 1998-1-C
------------------------------------ -------------------------------- --------------------------------
Scheduled Scheduled Scheduled
Principal Principal Principal
Payments on Payments on Payments on
Equipment Equipment Equipment
Regular Trust Expected Trust Expected Trust Expected
Distribution Date Certificates* Pool Factor Certificates* Pool Factor Certificates* Pool Factor
- ------------------- ---------------------- ------------- ---------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
January 15, 1999 $ 0.00 $ 3,475,511.61 $ 4,703,201.63
July 15, 1999 2,249,118.00 3,634,124.44 7,053,955.88
January 15, 2000 6,746,382.06 3,557,175.69 4,882,107.66
July 15, 2000 1,008,912.00 378,342.00 715,011.29
January 15, 2001 11,046,024.00 3,358,509.35 1,564,672.08
July 15, 2001 1,008,912.00 378,342.00 504,456.00
January 15, 2002 11,927,161.09 5,103,543.02 2,869,346.72
July 15, 2002 2,081,347.90 378,342.00 1,746,731.26
January 15, 2003 11,046,024.00 5,083,512.97 4,979,179.47
July 15, 2003 3,635,796.85 378,342.00 504,456.00
January 15, 2004 11,046,024.00 4,142,259.00 7,484,595.71
July 15, 2004 3,635,796.82 1,363,423.81 504,456.00
January 15, 2005 10,897,723.00 4,142,259.00 9,116,149.52
July 15, 2005 3,784,097.85 1,363,423.83 1,776,493.02
January 15, 2006 13,672,908.82 5,127,340.81 7,752,376.94
July 15, 2006 1,008,912.00 378,342.00 504,456.00
January 15, 2007 12,658,908.85 7,476,252.66 7,055,872.42
July 15, 2007 2,022,912.00 378,342.00 504,456.00
January 15, 2008 12,658,908.82 9,860,689.55 4,310,647.47
July 15, 2008 2,022,912.00 758,592.00 0.00
January 15, 2009 12,658,908.85 10,410,486.55 4,852,842.37
July 15, 2009 2,022,912.00 380,250.00 0.00
January 15, 2010 17,968,623.39 5,289,778.15 2,983,202.67
July 15, 2010 0.00 0.00 0.00
January 15, 2011 19,509,318.94 4,367,408.73 6,616,068.88
July 15, 2011 0.00 0.00 0.00
January 15, 2012 20,356,744.47 4,709,075.36 8,480,774.93
July 15, 2012 0.00 0.00 0.00
January 15, 2013 14,032,494.32 6,670,697.63 20,222,503.64
July 15, 2013 0.00 0.00 0.00
January 15, 2014 11,662,549.10 8,202,122.99 28,871,229.10
July 15, 2014 0.00 0.00 0.00
January 15, 2015 11,662,549.14 12,032,080.64 29,489,881.14
July 15, 2015 0.00 0.00 0.00
January 15, 2016 16,078,877.41 11,830,057.52 28,382,809.46
July 15, 2016 0.00 0.00 0.00
January 15, 2017 35,299,366.47 20,702,865.00 0.00
July 15, 2017 0.00 0.00 0.00
January 15, 2018 44,272,505.44 18,769,883.21 0.00
July 15, 2018 0.00 0.00 0.00
January 15, 2019 48,896,234.98 14,235,627.05 0.00
July 15, 2019 0.00 0.00 0.00
January 15, 2020 44,675,539.95 0.00 0.00
July 15, 2020 0.00 0.00 0.00
January 15, 2021 19,938,250.30 0.00 0.00
July 15, 2021 0.00 0.00 0.00
January 15, 2022 14,466,040.80 0.00 0.00
</TABLE>
- ----------
(*) Indicative only and subject to change.
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)
New Owner Participants; Modification of Documents
The Corporation has obtained commitments from certain companies
to act as the Owner Participant with respect to the leveraged leases for two
of the Aircraft and is seeking commitments from prospective Owner Participants
for seven of the Airbus A300F4-605R Aircraft and four 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 of any Class of Pass Through Certificates. (Participation
Agreements, Sections 2.03 and 4.02(s) for Federal Express Corporation Trust
Nos. N585FE, N620FE, N621FE, N623FE, N676FE, N677FE, N678FE, N679FE, N680FE,
N681FE and N682FE)
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,
2022 for the Series A Equipment Trust Certificates, January
15, 2019 for the Series B Equipment Trust Certificates and
January 15, 2016 for the Series C Equipment Trust
Certificates;
(b) the average life may not be more than 15.5 years in the case
of the Series A Equipment Trust Certificates, 13.5 years in
the case of the Series B Equipment Trust Certificates and
12.5 years in the case of the Series C Equipment Trust
Certificates (but in each case may be decreased by any
amount), in each case from the initial issuance of the Pass
Through Certificates (the "Issuance Date");
(c) as of the first Regular Distribution Date following the
delivery of the last Aircraft to be delivered, the
average life may not be more than 15.0 years in the
case of the Class A Pass Through Certificates, 13.0
years in the case of the Class B Pass Through
Certificates and 12.0 years in the case of the Class C
Pass Through Certificates, in each case from the
Issuance Date;
(d) the interest rate and the January 15 and July 15 payment
dates may not be changed;
(e) the loan to aircraft value ratio at the time of issuance
of the Equipment Trust Certificates and on any Regular
Distribution Date thereafter shall not exceed 40% in
the case of the Series A Equipment Trust Certificates,
55% in the case of the Series B Equipment Trust
Certificates and 75% in the case of the Series C
Equipment Trust Certificates (in each case computed on
the basis of the appraised value of such Aircraft set
forth under "Prospectus Summary--Equipment Trust
Certificates and the Aircraft" under the column
"Appraised Value" and the Depreciation Assumption
defined under "Prospectus Summary--Loan to Aircraft
Value Ratios"); and
(f) there may not be any increase or decrease in the stated
face amount of the Series A Equipment Trust Certificate
or Series B Equipment Trust Certificate and the
aggregate principal amount of all Series C Equipment
Trust Certificates may not exceed the aggregate
principal amount of the Pass Through Certificates
issued by the corresponding Pass Through Trust.
(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 and Liquidity Providers 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 related Equipment Trust
Certificates. (Participation Agreements, Section 2.03 and Schedule
VI for Federal Express Corporation Trust Nos. N585FE, N620FE,
N621FE, N623FE, N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and
N682FE)
The Mandatory Economic Terms are indicative only and are subject
to change prior to delivery of a final Prospectus Supplement.
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;
(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. N585FE, N620FE, N621FE,
N623FE, N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and
N682FE)
In the case of the Lease, modifications are prohibited to certain
provisions regarding the obligation of the Corporation to:
(i) pay unconditionally 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. N585FE, N620FE, N621FE,
N623FE, N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and
N682FE)
In the case of the Participation Agreement, modifications are prohibited
to:
(i) certain conditions to the obligations of the related Indenture
Trustee to participate in the purchase price of the related
Aircraft, 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. N585FE, N620FE,
N621FE, N623FE, N676FE, N677FE, N678FE, N679FE, N680FE, N681FE
and N682FE)
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. N585FE, N620FE, N621FE, N623FE, N676FE,
N677FE, N678FE, N679FE, N680FE, N681FE and N682FE)
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 (other than the Class C Trust) 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 Kreditanstalt fur Wiederaufbau 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 $ and $ ,
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 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 if (i)
both (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 either 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 (i) in the case of the initial Liquidity
Provider, the long-term unsecured debt rating of the initial Liquidity
Provider issued by either Moody's or Standard & Poor's is lower than the
Threshold Rating or (ii) in the case of any replacement Liquidity Provider,
the short-term unsecured debt rating of a Liquidity Provider issued by Moody's
or Standard & Poor's is lower than the Threshold Rating 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 such Pass Through Trust or the
Subordination Agent (in consultation with the Corporation) may arrange for a
Replacement Facility. 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 Class A
Pass Through Certificates and the Class B 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))
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 1.25% per annum or the applicable base rate plus
1.25% 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.
The Downgrade Drawing under any Liquidity Facility will bear
interest equal to the sum of (i) investment earnings on amounts on deposit in
the relevant Cash Account plus (ii) 0.25% per annum on the amount of such
Downgrade Drawing. (Liquidity Facilities, Section 3.07)
Liquidity Events of Default
"Liquidity Events of Default" under each Liquidity Facility
means: (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 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))
Initial Liquidity Provider
The initial Liquidity Provider will be Kreditanstalt fur
Wiederaufbau, which is a corporation organized under the public law of the
Federal Republic of Germany. It currently has long-term unsecured debt
ratings of "Aaa" from Moody's and "AAA" from Standard & Poor's.
KfW has not been involved in the preparation of, and has not
prepared, this Prospectus Supplement and is not responsible for any of its
contents.
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 accelerating of such Equipment Trust Certificates or
foreclosing the lien on the Aircraft securing such Equipment Trust
Certificates). (Intercreditor Agreement, Section 2.6)
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 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 and subject to
certain other terms of the Intercreditor Agreement, 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 Expenses to the Liquidity Provider;
(ii) to pay interest accrued and unpaid on the Liquidity Obligations
to the Liquidity Provider;
(iii) to pay or reimburse the Liquidity Provider for the Liquidity
Obligations then due (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;
(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;
(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, and to reimburse or pay each
Certificateholder for certain payments, if any, made by it in
respect of certain costs and expenses of the Subordination Agent;
(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. If any Indenture Event of Default has occurred and is
continuing with respect to such Indenture, the Subordination Agent will,
subject to certain limitations, exercise its voting rights as directed by the
Controlling Party. In no event, however, may such amendment, modification or
waiver reduce the amount of rent, supplemental rent or stipulated loss value
payable by the Corporation under any Lease without each Liquidity Provider's
consent. (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)
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
The Aircraft
The Aircraft consist of five McDonnell Douglas MD-11F and eight
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
thirteen 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 MBA
Number Aircraft Type(3) Date(1) AISI SH&E
---------- ------------------- -------------------- ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
N585FE McDonnell Douglas MD-11F September 1998(2) $ 94,640,000 $ 87,460,000 $ 89,200,000
N590FE McDonnell Douglas MD-11F May 1998(2) 90,430,000 85,200,000 87,000,000
N620FE McDonnell Douglas MD-11F March 1999 123,700,000 103,230,000 112,200,000
N621FE McDonnell Douglas MD-11F June 1999 123,700,000 104,260,000 112,600,000
N623FE McDonnell Douglas MD-11F June 1999 123,700,000 104,260,000 112,600,000
N675FE Airbus A300F4-605R June 1998 84,500,000 82,528,000 85,200,000
N676FE Airbus A300F4-605R July 1998 84,500,000 82,751,000 85,500,000
N677FE Airbus A300F4-605R August 1998 84,500,000 82,974,000 85,800,000
N678FE Airbus A300F4-605R September 1998 84,500,000 83,197,000 86,000,000
N679FE Airbus A300F4-605R October 1998 84,500,000 83,420,000 86,300,000
N680FE Airbus A300F4-605R November 1998 84,500,000 83,643,000 86,600,000
N681FE Airbus A300F4-605R May 1999 87,000,000 85,010,000 88,500,000
N682FE Airbus A300F4-605R June 1999 87,000,000 85,246,000 88,500,000
</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) These two McDonnell Douglas MD-11F Aircraft were originally delivered
new to American Airlines in April 1992 and August 1991, respectively.
(3) Each Airbus A300F4-605R Aircraft has two General Electric CF6-80C2-A5F
engines, each of two McDonnell Douglas MD-11F Aircraft (N585FE and
N590FE) has three General Electric CF6-80C2-D1F engines and each of
three McDonnell Douglas MD-11F Aircraft (N620FE, N621FE and N623FE) has
three Pratt & Whitney 4462 engines.
The appraised values set forth in the above table were
determined by the following three independent aircraft appraisal and
consulting firms: AISI, MBA and SH&E. Each Appraiser was asked to provide its
opinion as to the appraised value of each Aircraft as of June 3, 1998, June 5,
1998 and June 9, 1998, 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 setting forth 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
letters.
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 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 Equipment Trust Certificates issued in respect of any Aircraft
which the Corporation is required to purchase as described herein), and will
be authenticated under an Indenture by the related Indenture Trustee. The
trust property of each Owner Trust will consist of the related Aircraft (or,
during any related Prefunding Period, amounts in the related Collateral Account
and the obligation of the Corporation to pay any shortfall therein), and the
rights of such Owner Trustee under the related documentation. 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 series of 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 by each Owner Trust, as such Equipment Trust Certificates will be
held in each of the Pass Through Trusts, are as follows:
<TABLE>
<CAPTION>
Pass Through Pass Through Pass Through
Trust Class Trust Class B Trust Class C
% % %
Equipment Equipment Equipment Total Per
Aircraft Designation Trust Certificates* Trust Certificates* Trust Certificates(1)* Aircraft*
----------------------- ------------------- -------------------- ---------------------- ------------
<S> <C> <C> <C> <C>
1. Federal Express Corporation.... $ 31,272,095 $ 12,839,603 $ 16,533,225 $ 60,644,923
Trust No. N585FE
2. Federal Express Corporation.... 30,653,939 12,122,976 14,857,351 57,634,266
Trust No. N590FE
3. Federal Express Corporation.... 43,086,000 16,157,250 16,756,750 76,000,000
Trust No. N620FE
4. Federal Express Corporation.... 43,372,000 16,264,500 17,163,500 76,800,000
Trust No. N621FE
5. Federal Express Corporation.... 43,372,000 16,264,500 17,163,500 76,800,000
Trust No. N623FE
6. Federal Express Corporation.... 33,630,400 12,611,400 16,815,200 63,057,000
Trust No. N675FE
7. Federal Express Corporation.... 32,470,108 13,129,607 14,409,297 60,009,012
Trust No. N676FE
8. Federal Express Corporation.... 32,681,129 13,239,107 15,218,405 61,138,641
Trust No. N677FE
9. Federal Express Corporation.... 31,772,000 12,524,487 13,914,385 58,210,872
Trust No. N678FE
10. Federal Express Corporation... 33,211,220 13,263,780 12,794,242 59,269,242
Trust No. N679FE
11. Federal Express Corporation... 33,142,199 13,332,801 13,912,805 60,387,805
Trust No. N680FE
12. Federal Express Corporation... 34,489,438 13,270,729 14,539,420 62,299,587
Trust No. N681FE
13. Federal Express Corporation... 34,507,170 13,296,264 14,353,854 62,157,287
Trust No. N682FE
-------------- -------------- --------------- ------------
Total.......................... $ 457,659,698 $178,317,003 $198,431,933 $834,408,633
============== ============== =============== ============
</TABLE>
- ----------
(*) Indicative only and subject to change.
(1) The principal amount of the Series C Equipment Trust Certificate relating
to each of eleven Aircraft may be increased or decreased. The aggregate
principal amount of Series C Equipment Trust Certificates relating to all
eleven such Aircraft, however, may not be increased, but may be decreased,
in which case a portion of the Series C Equipment Trust Certificates will
be prepaid on the Series C Prepayment Date.
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 January 15, 1999, 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
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 in Appendix III to this Prospectus Supplement and in each case
subject to the Intercreditor Agreement. The schedules set forth in Appendix
III for the Equipment Trust Certificates for Aircraft N585FE, N620FE, N621FE,
N623FE, N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and N682FE are subject
to adjustment in compliance with the Mandatory Economic Terms.
The mandatory sinking fund redemptions set forth in Appendix III 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)
Loan to Value Ratios of Equipment Trust Certificates
The tables in Appendix IV set forth loan to Aircraft value ratios for
the Equipment Trust Certificates issued in respect of each Aircraft as of the
dates specified and were 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 Aircraft Value of the Aircraft securing such
Equipment Trust Certificates. The tables set forth in Appendix IV for the
Equipment Trust Certificates relating to Aircraft N585FE, N620FE, N621FE,
N623FE, N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and N682FE are subject
to adjustment in compliance with the Mandatory Economic Terms.
The tables in Appendix IV are 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 tables depreciates by 3% per year
until the twentieth year after the delivery of such Aircraft by the
manufacturer and by 4% per year thereafter. 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 tables are the ones most likely to occur or as to the actual
future value of any Aircraft. The information in Appendix IV 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 in Appendix IV for Aircraft N585FE,
N620FE, N621FE, N623FE, N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and
N682FE are subject to adjustment in compliance with the Mandatory Economic
Terms.
Prefunding Periods
For the Equipment Trust Certificates issued in respect of each of the
eleven undelivered Aircraft, the related Prefunding Period will extend to the
delivery date of such Aircraft. During the applicable Prefunding Period, 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 related Owner Trustee for the benefit
of the related Indenture Trustee will deposit the proceeds of sale of the
related Equipment Trust Certificates into the related Collateral Account.
Funds deposited in each Collateral Account will be invested in Specified
Investments. (Participation Agreements, Section 17.02, Indentures; Section
2.13 for Federal Express Corporation Trust Nos. N585FE, N620FE, N621FE,
N623FE, N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and N682FE)
The Corporation will pay to the Subordination Agent any losses on the
Specified Investments, and any excess earnings thereon will be paid to the
Corporation after all distributions from the Collateral Account to the related
Indenture Trustee required under the Operative Agreements have been made. The
Corporation will pay (i) interest due on the related Equipment Trust
Certificates on each Regular Distribution Date during the related Prefunding
Period, (ii) interest due on the related Equipment Trust Certificates 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 such Equipment Trust Certificates) to the related delivery date
and (iii) interest due on any Series C Equipment Trust Certificates which are
outstanding on any Regular Distribution Date occurring after the Delivery Date
but which are required to be prepaid on the Series C Prepayment Date, in each
case to the extent such interest due is in excess of any earnings on
investments in the Collateral Account for the period of accrual of such
interest. (Participation Agreements, Section 17.02 for Federal Express
Corporation Trust Nos. N585FE, N620FE, N621FE, N623FE, N676FE, N677FE, N678FE,
N679FE, N680FE, N681FE and N682FE)
On the delivery date of each related Aircraft, upon satisfaction or
waiver of the conditions to the Indenture Trustee's release of amounts in the
related Collateral Account, the Indenture Trustee shall release such amounts.
Such amounts will be applied by such 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.
(Indentures, Sections 2.13 and 2.15; Participation Agreements, Section 3.02
for Federal Express Corporation Trust Nos. N585FE, N620FE, N621FE, N623FE,
N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and N682FE)
If at the time of delivery of such Aircraft, amounts withdrawn from the
related Collateral Account are not required by the related Indenture Trustee
to pay a portion of the purchase price of such Aircraft, the outstanding
principal amount of the Series C Equipment Trust Certificates relating to one
or more undelivered Aircraft may be increased, and the outstanding principal
amount of the Series C Equipment Trust Certificates relating to the delivered
Aircraft correspondingly decreased. In such case the amounts so withdrawn and
not required for such purchase shall be used by the Indenture Trustee to
increase the amounts in the Collateral Accounts related to such undelivered
Aircraft. Alternatively, the related Indenture Trustee may retain any amounts
not required for purchase of such Aircraft in the related Collateral Account.
Such retained amounts will secure a portion of the Series C Equipment Trust
Certificates, which will be subject to prepayment on the Series C Prepayment
Date. Prior to the Series C Prepayment Date, the outstanding principal amount
of Series C Equipment Trust Certificates relating to one or more undelivered
Aircraft may be increased and the outstanding principal amount of the Series C
Equipment Trust Certificates secured by the amounts retained in the related
Collateral Account may be correspondingly decreased (provided that the
aggregate principal amount of Series C Equipment Trust Certificates relating
to all eleven Aircraft subject to a Prefunding Period may not be increased).
In such case the related Indenture Trustee will apply a corresponding portion
of such retained amounts to increase the amounts in the Collateral Accounts
related to such undelivered Aircraft. The retained amounts in the respective
Collateral Accounts will be used to prepay a portion of the related Series C
Equipment Trust Certificates on the Series C Prepayment Date, and the
Corporation will be obligated to pay to the Subordination Agent on the date of
such prepayment any previously unreimbursed 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 Series C
Equipment Trust Certificates on such date.
If the related Owner Participant does not make available its portion of
the purchase price on the delivery date of the seven undelivered Airbus
A300F4-605R Aircraft or the three new undelivered McDonnell Douglas MD-11F
Aircraft or if 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 related 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, Sections 3.03 and 17.02 for Federal Express
Corporation Trust Nos. N620FE, N621FE, N623FE, N676FE, N677FE, N678FE, N679FE,
N680FE, N681FE and N682FE)
With respect to the one other undelivered McDonnell Douglas MD-11F
Aircraft (N585FE), if (i) the modification of such Aircraft has not been
completed and such Aircraft delivered on or prior to the related Cut-off Date
or (ii) the Corporation fails to obtain a commitment from any prospective
Owner Participant or for any other reason the lease of such Aircraft is not
consummated, the related Equipment Trust Certificates will be prepaid in whole
on the fifteenth day following the Cut-off Date for such Aircraft.
If such Equipment Trust Certificates are subject to prepayment as
described above, the Corporation will be obligated to pay to the Subordination
Agent, together with any losses on the investments in the related Collateral
Account, on the applicable prepayment 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. N585FE,
N620FE, N621FE, N623FE, N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and
N682FE)
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 one Indenture), or (ii) on any scheduled rent
payment date under the related Lease on or after December 31, 2005 (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 a Make-Whole Premium,
if any. (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 Certificates 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 in the most recent H.15(519), such weekly average yield to maturity
as published in such H.15(519). "H.15(519)" means that 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.
"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 (the shortest notice period under any Indenture) 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 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 (the shortest notice period under
any Indenture) 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 ten 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 the fifteenth day after the related Cut-off Date. On such date, the
related Indenture Trustee will apply the amounts payable under the related
Collateral Accounts together with the amounts payable by the Corporation to
pay the aggregate principal amount of such Equipment Trust Certificates and
accrued and unpaid interest thereon. (Indentures, Sections 2.16 and 6.02 for
Federal Express Corporation Trust Nos. N620FE, N621FE, N623FE, N676FE, N677FE,
N678FE, N679FE, N680FE, N681FE and N682FE)
In the case of the Indenture relating to the one other undelivered
McDonnell Douglas MD-11F Aircraft (N585FE), if (i) the modification of such
Aircraft has not been completed and such Aircraft delivered on or prior to the
related Cut-off Date, or (ii) the Corporation fails to obtain a commitment from
any prospective Owner Participant, or for any other reason the lease of such
Aircraft is not consummated the related Equipment Trust Certificates will be
prepaid in full on the fifteenth day following the Cut-off Date for such
Aircraft.
The Series C Equipment Trust Certificates relating to eleven Aircraft
may also be subject to prepayment in part on the Series C Prepayment Date in
connection with any reoptimization (subject to the Mandatory Economic Terms)
negotiated with the related prospective Owner Participant. (Participation
Agreement, Sections 2.03 and 3.03; Indenture, Sections 2.16 and 6.02 for
Federal Express Corporation Trust No. N585FE)
Investment of Funds
The proceeds of sale of the Equipment Trust Certificates deposited in
each Collateral Account will be invested in Specified Investments. The
Corporation will pay to the Subordination Agent 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 uninvested
until the earlier of (i) the date on which any appropriate Specified
Investments become available and (ii) the date on which the Lien of the
related Indenture on such Collateral Account and the related Liquid Collateral
is terminated. If such 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. After the delivery date of any such Aircraft, if there
are related Series C Equipment Trust Certificates outstanding that are subject
to prepayment on the Series C Prepayment Date, the amount then remaining in
the related Collateral Account will be invested in Specified Investments which
mature on or prior to the Series C Prepayment Date. (Indentures, Section 2.14
for Federal Express Corporation Trust Nos. N585FE, N620FE, N621FE, N623FE,
N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and N682FE)
Funds (other than funds in the related Collateral Account), if any, held
from time to time by the related Indenture Trustee with respect to any
Aircraft will be invested, except under certain circumstances, upon the
written instructions of the Corporation in direct obligations of, or
obligations fully guaranteed by, the United States of America; certificates
of deposit, bankers' acceptances, time deposits or deposit accounts with
certain banks, trust companies or national banking associations; or commercial
paper rated A-1/P-1 by Standard & Poor's and Moody's, 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
Indenture Events of Default under each Indenture 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, 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 (other than the Owner
Trustee guarantor) 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 (with respect to two
Indentures if such misrepresentation can be subsequently corrected and
such correction is being sought diligently) 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) (i) any failure by the Owner Trustee (or the Owner Participant, in the
case of one Indenture) to observe specified covenants in such
Indenture or the related Participation Agreement or (ii) any failure
by State Street Bank and Trust Company of Connecticut, National
Association, the related Owner Trustee or the related Owner
Participant, or any related Guarantor or Owner Trustee guarantor 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
(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 relating to the basic lease term 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 relating to the basic lease term, and the Owner
Trustee cures such Lease Event of Default prior to the date 15 Business Days
after the related Owner Participant receives written notice of such Lease
Event of Default (in the case of one Indenture) and prior to the date 15
Business Days after such Lease Event of Default (in the case of twelve
Indentures) 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,
except that the Indenture Trustee will be protected in withholding such notice
other than in the case of a default in the payment of the principal of or
interest on or any other amount 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.
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 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 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 related 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 such 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
such Indenture Trustee to the exclusion of the related 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 related 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 related 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 related Indenture Trustee is required
to give the related 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 related Indenture Trustee
described above, if an Indenture Event of Default has occurred and is
continuing unremedied thereunder and such Indenture Trustee proceeds to
foreclose the Lien of such Indenture, such Indenture Trustee must,
concurrently with such foreclosure, to the extent such 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 such Indenture Trustee is unable to exercise one or more such
remedies under such Lease because of any stay or operation of law or
otherwise, then such Indenture Trustee may not foreclose the Lien of the
related Indenture (A) if the Corporation has agreed to perform or assume such
Lease and no Lease Event of Default is continuing (other than the occurrence
of certain events of bankruptcy, reorganization or insolvency of the
Corporation or similar events or, in the case of two Indentures, any other
Lease Event of Default in respect of which the 30-day period referred to in
clause (a)(1)(B)(ii)(I) of Section 1110 of the Bankruptcy Code shall not have
expired) or (B) until the earlier of (i) actual repossession of the related
Aircraft by the Indenture Trustee and (ii) 60 days from the date of any such
stay or other applicable order under Section 1110 of the Bankruptcy Code
including any extension of such period permitted under Section 1110 consented
to by such Indenture Trustee or the holders of the Equipment Trust Certificates
issued under such Indenture. (Indentures, Section 7.02(a))
If an Indenture Event of Default occurs under an Indenture as a result
of certain specified events of bankruptcy, insolvency or reorganization of the
related Owner Trustee, 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 related 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 related Owner
Trustee, the Corporation and (in one Indenture) the related Owner Participant.
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 issued under such Indenture may rescind any such
declaration by such Indenture Trustee at any time prior to the sale or
disposition of the property subject to the Lien of the related Indenture if
(i) there has been paid to or deposited with such 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 such 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 owned
by the related 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 related Indenture
Trustee to exercise its remedies under such Indenture might be restricted,
although such 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 such Owner Trustee to
pay to the related 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 such Owner Trustee to such 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 related 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 such
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 related Indenture Trustee or of exercising any trust or power
conferred on such 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 such 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 such Indenture Trustee for any tax, expense, charge or
other loss incurred by it and to pay any other amounts due such 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.
A recent decision by the United States District Court for the District
of Colorado in connection with the Western Pacific Airlines, Inc. bankruptcy
suggests that the protections of Section 1110 become unavailable to the lessor
or security interest holder once the bankruptcy trustee or
debtor-in-possession makes the agreement referred to above and cures
outstanding defaults, with the result, among others, that the ability of a
lessor or security interest holder to exercise remedies based on a subsequent
default would be subject to the automatic stay. Davis Polk & Wardwell,
special counsel to the Corporation in respect of this transaction, is of the
opinion that the Western Pacific Airlines holding is erroneous because it is
inconsistent with the overriding purpose of Section 1110 to protect lessors
of, and creditors secured by, qualifying aircraft against being stayed from
exercising their rights while defaults under their leases or financing
agreements remain uncured. The above-referenced decision in Western Pacific
Airlines is currently under appeal.
Marketability of Aircraft. It is impossible to predict the resale value
for any Aircraft to be sold upon the exercise of the Indenture Trustee's
remedies under the related Indenture. The market for aircraft, whether new or
used, is and will be affected by many factors including, among other things,
the supply of similarly equipped aircraft of the same make and model, the
demand for such aircraft by air carriers and the cost and availability of
financing to potential purchasers of such aircraft. Each of these factors, in
turn, will be affected by various circumstances including, among other things,
current and anticipated demand for passenger and cargo air services, the
relative capacity of air carriers to provide such services, the current and
projected profitability of providing such services, the economic condition of
the domestic and international airline industries and global economic and
financial developments generally.
The marketability of a particular aircraft will also be affected by
factors such as the reputation and actual performance record of the air
carrier with respect to maintenance, the compliance of the aircraft with
federal noise and other environmental standards and the degree of technical
and other support available from the manufacturer of the aircraft. Since the
market for aircraft will fluctuate over time to reflect changes in these and
other circumstances, and because of the unique factors that would affect
market value in a forced disposition of an aircraft, there can be no assurance
that the net proceeds realized from the sale or other disposition of any
Aircraft in the exercise of such remedies will be sufficient to satisfy in
full amounts due and payable on the related Equipment Trust Certificates.
Modification of Agreements
Without the consent of the holders of more than 50% in aggregate
principal amount of the outstanding Equipment Trust Certificates under an
Indenture, the provisions of such Indenture, the related Lease, Participation
Agreement and Trust Agreement may not be amended or modified, except to the
extent indicated below. (Indentures, Sections 8.01 and 13.01) See also
"Description of Pass Through Certificates--New Owner Participants;
Modification of Documents" in this Prospectus Supplement for a discussion of
the changes that may be made to the documents relating to seven Airbus
A300F4-605R Aircraft and four 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 related Indenture Trustee will exercise such of the
rights and powers vested in it by such Indenture, and use the same degree of
care and skill in its exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
Generally, such Indenture Trustee will not be liable for any error of judgment
made in good faith, unless such 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, such
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 such
Indenture Trustee reasonable security or indemnity. Each Indenture provides
that the related Indenture Trustee may acquire and hold Equipment Trust
Certificates issued thereunder and such Indenture Trustee may otherwise deal
with the related Owner Trustee and the Corporation 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 eleven of the 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. Two McDonnell Douglas MD-11F Aircraft were delivered new to
American Airlines in August 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 two Aircraft was purchased by
the related Owner Trustee in May 1998. The other of these two Aircraft is
expected to be converted from passenger configuration to freighter configuration
and purchased by the related Owner Trustee in September 1998. Seven Airbus
A300F4-605R Aircraft and the three other McDonnell Douglas MD-11F Aircraft are
expected to be delivered new by the manufacturer and leased by the Corporation
from the related Owner Trustee between July 1998 and June 1999. The other Airbus
A300F4-605R aircraft was purchased new from the manufacturer by the related
Owner Trustee in June 1998. As of May 31, 1998, the Corporation operated 25
McDonnell Douglas MD-11F aircraft and 24 Airbus A300F4-605R aircraft under
lease.
Terms and Rentals. Two of the Aircraft have 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 related Owner Trustee
to the Corporation for a term commencing on the date of the delivery of the
related Aircraft to such 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 related Owner Trustee to the
related Indenture Trustee to provide the funds necessary to make payments of
principal and interest due from such Owner Trustee on the Equipment Trust
Certificates issued under such Indenture and Liquidity Obligations under the
related Liquidity Facility. (Leases, Article 3; Indentures, Granting Clause
and Section 3.01)
After any related Prefunding Period, 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.
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, 2004). 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 (in the case of Airframe only), 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 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) at any time, any Aircraft or any Engine to certain
United States air carriers; and (ii) after December 31, 2005, in the case of
one Lease and at any time in the case of twelve 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, in the
case of one Lease, such country is not experiencing war or substantial civil
unrest. The term of any such sublease must expire not later than the
expiration of the term of the related Lease, 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 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, 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 (unless, in the case of
twelve Leases, the Corporation indemnifies against such liabilities) or
any risk of the assertion of criminal charges against the related Owner
Trustee, Owner Participant, Indenture Trustee or the holder of any
related Equipment Trust 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 related Owner
Trustee, the Aircraft or any interest therein. (Leases, Section 6.01)
Insurance. For each Aircraft, the Corporation will generally be
obligated to carry comprehensive airline liability insurance, including
property damage liability insurance, cargo legal liability insurance and, in
the case of one Lease, bodily injury liability insurance, as described below.
Such insurance must be in such amounts, against such risks and with such
retentions as the Corporation customarily maintains with respect to similar
aircraft and engines in the Corporation's fleet in the case of twelve Leases,
and with respect to aircraft and engines in the Corporation's fleet of the
same type and model in the case of one Lease. Such insurance must also be
with such insurers of recognized responsibility and against such other risks
as is usually carried by corporations situated similarly to the Corporation and
engaged in the same business as, or business similar to, the Corporation and
owning or operating aircraft and engines similar to the related Aircraft and
related engines. The Corporation will also be obligated to carry, with
insurers of recognized responsibility, all-risk ground and flight aircraft
hull insurance, which may not be in an amount below the applicable stipulated
loss value (which is an amount at least sufficient to pay in full the amount
of the related Equipment Trust Certificates scheduled to be outstanding on the
applicable date), covering the related Aircraft and all-risk coverage with
respect to the related engines and parts while temporarily removed from such
Aircraft and not replaced by similar engines or parts, as described below.
Such insurance includes war-risk and allied perils, hijacking and governmental
confiscation and expropriation insurance (except in the country of registry).
Such insurance must be in such form and amounts, and with such retentions 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 related Aircraft. The Corporation may self-insure against the
risks required to be insured against under the related lease in such reasonable
amounts as are then applicable to other aircraft or engines of the Corporation
of value comparable to the related Aircraft, in the case of twelve Leases, and
of the same type and model as the Aircraft, in the case of the other one
Lease. Such self-insurance with respect to all aircraft in the Corporation's
fleet may not, however, in the aggregate exceed for any 12-month policy year
an amount equal to the lesser of (a) 50% of the highest insured value of any
single aircraft in such fleet, or (b) 1.5% of the average aggregate insured
value from time to time of the Corporation's entire aircraft fleet, provided
that a standard deductible per occurrence per aircraft no greater than the
amount customarily allowed as a deductible in the industry will be permitted
in addition to such self-insurance. (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 one 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
twelve Aircraft, the Corporation need procure war risk insurance only if such
insurance is available on commercially reasonable terms and it is customary
for major international air carriers flying comparable routes to carry such
insurance. In the case of one Aircraft, if such Aircraft is requisitioned for
use by the United States government, such Aircraft may be flown or located in
an area described in the preceding sentence without such indemnification or
insurance in lieu of such indemnification from the United States government if
the Corporation certifies that such insurance is unobtainable after diligent
effort or is obtainable only at 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, 2005
(the earliest date under any Lease) on at least 90 days' prior written notice
in the case of one Lease, at least 120 days' prior written notice in the case
of one Lease, and at least 180 days' prior written notice in the case of
eleven Leases, to the related Owner Trustee, Indenture Trustee and Owner
Participant, terminate such Lease if a designated officer of the Corporation
certifies to such Owner Trustee, Owner Participant and Indenture Trustee that
the related Aircraft has become obsolete or surplus to the Corporation's
operations. The Corporation, as non-exclusive agent for such 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 related Owner
Trustee may seek bids but, the related Owner Participant may not inspect any
bids obtained by the Corporation unless such 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 related Owner Trustee), such 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 related
Indenture Trustee. If the proceeds received from such sale are less than the
applicable termination value, the Corporation is required to pay to such
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 Lease, 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 related
Owner Trustee may elect to retain title to the Aircraft. It is an absolute
condition to such 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 related 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 15 days in
the case of two Leases and not less than 10 days in the case of eleven Leases,
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 Airbus A300-600
airframes or McDonnell Douglas MD-11F airframes, as the case may be, or (ii)
in the case of one Lease, utilized by the Corporation on a significant number
of other Airbus A300-600 airframes operated by the Corporation (and then only
if certain other tests are met). (Leases, Article I; Sections 10.03 and 11.04)
Purchase Options. With respect to any Aircraft, the Corporation may
elect to purchase such Aircraft and terminate the related Lease (i) on the
scheduled rent payment date occurring about July 15, 2011 (the earliest date
under any Lease) (ii) under certain circumstances, on a scheduled rent payment
date, if the Corporation is required at any time on or after the fifth
anniversary of the delivery date of such Aircraft (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 on or after the fifth anniversary of the delivery date of such
Aircraft (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 related
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
related 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 related 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, such 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 such 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 such 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, such Owner Trustee will transfer all of its right,
title and interest in and to such Aircraft to the Corporation and the related
Lease will terminate. See "Federal Income Tax Consequences--General" in the
Prospectus. (Leases, Section 4.02; Participation Agreements, Section 7.11)
At the end of the term of each Lease, after the final maturity of the
related Equipment Trust Certificates, the Corporation has certain options to
renew such Lease or purchase the related Aircraft. (Leases, Article 4)
Events of Loss. If an Event of Loss 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 related 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
Loss (or if later, the 15th day following the end of the 60-day election
period discussed above, in the case of one Lease) 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 no earlier than
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 related Indenture Trustee (as assignee of the related 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 such 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 related 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 A300-600 airframes or McDonnell Douglas MD-11F airframes, as the
case may be, or (ii) in the case of one Lease, 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;
(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, except in certain limited cases
with respect to twelve Leases;
(d) under certain circumstances, 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
(i) shall have been prohibited by virtue of a condition affecting all
Airbus A300F-600 series aircraft or McDonnell Douglas MD-11F series
aircraft, as the case may be, equipped with engines of the same make
and model as the Engines, and such loss of use shall continue for
certain specified periods which could extend for up to 12 months (the
longest period under any Lease) or (ii) shall have been prohibited for
any reason and such loss shall continue for certain specified periods
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, Lease Events 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 Owner Trustee which are excluded from the
Lien of the related Indenture will constitute a Lease Event of Default
at the discretion of such Owner Participant);
(b) failure by the Corporation to pay any other amount under such Lease or
the related Participation Agreement or any other Operative Agreement
within 30 days after the Corporation has received written demand
therefor from the person entitled to receive such payment (except that
failure to make certain payments to the related Owner Participant or
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 related Owner Trustee and other parties
designated as additional insureds under the related Lease of notice of
such lapse or cancellation and the date that such lapse or
cancellation is effective as to such Owner Trustee, provided that such
lapse or cancellation under clause (y) will not be a Lease Event of
Default so long as the related Aircraft is insured as required while
on the ground and not operated or (ii) the related Aircraft is
operated at any time when comprehensive airline liability insurance
required to be maintained by such Lease is not in effect;
(d) failure by the Corporation to perform or observe any other covenant,
condition or agreement to be performed or observed by it under any
related Operative Agreement or in certain agreements entered into in
connection with the transactions contemplated therein, continued
unremedied for a period of 30 days after the date on which the
Corporation has received written notice of such failure from the
related Owner Trustee or the related Owner Participant or, in the case
of twelve 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 related 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 twelve Leases, the Corporation
has actual knowledge of, such misstatement, 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 related Indenture Trustee, as assignee of the related Owner
Trustee's rights under such Lease, may, subject to certain rights of such
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 related Indenture Trustee, the Subordination Agent, the related
Owner Participant and the related Owner Trustee, and certain parties
affiliated with the foregoing (but not including the Pass Through Trustee,
except as otherwise provided in the Pass Through Agreement, or the
Certificateholders), for certain liabilities, losses, fees and expenses and
for certain other matters arising out of the transactions described herein or
relating to the applicable Aircraft or the use thereof. In addition, under
certain circumstances the Corporation is obligated to indemnify such persons
against certain taxes, levies, duties, withholdings and for certain other
matters relating to such transactions or the applicable Aircraft.
(Participation Agreements, Articles 8 and 9)
Each Owner Participant is obligated to reimburse the Corporation, the
related Indenture Trustee and the Pass Through Trustee for certain losses that
may be suffered as a result of the failure of such Owner Participant to
discharge certain liens or claims on or against the assets subject to the Lien
of the applicable Indenture. (Participation Agreements, Section 7.03(c)). The
payment and performance obligations of the Owner Participant relating to two
of the Aircraft have been guaranteed by a Guarantor affiliated with such Owner
Participant 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. N585FE, N620FE,
N621FE, N623FE, N675FE, N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and
N682FE and Trust Agreement, Article 5 for Federal Express Corporation Trust
No. N590FE)
Registration of the Aircraft
The Aircraft have been or will be registered under the Transportation
Code in the name of the related 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 one Owner Participant which will institute certain trust
arrangements to comply with applicable registration requirements. For any
Aircraft, the related 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, 2004, 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.
FEDERAL INCOME TAX CONSEQUENCES
See discussion under "Federal Income Tax Consequences" in the Prospectus.
CERTAIN UTAH TAXES
See discussion under "Certain Utah Taxes" in the Prospectus.
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 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 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: 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 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 issued an amendment to the Underwriter Exemption, 62 FR
39,021 (Jul. 21, 1997), which allows the assets of a pass through trust to
include a prefunding account under certain circumstances. The relief provided
by this amendment is subject to several conditions, including a requirement
that the prefunding period end no later than the earliest to occur of: (i) the
date the amount on deposit in the prefunding account is less than the minimum
dollar amount specified in the pooling and servicing agreement; (ii) the date
on which an event of default occurs under the pooling and servicing agreement;
or (iii) the date which is the later of three months or 90 days after the
closing date. Such restrictions on prefunding accounts may not be applicable
in certain circumstances where, 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. Moreover, even if such
restrictions would not apply, no monitoring or other measures will be taken to
ensure that all of the conditions of the Underwriter Exemption, as amended,
will be satisfied.
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 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.
EACH ERISA PLAN FIDUCIARY (AND EACH FIDUCIARY FOR A GOVERNMENTAL OR
CHURCH PLAN SUBJECT TO RULES SIMILAR TO THOSE IMPOSED ON ERISA PLANS UNDER
ERISA) SHOULD CONSULT WITH ITS LEGAL ADVISOR CONCERNING AN INVESTMENT IN ANY
OF THE PASS THROUGH CERTIFICATES.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement among the Corporation and Morgan Stanley & Co. Incorporated, Chase
Securities Inc., Citicorp Securities, Inc., Credit Suisse First Boston
Corporation and J.P. Morgan Securities Inc. relating to the Pass Through
Certificates, the Corporation has agreed to cause each Pass Through Trust to
sell to each of the Underwriters, and each of such Underwriters has severally
agreed to purchase the respective aggregate amounts of Pass Through
Certificates set forth after their names below. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters will be obligated to purchase
all of the Pass Through Certificates if any Pass Through Certificates are
purchased thereunder.
Total
Percentage of Aggregate
Aggregate Amount of
Amount of Pass Through
Underwriter Each Class Certificates
- -------------- --------------- --------------
Morgan Stanley & Co. Incorporated........ % $
Chase Securities Inc.....................
Citicorp Securities, Inc. ...............
Credit Suisse First Boston Corporation...
J.P. Morgan Securities Inc...............
--------------- --------------
100% $
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.
Concession Reallowance
Pass Through Certificate Class to Dealers Concession
- ------------------------------------- ------------ -------------
1998-1-A % %
1998-1-B
1998-1-C
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 the Underwriters 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.
Certain 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.
In order to facilitate the offering of the Pass Through Certificates,
the Underwriters 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, creating a
short position in the Pass Through Certificates for their own account. In
addition, to cover overallotments or to stabilize the price of the Pass
Through Certificates, the Underwriters may bid for, and purchase, Pass Through
Certificates in the open market. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an Underwriter or a dealer for
distributing Pass Through Certificates in the offering, if the syndicate
repurchases previously distributed Pass Through Certificates in transactions
to cover syndicate short positions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price
of the Pass Through Certificates above independent market levels. The
Underwriters are not required to engage in these activities, and may end any
of these activities at any time.
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 Rule 2710(c)(8) of the Rules 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 Karen M. Clayborne, Senior Vice President and General Counsel of
the Corporation, as to the Corporation's authorization, execution and delivery
of the Pass Through Agreement and each Series Supplement, and on the opinion
of 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 June 17, 1998, Ms. Clayborne owned 2,000 shares of
FDX Corporation's common stock and had been granted options to purchase 28,500
shares of FDX Corporation's common stock. Of the options granted, 2,800 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, 1997 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, 1997, November 30, 1997 and February 28, 1998,
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, MBA and SH&E, and to their respective appraisal
reports, dated as of June 3, 1998 in the case of AISI, June 5, 1998 in the
case of MBA and June 9, 1998 in the case of SH&E, 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. Unless the context otherwise requires, (i) references to agreements
shall be deemed to mean and include such agreements as amended and
supplemented from time to time, and (ii) references to parties to agreements
shall be deemed to include the successors and permitted assigns of such
parties. Please note that the terms used in this glossary may differ from
those used in the related Prospectus. When reading the related Prospectus,
please refer to the glossary of terms contained therein.
"Adjusted Expected Distributions" has the meaning set forth in
"Prospectus Summary--Intercreditor Agreement: Subordination" of this
Prospectus Supplement.
"Aeronautics Authority" means the Federal Aviation Administration and/or
the administrator thereof or any successor to the United States Civil
Aeronautics Board.
"Aggregate LTV Collateral Amount" has the meaning set forth in
"Prospectus Summary--Intercreditor Agreement: Subordination" of this
Prospectus Supplement.
"Aircraft" means each of five McDonnell Douglas MD-11F aircraft and
eight 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 thirteen Leases, and, collectively, means all
of the foregoing.
"Airframe" means each of five McDonnell Douglas MD-11F Aircraft and
eight Airbus A300F4-605R Aircraft, (excluding the Engines or engines from time
to time installed thereon) leased, or expected to be leased, by the related
Owner Trustee to the Corporation pursuant to one of thirteen Leases, and,
collectively, means all of the foregoing.
"AISI" means Aircraft Information Services, Inc., one of the Appraisers.
"American" means American Airlines.
"Appraisals" means, with respect to each Aircraft, the appraisals
related to such Aircraft by each of the Appraisers.
"Appraised Current Market Value" has the meaning set forth in
"Prospectus Summary--Intercreditor Agreement: Subordination" of this
Prospectus Supplement.
"Appraisers" means, collectively, AISI, MBA and SH&E.
"Assumed Aggregate Aircraft Value" means the assumed value of all of the
Aircraft.
"Assumed Aircraft Value" means, with respect to each Aircraft and date,
the assumed value of such Aircraft on such date based on the assumptions set
forth under "Prospectus Summary - Loan to Aircraft Ratios".
"Authenticating Agent" means, for each Pass Through Trust, First
Security Bank, National Association.
"Average Life Date" has the meaning set forth in "Description of the
Equipment Trust Certificates--Prepayment" of this Prospectus Supplement.
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. et
seq.), as amended, or any successor thereto.
"Business Day" means any day other than a Saturday, a Sunday or other
day on which commercial banks in New York City, 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, and after the lien of the Indenture is
discharged, Boston, Massachusetts.
"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 the Prospectus, also means persons having a beneficial
interest in a Pass Through Certificate.
"Class" means the Federal Express Corporation Pass Through Certificates,
1998-1-A, the Federal Express Corporation Pass Through Certificates, 1998-1-B
or the Federal Express Corporation Pass Through Certificates, 1998-1-C, as the
case may be.
"Class A Pass Through Certificates" means Federal Express Corporation
Pass Through Certificates, 1998-1-A.
"Class A Trust" means Federal Express Corporation 1998-1 Pass Through
Trust Class A.
"Class B Certificateholders" means any holder of one or more Class B
Pass Through Certificates.
"Class B Pass Through Certificates" means Federal Express Corporation
Pass Through Certificates, 1998-1-B.
"Class B Trust" means Federal Express Corporation 1998-1 Pass Through
Trust Class B.
"Class C Certificateholders" means any holder of one or more Class C
Pass Through Certificates.
"Class C Pass Through Certificates" means Federal Express Corporation
Pass Through Certificates, 1998-1-C.
"Class C Trust" means Federal Express Corporation 1998-1 Pass Through
Trust Class C.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Collateral Account" means the Collateral Account established pursuant
to the Indentures for Federal Express Corporation Trust Nos. N585FE, N620FE,
N621FE, N623FE, N676FE, N677FE, N678FE, N679FE, N680FE, N681FE and N682FE.
"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.
"Commission" means the Securities and Exchange Commission of the United
States.
"Controlling Party" has the meaning set forth in "Prospectus
Summary--Intercreditor Rights" of this Prospectus Supplement.
"Corporation" means Federal Express Corporation.
"CRAF Program" means the Civil Reserve Air Fleet Program.
"Current Distribution Date" means a Distribution Date specified as a
reference date for calculating the Adjusted Expected Distributions or Expected
Distributions with respect to the Pass Through Certificates of any Pass Through
Trust as of such Distribution Date.
"Cut-off Date" means, with respect to any Aircraft, 90 days after the
scheduled delivery date for such Aircraft.
"Depreciation Assumption" has the meaning set forth in "Prospectus
Summary--Loan To Aircraft Value Ratios" of this Prospectus Supplement.
"Distribution Date" means, with respect to any Aircraft, any Regular
Distribution Date or Special Distribution Date.
"DOL" means the United States Department of Labor.
"Downgrade Drawing" means, with respect to each Liquidity Facility, a
drawing in an amount equal to all available and undrawn amounts under such
Liquidity Facility in the event that the specified rating of the Liquidity
Provider is lower than the Threshold Rating and such Liquidity Facility is not
replaced within the period specified and as otherwise provided in the
Intercreditor Agreement.
"Drawing" means a Downgrade Drawing, Interest Drawing, Non-Extension
Drawing or Final Drawing, as the case may be.
"DTC" means The Depository Trust Company.
"DTC Participants" means the participants of DTC.
"Engine" means, for each of two McDonnell Douglas MD-11F Aircraft, each of
three General Electric CF6-80C2-D1F engines, for each of three McDonnell Douglas
MD-11F Aircraft, each of three Pratt & Whitney 4462 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 in three series (Series A Equipment Trust Certificates, Series B
Equipment Trust Certificates and Series C Equipment Trust Certificates) by the
related Owner Trustee pursuant to the related Indenture and any certificates
issued in exchange therefor or replacement thereof pursuant to the related
Indenture.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plans" means, collectively, 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.
"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."
"Expected Distributions" means, with respect to the Pass Through
Certificates of any Pass Through Trust on any 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.
"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.
"Final Drawing" means, with respect to each Liquidity Facility, a
drawing in an amount equal to all available and undrawn amounts under such
Liquidity Facility in the event that (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.
"Final Expected Distribution Date" means for the Class
A Pass Through Certificates, for the Class B Pass Through
Certificates and for the Class C Pass Through Certificates.
"Final Legal Distribution Date" means for the Class A Pass
Through Certificates, for the Class B Pass Through Certificates
and 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 thirteen trust indenture and security
agreements between the related Owner Trustee and the related Indenture
Trustee, in each case under which such 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, or
another bank or trust company, 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
Pass Through Certificates and Class B Pass Through Certificates.
"Interest Drawing" means, with respect to each Liquidity Facility,
advances to be made by the Liquidity Provider thereunder to make interest
payments on the related Pass Through Certificates.
"Issuance Date" has the meaning set forth in "Description of the Pass
Through Certificates--New Owner Participants; Modification of Documents" of
this Prospectus Supplement.
"KfW" means Kreditanstalt fur Wiederaufbau, a corporation organized
under the public law of the Federal Republic of Germany.
"Lease" means each of the thirteen lease agreements between the related
Owner Trustee and the Corporation, in each case under which such Owner Trustee
has leased, or is expected to lease, the related Aircraft to the Corporation.
"Lease Event of Default" means, for any Lease, each of the events
designated as an event of default in such Lease. For a description of certain
events generally constituting Lease Events of Default, see "Description of the
Equipment Trust Certificates--The Leases--Lease Events of Default."
"LIBOR" means the London Interbank Offered Rate.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease or
security interest or other similar interest.
"Liquidity Event of Default" means, for any Liquidity Facility, each of
the events designated as a Liquidity Event of Default under such Liquidity
Facility. For a description of the events constituting Liquidity Events of
Default, see "Description of the Liquidity Facilities--Liquidity Events of
Default."
"Liquidity Expenses" means all Liquidity Obligations other than (i) the
principal amount of any Drawings under the Liquidity Facilities and (ii) any
interest accrued on any Liquidity Obligations.
"Liquidity Facility" means, for each of the Class A Trust and Class B
Trust, a certain separate revolving credit agreement entered into by the
Subordination Agent and the Liquidity Provider.
"Liquidity Obligations" means, with respect to any Liquidity Facility,
the obligations of the Subordination Agent to reimburse the Liquidity Provider
for all amounts owing to the Liquidity Provider under such Liquidity Facility.
"Liquidity Provider" means, Kreditanstalt fur Wiederaufbau, and any
successor or permitted replacement thereof.
"LTV" means the applicable loan to aircraft value ratio, calculated as
set forth in "Prospectus Summary--Loan to Aircraft Value Ratios."
"LTV Appraisal" has the meaning set forth in "Prospectus
Summary--Intercreditor Agreement: Subordination" of this Prospectus Supplement.
"LTV Collateral Amount" has the meaning set forth in "Prospectus
Summary--Intercreditor Agreement: Subordination" of this Prospectus Supplement.
"LTV Ratio" has the meaning set forth in "Prospectus
Summary--Intercreditor Agreement: Subordination" of this Prospectus Supplement.
"Make-Whole Premium" has the meaning set forth in "Description of the
Equipment Trust Certificates--Prepayment" of this Prospectus Supplement.
"Mandatory Document Terms" means for each Aircraft with respect to which
the Corporation will initially hold the beneficial interest under the related
Trust Agreement, certain required specified terms in the related Participation
Agreement, Lease, Trust Agreement and Indenture to be entered into by the
related prospective Owner Participant and the other parties thereto upon the
transfer by the Corporation to such Owner Participant of such beneficial
interest. For a description of such terms, see "Description of the Pass
Through Certificates--Mandatory Document Terms."
"Mandatory Economic Terms," means for each Aircraft with respect to
which the Corporation will initially hold the beneficial interest under the
related Trust Agreement, certain required specified terms in the related
Participation Agreement, Lease, Trust Agreement and Indenture to be entered
into by the related prospective Owner Participant and the other parties
thereto upon the transfer by the Corporation to such Owner Participant of such
beneficial interest. For a description of such terms, see "Description of the
Pass Through Certificates--New Owner Participants; Modification of
Documents--Mandatory Economic Terms."
'MBA" means Morten Beyer and Associates, Inc., one of the Appraisers.
"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.
"Moody's" means Moody's Investors Service, Inc.
"Non-Extension Drawing" means, with respect to any Replacement Facility,
a drawing in an amount equal to all available and undrawn amounts under such
Replacement Facility 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 and such Repayment Facility is not replaced.
"Non-Performing Equipment Trust Certificates" means Equipment Trust
Certificates other than Performing Equipment Trust Certificates.
"Operative Agreements" means, for any Aircraft, the related Indenture,
Equipment Trust Certificates, Participation Agreement, Lease, Trust Agreement,
Intercreditor Agreement, Liquidity Facilities 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 Participant" means the owner participant named in the related
Trust Agreement.
"Owner Trust" means each of the thirteen trusts created pursuant to each
Trust Agreement.
"Owner Trustee" means State Street Bank and Trust Company of
Connecticut, National Association, or successor bank or trust company, in its
capacity as owner trustee of the thirteen Owner Trusts.
"Participation Agreement" means the agreement among the Corporation, the
related Indenture Trustee, the related Owner Trustee, the Pass Through
Trustee, the Subordination Agent, the related Owner Participant and the
holders of the original loan certificates (in the case of Federal Express
Corporation Trust Nos. N587FE and N675FE), and that is defined as the
"Participation Agreement" in the related Indenture and pursuant to which the
Pass Through Trustee agrees to purchase from such 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, 1998-1-A, Federal Express Corporation Pass Through
Certificates, 1998-1-B and Federal Express Corporation Pass Through
Certificates, 1998-1-C, to be issued by the related 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 1998-1 Pass
Through Trust Class A, Federal Express Corporation 1998-1 Pass Through Trust
Class B and Federal Express Corporation 1998-1 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.
"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.
"Performing Equipment Trust Certificates" means 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)) (the "Section 1110 Period") 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.
"Pool Balance" means, for any Pass Through Trust or for the Pass Through
Certificates issued by any Pass Through Trust, 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. See
"Description of the Pass Through Certificates--Pool Factors."
"Pool Factor" means, for any Pass Through Trust as of any Regular
Distribution Date or Special Distribution Date, 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. See "Description of the Pass Through Certificates--Pool Factors."
"Prefunding Period" means, for each Aircraft, the period, if any,
commencing on the date of the issuance of the Pass Through Certificates to but
not including the delivery date of such Aircraft or, if delivery of such
Aircraft does not occur, to but not including the date of prepayment of the
related Equipment Trust Certificates.
"Prohibited Transactions" has the meaning set forth in "ERISA
Considerations" of this Prospectus Supplement.
"Prospectus" means the Prospectus relating to pass through certificates
as filed with the Commission on April 3, 1998 (including any amendment
thereto) in connection with the Registration Statement.
"PTCE" means, in connection with ERISA considerations, the Prohibited
Transaction Class Exemption.
"PTC Event of Default" means, for any Class of Pass Through
Certificates, failure of the Pass Through Trustee to pay within 10 business
days of the due date thereof (i) the outstanding Pool Balance of the such
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 Pass Through Certificates
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).
"Rating Agencies" means, collectively, Moody's and Standard & Poor's.
"Registrar" means, for each Pass Through Trust, First Security Bank,
National Association.
"Registration Statement" means the Corporation's Registration Statement
No. 333-49411 on Form S-3 as filed with the Commission on April 3, 1998
(including any amendment thereto).
"Regular Distribution Date" means, for each Pass Through Trust, January
15 and July 15 of each year, commencing July 15, 1998.
"Remaining Weighted Average Life" has the meaning set forth in
"Description of the Equipment Trust Certificates--Prepayment" of this
Prospectus Supplement.
"Replacement Facility" means, for any Pass Through Trust, 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 related Pass Through Certificates
(before downgrading of such ratings, if any, as a result of any downgrading of
the Liquidity Provider), and 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.
"Required Amount" means, with respect to the Liquidity Facility for any
applicable Pass Through Trust, an amount equal to the interest payable on the
related Pass Through Certificates on the next three consecutive Regular
Distribution Dates (without regard to expected future payments of principal on
such Pass Through Certificates) at the Stated Interest Rate for such Pass
Through Trust.
"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 related Pass Through Trustee
on a Regular Distribution Date.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Equipment Trust Certificates" means Equipment Trust
Certificates issued and designated as Series A under the related Indenture.
"Series B Equipment Trust Certificates" means Equipment Trust
Certificates issued and designated as Series B under the related Indenture.
"Series C Equipment Trust Certificate" means Equipment Trust
Certificates issued and designated as Series C under the related Indenture.
"Series C Prepayment Date" means July 15, 1999 or any other date
designated by the Corporation, but in no event later than the fifteenth day
following the Cut-off Date for the last Aircraft to be delivered.
"Series Supplement" means each of Series Supplement 1998-1-A, Series
Supplement 1998-1-B and Series Supplement 1998-1-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.
"SH&E" means Simat, Helliesen & Eichner, Inc., one of the Appraisers.
"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 related 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 such Pass Through Trustee.
"Specified Investments" means 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 and Moody's, 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 in any case has capital, surplus and undivided
profits aggregating at least $500 million.
"Standard & Poor's" means, Standard & Poor's, a division of The
McGraw-Hill Company, Inc.
"Stated Interest Rates" means the interest rates applicable to the Pass
Through Certificates of each Pass Through Trust.
"Subordination Agent" means First Security Bank, National Association.
"Threshold Rating" means (i) for the initial Liquidity Provider, a
long-term unsecured debt rating of Aa3 by Moody's and AA- by Standard & Poor's
and (ii) for any replacement Liquidity Provider, 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 of Aa3 by Moody's and AA- by Standard and
Poor's.
"Transportation Code" means Title 49 of the United States Code, as
amended.
"Treasury Yield" has the meaning set forth in "Description of the
Equipment Trust Certificates--Prepayment" of this Prospectus Supplement.
"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 Agreement" means each of thirteen trust agreements between the
related Owner Trustee and the related Owner Participant.
"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.
"Underwriter Exemption" has the meaning set forth in "ERISA
Considerations" of this Prospectus Supplement.
"Underwriters" means Morgan Stanley & Co. Incorporated, Chase Securities
Inc., Citicorp Securities, Inc., Credit Suisse First Boston Corporation and
J.P. Morgan Securities Inc.
"Underwriting Agreement" means the agreement among the Corporation and
the Underwriters relating to the purchase by the Underwriters of the related
Pass Through Certificates.
APPENDIX III
EQUIPMENT TRUST CERTIFICATE PAYMENTS
Pass Through Trust, 1998-1-A
% Equipment Trust Certificates
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Regular
Distribution
Date N585FE* N590FE N620FE* N621FE* N623FE* N675FE N676FE*
- ----------------- --------- -------- --------- --------- --------- ---------
Regular
Distribution
Date N677FE* N678FE* N679FE* N680FE* N681FE* N682FE*
- ----------------- --------- -------- --------- --------- --------- ---------
Pass Through Trust, 1998-1-B
% Equipment Trust Certificates
Regular
Distribution
Date N585FE* N590FE N620FE* N621FE* N623FE* N675FE N676FE*
- ----------------- --------- -------- --------- --------- --------- --------- ---------
Regular
Distribution
Date N677FE* N678FE* N679FE* N680FE* N681FE* N682FE*
- ----------------- --------- -------- --------- --------- --------- ---------
Pass Through Trust, 1998-1-C
% Equipment Trust Certificates
Regular
Distribution
Date N585FE* N590FE N620FE* N621FE* N623FE* N675FE N676FE*
- ----------------- --------- -------- --------- --------- --------- -------- ---------
Regular
Distribution
Date N677FE* N678FE* N679FE* N680FE* N681FE* N682FE*
- ----------------- --------- -------- --------- --------- --------- --------
- ------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
</TABLE>
APPENDIX IV
LOAN TO VALUE RATIOS
<TABLE>
N585FE* N590FE
--------- ---------
Equipment Equipment
Trust Trust
Certificate Assumed Loan Certificate Assumed Loan
Outstanding Aircraft to Outstanding Aircraft to
Balance Value (in Value Balance Value (in Value
Date (in millions) millions) Ratio (in millions) millions) Ratio
- ---- ------------- --------- ----- -------------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
N620FE* N621FE*
--------- ---------
Equipment Equipment
Trust Trust
Certificate Assumed Loan Certificate Assumed Loan
Outstanding Aircraft to Outstanding Aircraft to
Balance Value (in Value Balance Value (in Value
Date (in millions) millions) Ratio (in millions) millions) Ratio
- ---- ------------- --------- ----- -------------- --------- -----
N623FE* N675FE
--------- ---------
Equipment Equipment
Trust Trust
Certificate Assumed Loan Certificate Assumed Loan
Outstanding Aircraft to Outstanding Aircraft to
Balance Value (in Value Balance Value (in Value
Date (in millions) millions) Ratio (in millions) millions) Ratio
- ---- ------------- --------- ----- -------------- --------- -----
N676FE* N677FE*
--------- ---------
Equipment Equipment
Trust Trust
Certificate Assumed Loan Certificate Assumed Loan
Outstanding Aircraft to Outstanding Aircraft to
Balance Value (in Value Balance Value (in Value
Date (in millions) millions) Ratio (in millions) millions) Ratio
- ---- ------------- --------- ----- -------------- --------- -----
N678FE* N679FE*
--------- ---------
Equipment Equipment
Trust Trust
Certificate Assumed Loan Certificate Assumed Loan
Outstanding Aircraft to Outstanding Aircraft to
Balance Value (in Value Balance Value (in Value
Date (in millions) millions) Ratio (in millions) millions) Ratio
- ---- ------------- --------- ----- -------------- --------- -----
N680FE* N681FE*
--------- ---------
Equipment Equipment
Trust Trust
Certificate Assumed Loan Certificate Assumed Loan
Outstanding Aircraft to Outstanding Aircraft to
Balance Value (in Value Balance Value (in Value
Date (in millions) millions) Ratio (in millions) millions) Ratio
- ---- ------------- --------- ----- -------------- --------- -----
N682FE*
---------
Equipment
Trust
Certificate Assumed Loan
Outstanding Aircraft to
Balance Value (in Value
Date (in millions) millions) Ratio
- ----- ------------- --------- ------
- ------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
</TABLE>
PROSPECTUS
[COMPANY LOGO]
PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES
------------
Up to $1,000,000,000 aggregate amount of 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 by Federal Express Corporation
(the "Corporation") pursuant to the Pass Through Agreement and a Series
Supplement. 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
held in any other such Pass Through Trust.
The Trust Property of each Pass Through Trust will consist of
(a) Owned Aircraft Certificates or (b) Leased Aircraft Certificates, or both.
The Owned Aircraft Certificates will be issued to finance or refinance all or
a portion of the purchase price of each of 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 the Leased
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. 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)
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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 June 11, 1998.
(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. The trust property
of each Owner Trust in the case of Leased Aircraft will consist of the
specified Leased Aircraft (or, if the delivery of such Leased Aircraft is
delayed, the proceeds of the sale of the related Leased Aircraft Certificates
or such other collateral described herein) and the rights of such Owner
Trustee under the related documentation. 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.
If specified in the applicable Prospectus Supplement, during
any Pre-Funding Period, the related Leased Aircraft Certificates will be
secured either 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) or by a Depositary Arrangement. Funds in such
collateral account, together with any such other security or amounts payable
under a Depositary Arrangement 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 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 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 as the Liquidity Provider in the applicable Prospectus
Supplement. As specified in such Prospectus Supplement, the Liquidity
Provider will enter into a separate Liquidity Facility, which may be a
revolving credit agreement, letter of credit or other arrangement, with
respect to each relevant Pass Through Trust. Under each Liquidity Facility,
the Liquidity Provider will make advances up to a specified maximum amount
solely for the payment of interest when due in an aggregate amount sufficient
to pay interest on the relevant Pass Through Certificates on one or more
scheduled interest payment dates, if there are otherwise insufficient funds to
make such interest payments. The Liquidity Facility for such Pass Through
Certificates will not provide for such advances to pay principal of or premium
on such Pass Through Certificates, any interest on such Pass Through
Certificates in excess of the stated interest rate thereon, or principal of or
interest on the Pass Through Certificates relating to any other Pass Through
Trust. Upon each such advance under a Liquidity Facility, a subordination
agent will be obligated to reimburse (to the extent funds are available) the
Liquidity Provider for the amount of such advance. The obligation to
reimburse the Liquidity Provider under each Liquidity Facility will rank pari
passu with such agent's reimbursement obligations relating to other Liquidity
Facilities, and will rank senior to the related Pass Through Certificates in
right of payment.
The Pass Through Certificates will be issued in registered form
only and, unless the applicable Prospectus Supplement otherwise specifies that
Pass Through Certificates will be issued in certificated form, 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."
It is expected that the Pass Through Certificates will be
assigned an "investment grade" rating by one or more nationally recognized
statistical rating organizations. Such rating or ratings will be set forth in
the Prospectus Supplement applicable to the Pass Through Certificates being
sold.
This Prospectus may not be used to consummate sales of any Pass
Through Certificates unless accompanied by the Prospectus Supplement
applicable to the Pass Through Certificates being sold.
------------
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of
the Exchange Act, and in accordance therewith files reports and other
information with 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
filed by the Corporation under 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, 1997 filed August 8, 1997.
2. The Corporation's Quarterly Reports on Form 10-Q for the
fiscal quarters ended August 31, 1997, November 30, 1997 and February 28,
1998, respectively, filed October 14, 1997, January 13, 1998 and April 10,
1998, respectively.
3. The Corporation's Current Reports on Form 8-K dated May 22,
June 11, June 30, July 7, August 8, September 30 and October 6, 1997, and
February 26, 1998, respectively, filed June 2, June 19, July 7, July 9, August
14, October 8 and October 8, 1997, and March 6, 1998, 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.
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:
Elizabeth R. Allen, Investor Relations, FDX Corporation, by mail at Box 727,
Memphis, Tennessee 38194-1854 or by telephone at (901) 395-3478.
FEDERAL EXPRESS CORPORATION
The Corporation is a wholly-owned subsidiary of FDX
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 February
Year Ended May 31, 28,
---------------------------------------------- --------------------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(a)................ 1.4x 1.7x 2.0x 1.9x 2.0x 1.9x 2.0x
</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.
RISK FACTORS
In addition to the information set forth elsewhere in this
Prospectus, prospective investors should consider carefully the factors set
forth below in connection with an investment in Pass Through Certificates.
The following discussion should be read in conjunction with the more detailed
information set forth in the applicable Prospectus Supplement.
Risks Relating to the Corporation's Business
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. The Corporation's results of operations and
financial condition are subject to certain risks and uncertainties, including
economic conditions in the markets in which it operates which can affect
demand for the Corporation's services, competition from other providers of
express services, ability to compete with new or improved services offered by
competitors, changes in customer demand patterns, increases in aviation and
motor fuel prices, ability to match aircraft, vehicle and sort capacity with
customer volume levels, ability to obtain aviation rights in important
international markets, contributions to financial results from the sale of
engine noise reduction kits, changes in government regulation, weather
technological change and availability of financing on terms acceptable to the
Corporation.
Appraisals and Realizable Value of Aircraft
The Prospectus Supplement will contain the appraised value of
each Aircraft based upon the lesser of the average and the median value of
such Aircraft as appraised by independent appraisers who will be named in the
applicable Prospectus Supplement (the "Appraisals") and whose reports or
summaries thereof may be contained therein. The Appraisals will be based on
various assumptions and methodologies, which vary among the Appraisals.
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 Certificates and the Aircraft pursuant to the
related Indenture will be as appraised or sufficient to satisfy in full
payments due on the Equipment Certificates issued thereunder or the Pass
Through Certificates.
The Equipment Certificates are not cross-collateralized and,
consequently, liquidation proceeds from the sale of an Aircraft in excess of
the principal amount of the Equipment Certificates related to such Aircraft
will not be available to cover losses, if any, on any other Equipment
Certificates.
Priority of Distributions; Subordination
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 one Indenture may, under certain
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 Indentures. If this occurs, the interest accruing on the remaining
Equipment 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 even if
all the Equipment Certificates are eventually paid in full. The applicable
Prospectus Supplement related to an issuance of Pass Through Certificates will
describe any such intercreditor agreement and cross-subordination provisions
and any related terms.
Ratings of the Pass Through Certificates
It is expected that the Pass Through Certificates will be
assigned an "investment grade" rating by one or more Rating Agencies. Such
rating or ratings will be set forth in the Prospectus Supplement applicable to
the Pass Through Certificates being sold. 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 provider of a Liquidity Facility, if any) so warrant. The
rating of the Pass Through Certificates will be based primarily on the default
risk of the Equipment Certificates, the availability of the Liquidity Facility
for the holders of the Pass Through Certificates, the collateral value
provided by the Aircraft and any intercreditor and cross-subordination
arrangements. The ratings are expected to 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 on the final expected distribution date. Such ratings are not
expected to 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 such final expected distribution date.
Unless specified in the applicable Prospectus Supplement, 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
If specified in the applicable Prospectus Supplement, at the
time of issue of Pass Through Certificates, the Corporation may still be
seeking Owner Participants with respect to the trusts relating to certain of
the 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 the applicable Prospectus Supplement.
Notwithstanding the foregoing, the terms of such agreements
will be required to (i) contain certain mandatory document terms and (ii) not
vary certain mandatory economic terms. In addition, the Corporation will be
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 of any Class of Pass Through Certificates.
Highly Leveraged Transaction
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.
Absence of a Public Market for the Pass Through Certificates
Prior to their issuance, there will have been no public 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. There can be no assurance as to the liquidity of the public market
for the Pass Through Certificates or that any active public market for the
Pass Through Certificates will develop or continue. If an active public
market does not develop or continue, the market price and liquidity of the
Pass Through Certificates may be adversely affected.
OUTLINE OF PASS THROUGH TRUST STRUCTURE
For each Series of Pass Through Certificates offered pursuant
to this Prospectus and a related Prospectus Supplement, a Pass Through Trust
will be formed pursuant to a Series Supplement in accordance with the Pass
Through Agreement for the benefit of the Certificateholders of such Series of
Pass Through Certificates evidencing fractional undivided interests in such
Pass Through Trust. The Trust Property will consist of (a) the Owned Aircraft
Certificates or (b) the Leased Aircraft Certificates, or both, as specified in
the applicable Prospectus Supplement.
As more fully described below under "Use of Proceeds," in
connection with each purchase or leveraged lease transaction, one or more
Equipment Certificates may be issued, each of which may have different
interest rates and final maturity dates 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 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 Owned
Aircraft, as specified in the applicable Prospectus Supplement, or (b) the
financing or refinancing of the debt portion and, in those cases where the
Owner Participant wishes for tax purposes to prevent specific allocation of
interest expense to the related Aircraft, repaying 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 Leased
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 the Owner Trustee of separate Owner Trusts for the benefit of
the related Owner Participant, in connection with one or more leveraged lease
transactions, in each case to finance or refinance a portion, which is not
expected to exceed 80% and which will be set forth in the applicable
Prospectus Supplement, 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 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 or into a Deposit
Account pursuant to a Depositary Arrangement. Such Collateral Account,
together with the other security, if any, pledged under the related Indenture
(see "Description of the Equipment Certificates -- Security" below), or such
Depositary Arrangement, will secure such Leased Aircraft Certificates during
the related Pre-Funding Period 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 or amounts payable
under a Depositary Arrangement 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 Indenture Trustee under a Leased Aircraft Indenture.
Each Owner Participant will have provided or will provide, from sources other
than the related Leased Aircraft Certificates, a portion, which is not
expected to be less than 20% and which will be set forth in the applicable
Prospectus Supplement, 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 an Owned Aircraft
Indenture. 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 rates and final maturity dates and rankings 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.
In a Leased Aircraft transaction, the Corporation will lease
each Leased Aircraft from the Owner Trustee under a separate Lease. The
Corporation will make scheduled rental payments for each Leased Aircraft under
the related Lease. As a result of the assignment under the related Leased
Aircraft Indenture of certain rights of the Owner Trustee under such Lease, the
Corporation will make these payments directly to the Indenture Trustee. From
these rental payments the Indenture Trustee will pay to the Pass Through
Trustee for each Pass Through Trust the interest or interest and principal due
from the Owner Trustee on the Leased Aircraft Certificates issued under the
related Leased Aircraft Indenture and held in such Pass Through Trust. After
such payments have been made, the Indenture Trustee will pay the remaining
balance to the Owner Trustee for the benefit of the related Owner Participant.
The Pass Through Trustee for each Pass Through Trust will distribute to the
related Certificateholders payments received on the Leased Aircraft
Certificates held in such Pass Through Trust. See "Description of the Pass
Through Certificates -- Payments and Distributions" and "Description of the
Equipment Certificates -- Delayed Lease Commencement" for a discussion of
payments during any Pre-Funding Period.
In an Owned Aircraft transaction, the Corporation will make
scheduled payments on the Owned Aircraft Certificates relating to each Owned
Aircraft to the Indenture Trustee. From these payments the Indenture Trustee
will pay to the Pass Through Trustee for each Pass Through Trust the interest
or interest and principal due on the Owned Aircraft Certificates issued under
the related Owned Aircraft Indenture and held in such Pass Through Trust. The
Pass Through Trustee for each Pass Through Trust will distribute to the
related Certificateholders payments received on the Owned Aircraft
Certificates held in such Pass Through Trust.
[GRAPHIC - A diagram is included here which contains boxes
representing the parties identified in the first paragraph of "Diagram of
Payments" which are connected by arrows demonstrating the cash flows described
in each of the second and third paragraphs.]
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, and is qualified in its
entirety by the more detailed information appearing 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, and Depositary Arrangement, 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.
In addition to the glossary contained in this Prospectus, 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.
General
The Pass Through Certificates will be issued in fully
registered form only and, unless certificated Pass Through Certificates are
issued, will be registered in the name of Cede as the nominee of 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, 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 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 and Special Distribution
Dates applicable to such Pass Through Certificates and the applicable
Cut-off Date, 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 Equipment
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 or Depositary Arrangement, 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;
(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 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 Pass Through Certificates in fully registered
certificated form are issued, 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 of a Pass
Through Certificate initially issued as a global certificate 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 DTC Participants and to facilitate the
clearance and settlement of securities transactions between DTC Participants
through electronic book-entries, thereby eliminating the need for physical
movement of certificates. DTC Participants include securities brokers and
dealers, banks, trust companies and clearing corporations. Access to DTC's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a participant, either directly or indirectly.
Certificateholders that are not DTC Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests, in Pass
Through Certificates may do so only through DTC Participants. In addition,
Certificateholders will receive all distributions of principal and interest
from the Pass Through Trustee through the DTC Participants. Under the rules,
regulations and procedures creating and affecting DTC and its operation, DTC
is required to make book-entry transfers of Pass Through Certificates among
DTC Participants on whose behalf it acts and to receive and transmit
distributions of principal of, and interest on, the Pass Through Certificates.
Under the book-entry system, Certificateholders may experience some delay in
receipt of payments, since such payments will be forwarded by the Pass Through
Trustee to Cede, as nominee for DTC, and DTC in turn will forward the payments
to the appropriate DTC Participants.
Distributions by DTC Participants to Certificateholders will be
the responsibility of such DTC Participants and will be made in accordance
with customary industry practices. Accordingly, although Certificateholders
will not have possession of the Pass Through Certificates, the rules of DTC
provide a mechanism by which participants will receive payments and will be
able to transfer their interests. Although the DTC Participants are expected
to convey the rights represented by their interests in any global security to
the related Certificateholders, because DTC can only act on behalf of DTC
Participants, the ability of Certificateholders to pledge Pass Through
Certificates to persons or entities that are not DTC Participants or to
otherwise act with respect to such Pass Through Certificates, may be limited
due to the lack of physical certificates for such Pass Through Certificates.
None of the Corporation, the Pass Through Trustee or any other
agent of the Corporation or the Pass Through Trustee will have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the Pass
Through Certificates or for supervising or reviewing any records relating to
such beneficial ownership interests. Since the only "Certificateholder" will
be Cede, as nominee of DTC, Certificateholders will not be recognized by the
Pass Through Trustee as Certificateholders, as such term is used in the Pass
Through Agreement, and Certificateholders will be permitted to exercise the
rights of Certificateholders only indirectly through DTC and DTC Participants.
DTC has advised the Corporation that it will take any action permitted to be
taken by a Certificateholder under the Pass Through Agreement and any
Prospectus Supplement only at the direction of one or more DTC Participants to
whose accounts with DTC the related Pass Through Certificates are credited.
Additionally, DTC has advised the Corporation that it will take such actions
with respect to any percentage of the beneficial interest of
Certificateholders held in each Pass Through Trust only at the direction of
and on behalf of DTC Participants whose holders include undivided interests
that satisfy any such percentage. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of DTC Participants whose holders include such undivided interests.
Same-Day Settlement and Payment. All payments made by the
Corporation to the Indenture Trustee under each Lease will be in immediately
available funds and will be passed through to DTC in immediately available
funds.
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. Pass Through Certificates initially issued
in the form of global certificates will be issued in fully registered,
certificated form to Certificateholders, or their nominees, rather than to DTC
or its nominee, only if DTC advises the Pass Through Trustee in writing that
it is no longer willing or able to discharge properly its responsibilities as
depository with respect to the Pass Through Certificates and the Corporation
is unable to locate a qualified successor or if the Corporation, at its
option, elects to terminate the book-entry system through DTC. In such event,
the Pass Through Trustee will notify all Certificateholders through DTC
Participants of the availability of such certificated Pass Through
Certificates. Upon surrender by DTC of the definitive global certificate
representing the series of Pass Through Certificates and receipt of
instructions for reregistration, the Pass Through Trustee will reissue the
Pass Through Certificates in certificated form to Certificateholders or their
nominees. (Pass Through Agreement, Section 2.12)
Certificates in certificated form will be freely transferable
and exchangeable at the office of the Pass Through Trustee upon compliance
with the requirements set forth in the Pass Through Agreement and the
applicable Series Supplements. No service charge will be imposed for any
registration of transfer or exchange, but payment of a sum sufficient to cover
any tax or other governmental charge may be required.
Payments and Distributions
The Corporation will make scheduled payments of principal of,
and interest on the unpaid amount of, the Owned Aircraft Certificates to the
Indenture Trustee under the related Owned Aircraft Indenture, and the
Indenture Trustee will distribute such principal and interest payments to the
Pass Through Trustee for each of the Pass Through Trusts that hold such Owned
Aircraft Certificates. Upon commencement of the Lease for any Leased
Aircraft, the Corporation will make scheduled rental payments for each Leased
Aircraft under the related Lease. After any Pre-Funding Period for a Leased
Aircraft, these scheduled rental payments will be assigned under the
applicable Leased Aircraft Indenture by the related Owner Trustee to the
Indenture Trustee to provide the funds necessary to make the corresponding
payments of principal and interest due from the Owner Trustee on the Leased
Aircraft Certificates issued under such Leased Aircraft Indenture.
Until the Corporation has entered into a Lease in connection
with a Leased Aircraft, the Corporation will not be obligated to make any
scheduled rental payments and during any Pre-Funding Period for such Leased
Aircraft the related Leased Aircraft Certificates will not be secured by such
Leased Aircraft or the related Lease, including any rental payments under such
Lease. In general, 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 or amounts payable under a Depositary Arrangement 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. Subject to 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 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, will be distributed on the dates determined as set forth in the
applicable Prospectus Supplement 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 another date is 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."
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 Certificate Accounts
and one or more Special Payment Accounts. 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.
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 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 of such Pass Through Trust will be recomputed
after giving effect thereto and notice thereof will be mailed to the
Certificateholders of such Pass Through Trust. Each Pass Through Trust will
have a separate Pool Factor.
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)
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)
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 Pass Through 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 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 as the occurrence and continuance of an Indenture Event of
Default under one or more of the related Indentures. The Indenture Events of
Default under the Indentures will be described in the applicable Prospectus
Supplement and, for the Leased Aircraft, will include 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, in the absence of such cross-default provisions,
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 Indentures with respect to which
an Indenture Event of Default has not occurred will continue to be held in
such Pass Through Trust and payments of principal of, premium, if any, and
interest on such Equipment Certificates will continue to be distributed to the
Certificateholders of such Pass Through Trust as originally scheduled, subject
to the Intercreditor Agreement. If the applicable Prospectus Supplement
contains the terms of any cross-subordination provisions among
Certificateholders of separate Pass Through Trusts, payments made pursuant to
one Indenture under which no Indenture Event of Default has occurred will be
distributed first to holders of Pass Through Certificates issued under the
Pass Through Trust which holds the most senior Equipment Certificates issued
under all 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 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.
Each Pass Through Trust will hold Equipment Certificates with
different terms from those of the Equipment Certificates held in any other
Pass Through Trust and, therefore, the Certificateholders of a Pass Through
Trust may have divergent or conflicting interests from those of the
Certificateholders of the other Pass Through Trusts holding Equipment
Certificates relating to the same Indenture. In addition, so long as the same
institution or an affiliate of such institution acts as Pass Through Trustee
of one or more Pass Through Trusts holding Equipment Certificates issued under
such Indenture, in the absence of instructions from the Certificateholders of
any such Pass Through Trust, the Pass Through Trustee for such Pass Through
Trust could for the same reason be faced with a potential conflict of interest
upon an Indenture Event of Default. In such event, the initial Pass Through
Trustee has indicated that it would resign as Pass Through Trustee of one or
all of such Pass Through Trusts, and a successor pass through trustee would be
appointed in accordance with the terms of the Pass Through Agreement and the
applicable Series Supplement. See "The Pass Through Trustee; the Indenture
Trustee" below for a discussion of resignation procedures.
As an additional remedy, if an Indenture Event of Default under
an Indenture has occurred and is continuing, the Pass Through Agreement
provides that the Pass Through Trustee of a Pass Through Trust holding
Equipment Certificates issued under such Indenture may, and upon the direction
of the Certificateholders evidencing fractional undivided interests
aggregating not less than a majority in interest of such Pass Through Trust
will, sell all or part of such Equipment Certificates for cash to any person
at a price or prices that it may reasonably deem advisable. Any proceeds
received by the Pass Through Trustee upon any such sale will be deposited in
the Special Payments Account for such Pass Through Trust and will be
distributed to the Certificateholders of such Pass Through Trust on a Special
Distribution Date. (Pass Through Agreement, Sections 7.01 and 7.02)
The market for Equipment Certificates in default may be very
limited and there can be no assurance that they could be sold for a reasonable
price. Furthermore, so long as the same institution or an affiliate of such
institution acts as Pass Through Trustee of one or more Pass Through Trusts
holding Equipment Certificates issued under such Indenture, it may be faced
with a conflict in deciding from which Pass Through Trust to sell Equipment
Certificates to available buyers. If the Pass Through Trustee sells any such
Equipment Certificates with respect to which an Indenture Event of Default
exists for less than the outstanding principal amount thereof, the
Certificateholders of such Pass Through Trust will receive a smaller amount of
principal distributions than anticipated and will not have any claim for the
shortfall against the Pass Through Trustee, or the Corporation or, in the case
of Leased Aircraft Certificates, the Owner Trustee or any related Owner
Participant, as the case may be. Furthermore, neither the Pass Through
Trustee nor the Certificateholders of such Pass Through Trust could take any
action with respect to any remaining Equipment Certificates held in such Pass
Through Trust so long as no Indenture Event of Default existed with respect
thereto.
For any Pass Through Trust, any amount distributed to the Pass
Through Trustee by the Indenture Trustee under any Indenture on account of the
Equipment Certificates held in such Pass Through Trust following an Indenture
Event of Default under such Indenture will be deposited in the Special
Payments Account for such Pass Through Trust and will be distributed to the
Certificateholders of such Pass Through Trust on a Special Distribution Date.
In addition, if, following an Indenture Event of Default under any Leased
Aircraft Indenture, the related Owner Trustee or Owner Participant, as the
case may be, exercises its option, if any, to prepay or purchase the
outstanding Leased Aircraft Certificates issued under such Indenture as
described in the related Prospectus Supplement, the price paid by such Owner
Trustee or the Owner Participant to the Pass Through Trustee for such Leased
Aircraft Certificates held in such Pass Through Trust will be deposited in the
related Special Payments Account and will be distributed to the
Certificateholders of such Pass Through Trust on a Special Distribution Date.
(Pass Through Agreement, Sections 5.01 and 5.02)
Any funds representing payments received with respect to any
Equipment Certificates held in a Pass Through Trust in default, or the
proceeds from the sale by the Pass Through Trustee of any such Equipment
Certificates, held by the Pass Through Trustee in the Special Payments Account
for such Pass Through Trust will, to the extent practicable, be invested by
the Pass Through Trustee in Permitted Investments pending the distribution of
such funds on a Special Distribution Date. (Pass Through Agreement, Article I
and Section 5.04)
The Pass Through Agreement provides that the Pass Through
Trustee will, within 90 days after the occurrence of a default (as defined
below) under any Pass Through Trust, notify the Certificateholders of such
Pass Through Trust by mail of all uncured or unwaived defaults with respect to
such Pass Through Trust known to it. Under no circumstances, however, may the
Pass Through Trustee give such notice until the expiration of a period of 60
days from the occurrence of such default. The Pass Through Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interests of such Certificateholders,
except in the case of default in the payment of principal of, premium, if any,
or interest on any of the Equipment Certificates held in such Pass Through
Trust. The term "default" means the occurrence of any Event of Default with
respect to a Pass Through Trust as described above, except that in determining
whether any such Event of Default has occurred any grace period or notice in
connection therewith shall be disregarded. (Pass Through Agreement, Section
7.11)
The Pass Through Agreement provides that for each Pass Through
Trust, subject to the duty of the Pass Through Trustee during a default to act
with the required standard of care, the Pass Through Trustee is entitled to be
indemnified by the Certificateholders of such Pass Through Trust before
proceeding to exercise any right or power under such Pass Through Trust 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 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 of 1939, as amended, or any
similar federal statute enacted thereafter;
(ix) make any other amendments or modifications which shall only
apply to any Pass Through Trust established thereafter; and
(x) add, eliminate or change any provision under the Pass
Through Agreement that will not adversely affect the interests of the
Certificateholders,
provided that in each case such modification does not cause the
Pass Through Trust to become taxable as an "association" within the meaning of
Treasury Regulation Section 301.7701-4. (Pass Through Agreement, Section
11.01)
The Pass Through Agreement also provides that the Corporation
and the Pass Through Trustee, with the consent of the Certificateholders
evidencing fractional undivided interests aggregating not less than a majority
in interest of the affected Pass Through Trust, may execute supplemental
agreements adding any provisions to or changing or eliminating any of the
provisions of the Pass Through Agreement, to the extent relating to such Pass
Through Trust, and the applicable Series Supplement, 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; or
(e) cause the Pass Through Trust to become taxable as an
"association" within the meaning of Treasury Regulation Section 301.7701-4.
(Pass Through Agreement, Section 11.02)
Modification, Consents and Waivers under the Indenture and Related Agreements
If the Pass Through Trustee, as the holder of any Equipment
Certificates held in a Pass Through Trust, receives a request for its consent
to any amendment, modification or waiver under the Indenture, or other
document relating to such Equipment Certificates (including any Lease with
respect to Leased Aircraft Certificates), the Pass Through Trustee will mail
a notice of such proposed amendment, modification or waiver to each
Certificateholder of such Pass Through Trust as of the date of such notice.
The Pass Through Trustee will request instructions from such
Certificateholders as to whether or not to consent to such amendment,
modification or waiver. The Pass Through Trustee will vote or consent with
respect to such Equipment Certificates in the same proportion as the Pass
Through Certificates of such Pass Through Trust are actually voted by such
Certificateholders by a certain date. If an Event of Default relating to such
Indenture has occurred and is continuing under such Pass Through Trust, the
Pass Through Trustee may, in the absence of instructions from
Certificateholders holding a majority in interest of such Pass Through Trust
and subject to any intercreditor agreement, in its own discretion consent to
such amendment, 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 Indenture. 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 one 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 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
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 until applied to such purchase. (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 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. 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, First Security Bank, National Association will be the Indenture
Trustee under the Indentures under which the Equipment Certificates have been
or will be issued. First Security Bank, National Association 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, First Security Bank, National Association 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)
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, 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 or Depositary Arrangement, 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 or
Depositary Arrangement, if any, relating to any particular offering of Pass
Through Certificates will be described in the applicable Prospectus
Supplement. To the extent that any provision in any Prospectus Supplement is
inconsistent with any provision of this summary, the provision of such
Prospectus Supplement will control.
General
For each Owned Aircraft, the related Owned Aircraft
Certificates will be issued as direct obligations by the Corporation and will
be authenticated under an Owned Aircraft Indenture by the Indenture Trustee.
All of the Owned Aircraft Certificates issued under the same Owned Aircraft
Indenture will relate to a specific Owned Aircraft and will not be secured by
any other Aircraft. The Owned Aircraft relating to each Owned Aircraft
Indenture and the related Owned Aircraft Certificates will be specified in the
applicable Prospectus Supplement. The Corporation will be directly obligated
under each Owned Aircraft Indenture to make payments of principal of, premium,
if any, and interest on the related Owned Aircraft Certificates.
For each Leased Aircraft, the related Leased Aircraft
Certificates will be issued as nonrecourse obligations by the Owner Trustee,
in each case acting for a separate Owner Trust for the benefit of an Owner
Participant, and will be authenticated under a Leased Aircraft Indenture by
the Indenture Trustee. All of the Leased Aircraft Certificates issued under
the same Leased Aircraft Indenture will relate to and, after any related
Pre-Funding Period, as discussed below under "Delayed Lease Commencement,"
will be secured by a specific Leased Aircraft and will not be secured by any
other Aircraft. In each case, the Owner Trustee will lease the related Leased
Aircraft to the Corporation pursuant to a separate Lease between such Owner
Trustee and the Corporation. See "Delayed Lease Commencement" below for a
discussion of the circumstances under which the Lease for an Aircraft may
commence after the date of issuance of the related Leased Aircraft
Certificates.
The Leased Aircraft subject to each Lease and the Leased
Aircraft Certificates issued under the related Leased Aircraft Indenture will
be specified in the applicable Prospectus Supplement. Upon the commencement of
the Lease for any Leased Aircraft, the Corporation will be obligated to make
rental payments under such Lease that will be sufficient to pay the principal
of and accrued interest on the related Leased Aircraft Certificates when and
as due and payable except that, with respect to a Delayed Lease Aircraft, 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 or from amounts payable under a
Depositary Arrangement. 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" and
"Federal Income Tax Consequences" below. The terms and conditions under which
any such sale and leaseback transaction may be consummated will be described
in the applicable Prospectus Supplement.
Until the Corporation has entered into a Lease in connection
with a Leased Aircraft, the Corporation will not be obligated to make any
scheduled rental payments and during any Pre-Funding Period for such Leased
Aircraft the related Leased Aircraft Certificates will not be secured by such
Leased Aircraft or the related Lease, including any rental payments under such
Lease. During any Pre-Funding Period for such Leased Aircraft, however, the
related Collateral Account, together with any other security pledged under the
related Indenture or otherwise available to the Indenture Trustee or amounts
payable under a Depositary Arrangement 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.
If specified in the applicable Prospectus Supplement, payments
of interest and principal due on senior Equipment Certificates issued in
respect of an Aircraft will be made prior to payments of interest and
principal on Equipment Certificates issued in respect of such Aircraft which
are subordinated to such senior Equipment Certificates.
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, so that the Indenture Trustee will not have the
right to disturb the Corporation's quiet enjoyment of such Aircraft so
long as no Lease Event of Default shall have occurred and be
continuing; and
(iii) an assignment to such Indenture Trustee of such Owner
Trustee's rights relating to such Leased Aircraft and the related
engines under the agreements for the purchase thereof between the
Corporation and the respective manufacturers of such Leased Aircraft
and of such engines. See "Registration of the Aircraft" below.
The assignment by such Owner Trustee to the Indenture Trustee
of its rights under each Lease will exclude rights of such Owner Trustee and
the related Owner Participant relating to:
(i) indemnification by the Corporation for certain matters;
(ii) proceeds of public liability insurance payable to such Owner
Trustee in its individual capacity and to such Owner Participant under
insurance maintained by the Corporation under such Lease; and
(iii) proceeds of any insurance policies separately maintained by
such Owner Trustee in its individual capacity or by such Owner
Participant.
The right of the Indenture Trustee, however, to exercise any of
the rights of the Owner Trustee under the related Lease, except the right to
receive payments of rent due thereunder, will be subject to certain
limitations as described in the applicable Prospectus Supplement.
The Owned Aircraft Certificates issued under each Owned
Aircraft Indenture will be secured by (i) a security interest granted to the
Indenture Trustee in all of the Corporation's right, title and interest in and
to the related Owned Aircraft and (ii) an assignment to such Indenture Trustee
of certain of the Corporation's rights relating to such Owned Aircraft and the
related engines under the agreements for the purchase thereof between the
Corporation and the respective manufacturers of such Owned Aircraft and of
such engines. See "Registration of the Aircraft" below.
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 be secured only by that Aircraft
and will not be secured by any other Aircraft or, in the case of Leased
Aircraft Certificates, the Leases related to such other Aircraft. 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. However, 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 Indentures with respect to which
an Indenture Event of Default has not occurred will continue to be held in
such Pass Through Trust and payments of principal of, premium, if any, and
interest on such Equipment Certificates will continue to be distributed to the
Certificateholders of such Pass Through Trust as originally scheduled, subject
to the Intercreditor Agreement.
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 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 monetary defaults. The
Prospectus Supplement for each offering will discuss the availability of the
benefits of Section 1110 of the Bankruptcy Code with respect to the related
Aircraft.
If the applicable Prospectus Supplement provides that a
Pre-Funding Period will apply to a Leased Aircraft, then during such
Pre-Funding Period the related Leased Aircraft Certificates will not be
secured by such Leased Aircraft or a related Lease. During such Pre-Funding
Period, however, such Leased Aircraft Certificates will be secured by the
related Collateral Account and, if the Prospectus Supplement so provides,
Additional Collateral or by a Depositary Arrangement. 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 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.
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 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 or until payment by the
provider of Depositary Arrangement of the debt portion of the purchase price
for such Leased Aircraft, such Leased Aircraft is referred to as a "Delayed
Lease Aircraft" and the period prior to commencement of such Lease and the
Indenture Trustee's release of such funds is referred to as the "Pre-Funding
Period."
In the case of Leased Aircraft Certificates relating to a
Delayed Lease Aircraft, the proceeds from sale of such Leased Aircraft
Certificates to the applicable Pass Through Trusts, after deducting certain
expenses of the offering of the related Pass Through Certificates, will be
deposited by the Owner Trustee, on the date of such sale, in a Collateral
Account established pursuant to the Indenture or pursuant to a Collateral
Agreement. Such Collateral Account will secure payment of the related Leased
Aircraft Certificates pending delivery of the related Aircraft. In addition,
if the Prospectus Supplement so provides, the Corporation will be required to
provide to the Indenture Trustee Additional Collateral (in addition to such
Collateral Account) for such Leased Aircraft Certificates during the related
Pre-Funding Period. Alternatively, the Corporation may establish a Depositary
Arrangement pursuant to which the proceeds from sale of such Leased Aircraft
Certificates will be deposited in a deposit account with a third party (having
a short-term senior unsecured credit rating at least equal to the highest
rating applicable to the Pass Through Certificates), who agrees to pay amounts
corresponding to amounts payable on the Leased Aircraft Certificates in
respect of the related Pre-Funding Period and the debt portion of the purchase
price of the related Aircraft upon delivery thereof. See "Security" above.
Funds in any Collateral Account will be invested 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.
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 any Collateral Account
and any Additional Collateral or together with a Depositary Arrangement, 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, on each
date during any scheduled Pre-Funding Period for the scheduled payments of
principal, if any, and interest on the related Leased Aircraft Certificates,
the Indenture Trustee shall withdraw from the Collateral Account the amount
necessary to make the scheduled payment then due or, in the case of a
Depositary Arrangement, shall withdraw such amount from the Deposit Account.
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) the Collateral Account and, to the extent
necessary, any Additional Collateral will be drawn upon or, in the case of a
Depositary Arrangement, the Deposit Account 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 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. The applicable Prospectus Supplement will contain a
description of the insurance arrangements applicable to each Aircraft. In
general, the Corporation will be obligated to carry comprehensive aircraft
liability insurance, including property damage liability insurance and cargo
legal liability insurance as described below. Such insurance must be in such
amounts, against such risks and with such retentions as the Corporation
customarily maintains. Such insurance must also be with such insurers of
recognized responsibility and against such other risks as is usually carried
by corporations situated similarly to the Corporation and engaged in the same
business as, or business similar to, the Corporation and owning or operating
aircraft and engines similar to the related Aircraft and related engines.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Corporation will also be obligated to carry, with insurers of recognized
responsibility, all-risk ground and flight aircraft hull insurance covering
the related Aircraft and all-risk coverage with respect to the related engines
and parts while temporarily removed from such Aircraft and not replaced by
similar engines or parts, as described below. Such insurance includes
war-risk and allied perils, hijacking and governmental confiscation and
expropriation insurance (except in the country of registry), and must be in
such form and amounts, and with such retentions 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 related Aircraft.
The Corporation may self-insure against the risks required to be insured
against under the related lease in such reasonable amounts as are then
applicable to other aircraft or engines of the Corporation of value comparable
to the related Aircraft. Such self-insurance with respect to all aircraft in
the Corporation's fleet may not, however, in the aggregate exceed an amount
equal to the lesser of (a) 50% of the highest replacement value of any single
aircraft in such fleet, or (b) 1.5% of the average aggregate insured value
from time to time of the Corporation's entire aircraft fleet, provided that a
standard deductible per occurrence per aircraft no greater than the amount
customarily allowed as a deductible in the industry will be permitted in
addition to such self-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. In general, 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 Limitations 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 or 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 or amounts payable under a Depositary
Arrangement 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. Additionally, if the
applicable Prospectus Supplement provides for a Liquidity Facility to support
payments of interest on one or more series of Leased Aircraft Certificates,
interest payments on the Leased Aircraft Certificates will be made under such
Liquidity Facility to the extent provided therein. The Leased Aircraft
Certificates will not be direct obligations of, or guaranteed by the
Corporation. The Corporation's obligations to pay rent and to cause other
payments to be made under each Lease will be general obligations of the
Corporation.
Neither the Owner Trustee or the Indenture Trustee (in their
individual capacities) will be liable to any Certificateholder or, in the case
of the Owner Trustee, in its individual capacity, to the Corporation or the
Indenture Trustee for any amounts payable or for any liability under the
Equipment Certificates or the Indentures, except as provided in the Indentures
and the Participation Agreements and except for the gross negligence or
willful misconduct of the Owner Trustee.
The Corporation's obligations under each Owned Aircraft
Indenture and under the related Owned Aircraft Certificates will be general
obligations of the Corporation.
Indenture Events of Default and Remedies
For any Pass Through Trust, the applicable Prospectus
Supplement will describe the Indenture Events of Default under the Indentures
related to the Equipment Certificates to be held by such Pass Through Trust,
the remedies that the Indenture Trustee may exercise with respect to the
related Aircraft, either at its own initiative or upon instruction from
holders of the related Equipment Certificates, and other provisions relating
to the occurrence of an Indenture Event of Default and the exercise of
remedies. 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 or from amounts
payable under a Depositary Arrangement. See "Payments and Limitations of
Liability" above. Scheduled payments of principal and interest on the
Leased Aircraft Certificates will be made on the dates specified in the
applicable Prospectus Supplement.
Net Lease. The Corporation's obligations under each Lease in
respect of the related Leased Aircraft will be those of a lessee under a "net
lease." Accordingly, the Corporation will be obligated to pay all costs of
operating the Leased Aircraft and, at its expense, to maintain, service,
repair and overhaul the Leased Aircraft so as to keep the Leased Aircraft in
good condition, ordinary wear and tear excepted, and to enable the
airworthiness certification thereof to be maintained in good standing at all
times under the Transportation Code or, under certain circumstances, under the
applicable requirements of the aeronautical authority of another country of
registry. If, however, the Leased Aircraft loses its airworthiness
certification and such loss is curable, and the Corporation, using its
reasonable best efforts, undertakes such cure promptly, diligently and
continuously, then the Corporation will not be in default with respect to such
obligation.
Generally, the Corporation will be obligated to replace or
cause to be replaced all parts that may from time to time be incorporated or
installed in or attached to any Leased Aircraft (including in or on any
engine) and that may become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use. The
Corporation will have the right to make other alterations, modifications and
additions to a Leased Aircraft so long as such alterations, modifications or
additions do not materially decrease the value or utility of such Leased
Aircraft or impair its condition or airworthiness below its value, utility,
condition and airworthiness immediately prior to such alteration, modification
or addition, assuming that such Leased Aircraft was then in the condition and
airworthiness required by the related Lease. Also, in certain circumstances,
the Corporation will be permitted to remove parts (without replacement) from
a Leased Aircraft or any engine (and therefore from the Lien of the applicable
Indenture) if the Corporation deems such parts to be obsolete or no longer
suitable or appropriate for use on such Leased Aircraft so long as such
removals do not decrease the utility, condition or airworthiness of such
Leased Aircraft or any such engine, although the value of such Leased Aircraft
or any such engine may be reduced by such removal. The applicable Prospectus
Supplement will contain a description of certain limitations, if any,
applicable to provisions described above.
Insurance. The applicable Prospectus Supplement will contain a
description of the insurance arrangements applicable to each Aircraft. In
general, the Corporation will be obligated to carry comprehensive aircraft
liability insurance, including property damage liability insurance and cargo
legal liability insurance as described below. Such insurance must be in such
amounts, against such risks and with such retentions as the Corporation
customarily maintains. Such insurance must also be with such insurers of
recognized responsibility and against such other risks as is usually carried
by corporations situated similarly to the Corporation and engaged in the same
business as, or business similar to, the Corporation and owning or operating
aircraft and engines similar to the related Aircraft and related engines. In
general, the Corporation will also be obligated to carry, with insurers of
recognized responsibility, all-risk ground and flight aircraft hull insurance
covering the related Aircraft and all-risk coverage with respect to the
related engines and parts while temporarily removed from such Aircraft and not
replaced by similar engines or parts, as described below. Such insurance
includes war-risk and allied perils, hijacking and governmental confiscation
and expropriation insurance (except in the country of registry), must be in
such form and amounts, and with such retentions 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 related Aircraft,
and may not be in an amount below certain stipulated values. The Corporation
may self-insure against the risks required to be insured against under the
related lease in such reasonable amounts as are then applicable to other
aircraft or engines of the Corporation of value comparable to the related
Aircraft. Such self-insurance with respect to all aircraft in the
Corporation's fleet may not, however, in the aggregate exceed an amount equal
to the lesser of (a) 50% of the highest replacement value of any single
aircraft in such fleet, or (b) 1.5% of the average aggregate insured value
from time to time of the Corporation's entire aircraft fleet, provided that a
standard deductible per occurrence per aircraft no greater than the amount
customarily allowed as a deductible in the industry will be permitted in
addition to such self-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. In
general, liability insurance proceeds will be distributed to the respective
parties as their interests may appear and hull insurance proceeds will be
distributed to the Indenture Trustee if the amount of such proceeds exceeds
certain specified amounts. The applicable Prospectus Supplement will contain
a description of certain limitations, if any, applicable to provisions
described in this paragraph.
Lease Events of Default; Remedies. The applicable Prospectus
Supplement will describe the Lease Events of Default under the related Leases,
the remedies that the Owner Trustee may exercise with respect to the related
Leased Aircraft, and other provisions relating to the occurrence of a Lease
Event of Default and the exercise of remedies.
The Participation Agreements
The Corporation will be required to indemnify each Indenture
Trustee and, in the case of Leased Aircraft Certificates, each Owner
Participant and each Owner Trustee, and certain parties affiliated with the
foregoing (but not including holders of the Equipment Certificates or the
Certificateholders), for certain liabilities, losses, fees and expenses and
for certain other matters arising out of the transactions described herein or
relating to the applicable Aircraft or the use thereof. In addition, under
certain circumstances the Corporation will be required to indemnify such
persons against certain taxes, levies, duties, withholdings and for certain
other matters relating to such transactions or the applicable Aircraft.
Subject to certain restrictions, each Owner Participant may convey all of its
right, title and interest relating to any Leased Aircraft. Moreover, if so
provided in the applicable Prospectus Supplement, in certain limited instances
the Corporation may assume an Owner Trust's obligations under the related
Leased Aircraft Certificates on a full recourse basis.
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 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 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 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 Equipment
Certificates, an Owner Participant's conveyance of its interest in an Owner
Trust will not constitute a taxable event to the holders of interests in the
related Equipment Certificates. However, if (a) the Corporation were to assume
an Owner Trust's obligations under the related Equipment Certificates upon a
purchase of the related Aircraft by the Corporation, or (b) an Owner Trust
assumes the Corporation's obligations under the Owned Aircraft Certificates,
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 a different Series
and receives less than the full amount of the receipts of principal or
interest paid with respect to the Equipment Certificates held by it 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 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 Internal Revenue Code. Any such withheld amounts
will be allowed as a credit against the Certificateholder's federal income tax
and may entitle such Certificateholder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
CERTAIN 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
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 ERISA, or
individual retirement account or plan subject to Section 4975 of the Internal
Revenue Code. Certain governmental plans and non-electing church plans,
however, are not subject to Title I of ERISA or Section 4975 of the Internal
Revenue Code and, therefore, may purchase the Pass Through Certificates.
PLAN OF DISTRIBUTION
The Pass Through Certificates may be sold to or through
underwriters, directly to other purchasers or through agents.
The distribution of the Pass Through Certificates may be
effected from time to time in one or more transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices.
In connection with the sale of Pass Through Certificates,
underwriters or agents may receive compensation from the Corporation or from
purchasers of Pass Through Certificates for whom they may act as agents in the
form of discounts, concessions or commissions. Underwriters may sell Pass
Through Certificates to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution
of Pass Through Certificates may be deemed to be underwriters, and any
discounts or commissions received by them from the Corporation and any profit
on the resale of Pass Through Certificates by them may be deemed to be
underwriting discounts and commissions, under the Securities Act. Any such
underwriter or agent will be identified, and any such compensation received
from the Corporation will be described, in the applicable Prospectus
Supplement.
Offers to purchase Pass Through Certificates may be solicited
directly and the sale thereof may be made directly to institutional investors
or others, who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale thereof. The terms of any such
sales will be described in the Prospectus Supplement relating thereto.
Under agreements which may be entered into by the Corporation,
underwriters and agents who participate in the distribution of Pass Through
Certificates may be entitled to indemnification by the Corporation against
certain liabilities, including liabilities under the Securities Act.
Unless otherwise indicated in the applicable Prospectus
Supplement, the Corporation does not intend to apply for the listing of any
Series of Pass Through Certificates on a national securities exchange. If the
Pass Through Certificates of any Series are sold to or through underwriters,
the underwriters may make a market in such Pass Through Certificates, as
permitted by applicable laws and regulations. No underwriter would be
obligated, however, to make a market in such Pass Through Certificates, and
any such market-making could be discontinued at any time at the sole
discretion of the underwriters. Accordingly, no assurance can be given as to
the liquidity of, or trading markets for, the Pass Through Certificates of any
Series.
Certain of the underwriters or agents and their associates may
be customers of, engage in transactions with, and perform services for, the
Corporation in the ordinary course of business.
LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus
Supplement, the legality of the Pass Through Certificates offered hereby will
be passed upon for the Corporation by Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York 10017, and by 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 Karen M. Clayborne, Senior
Vice President and General Counsel of the Corporation, as to the Corporation's
authorization, execution and delivery of the Pass Through Agreement. At
February 28, 1998, Ms. Clayborne owned 2,000 shares of FDX Corporation's
common stock and had been granted options to purchase 32,500 shares of FDX
Corporation's common stock. Of the options granted, 6,800 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, 1997 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, 1997, November 30, 1997 and February 28, 1998,
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.
GLOSSARY OF CERTAIN TERMS
The following is a glossary of certain terms used in this Prospectus.
Definitions contained in this glossary may be different from definitions used
in the applicable Prospectus Supplement. Accordingly, any Prospectus
Supplement should be read in conjunction with the glossary or other definition
of terms contained in such Prospectus Supplement.
"Aircraft" means, collectively, the Owned Aircraft and the Leased
Aircraft.
"Additional Collateral" means 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.
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. et
seq.), as amended, or any successor thereto.
"Business Day" means any day other than a Saturday, a Sunday or other
day on which commercial banks in New York City, 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, and after the lien of the related
Indenture is discharged, the city in which the principal place of business of
the related Owner Trustee is located.
"Cede" means Cede & Co., as nominee for DTC.
"Certificate Account" means a non-interest bearing account for the
deposit of Scheduled Payments on the Equipment Certificates held in the
related Pass Through Trust.
"Certificateholder" means, for any Pass Through Trust, the registered
holder of any Pass Through Certificate issued by such Pass Through Trust.
"Class" means the Equipment Certificates or Pass Through Certificates,
as the case may be, of any priority of payment.
"Collateral Account" means an account into which proceeds from the sale
of the related Leased Aircraft Certificates will be deposited by the related
Owner Trustee for the benefit of the related Indenture Trustee as set forth in
this Prospectus and the applicable Prospectus Supplement.
"Collateral Agreement" means a collateral agreement between the Owner
Trustee and the Indenture Trustee with respect to the related Collateral
Account.
"Commission" means the Securities and Exchange Commission of the United
States.
"Convention" means the Convention on the International Recognition of
Rights in Aircraft.
"Corporation" means Federal Express Corporation.
"Cut-off Date" means, if applicable to an Aircraft, the date 90 days
after the scheduled delivery date for such Aircraft.
"DTC" means The Depository Trust Company.
"DTC Participants" means the participants of DTC.
"Delayed Lease Aircraft" means a Leased Aircraft to which a Pre-Funding
Period applies, which term shall be applicable to such Leased Aircraft until
commencement of the related Lease and the related Indenture Trustee's release
of funds from the related Collateral Account or until payment by the provider
of the Depositary Arrangement of the debt portion of the purchase price for
such Leased Aircraft.
"Deposit Account" means the deposit account established under a
Depositary Arrangement.
"Depositary Arrangement" means the agreement of a person (having a
short-term senior unsecured credit rating at least equal to the highest rating
applicable to the Pass Through Certificates) to pay amounts corresponding to
amounts payable on the Leased Aircraft Certificates in respect of any related
Pre-Funding Period and the debt portion of the purchase price of the related
Aircraft upon delivery thereof.
"Distribution Date" means, collectively, the Regular Distribution Date
and the Special Distribution Date.
"Equipment Certificates" means, collectively, the Owned Aircraft
Certificates and the Leased Aircraft Certificates.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means each of the events designated as an event of
default under the Pass Through Agreement with respect to the related Pass
Through Trust.
"Event of Loss" means, for any Aircraft, each of the events designated
as such in the related Lease.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holders" means the registered holders of the related Equipment
Certificates.
"Indentures" means, collectively, the related Owned Aircraft Indentures
and the related Leased Aircraft Indentures.
"Indenture Event of Default" means, for any Indenture, each of the
events designated as an event of default in such Indenture.
"Indenture Trustee" means First Security Bank, National Association, or
another bank or trust company, in its capacity as indenture trustee under the
related Indenture and any successor thereunder.
"Intercreditor Agreement" means the agreement among the Pass Through
Trustee, the subordination agent named therein and the Liquidity Provider
specified in the applicable Prospectus Supplement.
"Internal Revenue Code" means the United States Internal Revenue Code of
1986, as amended.
"Lease" means a lease agreement between the Owner Trustee, as lessor,
and the Corporation, as lessee, in each case under which the Owner Trustee
leases, or is expected to lease, the related Aircraft to the Corporation.
"Lease Event of Default" means, for any Lease, each of the events
designated as an event of default in such Lease.
"Leased Aircraft" means one or more aircraft specified in a Prospectus
Supplement which has been or will be leased to the Corporation.
"Leased Aircraft Certificates" means the equipment trust certificates
issued as nonrecourse obligations by the related Owner Trustee, each acting
not in its individual capacity but solely as the Owner Trustee of a separate
Owner Trust in connection with a separate leveraged lease transaction relating
to an Aircraft.
"Leased Aircraft Indenture" means a trust indenture and security
agreement between the Owner Trustee and the Indenture Trustee relating to a
Leased Aircraft.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease or
security interest or other similar interest.
"Liquidity Facility" means a liquidity facility issued by the related
Liquidity Provider as provided in the applicable Prospectus Supplement.
"Liquidity Provider" means an institution identified in the applicable
Prospectus Supplement which will enter into a Liquidity Facility to support
certain 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 as provided in such Prospectus Supplement.
"Owned Aircraft" means one or more aircraft specified in a Prospectus
Supplement that have been or will be purchased and owned by the Corporation.
"Owned Aircraft Certificates" means the equipment purchase certificates
relating to an Owned Aircraft issued as recourse obligations by the
Corporation.
"Owned Aircraft Indenture" means a trust indenture and security
agreement between the Corporation and the Indenture Trustee relating to an
Owned Aircraft.
"Owner Participant" means the owner participant named in the related
Trust Agreement.
"Owner Trust" means a trust created pursuant to a Trust Agreement.
"Owner Trustee" means State Street Bank and Trust Company of
Connecticut, National Association, or another bank or trust company, not in
its individual capacity but solely as owner trustee of an Owner Trust.
"Participation Agreement" means a participation agreement among the
Owner Participant, the Owner Trustee, the Indenture Trustee, the Corporation
and, in the case of a refinancing, each holder of a loan certificate issued
under the related Indenture as originally executed.
"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 each of the Pass Through Trusts will be
formed pursuant to the related Series Supplement.
"Pass Through Certificates" means the pass through certificates to be
issued by the related 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 the pass through trust 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 the related Series Supplement, for the related Pass Through
Trust, and its successors and assigns thereunder.
"Permitted Investments" means (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, a Division
of the McGraw-Hill Company, Inc., 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.
"Pool Balance" means, unless otherwise described in the applicable
Prospectus Supplement, for each Pass Through Trust, 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 such Equipment
Certificates.
"Pool Factors" means, unless otherwise described in the applicable
Prospectus Supplement, for each Pass Through Trust, as of any Distribution
Date, 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.
"Pre-Funding Period" means, with respect to any Aircraft, the period, if
any, commencing on the date of the issuance of the related Pass Through
Certificates to but not including the date on which the funds from the related
Collateral Account or Depositary Arrangement are released by the related
Indenture Trustee.
"Prospectus Supplement" means a supplement to this Prospectus.
"Purchase Agreement" means, for any Aircraft, the purchase agreement
between the manufacturer and the Corporation, including all exhibits,
appendices and letter agreements attached thereto as originally executed or as
modified, amended or supplemented in accordance with the terms thereof, but
only to the extent that the foregoing relates to such Aircraft and to the
extent assigned pursuant to the Purchase Agreement Assignment.
"Purchase Agreement Assignment" means, for any Aircraft, the purchase
agreement assignment between the related Owner Trustee and the Corporation.
"Rating Agency" means a "nationally recognized statistical rating
organization", as such term is defined in Rule 436(g)(2) under the Securities
Act.
"Registration Statement" means a registration statement on Form S-3
(together with all amendments and exhibits).
"Regular Distribution Date" means, for each Pass Through Trust, any date
specified for distribution of a Scheduled Payment to the related Pass Through
Trustee in the applicable Prospectus Supplement.
"Scheduled Payment" means the payment of principal of, and or interest
on, the Equipment Certificates scheduled to be received by the related Pass
Through Trustee on a Regular Distribution Date.
"Securities Act" means the Securities Act of 1933, as amended.
"Series" means one of a series of Pass Through Certificates evidencing
fractional undivided interests in such Pass Through Trust.
"Series Supplement" means each of the series supplements 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 Pass Through Certificates will be issued.
"Shortfall Amount" means any amount less than the full amount of the
receipts of principal or interest paid with respect to the related Equipment
Certificates.
"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 payment of
principal, premium, if any, or interest, other than a Scheduled Payment,
received by the related Pass Through Trustee on any of the Equipment
Certificates held in such Pass Through Trust and any proceeds from the sale of
any such Equipment Certificates by such Pass Through Trustee.
"Special Payment Account" means a non-interest bearing account for the
deposit of Special Payments on the Equipment Certificates held in the related
Pass Through Trust.
"Subordinated Certificateholder" means the corresponding owners of
beneficial interests in the Subordinated Certificates.
"Subordinated Certificates" means any Pass Through Certificate relating
to a Subordinated Trust.
"Subordinated Trust" means any Pass Through Trust with respect to a
Series which is subordinated with respect to other Pass Through Trusts of the
same Series.
"Transportation Code" means Title 49 of the United States Code, as
amended.
"Trust Agreement" means a trust agreement between the related Owner
Trustee and the related Owner Participant.
"Trust Property" means the property held in the related Pass Through
Trust.
"U.S. Citizen" means a citizen of the United States as defined in
Section 40102(a)(15) of the Transportation Code, or any analogous part of any
successor or substituted legislation or regulation at the time in effect.
"Underwriters' Counsel" means the counsel for any agents, dealers or
underwriters.
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