<PAGE>
REGISTRATION STATEMENT NO. 333-49411
RULE 424(B)(5)
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 11, 1998)
$833,478,000
[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 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.
(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>
<CAPTION>
PASS THROUGH PRINCIPAL INTEREST FINAL EXPECTED PUBLIC OFFERING
CERTIFICATES AMOUNT RATE DISTRIBUTION DATE PRICE (1)(2)
- ----------------------- ------------- ----------- ----------------- -------------------
<S> <C> <C> <C> <C>
1998-1-A $ 458,077,000 6.720% JANUARY 15, 2022 100%
1998-1-B 178,606,000 6.845 JANUARY 15, 2019 100
1998-1-C 196,795,000 7.020 JANUARY 15, 2016 100
</TABLE>
- ------------------------------
(1) PLUS ACCRUED INTEREST, IF ANY, AT THE APPLICABLE RATE FROM JULY 7, 1998.
(2) THE UNDERWRITING COMMISSIONS AGGREGATE $5,417,607. THE UNDERWRITING
COMMISSIONS, AND CERTAIN OTHER EXPENSES RELATING TO THE OFFERING ESTIMATED
AT $9,908,400, 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 JULY 7, 1998.
--------------------------
MORGAN STANLEY DEAN WITTER
CHASE SECURITIES INC.
CITICORP SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN & CO.
JUNE 30, 1998
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
THE PROPERTY OF EACH PASS THROUGH TRUST WILL CONSIST OF, AMONG OTHER THINGS,
EQUIPMENT TRUST CERTIFICATES TO BE ISSUED BY THE RELATED OWNER TRUSTEE OF EACH
OF 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 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
S-2
<PAGE>
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).
S-3
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
CORPORATION OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY,
THE PASS THROUGH CERTIFICATES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS OR IN THE AFFAIRS OF THE CORPORATION SINCE THE DATE HEREOF.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary........................................................................................ S-5
Federal Express Corporation............................................................................... S-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-46
Federal Income Tax Consequences........................................................................... S-69
Certain Utah Taxes........................................................................................ S-69
ERISA Considerations...................................................................................... S-69
Underwriting.............................................................................................. S-72
Legal Matters............................................................................................. S-73
Experts................................................................................................... S-73
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
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PASS THROUGH
CERTIFICATES. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH
THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE PASS THROUGH CERTIFICATES IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF MORE DETAILED INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. CERTAIN
CAPITALIZED TERMS USED HEREIN ARE DEFINED IN THE GLOSSARY INCLUDED AS APPENDIX I
TO THIS PROSPECTUS SUPPLEMENT.
SUMMARY OF TERMS OF PASS THROUGH CERTIFICATES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
PASS THROUGH PASS THROUGH PASS THROUGH
CERTIFICATES CERTIFICATES CERTIFICATES
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Aggregate Face Amount...... $458,077,000 $178,606,000 $196,795,000
Ratings:
Moody's.................... Aa2 A1 Baa1
Standard & Poor's.......... AAA AA- BBB+
Initial Loan to Aircraft 38.7% 53.2% 68.8%
Value (cumulative)(1)....
Expected Principal 0.5-23.5 0.5-20.5 0.5-17.5
Distribution Window (in
years)...................
Initial Average Life (in 14.7 13.0 11.9
years)...................
Regular Distribution January 15 and July 15 January 15 and July 15 January 15 and July 15
Dates....................
Final Expected Distribution January 15, 2022 January 15, 2019 January 15, 2016
Date.....................
Final Legal Distribution July 15, 2023 July 15, 2020 January 15, 2016
Date.....................
Section 1110 Yes Yes Yes
Protection(2)............
Liquidity Facility 3 successive interest 3 successive interest None
Coverage................. payments payments
Initial Liquidity Facility $46,858,223 $18,610,051 None
Amount(3)................
</TABLE>
- ------------------------
(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).
S-5
<PAGE>
EQUIPMENT TRUST CERTIFICATES AND THE AIRCRAFT
Set forth below is certain information about the Equipment Trust
Certificates to be held in the Pass Through Trusts and the Aircraft:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
DELIVERY DATE OR LATEST EQUIPMENT EQUIPMENT
AIRCRAFT EXPECTED TRUST TRUST
TAIL DELIVERY CERTIFICATES CERTIFICATES APPRAISED
NUMBER AIRCRAFT TYPE DATE(1) MATURITY DATE (2) VALUE
- ------------------ ----------------------------- ------------------- ----------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
N585FE............ McDonnell Douglas MD-11F September 1998(3) July 15, 2020 $ 61,143,000 $ 89,200,000
N590FE............ McDonnell Douglas MD-11F May 1998(3) January 15, 2020 57,633,000 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 59,924,000 84,250,333
N677FE............ Airbus A300F4-605R August 1998 January 15, 2021 60,404,000 84,424,667
N678FE............ Airbus A300F4-605R September 1998 January 15, 2019 58,020,000 84,500,000
N679FE............ Airbus A300F4-605R October 1998 January 15, 2020 59,033,000 84,500,000
N680FE............ Airbus A300F4-605R November 1998 January 15, 2020 60,311,000 84,500,000
N681FE............ Airbus A300F4-605R May 1999 January 15, 2021 62,249,000 86,836,667
N682FE............ Airbus A300F4-605R June 1999 January 15, 2020 62,104,000 86,915,333
--------------
$833,478,000
--------------
--------------
</TABLE>
- --------------------------
(1) Reflects the scheduled delivery months under the Corporation's purchase
agreement and modification agreement with the respective manufacturers. The
actual delivery date for any Aircraft may be subject to delay.
(2) The 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.
(3) These two McDonnell Douglas MD-11F Aircraft were originally delivered new to
American Airlines in April 1992 and August 1991, respectively.
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.
S-6
<PAGE>
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
S-7
<PAGE>
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
ASSUMED CLASS A PASS PASS CLASS B PASS PASS CLASS C PASS
AGGREGATE THROUGH THROUGH THROUGH THROUGH THROUGH
AIRCRAFT CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
DATE VALUE(1) POOL BALANCE LTV POOL BALANCE LTV POOL BALANCE
- -------------------- --------------- ------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
July 15, 1999....... $ 1,176,918,258 $ 455,406,740 38.7% $171,111,129 53.2% $183,077,264
July 15, 2000....... 1,139,828,956 447,872,129 39.3 167,110,589 54.0 179,665,775
July 15, 2001....... 1,102,739,654 435,817,699 39.5 162,826,486 54.3 176,192,332
July 15, 2002....... 1,065,650,352 421,576,722 39.6 157,881,294 54.4 173,149,538
July 15, 2003....... 1,028,561,049 406,895,407 39.6 152,604,401 54.4 168,301,987
July 15, 2004....... 991,471,747 392,214,092 39.6 147,098,262 54.4 156,846,790
July 15, 2005....... 954,382,445 377,532,777 39.6 141,592,124 54.4 146,809,773
July 15, 2006....... 917,293,143 362,851,462 39.6 136,085,984 54.4 139,477,352
July 15, 2007....... 880,203,841 348,170,147 39.6 126,328,751 53.9 134,660,489
July 15, 2008....... 843,114,539 333,488,832 39.6 115,614,533 53.3 129,348,642
July 15, 2009....... 806,025,237 318,619,194 39.5 105,899,964 52.7 125,643,167
July 15, 2010....... 768,935,935 300,081,547 39.0 101,704,234 52.3 121,878,887
July 15, 2011....... 731,846,633 280,576,590 38.3 97,318,722 51.6 115,342,924
July 15, 2012....... 693,656,065 260,209,471 37.5 92,620,496 50.9 107,530,085
July 15, 2013....... 654,377,692 247,081,424 37.8 87,357,060 51.1 88,783,724
July 15, 2014....... 615,099,319 235,419,381 38.3 79,135,859 51.1 59,700,898
July 15, 2015....... 575,820,946 223,757,339 38.9 66,525,537 50.4 30,543,353
July 15, 2016....... 536,542,574 208,054,800 38.8 56,133,051 50.8 0
July 15, 2017....... 497,264,201 175,512,030 35.3 34,231,422 47.3 0
July 15, 2018....... 424,355,428 131,466,343 31.0 17,972,276 41.6 0
July 15, 2019....... 354,647,585 89,313,241 25.2 0 NA 0
July 15, 2020....... 206,701,200 35,748,618 17.3 0 NA 0
July 15, 2021....... 107,968,000 14,858,486 13.8 0 NA 0
July 15, 2022....... 0 0 NA 0 NA 0
<CAPTION>
CLASS C
PASS
THROUGH
CERTIFICATES
DATE LTV
- -------------------- ---------------
<S> <C>
July 15, 1999....... 68.8%
July 15, 2000....... 69.7
July 15, 2001....... 70.3
July 15, 2002....... 70.6
July 15, 2003....... 70.8
July 15, 2004....... 70.2
July 15, 2005....... 69.8
July 15, 2006....... 69.6
July 15, 2007....... 69.2
July 15, 2008....... 68.6
July 15, 2009....... 68.3
July 15, 2010....... 68.1
July 15, 2011....... 67.4
July 15, 2012....... 66.4
July 15, 2013....... 64.7
July 15, 2014....... 61.5
July 15, 2015....... 57.2
July 15, 2016....... NA
July 15, 2017....... NA
July 15, 2018....... NA
July 15, 2019....... NA
July 15, 2020....... NA
July 15, 2021....... NA
July 15, 2022....... NA
</TABLE>
- ------------------------
(1) This amount includes the value of all thirteen Aircraft.
S-8
<PAGE>
DIAGRAM OF CASH FLOW
Set forth below is a diagram illustrating the structure for the offering of
the Pass Through Certificates and certain cash flows.
[DIAGRAM APPEARS HERE]
S-9
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
THE OFFERING.................... The Pass Through Certificates offered hereby consist of
Class A Pass Through Certificates in the aggregate amount
of $458,077,000, Class B Pass Through Certificates in the
aggregate amount of $178,606,000, and Class C Pass Through
Certificates in the aggregate amount of $196,795,000.
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.
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
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 January 15, 1999, 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
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
S-13
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
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 related 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 such 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-
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C>
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 such
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 the Series C
Equipment Trust Certificates, subject to prepayment on the
Series C Prepayment Date. At any time prior to the Series
C Prepayment Date, all or a portion of such retained
amounts may be transferred to the Collateral Account
relating to one or more undelivered Aircraft, and the
principal amount of the Series C Equipment Trust
Certificates relating to the Collateral Account from which
such amounts are transferred will be correspondingly
decreased and the principal amount of Series C Equipment
Trust Certificates relating to such undelivered Aircraft
will be correspondingly increased.
</TABLE>
S-16
<PAGE>
<TABLE>
<S> <C>
In addition to the foregoing, the principal amount of
Series C Equipment Trust Certificates relating to an
undelivered Aircraft may be decreased, and the related
Collateral Account correspondingly decreased, and the
principal amount of Series C Equipment Trust Certificates
relating to one or more other undelivered Aircraft
increased, and those related Collateral Accounts
correspondingly increased.
Although the principal amount of Series C Equipment Trust
Certificates relating to any Aircraft subject to a
Prefunding Period may be increased or decreased as
described above, the aggregate principal amount of Series
C Equipment Trust Certificates relating to all eleven
aircraft subject to a Prefunding Period may not be
increased.
The amounts retained 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.
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
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 $46,858,223
and $18,610,051, 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
</TABLE>
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<TABLE>
<S> <C>
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
</TABLE>
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<S> <C>
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
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
S-21
<PAGE>
<TABLE>
<S> <C>
(i) the LTV Ratio for such Class of Pass Through
Certificates multiplied by the Appraised Current Market
Value of such Aircraft (or with respect to any such
Aircraft which has suffered an Event of Loss under the
related Lease, the amount of the insurance proceeds paid
or payable to the Indenture Trustee in respect thereof)
and (ii) the outstanding principal amount of the Equipment
Trust Certificates secured by such Aircraft after giving
effect to any principal payments of such Equipment Trust
Certificates on or before such Distribution Date.
"LTV Ratio" means for the Class A Pass Through
Certificates 40%, for the Class B Pass Through
Certificates 55% and for the Class C Pass Through
Certificates 75%.
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
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<PAGE>
<TABLE>
<S> <C>
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
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<S> <C>
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 at least as set forth
below.
</TABLE>
<TABLE>
<CAPTION>
PASS THROUGH
CERTIFICATES MOODY'S STANDARD & POOR'S
---------------------------------------- ---------- -----------------
<S> <C> <C> <C>
Class A................................. Aa2 AAA
Class B................................. A1 AA-
Class C................................. Baa1 BBB+
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.............................
<CAPTION>
MOODY'S STANDARD & POOR'S
---------- -----------------
<S> <C> <C> <C>
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.............................
<CAPTION>
MOODY'S STANDARD & POOR'S
---------- -----------------
<S> <C> <C> <C>
Short-term.............................. P-1 A-1+
Long-term............................... Aa3 AA-
</TABLE>
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<PAGE>
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 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 $57,633,000 of the proceeds of this offering
in repayment of the outstanding loan certificate with respect to N590FE, and
$63,057,000 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
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<PAGE>
"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.
S-26
<PAGE>
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 at least "Aa2" by Moody's and "AAA"
by Standard & Poor's; the Class B Pass Through Certificates be rated at least
"A1" by Moody's and at least "AA-" by Standard & Poor's; and the Class C Pass
Through Certificates be rated at least "Baa1" by Moody's and at least "BBB+" by
Standard & Poor's.
A rating is not a recommendation to purchase, hold or sell Pass Through
Certificates, inasmuch as such rating does not address market price or
suitability for a particular investor. There is no assurance that a rating will
remain for any given period of time or that a rating will not be lowered or
withdrawn entirely by a Rating Agency if in its judgment circumstances in the
future (including the downgrading of the Corporation or the Liquidity Provider)
so warrant. The rating of the Pass Through Certificates is based primarily on
the default risk of the Equipment Trust Certificates, the availability of the
Liquidity Facility for the holders of the Pass Through Certificates (other than
the Class C Pass Through Certificates), the collateral value provided by the
Aircraft and the subordination in right of payment under the Intercreditor
Agreement of the Class B Pass Through Certificates to the Class A Pass Through
Certificates and of the Class C Pass Through Certificates to the Class A Pass
Through Certificates and 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 Participant may request revisions to the
related 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
S-27
<PAGE>
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.
S-28
<PAGE>
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The following description of the particular terms of the Pass Through
Certificates offered hereby supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
Pass Through Certificates set forth in the Prospectus, reference to which is
hereby made.
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in their
entirety by reference to, the provisions of the Pass Through Agreement, 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
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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 January 15, 1999, 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.
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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
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<PAGE>
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:
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<TABLE>
<CAPTION>
1998-1-A TRUST 1998-1-B TRUST 1998-1-C TRUST
----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <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
- --------------------- ---------------- ----------- ---------------- ----------- ---------------- -----------
January 15, 1999..... $ 131,697 0.9997125 $ 3,479,216 0.9805202 $ 6,754,153 0.9656792
July 15, 1999........ 2,538,563 0.9941707 4,015,655 0.9580368 6,963,583 0.9302943
January 15, 2000..... 6,525,699 0.9799249 3,622,198 0.9377565 2,505,219 0.9175642
July 15, 2000........ 1,008,912 0.9777224 378,342 0.9356382 906,270 0.9129590
January 15, 2001..... 11,045,518 0.9536096 3,905,761 0.9137701 2,968,987 0.8978723
July 15, 2001........ 1,008,912 0.9514071 378,342 0.9116518 504,456 0.8953090
January 15, 2002..... 11,025,065 0.9273389 4,564,232 0.8860971 2,538,338 0.8824106
July 15, 2002........ 3,215,912 0.9203185 380,960 0.8839641 504,456 0.8798472
January 15, 2003..... 10,981,487 0.8963455 3,913,469 0.8620529 4,343,095 0.8577781
July 15, 2003........ 3,699,828 0.8882686 1,363,424 0.8544192 504,456 0.8552148
January 15, 2004..... 10,031,518 0.8663694 4,142,715 0.8312245 10,950,741 0.7995693
July 15, 2004........ 4,649,797 0.8562187 1,363,424 0.8235908 504,456 0.7970060
January 15, 2005..... 10,031,518 0.8343195 3,764,238 0.8025152 9,532,561 0.7485669
July 15, 2005........ 4,649,797 0.8241688 1,741,900 0.7927624 504,456 0.7460036
January 15, 2006..... 12,658,403 0.7965350 4,747,548 0.7661813 6,827,965 0.7113077
July 15, 2006........ 2,022,912 0.7921189 758,592 0.7619340 504,456 0.7087444
January 15, 2007..... 12,658,403 0.7644851 8,998,641 0.7115514 4,279,251 0.6869997
July 15, 2007........ 2,022,912 0.7600690 758,592 0.7073041 537,612 0.6842678
January 15, 2008..... 12,658,403 0.7324353 9,947,415 0.6516093 5,311,847 0.6572761
July 15, 2008........ 2,022,912 0.7280192 766,803 0.6473161 0 0.6572761
January 15, 2009..... 12,846,726 0.6999743 9,714,569 0.5929250 3,705,475 0.6384469
July 15, 2009........ 2,022,912 0.6955582 0 0.5929250 0 0.6384469
January 15, 2010..... 18,537,647 0.6550897 4,195,730 0.5694335 3,764,280 0.6193190
January 15, 2011..... 19,504,957 0.6125097 4,385,512 0.5448794 6,535,963 0.5861070
January 15, 2012..... 20,367,119 0.5680474 4,698,226 0.5185744 7,812,839 0.5464066
January 15, 2013..... 13,128,047 0.5393884 5,263,436 0.4891048 18,746,361 0.4511483
January 15, 2014..... 11,662,043 0.5139297 8,221,201 0.4430750 29,082,826 0.3033659
January 15, 2015..... 11,662,042 0.4884710 12,610,322 0.3724709 29,157,545 0.1552039
January 15, 2016..... 15,702,539 0.4541918 10,392,486 0.3142842 30,543,353 0.0000000
January 15, 2017..... 32,542,770 0.3831496 21,901,629 0.1916589 0 0.0000000
January 15, 2018..... 44,045,687 0.2869962 16,259,146 0.1006253 0 0.0000000
January 15, 2019..... 42,153,102 0.1949743 17,972,276 0.0000000 0 0.0000000
January 15, 2020..... 53,352,060 0.0785047 0 0.0000000 0 0.0000000
July 15, 2020........ 212,563 0.0780406 0 0.0000000 0 0.0000000
January 15, 2021..... 20,890,132 0.0324367 0 0.0000000 0 0.0000000
January 15, 2022..... 14,858,486 0.0000000 0 0.0000000 0 0.0000000
</TABLE>
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<PAGE>
CERTAIN RIGHTS UPON AN INDENTURE EVENT OF DEFAULT
Upon the occurrence of an Indenture Event of Default, the Controlling Party
may direct the exercise of the remedies discussed in "Events of Default and
Certain Rights Upon an Event of Default" in the Prospectus.
PURCHASE RIGHTS OF THE CERTIFICATEHOLDERS
Upon the occurrence and during the continuation of a Triggering Event, with
ten days' written notice to the Pass Through Trustee and each other
Certificateholder of the same Class, (i) the Class B Certificateholders will
have the right to purchase all, but not less than all, of the Class A Pass
Through Certificates; and (ii) the Class C Certificateholders will have the
right to purchase all, but not less than all, of the Class A and B Pass Through
Certificates, in each case at a purchase price equal to the Pool Balance of the
relevant Class or Classes of Pass Through Certificates plus accrued and unpaid
interest thereon to the date of purchase, without premium, but including any
other amounts due to the Certificateholders of such Class or Classes. In each
case, if prior to the end of the ten-day period, any other Certificateholder of
the same Class notifies the purchasing Certificateholder that the other
Certificateholder wants to participate in such purchase, then such other
Certificateholder may join with the purchasing Certificateholder to purchase the
Pass Through Certificates pro rata based on the interest in the Pass Through
Trust held by each Certificateholder. (Pass Through Agreement, Section 7.01(b))
PTC EVENTS OF DEFAULT
A PTC Event of Default will occur if the Pass Through Trustee fails to pay
within ten business days of the due date thereof (i) the outstanding Pool
Balance of the related Class of Pass Through Certificates on the Final Legal
Distribution Date for such Class or (ii) interest due on such Pass Through
Certificates on any distribution date (unless, in the case of the Class A and
Class B Pass Through Certificates, the Subordination Agent has made an Interest
Drawing in an amount sufficient to pay such interest and has distributed such
amount to the Certificateholders entitled thereto). Any failure to make expected
principal distributions on any Class of Pass Through Certificates on any Regular
Distribution Date (other than the Final Legal Distribution Date) will not be a
PTC Event of Default with respect to such Pass Through Certificates. (Series
Supplement, Article I)
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 Participant may request revisions to the related 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.
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(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 an assumed value
of such Aircraft no greater than the value for 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;
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<PAGE>
(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 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
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<PAGE>
(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)
S-37
<PAGE>
DESCRIPTION OF THE LIQUIDITY FACILITIES
The following description of the particular terms of the Liquidity
Facilities supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Liquidity Facilities set
forth in the Prospectus, reference to which is hereby made.
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in their
entirety by reference to, the provisions of the Liquidity Facilities and other
related documents to be used in connection with the transactions described
herein, the forms of which will be filed as exhibits to a post-effective
amendment to the Registration Statement or a Current Report on Form 8-K to be
filed by the Corporation with the Commission in connection with this offering.
The provisions of the Liquidity Facilities which relate to each of the Pass
Through Trusts (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 $46,858,223 and $18,610,051, 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
S-38
<PAGE>
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))
S-39
<PAGE>
The Replacement Facility, if any, may be replaced for any Pass Through Trust
(other than a Replacement Facility which expires no earlier than 15 days later
than the Final Legal Distribution Date) in the event that such Replacement
Facility is scheduled to expire (after giving effect to any extensions of the
maturity thereof) prior to the date which is 15 days later than the Final Legal
Distribution Date. In the event such Replacement Facility is not replaced, the
Subordination Agent will, prior to the expiration of such facility, request the
Non-Extension Drawing in an amount equal to all available and undrawn amounts
thereunder and hold the proceeds in the Cash Account for such Pass Through Trust
as cash collateral to be used for the same purposes as cash payments of Interest
Drawings under such Liquidity Facility. (Intercreditor Agreement, Section
3.6(d))
The Subordination Agent, in consultation with the Corporation (whose
recommendations the Subordination Agent will accept in the absence of a good
faith reason not to), may, subject to certain limitations, arrange for a
Replacement Facility at any time to replace the Liquidity Facility for any Pass
Through Trust. If such Replacement Facility is provided at any time after the
Downgrade Drawing or Non-Extension Drawing under such Liquidity Facility, all
obligations owed to the Liquidity Provider being replaced must be repaid.
(Intercreditor Agreement, Section 3.6(e))
The Subordination Agent will hold the proceeds of a Final Drawing made in
accordance with the provisions set forth under "Liquidity Events of Default"
below in the Cash Account for the related Pass Through Trusts as cash collateral
to be used for the same purposes as cash payments of Interest Drawings under
such Liquidity Facility. The Subordination Agent will take any action required
in order to make a Final Drawing under a Liquidity Facility. (Intercreditor
Agreement, Section 3.6(i))
Drawings (other than a Final Drawing) under any Liquidity Facility will be
made by delivery by the Subordination Agent of a certificate in the form
required by such Liquidity Facility. Upon receipt of such a certificate, the
Liquidity Provider will make payment of the drawing requested in immediately
available funds. Upon payment by any Liquidity Provider of the amount specified
in any drawing under any Liquidity Facility, the Liquidity Provider will be
fully discharged of its obligations under such Liquidity Facility with respect
to such drawing and will not thereafter be obligated to make any further
payments under such Liquidity Facility in respect of such drawing to the
Subordination Agent or any other person or entity who makes a demand for payment
in respect of interest on the related Pass Through Certificates. (Liquidity
Facilities, Section 2.02(a) and (e))
REIMBURSEMENT OF DRAWINGS
Amounts drawn under any Liquidity Facility by reason of an Interest Drawing
or the Final Drawing will be immediately due and payable, together with interest
on the amount of such drawing at a rate equal to the applicable LIBOR rate plus
1.25% 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.
S-40
<PAGE>
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.
S-41
<PAGE>
DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following description of the particular terms of the Intercreditor
Agreement supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Intercreditor Agreement
set forth in the Prospectus, reference to which is hereby made.
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in their
entirety by reference to, the provisions of the Intercreditor Agreement and
other related documents to be used in connection with the transactions described
herein, the forms of which will be filed as exhibits to a post-effective
amendment to the Registration Statement or a Current Report on Form 8-K to be
filed by the Corporation with the Commission in connection with this offering.
INTERCREDITOR RIGHTS
CONTROLLING PARTY. With respect to any Indenture at any given time, the
Indenture Trustee will be directed in taking, or refraining from taking, any
action thereunder (a) by the holders of at least a majority of the outstanding
principal amount of the Equipment Trust Certificates issued thereunder (provided
that, for so long as the Subordination Agent is the registered holder of the
Equipment Trust Certificates, the Subordination Agent will act with respect to
this clause (a) in accordance with the directions of the Pass Through Trustee
representing holders of Pass Through Certificates representing an undivided
interest in such principal amount of Equipment Trust Certificates), so long as
no Indenture Event of Default has occurred and is continuing thereunder and (b)
by the Controlling Party after the occurrence and during the continuance of an
Indenture Event of Default, in taking, or refraining from taking, any action
thereunder, including exercising remedies thereunder (including 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)
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<PAGE>
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;
S-43
<PAGE>
(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)
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<PAGE>
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 -----------------------------------------
NUMBER AIRCRAFT TYPE(1) DATE(2) AISI MBA SH&E
-------- -------------------------- ----------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
N585FE........... McDonnell Douglas MD-11F September 1998(3) $94,640,000 $ 87,460,000 $89,200,000
N590FE........... McDonnell Douglas MD-11F May 1998(3) 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) 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.
(2) 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.
(3) These two McDonnell Douglas MD-11F Aircraft were originally delivered new to
American Airlines in April 1992 and August 1991, respectively.
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.
S-45
<PAGE>
DESCRIPTION OF THE EQUIPMENT TRUST CERTIFICATES
The following description of the particular terms of the Equipment Trust
Certificates supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Equipment Trust
Certificates set forth in the Prospectus, reference to which is hereby made.
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in their
entirety by reference to, the provisions of the Indentures, the Equipment Trust
Certificates, the Leases, the Participation Agreements, the Trust Agreements and
other related documents to be used in connection with the transactions described
herein, the forms of which will be filed as exhibits to a post-effective
amendment to the Registration Statement or a Current Report on Form 8-K to be
filed by the Corporation with the Commission in connection with this offering.
The provisions of the Indentures, the Equipment Trust Certificates, the Leases
and the Participation Agreements which relate to each of the Aircraft and that
are summarized below are substantially the same, except where otherwise
indicated.
GENERAL
The Equipment Trust Certificates 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.
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<PAGE>
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 A TRUST CLASS B TRUST CLASS C
6.720% 6.845% 7.020%
EQUIPMENT EQUIPMENT EQUIPMENT
TRUST TRUST TRUST TOTAL PER
AIRCRAFT DESIGNATION CERTIFICATES CERTIFICATES CERTIFICATES(1) AIRCRAFT
- ------------------------------------ ----------------- ----------------- ------------------- --------------
<S> <C> <C> <C> <C>
1. Federal Express Corporation $ 31,384,000 $ 13,094,000 $ 16,665,000 $ 61,143,000
Trust No. N585FE
2. Federal Express Corporation 30,775,000 12,122,000 14,736,000 57,633,000
Trust No. N590FE
3. Federal Express Corporation 43,086,000 16,157,000 16,757,000 76,000,000
Trust No. N620FE
4. Federal Express Corporation 43,372,000 16,264,000 17,164,000 76,800,000
Trust No. N621FE
5. Federal Express Corporation 43,372,000 16,264,000 17,164,000 76,800,000
Trust No. N623FE
6. Federal Express Corporation 33,630,000 12,611,000 16,816,000 63,057,000
Trust No. N675FE
7. Federal Express Corporation 32,271,000 13,080,000 14,573,000 59,924,000
Trust No. N676FE
8. Federal Express Corporation 32,879,000 13,410,000 14,115,000 60,404,000
Trust No. N677FE
9. Federal Express Corporation 31,796,000 12,603,000 13,621,000 58,020,000
Trust No. N678FE
10. Federal Express Corporation 33,362,000 13,113,000 12,558,000 59,033,000
Trust No. N679FE
11. Federal Express Corporation 33,154,000 13,321,000 13,836,000 60,311,000
Trust No. N680FE
12. Federal Express Corporation 34,489,000 13,271,000 14,489,000 62,249,000
Trust No. N681FE
13. Federal Express Corporation 34,507,000 13,296,000 14,301,000 62,104,000
Trust No. N682FE
----------------- ----------------- ------------------- --------------
Total $ 458,077,000 $ 178,606,000 $ 196,795,000 $ 833,478,000
----------------- ----------------- ------------------- --------------
----------------- ----------------- ------------------- --------------
</TABLE>
- ------------------------
(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
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<PAGE>
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.
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<PAGE>
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 related 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 such 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 such 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 the Series C Equipment Trust Certificates, subject to
prepayment on the Series C Prepayment Date. At any time, prior to the Series C
Prepayment Date, all or a portion of such retained amounts may be transferred to
the Collateral Account relating to one or more undelivered Aircraft, and the
principal amount of the Series C Equipment Trust Certificates relating to the
Collateral Account from which such amounts are transferred will be
correspondingly decreased and the principal amount of Series C Equipment Trust
Certificates relating to such undelivered Aircraft will be correspondingly
increased.
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<PAGE>
In addition to the foregoing, the principal amount of Series C Equipment
Trust Certificates relating to an undelivered Aircraft may be decreased, and the
related Collateral Account correspondingly decreased, and the principal amount
of Series C Equipment Trust Certificates relating to one or more other
undelivered Aircraft increased, and those related Collateral Accounts
correspondingly increased.
Although the principal amount of the Series C Equipment Trust Certificates
relating to any Aircraft subject to a Prefunding Period may be increased or
decreased as described above, the aggregate principal amount of Series C
Equipment Trust Certificates relating to all eleven Aircraft subject to a
Prefunding Period may not be increased.
The amounts retained 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
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<PAGE>
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)
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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,
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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
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(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)
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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,
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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
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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 June 30, 1998, the Corporation operated 25
McDonnell Douglas MD-11F aircraft and 25 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
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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
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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,
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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
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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,
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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)
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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
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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;
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(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)
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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.
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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
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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.
S-70
<PAGE>
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.
S-71
<PAGE>
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.
<TABLE>
<CAPTION>
TOTAL
PERCENTAGE OF AGGREGATE
AGGREGATE AMOUNT OF
AMOUNT OF PASS THROUGH
UNDERWRITER EACH CLASS CERTIFICATES
- ---------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated................................................. 20% $ 166,698,000
Chase Securities Inc.............................................................. 20 166,695,000
Citicorp Securities, Inc.......................................................... 20 166,695,000
Credit Suisse First Boston Corporation............................................ 20 166,695,000
J.P. Morgan Securities Inc........................................................ 20 166,695,000
--- ---------------
100% $ 833,478,000
</TABLE>
In the event of a default by any Underwriter, the Underwriting Agreement
provides that, in certain circumstances, purchase commitments of non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Underwriters have advised the Corporation that the Underwriters propose
initially to offer the Pass Through Certificates of each Class to the public at
the public offering price for such Class set forth on the cover page of this
Prospectus Supplement, and to certain dealers at such price less a concession
not in excess of the amounts for the respective Class set forth below. The
Underwriters may allow, and such dealers may reallow, a concession to certain
other dealers not in excess of the amounts for the respective Class set forth
below. After the initial public offering, the public offering prices and such
concessions may be changed.
<TABLE>
<CAPTION>
PASS THROUGH CONCESSION REALLOWANCE
CERTIFICATE CLASS TO DEALERS CONCESSION
- -------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
1998-1-A............................................................ 0.40% 0.25%
1998-1-B............................................................ 0.40 0.25
1998-1-C............................................................ 0.40 0.25
</TABLE>
The Corporation does not intend to apply for the listing of the Pass Through
Certificates on a national securities exchange, but has been advised by the
Underwriters that 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.
S-72
<PAGE>
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.
S-73
<PAGE>
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.
A-I-1
<PAGE>
"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.
A-I-2
<PAGE>
"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.
A-I-3
<PAGE>
"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 January 15, 2022 for the Class A
Pass Through Certificates, January 15, 2019 for the Class B Pass Through
Certificates and January 15, 2016 for the Class C Pass Through Certificates.
"FINAL LEGAL DISTRIBUTION DATE" means July 15, 2023 for the Class A Pass
Through Certificates, July 15, 2020 for the Class B Pass Through Certificates
and January 15, 2016 for the Class C Pass Through Certificates.
"GUARANTOR" and "GUARANTY" means if 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.
A-I-4
<PAGE>
"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 contained in such
documents 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 contained in such
documents 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 Agnew, 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.
A-I-5
<PAGE>
"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 (in the case of Federal
Express Corporation Trust Nos. N587FE and N675FE) 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.
A-I-6
<PAGE>
"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
dated June 11, 1998.
"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.
"REGULAR DISTRIBUTION DATE" means, for each Pass Through Trust, January 15
and July 15 of each year, commencing January 15, 1999.
"REMAINING WEIGHTED AVERAGE LIFE" has the meaning set forth in "Description
of the Equipment Trust Certificates--Prepayment" of this Prospectus Supplement.
A-I-7
<PAGE>
"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 and
certain other payments as set forth in the Intercreditor Agreement, 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
A-I-8
<PAGE>
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.
A-I-9
<PAGE>
APPENDIX II
[LOGO]
03 June 1998
Mr. Robert Henning
Vice President and Treasurer
Federal Express Corporation
2007 Corporate Avenue
Memphis, TN 38132
Subject: AISI Report No.: A8S035BVO
AISI Sight Unseen Short Form Base Value Appraisal
Five MD-11 Freighter Aircraft and Eight A300F4-605R Freighter Aircraft.
Dear Mr. Henning:
As requested, Aircraft Information Services, Inc. (AISI) is pleased to offer
Federal Express Corporation (FedEx) our opinion of the sight unseen base market
value of five MD-11 freighter aircraft and eight A300F4-605R freighter aircraft
as defined and listed in Table I of this report.
1. METHODOLOGY AND DEFINITIONS
The historical standard term of reference for commercial aircraft value has
been 'half-life fair market value' of an 'average' aircraft. However, 'fair
market value' could mean a fair value in the given market or a value in a
hypothetical 'fair' or balanced market, and the two definitions are not
equivalent. Recently, the term 'base value' has been created to describe the
theoretical balanced market condition and to avoid the potentially misleading
term 'fair market value' which has now become synonymous with the term 'current
market value' or a 'fair' value in the actual current market. AISI value
definitions are consistent with those of the International Society of Transport
Aircraft Trading (ISTAT) of 01 January 1994; AISI is a member of that
organization and employs and ISTAT Certified Senior Aircraft Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, and with supply
and demand of the sale item roughly in balance. Base values are typically given
for aircraft in 'new' condition, 'average half-life' condition, or in a
specifically described condition unique to a single aircraft at a specific time.
An 'average' aircraft is an operable airworthy aircraft in average physical
condition and with average accumulated flight hours and cycles, with clear title
and standard unrestricted certificate of airworthiness, and registered in an
authority which does not represent a penalty to aircraft value or liquidity,
with no damage history and with inventory configuration and level of
modification which is normal for its intended use and age. AISI assumes average
condition unless otherwise specified in this report. 'Half-life' condition
assumes that every component or maintenance service which has a prescribed
interval that determines its service life, overhaul interval or interval between
maintenance services, is at a condition which is one-half of the total interval.
It should be noted that AISI and ISTAT value definitions apply to a transaction
involving a single aircraft, and that transactions involving more than one
aircraft are often executed at considerable and highly variable discounts to a
single aircraft price, for a variety of reasons relating to an individual buyer
or seller.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future value
considerations, or to consider how actual market values vary from theoretical
base values. Base values are normally inappropriate to determine near term
values of an aircraft.
2. BASE VALUATION
Following is AISI's opinion of the base market values for the subject
aircraft. Valuations are presented in Table I subject to the assumptions,
definitions and disclaimers herein. Values are for the defined aircraft
condition, either new or half life. New aircraft are in then USDollars, half
life aircraft are in 1998 USDollars.
<PAGE>
03 June 1998
AISI File No. A8S035BV0
Page -2-
Table I - 03 June 1998
FEDERAL EXPRESS FLEET
BASE VALUATION
<TABLE>
<CAPTION>
REGISTRATION YEAR OF BASE MARKET VALUE
AIRCRAFT NUMBER BUILD ENGINES CONDITION U.S. DOLLARS
- ---------------------------------------- ----------- --------- --------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
MD-11F.................................. N585FE Apr-92 CF6-80C2 Half Life $ 94,640,000
MD-11F.................................. N590FE Aug-91 CF6-80C2 Half Life $ 90,430,000
MD-11F.................................. N620FE Mar-99 PW4462 New $ 123,700,000
MD-11F.................................. N621FE Jun-99 PW4462 New $ 123,700,000
MD-11F.................................. N623FE Jun-99 PW4462 New $ 123,700,000
A300F4-605R............................. N675FE Jun-98 CF6-80C2A5 New $ 84,500,000
A300F4-605R............................. N676FE Jul-98 CF6-80C2A5 New $ 84,500,000
A300F4-605R............................. N677FE Aug-98 CF6-80C2A5 New $ 84,500,000
A300F4-605R............................. N678FE Sep-98 CF6-80C2A5 New $ 84,500,000
A300F4-605R............................. N679FE Oct-98 CF6-80C2A5 New $ 84,500,000
A300F4-605R............................. N680FE Nov-98 CF6-80C2A5 New $ 84,500,000
A300F4-605R............................. N681FE May-99 CF6-80C2A5 New $ 87,000,000
A300F4-605R............................. N682FE Jun-99 CF6-80C2A5 New $ 87,000,000
</TABLE>
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft.
AISI has no past, present, or anticipated future interest in the subject
aircraft. The conclusions and opinions expressed in this report are based on
published information, information provided by others, reasonable
interpretations and calculations thereof and are given in good faith. Such
conclusions and opinions are judgments that reflect conditions and values which
are current at the time of this report. The values and conditions reported upon
are subject to any subsequent change. AISI shall not be liable to any party for
damages arising out of reliance or alleged reliance on this report, or for any
parties action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
Fred E. Bearden
President
<PAGE>
MORTON BEYER & AGNEW
-------------
AVIATION CONSULTING FIRM
Appraisal of five MD-11F,
eight A300-F4-605R Aircraft
Prepared for:
FEDERAL EXPRESS, INC.
June 5, 1998
8180 Greensboro Drive
Suite 1000
McLean, Virginia 22102
Telephone 703-847-6598
Telephone 703-734-1474
<PAGE>
I. INTRODUCTION AND EXECUTIVE SUMMARY
Morten Beyer and Agnew, Inc. (MBA), has been retained by Federal Express to
determine the Base Value (BV) of 13 aircraft in their future configuration as
cargo aircraft. The aircraft are further identified in Section II of this
report.
In performing this valuation we did not inspect the aircraft or their
historical maintenance documentation, and we relied solely on information
provided to us by Federal Express. Based on the information set forth further in
this report, it is our opinion that the Base Value of the total value of
aircraft in this portfolio is $1,153,179,000 with their respective individual
values noted in Section II.
MBA uses the definition of certain terms, such as Current Market Value (CMV)
and Base Value (BV), as promulgated by the International Society of Transport
Aircraft Trading (ISTAT), a non-profit association of management personnel from
banks, leasing companies, airlines, manufacturers, appraisers, brokers, and
others who have a vested interest in the commercial aviation industry.
ISTAT defines CMV as the appraiser's opinion of the most likely trading
price that may be generated for an aircraft under market conditions that are
perceived to exist at the time in question. Market Value (MV) assumes that the
aircraft is valued for its highest, best use; that the parties to the
hypothetical sale transaction are willing, able, prudent and knowledgeable and
under no unusual pressure for a prompt sale; and that the transaction would be
negotiated in an open and unrestricted market on an arm's-length basis, for cash
or equivalent consideration, and given an adequate amount of time for effective
exposure to prospective buyers.
The ISTAT definition of Base Value (BV) has, essentially, the same elements
of MV except that the market circumstances are assumed to be in a reasonable
state of equilibrium. Thus, BV pertains to an idealized aircraft and market
combination, but will not necessarily reflect the actual CMV of the aircraft in
question. BV is founded in the historical trend of values and is generally used
to analyze historical values or to project future values.
II. AIRCRAFT
<TABLE>
<CAPTION>
A/C TYPE SERIAL NUMBER DATE OF MFR A/C TAIL NUMBER
- ------------------------------------------------------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
MD-11F............................................................. 48481 4/92 N585FE
MD-11F............................................................. 48505 8/91 N590FE
MD-11F............................................................. 48791 3/99 N620FE
MD-11F............................................................. 48792 6/99 N621FE
MD-11F............................................................. 48794 6/99 N623FE
A300-F4-605R....................................................... 789 6/98 N675FE
A300-F4-605R....................................................... 790 7/98 N676FE
A300-F4-605R....................................................... 791 8/98 N677FE
A300-F4-605R....................................................... 792 9/98 N678FE
A300-F4-605R....................................................... 793 10/98 N679FE
A300-F4-605R....................................................... 794 11/98 N680FE
A300-F4-605R....................................................... Not avail. 5/99 N681FE
A300-F4-605R....................................................... Not avail. 6/99 N682FE
</TABLE>
III. CURRENT MARKET CONDITIONS
AIRBUS A300-600R
The twin engine Airbus A300 was launched in 1971, just as the bigger
American widebodies were entering service. The first production model was
delivered in 1974, and for a number of years the aircraft was a dud on the
market with only Air France and Air Inter ordered them. By the end of 1976, 34
had been ordered and 27 were in service. But then Airbus took off - aided by a
dramatically successful order placement for 28 aircraft by Eastern. At the end
of 1997, 488 A300s of all types had been ordered -
<PAGE>
outstripping the record for the DC-10 and L-1011 by a wide margin. Last year
only five A300-600Rs were delivered and only five passenger aircraft remain on
order.
The aircraft has developed through five iterations, distinguished mostly by
gross weight increases and engine enhancements. Starting with the later A300-600
series, a two-man glass cockpit was standard equipment.
Almost all earlier models of the A300 were equipped with GE CF6-50C2
engines, except for 24 powered by JT9Ds. In the late 80s, the newer P&W 4000
series engines were installed in 31 A300-B4-200s for five customers.
A cargo version of the A300 was also offered early on and a total of eight
aircraft were eventually sold. However, Airbus finally hit it big with FedEx,
who ordered 36 and optioned 50 more of the -600RF cargo version. A triumphant
double-play was thwarted soon after when UPS opted for the 767-300ERF.
Deliveries of FedEx's aircraft started in 1994 at the rate of five per year and
12 more remain to be delivered.
The current production model of the Airbus A300 is the -600R version, with
over 171 passenger models in service, but only six more on order. These aircraft
are split almost 50/50 between the traditional GE CF6-80 and the newer P&W 4000
engines.
The A300 has an operator base of some 50 airlines, but a major dent was put
into the overall number in operation as a result of the Pan Am and Eastern
liquidations. Like the case with the DC-10s and L-1011s, freighter conversions
for the A300s are affecting the number of aircraft on the market, as we
predicted last year.
The A300 complies fully with Stage 3 noise requirements. The metallurgical
qualities for the older aircraft have proved to be a bit difficult to cope with,
leaving operators with a rather large bill following structural inspections. It
is wise in any transfer of ownership or registration to check to physical
condition of the aircraft carefully, as it is not forgiving of carelessness or
neglect.
Airbus has played a very positive role in the marketing and re-marketing of
the aircraft, leading to some political criticism in the United States. This
support has been necessary in order to gain acceptance for a new type of
aircraft from a new manufacturer in the face of intense competition from the
established manufacturers, Boeing and Douglas, as well as the devaluation of the
American dollar.
The A300-600R freighter is very much comparable to the MD-11F. It can carry
up 21 pallets on the upper deck as opposed to the MD-11's 26. As far as cost per
block hour the A300-600RF runs approximately 25% less than the MD-11F. However,
the ATM costs run relatively 15-16% higher than the MD-11F, making it more
suitable for the high yield traffic of the package express carriers as opposed
to mainline freight delivery.
A total of 24 A300s have been destroyed or scrapped, the several of them due
to hostile action. The U.S. Navy shot down an Iranian passenger flight over the
Arabian Sea and two Iraqi A300s were destroyed on the ground.
BOEING MD-11
The MD-11 was first ordered in 1986 and entered service at the end of 1990.
The aircraft is a slightly larger version of the DC-10, with 45,000 pounds
greater gross weight. Range is extended 1,000 miles to a maximum full-payload
range of 7,000 miles. The aircraft is offered in passenger, cargo and Combi
versions.
Currently the MD-11 is available with CF6-80C2/C2D1F and PW4460 engine types.
While only two orders have been placed with the CF6-80C2 configuration, more
orders have been made with the upgraded version, the CF6-80C2D1F, and the PW4460
both offering an additional 1000-2000 pounds of thrust. No adjustments have been
made on this appraisal to reflecting current engine options.
Earlier this week Boeing issued its long awaited announcement that production of
the MD-11 will be discontinued in 2000 after the 22 aircraft currently in
backlog are completed. Boeing stated that is will continue to fully support the
MD-11's with spares and technical engineering services, which we expect will
<PAGE>
continue for decades into the future. This discontinuance will adversely affect
the values of existing MD-11's to some degree. However, the MD-11 has a
reasonable operator base, and more than 200 aircraft will be service. Interest
in converting additional passenger models to cargo will cushion any price
declines, as the aircraft is considered a better cargo aircraft that it is a
passenger liner. Several DC10-30 and MD-11 operators have recently expressed
interest in expanding their MD-11 fleets in both passenger and cargo services.
FedEx has acquired all of American's MD-11's and is modifying them to cargo as
they are delivered.
IV. VALUATION
<TABLE>
<CAPTION>
A/C TYPE SERIAL NUMBER A/C TAIL NUMBER BASE VALUE ($)
- -------------------------------------------------------------- ------------- --------------- ----------------
<S> <C> <C> <C>
MD-11F........................................................ 48481 N585FE 87,460,000
MD-11F........................................................ 48505 N590FE 85,200,000
MD-11F........................................................ 48791 N620FE 103,230,000
MD-11F........................................................ 48792 N621FE 104,260,000
MD-11F........................................................ 48794 N623FE 104,260,000
A300-F4-605R.................................................. 789 N675FE 82,528,000
A300-F4-605R.................................................. 790 N676FE 82,751,000
A300-F4-605R.................................................. 791 N677FE 82,974,000
A300-F4-605R.................................................. 792 N678FE 83,197,000
A300-F4-605R.................................................. 793 N679FE 83,420,000
A300-F4-605R.................................................. 794 N680FE 83,643,000
A300-F4-605R.................................................. Not avail. N681FE 85,010,000
A300-F4-605R.................................................. Not avail. N682FE 85,246,000
----------------
TOTAL......................................................... $ 1,153,179,000
----------------
----------------
</TABLE>
The base values of new, but undelivered, aircraft are the projected Base
Values as of date of delivery.
In developing the Base Value of the two used MD-11 aircraft, MBA did not
inspect the aircraft or its historical maintenance documentation. Therefore, we
used certain assumptions that are generally accepted industry practice to
calculate the value of an aircraft when more detailed information is not
available. The principal assumptions are as follows (for each aircraft):
1. The aircraft is in used condition.
2. The overhaul status of the airframe, engines, landing ear and other
major components are considered to be half-time, unless otherwise specified.
3. The historical maintenance documentation has been maintained to
acceptable international standards.
4. The specifications of the aircraft are those most common for an
aircraft of its type and vintage.
5. The aircraft is in a standard cargo configuration.
6. The aircraft is current as to all Airworthiness Directives and
Service Bulletins.
7. Its modification status is comparable to that most common for an
aircraft of its type and vintage.
8. Its utilization is comparable to industry averages.
9. There is no history of accident or incident damage.
10. No accounting was made for lease obligations or terms of ownership.
<PAGE>
V. COVENANTS
This report has been prepared for the exclusive use of Federal Express
(Morgan Stanley) and shall not be provided to other parties by MBA without the
express consent of Federal Express (Morgan Stanley).
MBA certifies that this report has been independently prepared and that it
fully and accurately reflects MBA's opinion as to the Base Value. MBA further
certifies that it does not have, and does not expect to have, any financial or
other interest in the subject or similar aircraft.
This report represents the opinion of MBA as to the Base Value of the
subject aircraft and is intended to be advisory only in nature. Therefore, MBA
assumes no responsibility or legal liability for any actions taken or not taken
by Federal Express (Morgan Stanley) or any other party with regard to the
subject aircraft. By accepting this report, all parties agree that MBA shall
bear no such responsibility or legal liability.
Prepared By:
/s/ BRYSON P. MONTELEONE
--------------------------------------
Bryson P. Monteleone
Manager of Operations
Reviewed By:
/s/ MORTEN S. BEYER
--------------------------------------
Morten S. Beyer
Chairman and CEO
ISTAT Certified Senior Appraiser
<PAGE>
<TABLE>
<S> <C> <C> <C>
Simat, Helliesen & Eichner,
Inc. Tel: +1-212-682.8455
90 Park Avenue Fax: +1-212-986.1825
New York, New York 10016 Email: [email protected]
United States of America
</TABLE>
SH&E
June 9, 1998
Mr. Robert Henning
Vice President & Treasurer
Federal Express Corporation
2007 Corporate Avenue, 4(th) Floor
Memphis, TN 38132
RE: VALUE OPINION OF EIGHT A300F4-600R AIRCRAFT AND FIVE MD-11F AIRCRAFT
Dear Mr. Henning:
Simat, Helliesen & Eichner, Inc., ("SH&E") was retained by Federal Express
Corporation (the "Client") to determine the Base Value ("BV") for eight Airbus
A300F4-600R aircraft and five McDonnell Douglas MD-11F aircraft (the "Subject
Aircraft"). The Subject Aircraft specifications can be found in Appendix 1.
SH&E has determined the following values for the Subject Aircraft:
SUBJECT AIRCRAFT BASE VALUES ($MIL)
<TABLE>
<CAPTION>
Aircraft Registration Expected Date of Base
Type(1) Number Delivery to FedEx Value
- ------------------------------------------------------------------------ ----------- ------------------ ---------
<S> <C> <C> <C>
MD-11F.................................................................. N585FE September 15, 1998 $ 89.2
MD-11F.................................................................. N590FE May 27, 1998 $ 87.0
MD-11F.................................................................. N620FE March 15, 1999 $ 112.2
MD-11F.................................................................. N621FE June 15, 1999 $ 112.6
MD-11F.................................................................. N623FE June 15, 1999 $ 112.6
A300F4-605R............................................................. N675FE June 18, 1998 $ 85.2
A300F4-605R............................................................. N676FE July 15, 1998 $ 85.5
A300F4-605R............................................................. N677FE August 15, 1998 $ 85.8
A300F4-605R............................................................. N678FE September 15, 1998 $ 86.0
A300F4-605R............................................................. N679FE October 15, 1998 $ 86.3
A300F4-605R............................................................. N680FE November 15, 1998 $ 86.6
A300F4-605R............................................................. N681FE May 15, 1999 $ 88.5
A300F4-605R............................................................. N682FE June 15, 1999 $ 88.5
</TABLE>
- ------------------------
1 The subject A300F4-605R aircraft and three of the subject MD-11F aircraft
were ordered by Federal Express as production freighters and have not yet
been delivered. Two of the subject MD-11F aircraft, specifically N590FE and
N585FE, were operated in passenger configuration by American Airlines and
will be converted to freighters by Dimension Aviation prior to delivery to
Federal Express.
SH&E VALUATION METHODOLOGY
Since SH&E was formed in 1963, the firm has appraised virtually every major
commercial jet and turboprop aircraft models and has also appraised many general
aviation and corporate aircraft models. SH&E's appraisal's are performed
according to the International Society of Transport Aircraft Trading (ISTAT)
principles of appraisal practice and code of ethics. SH&E's staff includes two
appraisers certified by ISTAT.
The SH&E valuation approach starts by determining a half-life value. The
term "half-life" represents an aircraft whose major components (e.g. airframe,
engines, landing gear and APU) have been used 50
<PAGE>
Mr. Robert Henning
June 9, 1998
Page 2
percent of the time between scheduled or expected overhauls. This initial
appraisal can then be adjusted (positive or negative) for each individual unit
to reflect the aircraft's maintenance status relative to the next overhaul. In
most cases, the Base Value of an aircraft assumes its physical condition is
average for an aircraft of its type and age, and its maintenance time status is
at half-life (or benefitting from an above-average maintenance status if it is
new or nearly new, as the case may be). SH&E half-life values are determined on
a semi-annual basis by reviewing recent past sales, aircraft availability
trends, technological aspects, environmental constraints and maintenance
requirements.
In the case of new aircraft, the above half-life values are automatically
adjusted upwards to reflect the fact that the aircraft has the full span of
maintenance overhaul intervals available. Consequently, SH&E's initial
depreciation of new aircraft is considerably greater than for a used aircraft,
thereby accounting for both the change in its maintenance status and its
intrinsic depreciation.
BASE VALUE DEFINITION
The Base Value (BV) is the appraiser's opinion of the price at which an
aircraft would change hands between a willing buyer and a willing seller,
neither being under compulsion to buy or sell, and both having knowledge of all
relevant facts. An aircraft's BV is founded in the historical trend of values
and in the projection of value trends, and presumes an arm's-length, cash
transaction.
Since BV pertains to a somewhat idealized aircraft and market combination,
it may not necessarily reflect the actual value of the aircraft in question, but
is a nominal starting value to which adjustments may be applied to determine an
actual value.
The BV of each aircraft is derived from SH&E's aircraft valuation models.
The SH&E BV models provide trend lines derived from known transactions,
econometric factors affecting aircraft values and aircraft economic life
estimates. Because it is related to long-term market trends, the BV definition
is normally applied to analyses of historical values and projections of residual
values.
DESCRIPTION OF THE AIRCRAFT
AIRBUS A300
The Airbus Industrie A300 is a wide-body, twin-engined commercial jet
aircraft on which construction began in September 1969. The A300 series includes
the A300B1, A300B2-100/200, A300B4-100/200, A300-600 and A300-600R.
The A300-600 was first delivered in 1984 as an advanced version of the
A300B4-200. By moving the pressure bulkhead aft, Airbus was able to offer
seating for 266 passengers in a two-class configuration. The aircraft systems
were also modified to incorporate an Electronic Flight Instrumentation System
(EFIS), digital avionics, advanced braking control system, new Auxiliary Power
Unit and numerous aerodynamic improvements to reduce drag and enhance
payload/range capabilities. The A300-600R is the extended range version of the
A300-600, mainly due to the addition of a fuel trim tank in the tail.
The A300F4-600R freighter aircraft was launched in July 1991 with an order
for 25 by Federal Express. The A300F4-600R is based on the fuselage of the
A300-600R, with the addition of a large forward port-side cargo door,
strengthened cabin floor and main cabin smoke detection system. The usable
length of the upper cargo floor is 109 ft 9 in and the upper deck cargo door
measures 8 ft 5 in high and 11 ft 9 in wide.
As of January 1998, 25 A300C4-600/F4-600 aircraft were in operation and none
were available for sale/lease.
MCDONNELL DOUGLAS MD-11
The McDonnell Douglas MD-11 is a wide-body, three-engined commercial jet
aircraft that was first delivered in 1990.
<PAGE>
Mr. Robert Henning
June 9, 1998
Page 3
The MD-11 is produced in five versions: passenger (MD-11); mixed
cargo/passenger (MD-11 Combi); convertible freighter (MD-11CF); freighter
(MD-11F); and extended range (MD-11ER). The fuselage dimensions are consistent
throughout the MD-11 series, with an overall length of 201 ft 4 in and a wing
span of 169 ft 6 in. The series differs through varying internal configurations
and fuel capacity. The series is powered by Pratt & Whitney 4460 or General
Electric CF6-80C2 engines.
The MD-11F was first delivered to Federal Express in January 1990. As of
January 1998 47 MD-11CF/F aircraft were in operation and one MD-11 passenger
aircraft is available for lease.
ASSUMPTIONS
SH&E used information supplied by the Client together with in-house data
accumulated through other recent studies of aircraft transactions. Specific
assumptions included the following:
- The A300 aircraft will be delivered new having been built as freighter
variants by the manufacturer, Airbus Industrie. Two of the MD-11 aircraft,
registrations N590FE and N585FE, were manufactured as passenger variants
and were originally purchased and operated by American Airlines before
being converted to freighter configuration by Federal Express. The
remaining three MD-11F aircraft have been built as freighter variants by
the manufacturer, McDonnell Douglas (Boeing).
- SH&E assumed that the Subject Aircraft meet or will meet all of the
specifications and performance standards for typical aircraft.
- SH&E assumed that all normally required maintenance has been or will be
performed, including all Airworthiness Directives and Service Bulletins.
- SH&E assumed that the Subject Aircraft will remain in freighter
configuration and continue to be certified for operations under the U.S.
Federal Aviation Administration, a successor agency or a comparable
authority.
LIMITATIONS
SH&E's opinions are based upon historical relationships and expectations
that it believes are reasonable. Some of the underlying assumptions, including
those described above are detailed explicitly or implicitly elsewhere in this
report, and may not materialize because of unanticipated events and
circumstances. SH&E's opinions could, and would, vary materially, should any of
the above assumptions prove to be inaccurate.
The opinions expressed herein are not given as an inducement or endorsement
for any financial transaction. They are prepared for the exclusive use of the
addressee and the addressee may not provide this report to other parties,
including third parties, without SH&E's written consent.
SH&E accepts no responsibility for damages, if any, that may result from
decisions made or actions taken by third parties that may be based upon this
report. In accepting this report the Client agrees to indemnify and hold SH&E
harmless against all losses, claims and costs arising as a result of this report
except when attributable to SH&E's gross negligence or willful misconduct.
This report reflects SH&E's expert opinion and best judgment based upon the
information available to it at the time of its preparation. SH&E does not have,
and does not expect to have, any financial interest in the appraised property.
Yours Sincerely,
Clive G. Medland
Vice President
ISTAT Senior Appraiser
cc: Thinh Le, Morgan Stanley
<PAGE>
APPENDIX 1
SUBJECT AIRCRAFT SPECIFICATIONS
<TABLE>
<CAPTION>
AIRCRAFT TYPE A300F4-600R MD-11F
- ---------------------------------------------------------------------------------- --------------- -------------
<S> <C> <C>
Engine Types...................................................................... CF6-80C2A5 CF6-80C2
PW4462
Maximum Takeoff Gross Weight (lbs)................................................ 375,900 630,500
Maximum Landing Weight (lbs)...................................................... 308,650 481,500
Operating Empty Weight (lbs)...................................................... 174,300 249,449
Maximum Zero Fuel Weight (lbs).................................................... 286,600 451,300
Fuel Capacity (lbs)............................................................... 120,600 249,449
Gross Weight Limited Payload (lbs)................................................ 112,300 201,851
Upper Deck Cargo -88 by 125 in pallets............................................ 15 26
-96 by 125 in pallets............................................. 12 26
Lower Deck Cargo -88 in pallets + LD3s............................................ 4 + 10 6 + 14
-96 in pallets + LD3s............................................. 4 + 10 6 + 14
Range--Gross weight limited payload (nm).......................................... 2,650 3,952
Length Overall.................................................................... 177 ft 5 in 192 ft 5 in
Wing Span......................................................................... 147 ft 11 in 169 ft 10 in
</TABLE>
<PAGE>
APPENDIX III
EQUIPMENT TRUST CERTIFICATE PAYMENTS
PASS THROUGH TRUST, 1998-1-A
6.720% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATE N585FE* N590FE N620FE* N621FE* N623FE* N675FE N676FE*
- -------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
15-Jul-99... 0 0 500,303 514,874 514,874 1,008,512 0
15-Jan-00... 0 0 792,277 786,286 786,286 0 592,875
15-Jul-00... 0 0 0 0 0 1,008,912 0
15-Jan-01... 0 0 1,292,580 1,301,160 1,301,160 0 1,011,004
15-Jul-01... 0 0 0 0 0 1,008,912 0
15-Jan-02... 0 54,197 1,292,580 1,301,160 1,301,160 0 1,011,004
15-Jul-02... 925,464 1,206,886 0 0 0 1,008,912 0
15-Jan-03... 0 0 1,292,580 1,301,160 1,301,160 0 1,011,004
15-Jul-03... 1,305,366 1,321,519 0 0 0 1,008,912 0
15-Jan-04... 0 0 1,292,580 1,301,160 1,301,160 0 1,011,004
15-Jul-04... 1,305,366 1,321,519 0 0 0 1,008,912 0
15-Jan-05... 0 0 1,292,580 1,301,160 1,301,160 0 1,011,004
15-Jul-05... 1,305,366 1,321,519 0 0 0 1,008,912 0
15-Jan-06... 1,305,366 1,321,519 1,292,580 1,301,160 1,301,160 0 1,011,004
15-Jul-06... 0 0 0 0 0 1,008,912 0
15-Jan-07... 1,305,366 1,321,519 1,292,580 1,301,160 1,301,160 0 1,011,004
15-Jul-07... 0 0 0 0 0 1,008,912 0
15-Jan-08... 1,305,366 1,321,519 1,292,580 1,301,160 1,301,160 0 1,011,004
15-Jul-08... 0 0 0 0 0 1,008,912 0
15-Jan-09... 1,305,365 1,321,519 1,292,580 1,395,322 1,395,322 0 1,011,004
15-Jul-09... 0 0 0 0 0 1,008,912 0
15-Jan-10... 1,305,366 1,321,519 2,200,748 2,775,242 2,775,242 1,008,912 1,011,004
15-Jan-11... 1,305,366 1,321,519 2,917,182 2,900,680 2,900,680 1,008,912 1,011,004
15-Jan-12... 1,305,366 1,762,025 3,057,594 3,041,302 3,041,302 1,008,912 1,011,004
15-Jan-13... 1,740,488 1,762,025 872,536 296,734 296,734 1,008,912 1,011,004
15-Jan-14... 1,740,488 1,762,025 0 0 0 1,008,912 1,011,004
15-Jan-15... 1,740,487 1,762,025 0 0 0 1,008,912 1,011,004
15-Jan-16... 1,740,488 1,762,025 0 0 0 5,049,408 1,011,004
15-Jan-17... 1,740,488 1,762,025 3,976,257 3,253,644 3,253,644 6,307,497 1,011,004
15-Jan-18... 1,740,488 1,762,025 2,173,329 2,671,391 2,671,391 5,121,991 2,660,347
15-Jan-19... 3,350,297 1,762,025 0 0 0 0 5,236,144
15-Jan-20... 3,399,090 3,524,046 4,963,747 4,950,068 4,950,068 0 5,601,111
15-Jul-20... 212,563 0 0 0 0 0 0
15-Jan-21... 0 0 5,307,977 5,293,349 5,293,349 0 993,455
15-Jan-22... 0 0 4,690,830 5,083,828 5,083,828 0 0
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-III-1
<PAGE>
EQUIPMENT TRUST CERTIFICATE PAYMENTS
PASS THROUGH TRUST, 1998-1-A
6.720% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATE N677FE* N678FE* N679FE* N680FE* N681FE* N682FE*
- -------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
15-Jan-99... 131,697 0 0 0 0 0
15-Jan-00... 1,011,559 24,001 576,001 376,189 796,374 783,851
15-Jan-01... 1,012,843 1,014,000 1,014,000 1,013,747 1,042,040 1,042,984
15-Jan-02... 1,012,843 939,350 1,014,000 1,013,747 1,042,040 1,042,984
15-Jul-02... 0 74,650 0 0 0 0
15-Jan-03... 1,012,843 949,969 1,014,000 1,013,747 1,042,040 1,042,984
15-Jul-03... 0 64,031 0 0 0 0
15-Jan-04... 1,012,843 0 1,014,000 1,013,747 1,042,040 1,042,984
15-Jul-04... 0 1,014,000 0 0 0 0
15-Jan-05... 1,012,843 0 1,014,000 1,013,747 1,042,040 1,042,984
15-Jul-05... 0 1,014,000 0 0 0 0
15-Jan-06... 1,012,843 0 1,014,000 1,013,747 1,042,040 1,042,984
15-Jul-06... 0 1,014,000 0 0 0 0
15-Jan-07... 1,012,843 0 1,014,000 1,013,747 1,042,040 1,042,984
15-Jul-07... 0 1,014,000 0 0 0 0
15-Jan-08... 1,012,843 0 1,014,000 1,013,747 1,042,040 1,042,984
15-Jul-08... 0 1,014,000 0 0 0 0
15-Jan-09... 1,012,843 0 1,014,000 1,013,747 1,042,040 1,042,984
15-Jul-09... 0 1,014,000 0 0 0 0
15-Jan-10... 1,012,843 1,014,000 1,014,000 1,013,747 1,042,040 1,042,984
15-Jan-11... 1,012,843 1,014,000 1,014,000 1,013,747 1,042,040 1,042,984
15-Jan-12... 1,012,843 1,014,000 1,014,000 1,013,747 1,042,040 1,042,984
15-Jan-13... 1,012,843 1,014,000 1,014,000 1,013,747 1,042,040 1,042,984
15-Jan-14... 1,012,843 1,014,000 1,014,000 1,013,747 1,042,040 1,042,984
15-Jan-15... 1,012,843 1,014,000 1,014,000 1,013,747 1,042,040 1,042,984
15-Jan-16... 1,012,843 1,014,000 1,014,000 1,013,747 1,042,040 1,042,984
15-Jan-17... 1,012,843 4,632,945 1,521,066 1,986,333 1,042,040 1,042,984
15-Jan-18... 1,012,843 5,667,496 4,689,080 5,285,965 4,247,711 4,341,630
15-Jan-19... 4,006,223 5,247,558 5,557,029 5,653,532 5,676,255 5,664,039
15-Jan-20... 5,512,064 0 4,794,824 3,632,029 6,038,261 5,986,752
15-Jan-21... 3,986,283 0 0 0 15,719 0
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-III-2
<PAGE>
EQUIPMENT TRUST CERTIFICATE PAYMENTS
PASS THROUGH TRUST, 1998-1-B
6.845% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATE N585FE* N590FE N620FE* N621FE* N623FE* N675FE N676FE*
- -------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
15-Jan-99... 0 0 0 0 0 0 1,484,985
15-Jul-99... 0 0 484,468 487,435 487,435 377,942 0
15-Jan-00... 0 0 0 0 0 0 368,173
15-Jul-00... 0 0 0 0 0 378,342 0
15-Jan-01... 802,635 498,271 484,717 487,935 487,935 0 17,121
15-Jul-01... 0 0 0 0 0 378,342 0
15-Jan-02... 866,796 556,007 484,718 487,935 487,935 0 88,682
15-Jul-02... 2,618 0 0 0 0 378,342 0
15-Jan-03... 0 0 484,717 487,935 487,935 0 379,126
15-Jul-03... 489,512 495,570 0 0 0 378,342 0
15-Jan-04... 0 0 484,718 487,935 487,935 0 379,126
15-Jul-04... 489,512 495,570 0 0 0 378,342 0
15-Jan-05... 0 1,774 484,717 487,935 487,935 0 379,126
15-Jul-05... 489,512 493,796 0 0 0 378,342 0
15-Jan-06... 489,513 495,570 484,718 487,935 487,935 0 379,126
15-Jul-06... 0 0 0 0 0 378,342 0
15-Jan-07... 489,512 495,570 1,508,138 2,101,772 2,101,772 0 379,126
15-Jul-07... 0 0 0 0 0 378,342 0
15-Jan-08... 489,512 495,570 2,212,658 2,180,792 2,180,792 0 379,126
15-Jul-08... 0 0 0 0 0 378,342 0
15-Jan-09... 489,512 495,570 2,217,752 1,502,351 1,502,351 378,342 444,732
15-Jan-10... 489,512 495,570 26,178 0 0 378,342 317,382
15-Jan-11... 489,513 495,570 0 0 0 378,342 375,266
15-Jan-12... 489,512 660,759 0 0 0 378,342 379,126
15-Jan-13... 652,683 660,759 0 0 0 378,342 379,126
15-Jan-14... 652,683 660,759 0 0 0 1,587,415 379,126
15-Jan-15... 652,683 660,759 0 0 0 4,501,363 379,126
15-Jan-16... 652,683 660,759 0 0 0 847,492 379,126
15-Jan-17... 652,682 660,759 0 787,001 787,001 0 3,575,165
15-Jan-18... 657,770 2,143,815 2,160,676 1,650,998 1,650,998 0 2,236,383
15-Jan-19... 2,605,645 499,223 4,638,825 4,626,041 4,626,041 0 1,725
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-III-3
<PAGE>
EQUIPMENT TRUST CERTIFICATE PAYMENTS
PASS THROUGH TRUST, 1998-1-B
6.845% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATE N677FE* N678FE* N679FE* N680FE* N681FE* N682FE*
- -------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
15-Jan-99... 1,993,384 0 0 847 0 0
15-Jul-99... 0 0 0 359,530 905,414 913,431
15-Jan-00... 0 850,401 818,250 991,791 290,880 302,703
15-Jan-01... 69,101 218,350 415,375 183,839 121,084 119,398
15-Jan-02... 196,772 380,250 345,125 267,406 202,173 200,433
15-Jan-03... 380,139 380,250 380,250 356,897 289,009 287,211
15-Jan-04... 380,139 380,250 380,250 380,478 390,765 391,119
15-Jan-05... 380,139 0 380,250 380,478 390,765 391,119
15-Jul-05... 0 380,250 0 0 0 0
15-Jan-06... 380,139 0 380,250 380,478 390,765 391,119
15-Jul-06... 0 380,250 0 0 0 0
15-Jan-07... 380,139 0 380,250 380,478 390,765 391,119
15-Jul-07... 0 380,250 0 0 0 0
15-Jan-08... 380,139 0 380,250 466,692 390,765 391,119
15-Jul-08... 0 388,461 0 0 0 0
15-Jan-09... 380,139 372,039 388,029 307,900 670,082 565,770
15-Jan-10... 380,139 380,250 372,471 366,842 497,006 492,038
15-Jan-11... 380,139 380,250 380,250 380,478 565,427 560,277
15-Jan-12... 380,139 380,250 380,250 380,478 637,356 632,014
15-Jan-13... 380,139 380,250 380,250 380,478 831,996 839,413
15-Jan-14... 380,139 380,250 752,954 380,478 1,413,718 1,633,679
15-Jan-15... 380,139 1,987,983 3,263,287 784,982 0 0
15-Jan-16... 380,139 3,937,343 241,815 3,293,129 0 0
15-Jan-17... 1,003,863 665,673 3,093,444 2,897,321 3,892,418 3,886,302
15-Jan-18... 3,850,158 0 0 0 1,000,612 907,736
15-Jan-19... 974,776 0 0 0 0 0
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-III-4
<PAGE>
EQUIPMENT TRUST CERTIFICATE PAYMENTS
PASS THROUGH TRUST, 1998-1-C
7.020% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATE N585FE* N590FE N620FE* N621FE* N623FE* N675FE N676FE*
- -------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
15-Jan-99... 353,838 664,654 0 0 0 345,099 1,553,721
15-Jul-99... 0 0 870,674 1,396,184 1,396,184 160,157 0
15-Jan-00... 1,132,164 1,048,588 0 0 0 0 0
15-Jul-00... 0 0 0 0 0 504,456 0
15-Jan-01... 362,685 603,989 182,154 23,767 23,767 0 0
15-Jul-01... 0 0 0 0 0 504,456 0
15-Jan-02... 382,870 570,367 545,925 519,588 519,588 0 0
15-Jul-02... 0 0 0 0 0 504,456 0
15-Jan-03... 360,620 0 710,050 682,623 682,623 0 880,629
15-Jul-03... 0 0 0 0 0 504,456 0
15-Jan-04... 1,084,451 648,239 1,061,070 1,033,725 1,033,725 0 1,186,499
15-Jul-04... 0 0 0 0 0 504,456 0
15-Jan-05... 0 0 1,079,826 1,050,117 1,050,117 0 841,896
15-Jul-05... 0 0 0 0 0 504,456 0
15-Jan-06... 369,835 120,232 1,123,627 1,091,226 1,091,226 0 284,964
15-Jul-06... 0 0 0 0 0 504,456 0
15-Jan-07... 652,683 12,107 622,115 0 0 0 283,929
15-Jul-07... 0 0 0 0 0 504,456 0
15-Jan-08... 652,683 275,420 0 0 0 1,375,980 276,275
15-Jan-09... 652,683 660,759 0 663,809 663,809 358,641 0
15-Jan-10... 652,683 660,759 556,459 0 0 1,413,913 0
15-Jan-11... 652,683 660,759 0 0 0 1,410,348 0
15-Jan-12... 652,683 881,013 0 0 0 2,369,988 53,131
15-Jan-13... 1,127,681 1,144,794 1,959,394 2,638,194 2,638,194 2,797,911 1,337,962
15-Jan-14... 2,178,010 1,932,723 2,533,112 2,496,698 2,496,698 2,548,315 2,335,410
15-Jan-15... 2,503,985 2,242,925 2,834,457 2,818,665 2,818,665 0 2,602,626
15-Jan-16... 2,892,763 2,608,672 2,678,137 2,749,404 2,749,404 0 2,935,958
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-III-5
<PAGE>
EQUIPMENT TRUST CERTIFICATE PAYMENTS
PASS THROUGH TRUST, 1998-1-C
7.020% EQUIPMENT TRUST CERTIFICATES
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION
DATE N677FE* N678FE* N679FE* N680FE* N681FE* N682FE*
- -------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
15-Jan-99... 913,461 349,730 219,920 2,353,730 0 0
15-Jul-99... 0 0 0 0 1,589,536 1,550,848
15-Jan-00... 0 324,467 0 0 0 0
15-Jul-00... 0 0 401,814 0 0 0
15-Jan-01... 0 0 1,772,625 0 0 0
15-Jan-03... 966,604 0 59,946 0 0 0
15-Jan-04... 1,269,105 1,063,087 161,902 72,317 1,170,431 1,166,190
15-Jan-05... 1,271,158 548,985 402,006 310,314 1,491,450 1,486,692
15-Jan-06... 391,375 343,403 393,210 290,723 691,204 636,940
15-Jan-07... 516,999 489,601 398,307 248,734 530,653 524,123
15-Jul-07... 0 33,156 0 0 0 0
15-Jan-08... 183,943 1,453,062 0 0 550,639 543,845
15-Jan-09... 0 0 273,505 0 167,416 264,853
15-Jan-10... 383,390 97,076 0 0 0 0
15-Jan-11... 60,636 1,602,182 1,019,143 1,130,212 0 0
15-Jan-12... 121,097 1,160,171 959,171 1,615,585 0 0
15-Jan-13... 184,620 1,613,949 943,715 2,359,947 0 0
15-Jan-14... 2,138,981 2,920,621 2,226,407 2,629,235 1,402,673 1,243,943
15-Jan-15... 2,681,449 1,621,510 0 2,513,244 3,262,727 3,257,292
15-Jan-16... 3,032,182 0 3,326,329 311,959 3,632,271 3,626,274
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-III-6
<PAGE>
APPENDIX IV
LOAN TO VALUE RATIOS
<TABLE>
<CAPTION>
N585FE*
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
July 15, 1999.................................................................. $ 60.79 $ 85.94 70.7%
July 15, 2000.................................................................. 59.66 82.67 72.2
July 15, 2001.................................................................. 58.49 79.41 73.7
July 15, 2002.................................................................. 56.31 76.15 74.0
July 15, 2003.................................................................. 54.16 72.88 74.3
July 15, 2004.................................................................. 51.28 69.62 73.7
July 15, 2005.................................................................. 49.48 66.36 74.6
July 15, 2006.................................................................. 47.32 63.09 75.0
July 15, 2007.................................................................. 44.87 59.83 75.0
July 15, 2008.................................................................. 42.42 56.57 75.0
July 15, 2009.................................................................. 39.98 53.30 75.0
July 15, 2010.................................................................. 37.53 50.04 75.0
July 15, 2011.................................................................. 35.08 46.78 75.0
July 15, 2012.................................................................. 32.63 43.51 75.0
July 15, 2013.................................................................. 29.11 39.16 74.3
July 15, 2014.................................................................. 24.54 34.81 70.5
July 15, 2015.................................................................. 19.64 30.46 64.5
July 15, 2016.................................................................. 14.36 26.11 55.0
July 15, 2017.................................................................. 11.97 21.76 55.0
July 15, 2018.................................................................. 9.57 17.40 55.0
July 15, 2019.................................................................. 3.61 13.05 27.7
July 15, 2020.................................................................. 0.00 8.70 NA
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-IV-1
<PAGE>
<TABLE>
<CAPTION>
N590FE
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
July 15, 1999.................................................................. $ 56.97 $ 83.70 68.1%
July 15, 2000.................................................................. 55.92 80.39 69.6
July 15, 2001.................................................................. 54.82 77.09 71.1
July 15, 2002.................................................................. 52.43 73.78 71.1
July 15, 2003.................................................................. 50.61 70.48 71.8
July 15, 2004.................................................................. 48.15 67.18 71.7
July 15, 2005.................................................................. 46.33 63.87 72.5
July 15, 2006.................................................................. 44.39 60.57 73.3
July 15, 2007.................................................................. 42.56 57.27 74.3
July 15, 2008.................................................................. 40.47 53.96 75.0
July 15, 2009.................................................................. 37.99 50.66 75.0
July 15, 2010.................................................................. 35.52 47.35 75.0
July 15, 2011.................................................................. 33.04 44.05 75.0
July 15, 2012.................................................................. 29.73 39.65 75.0
July 15, 2013.................................................................. 26.17 35.24 74.3
July 15, 2014.................................................................. 21.81 30.84 70.7
July 15, 2015.................................................................. 17.15 26.43 64.9
July 15, 2016.................................................................. 12.11 22.03 55.0
July 15, 2017.................................................................. 9.69 17.62 55.0
July 15, 2018.................................................................. 5.79 13.22 43.8
July 15, 2019.................................................................. 3.52 8.81 40.0
July 15, 2020.................................................................. 0.00 4.41 NA
</TABLE>
A-IV-2
<PAGE>
<TABLE>
<CAPTION>
N620FE*
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
January 15, 2000............................................................... $ 73.35 $ 108.83 67.4%
January 15, 2001............................................................... 71.39 105.47 67.7
January 15, 2002............................................................... 69.07 102.10 67.6
January 15, 2003............................................................... 66.58 98.74 67.4
January 15, 2004............................................................... 63.74 95.37 66.8
January 15, 2005............................................................... 60.89 92.00 66.2
January 15, 2006............................................................... 57.99 88.64 65.4
January 15, 2007............................................................... 54.56 85.27 64.0
January 15, 2008............................................................... 51.06 81.91 62.3
January 15, 2009............................................................... 47.55 78.54 60.5
January 15, 2010............................................................... 44.76 75.17 59.5
January 15, 2011............................................................... 41.85 71.81 58.3
January 15, 2012............................................................... 38.79 68.44 56.7
January 15, 2013............................................................... 35.96 65.08 55.3
January 15, 2014............................................................... 33.42 61.71 54.2
January 15, 2015............................................................... 30.59 58.34 52.4
January 15, 2016............................................................... 27.91 54.98 50.8
January 15, 2017............................................................... 23.94 51.61 46.4
January 15, 2018............................................................... 19.60 48.25 40.6
January 15, 2019............................................................... 14.96 44.88 33.3
January 15, 2020............................................................... 10.00 40.39 24.8
January 15, 2021............................................................... 4.69 35.90 13.1
January 15, 2022............................................................... 0.00 31.42 NA
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-IV-3
<PAGE>
<TABLE>
<CAPTION>
N621FE*
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
July 15, 2000.................................................................. $ 73.62 $ 109.22 67.4%
July 15, 2001.................................................................. 71.80 105.84 67.8
July 15, 2002.................................................................. 69.49 102.47 67.8
July 15, 2003.................................................................. 67.02 99.09 67.6
July 15, 2004.................................................................. 64.20 95.71 67.1
July 15, 2005.................................................................. 61.36 92.33 66.5
July 15, 2006.................................................................. 58.48 88.95 65.7
July 15, 2007.................................................................. 55.08 85.58 64.4
July 15, 2008.................................................................. 51.59 82.20 62.8
July 15, 2009.................................................................. 48.03 78.82 60.9
July 15, 2010.................................................................. 45.26 75.44 60.0
July 15, 2011.................................................................. 42.36 72.06 58.8
July 15, 2012.................................................................. 39.32 68.69 57.2
July 15, 2013.................................................................. 36.38 65.31 55.7
July 15, 2014.................................................................. 33.88 61.93 54.7
July 15, 2015.................................................................. 31.07 58.55 53.1
July 15, 2016.................................................................. 28.32 55.17 51.3
July 15, 2017.................................................................. 24.28 51.80 46.9
July 15, 2018.................................................................. 19.95 48.42 41.2
July 15, 2019.................................................................. 15.33 45.04 34.0
July 15, 2020.................................................................. 10.38 40.54 25.6
July 15, 2021.................................................................. 5.08 36.03 14.1
July 15, 2022.................................................................. 0.00 31.53 NA
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-IV-4
<PAGE>
<TABLE>
<CAPTION>
N623FE*
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
July 15, 2000.................................................................. $ 73.62 $ 109.22 67.4%
July 15, 2001.................................................................. 71.80 105.84 67.8
July 15, 2002.................................................................. 69.49 102.47 67.8
July 15, 2003.................................................................. 67.02 99.09 67.6
July 15, 2004.................................................................. 64.20 95.71 67.1
July 15, 2005.................................................................. 61.36 92.33 66.5
July 15, 2006.................................................................. 58.48 88.95 65.7
July 15, 2007.................................................................. 55.08 85.58 64.4
July 15, 2008.................................................................. 51.59 82.20 62.8
July 15, 2009.................................................................. 48.03 78.82 60.9
July 15, 2010.................................................................. 45.26 75.44 60.0
July 15, 2011.................................................................. 42.36 72.06 58.8
July 15, 2012.................................................................. 39.32 68.69 57.2
July 15, 2013.................................................................. 36.38 65.31 55.7
July 15, 2014.................................................................. 33.88 61.93 54.7
July 15, 2015.................................................................. 31.07 58.55 53.1
July 15, 2016.................................................................. 28.32 55.17 51.3
July 15, 2017.................................................................. 24.28 51.80 46.9
July 15, 2018.................................................................. 19.95 48.42 41.2
July 15, 2019.................................................................. 15.33 45.04 34.0
July 15, 2020.................................................................. 10.38 40.54 25.6
July 15, 2021.................................................................. 5.08 36.03 14.1
July 15, 2022.................................................................. 0.00 31.53 NA
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-IV-5
<PAGE>
<TABLE>
<CAPTION>
N675FE
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
July 15, 1999.................................................................. $ 61.17 $ 81.55 75.0%
July 15, 2000.................................................................. 59.27 79.03 75.0
July 15, 2001.................................................................. 57.38 76.51 75.0
July 15, 2002.................................................................. 55.49 73.99 75.0
July 15, 2003.................................................................. 53.60 71.46 75.0
July 15, 2004.................................................................. 51.71 68.94 75.0
July 15, 2005.................................................................. 49.82 66.42 75.0
July 15, 2006.................................................................. 47.92 63.90 75.0
July 15, 2007.................................................................. 46.03 61.38 75.0
July 15, 2008.................................................................. 43.27 58.85 73.5
July 15, 2009.................................................................. 41.52 56.33 73.7
July 15, 2010.................................................................. 38.72 53.81 72.0
July 15, 2011.................................................................. 35.92 51.29 70.0
July 15, 2012.................................................................. 32.17 48.76 66.0
July 15, 2013.................................................................. 27.98 46.24 60.5
July 15, 2014.................................................................. 22.84 43.72 52.2
July 15, 2015.................................................................. 17.33 41.20 42.1
July 15, 2016.................................................................. 11.43 38.67 29.6
July 15, 2017.................................................................. 5.12 36.15 14.2
July 15, 2018.................................................................. 0.00 33.63 NA
</TABLE>
A-IV-6
<PAGE>
<TABLE>
<CAPTION>
N676FE*
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
July 15, 1999.................................................................. $ 56.89 $ 81.72 69.6%
July 15, 2000.................................................................. 55.92 79.20 70.6
July 15, 2001.................................................................. 54.90 76.67 71.6
July 15, 2002.................................................................. 53.80 74.14 72.6
July 15, 2003.................................................................. 51.53 71.61 72.0
July 15, 2004.................................................................. 48.95 69.09 70.9
July 15, 2005.................................................................. 46.72 66.56 70.2
July 15, 2006.................................................................. 45.04 64.03 70.3
July 15, 2007.................................................................. 43.37 61.50 70.5
July 15, 2008.................................................................. 41.70 58.98 70.7
July 15, 2009.................................................................. 40.25 56.45 71.3
July 15, 2010.................................................................. 38.92 53.92 72.2
July 15, 2011.................................................................. 37.53 51.39 73.0
July 15, 2012.................................................................. 36.09 48.87 73.9
July 15, 2013.................................................................. 33.36 46.34 72.0
July 15, 2014.................................................................. 29.63 43.81 67.6
July 15, 2015.................................................................. 25.64 41.28 62.1
July 15, 2016.................................................................. 21.32 38.76 55.0
July 15, 2017.................................................................. 16.73 36.23 46.2
July 15, 2018.................................................................. 11.83 33.70 35.1
July 15, 2019.................................................................. 6.59 30.33 21.7
July 15, 2020.................................................................. 0.99 26.96 3.7
July 15, 2021.................................................................. 0.00 23.59 NA
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-IV-7
<PAGE>
<TABLE>
<CAPTION>
N677FE*
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
July 15, 1999.................................................................. $ 57.37 $ 81.89 70.1%
July 15, 2000.................................................................. 56.35 79.36 71.0
July 15, 2001.................................................................. 55.27 76.83 71.9
July 15, 2002.................................................................. 54.06 74.29 72.8
July 15, 2003.................................................................. 51.70 71.76 72.0
July 15, 2004.................................................................. 49.04 69.23 70.8
July 15, 2005.................................................................. 46.38 66.70 69.5
July 15, 2006.................................................................. 44.59 64.16 69.5
July 15, 2007.................................................................. 42.68 61.63 69.3
July 15, 2008.................................................................. 41.11 59.10 69.6
July 15, 2009.................................................................. 39.71 56.56 70.2
July 15, 2010.................................................................. 37.94 54.03 70.2
July 15, 2011.................................................................. 36.48 51.50 70.8
July 15, 2012.................................................................. 34.97 48.97 71.4
July 15, 2013.................................................................. 33.39 46.43 71.9
July 15, 2014.................................................................. 29.86 43.90 68.0
July 15, 2015.................................................................. 25.78 41.37 62.3
July 15, 2016.................................................................. 21.36 38.84 55.0
July 15, 2017.................................................................. 19.34 36.30 53.3
July 15, 2018.................................................................. 14.48 33.77 42.9
July 15, 2019.................................................................. 9.50 30.39 31.3
July 15, 2020.................................................................. 3.99 27.02 14.8
July 15, 2021.................................................................. 0.00 23.64 NA
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-IV-8
<PAGE>
<TABLE>
<CAPTION>
N678FE*
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
July 15, 1999.................................................................. $ 57.67 $ 81.97 70.4%
July 15, 2000.................................................................. 56.47 79.43 71.1
July 15, 2001.................................................................. 55.24 76.90 71.8
July 15, 2002.................................................................. 53.84 74.36 72.4
July 15, 2003.................................................................. 52.45 71.83 73.0
July 15, 2004.................................................................. 49.99 69.29 72.2
July 15, 2005.................................................................. 48.05 66.76 72.0
July 15, 2006.................................................................. 46.31 64.22 72.1
July 15, 2007.................................................................. 44.40 61.69 72.0
July 15, 2008.................................................................. 41.54 59.15 70.2
July 15, 2009.................................................................. 40.15 56.62 70.9
July 15, 2010.................................................................. 38.66 54.08 71.5
July 15, 2011.................................................................. 35.67 51.55 69.2
July 15, 2012.................................................................. 33.11 49.01 67.6
July 15, 2013.................................................................. 30.10 46.48 64.8
July 15, 2014.................................................................. 25.79 43.94 58.7
July 15, 2015.................................................................. 21.17 41.41 51.1
July 15, 2016.................................................................. 16.21 38.87 41.7
July 15, 2017.................................................................. 10.92 36.34 30.0
July 15, 2018.................................................................. 5.25 33.80 15.5
July 15, 2019.................................................................. 0.00 30.42 NA
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-IV-9
<PAGE>
<TABLE>
<CAPTION>
N679FE*
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
January 15, 2000............................................................... $ 57.42 $ 81.97 70.1%
January 15, 2001............................................................... 53.82 79.43 67.8
January 15, 2002............................................................... 52.46 76.90 68.2
January 15, 2003............................................................... 51.00 74.36 68.6
January 15, 2004............................................................... 49.45 71.83 68.8
January 15, 2005............................................................... 47.65 69.29 68.8
January 15, 2006............................................................... 45.86 66.76 68.7
January 15, 2007............................................................... 44.07 64.22 68.6
January 15, 2008............................................................... 42.68 61.69 69.2
January 15, 2009............................................................... 41.00 59.15 69.3
January 15, 2010............................................................... 39.61 56.62 70.0
January 15, 2011............................................................... 37.20 54.08 68.8
January 15, 2012............................................................... 34.85 51.55 67.6
January 15, 2013............................................................... 32.51 49.01 66.3
January 15, 2014............................................................... 28.51 46.48 61.4
January 15, 2015............................................................... 24.24 43.94 55.2
January 15, 2016............................................................... 19.66 41.41 47.5
January 15, 2017............................................................... 15.04 38.87 38.7
January 15, 2018............................................................... 10.35 36.34 28.5
January 15, 2019............................................................... 4.79 33.80 14.2
January 15, 2020............................................................... 0.00 30.42 NA
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-IV-10
<PAGE>
<TABLE>
<CAPTION>
N680FE*
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
January 15, 2000............................................................... $ 56.23 $ 81.97 68.6%
January 15, 2001............................................................... 55.03 79.43 69.3
January 15, 2002............................................................... 53.75 76.90 69.9
January 15, 2003............................................................... 52.38 74.36 70.4
January 15, 2004............................................................... 50.91 71.83 70.9
January 15, 2005............................................................... 49.21 69.29 71.0
January 15, 2006............................................................... 47.52 66.76 71.2
January 15, 2007............................................................... 45.88 64.22 71.4
January 15, 2008............................................................... 44.40 61.69 72.0
January 15, 2009............................................................... 43.08 59.15 72.8
January 15, 2010............................................................... 41.70 56.62 73.7
January 15, 2011............................................................... 39.17 54.08 72.4
January 15, 2012............................................................... 36.16 51.55 70.2
January 15, 2013............................................................... 32.41 49.01 66.1
January 15, 2014............................................................... 28.39 46.48 61.1
January 15, 2015............................................................... 24.07 43.94 54.8
January 15, 2016............................................................... 19.46 41.41 47.0
January 15, 2017............................................................... 14.57 38.87 37.5
January 15, 2018............................................................... 9.29 36.34 25.6
January 15, 2019............................................................... 3.63 33.80 10.7
January 15, 2020............................................................... 0.00 30.42 NA
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-IV-11
<PAGE>
<TABLE>
<CAPTION>
N681FE*
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
July 15, 2000.................................................................. $ 58.67 $ 84.23 69.6%
July 15, 2001.................................................................. 57.50 81.63 70.4
July 15, 2002.................................................................. 56.26 79.02 71.2
July 15, 2003.................................................................. 54.93 76.42 71.9
July 15, 2004.................................................................. 52.33 73.81 70.9
July 15, 2005.................................................................. 49.40 71.21 69.4
July 15, 2006.................................................................. 47.28 68.60 68.9
July 15, 2007.................................................................. 45.31 66.00 68.7
July 15, 2008.................................................................. 43.33 63.39 68.4
July 15, 2009.................................................................. 41.45 60.79 68.2
July 15, 2010.................................................................. 39.91 58.18 68.6
July 15, 2011.................................................................. 38.30 55.58 68.9
July 15, 2012.................................................................. 36.62 52.97 69.1
July 15, 2013.................................................................. 34.75 50.37 69.0
July 15, 2014.................................................................. 30.89 47.76 64.7
July 15, 2015.................................................................. 26.59 45.16 58.9
July 15, 2016.................................................................. 21.91 42.55 51.5
July 15, 2017.................................................................. 16.98 39.94 42.5
July 15, 2018.................................................................. 11.73 37.34 31.4
July 15, 2019.................................................................. 6.05 34.73 17.4
July 15, 2020.................................................................. 0.02 31.26 0.1
July 15, 2021.................................................................. 0.00 27.79 NA
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-IV-12
<PAGE>
<TABLE>
<CAPTION>
N682FE*
---------------------------------------
EQUIPMENT
TRUST ASSUMED
CERTIFICATE AIRCRAFT LOAN
OUTSTANDING VALUE TO
BALANCE (IN VALUE
DATE (IN MILLIONS) MILLIONS) RATIO
- ------------------------------------------------------------------------------- ------------- ----------- -----
<S> <C> <C> <C>
July 15, 2000.................................................................. $ 58.55 $ 84.31 69.5%
July 15, 2001.................................................................. 57.39 81.70 70.2
July 15, 2002.................................................................. 56.15 79.09 71.0
July 15, 2003.................................................................. 54.82 76.49 71.7
July 15, 2004.................................................................. 52.22 73.88 70.7
July 15, 2005.................................................................. 49.30 71.27 69.2
July 15, 2006.................................................................. 47.23 68.66 68.8
July 15, 2007.................................................................. 45.27 66.06 68.5
July 15, 2008.................................................................. 43.29 63.45 68.2
July 15, 2009.................................................................. 41.42 60.84 68.1
July 15, 2010.................................................................. 39.88 58.23 68.5
July 15, 2011.................................................................. 38.28 55.63 68.8
July 15, 2012.................................................................. 36.60 53.02 69.0
July 15, 2013.................................................................. 34.72 50.41 68.9
July 15, 2014.................................................................. 30.80 47.80 64.4
July 15, 2015.................................................................. 26.50 45.20 58.6
July 15, 2016.................................................................. 21.83 42.59 51.3
July 15, 2017.................................................................. 16.90 39.98 42.3
July 15, 2018.................................................................. 11.65 37.37 31.2
July 15, 2019.................................................................. 5.99 34.77 17.2
July 15, 2020.................................................................. 0.00 31.29 NA
</TABLE>
- ------------------------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-IV-13
<PAGE>
PROSPECTUS
[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)
------------------------
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.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The Owned Aircraft Certificates issued with respect to each Owned Aircraft
will be secured by a security interest in such Owned Aircraft and will be direct
obligations of the Corporation. The Leased Aircraft Certificates issued with
respect to each Leased Aircraft, except during the Pre-Funding Period, if any,
will be secured by a security interest in such Leased Aircraft and by the Lease
relating thereto, including the right to receive rent payable by the Corporation
under such Lease. 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.
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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.
------------------------
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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
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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,
----------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- ---------
Ratio of Earnings to Fixed Charges(a)........................... 1.4x 1.7x 2.0x 1.9x 2.0x 1.9x
<CAPTION>
<S> <C>
1998
---------
Ratio of Earnings to Fixed Charges(a)........................... 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
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<PAGE>
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.
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<PAGE>
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
7
<PAGE>
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
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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
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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.
[DIAGRAM APPEARS HERE]
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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)
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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
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(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
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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)
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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-
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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
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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)
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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
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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
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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
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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
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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,
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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
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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
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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).
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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.
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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.
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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
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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
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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
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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.
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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.
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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
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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
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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
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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.
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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
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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),
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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.
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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.
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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.
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"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.
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"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
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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.
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"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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