<PAGE>
OFFERING MEMORANDUM STRICTLY CONFIDENTIAL
$197,572,000
[LOGO]
2000-1 Pass Through Trusts
PASS THROUGH CERTIFICATES, SERIES 2000-1
_____________________
Midway Airlines Corporation is issuing, through three separate trusts, Class A,
Class B and Class C Certificates, Series 2000-1. Each Certificate represents a
fractional undivided interest in one of the three Midway Airlines 2000-1 Pass
Through Trusts to be formed to acquire equipment notes expected to be issued in
connection with the financing of eight new Boeing model 737-700 aircraft
scheduled for delivery from September 2000 through August 2001 which Midway
expects to lease or acquire. The Certificates do not represent interests in or
obligations of Midway or any of its affiliates.
Interest on the equipment notes to be held in each Trust will be payable
semiannually on each April 1 and October 1, commencing on the later of April 1,
2001 and the first such date to occur after the initial issuance thereof.
Scheduled principal payments on the equipment notes will be passed through to
the Certificateholders on April 1 or October 1, or both, in certain years, as
set forth herein.
The Class A Certificates will rank senior in right of distribution to the other
Certificates. The Class B Certificates will rank junior in right of
distributions to the Class A Certificates and will rank senior in right of
distributions to the Class C Certificates. The Class C certificates will rank
junior in right of distributions to the other certificates.
Morgan Stanley Capital Services Inc. will provide a liquidity facility for each
Class of Certificates, in each case in an amount sufficient to make three
semiannual interest payments on such Certificates.
_____________________
Investing in the Certificates involves risks. See "Risk Factors" beginning
on page 12.
_____________________
Pass Through Principal Interest Final Expected Price to
Certificates Amount Rate Distribution Date Investors (1)
------------- --------- --------- ----------------- -------------
2000-1A $129,801,000 8.82% April 1, 2019 100%
2000-1B 51,110,000 10.07 April 1, 2014 100
2000-1C 16,661,000 11.19 April 1, 2006 100
____________
(1) Plus accrued interest, if any, from September 27, 2000.
_____________________
The Certificates have not been registered under the Securities Act of 1933 and
are being offered only (1) to qualified institutional buyers under Rule 144A,
(2) to institutional accredited investors and (3) outside the United States in
compliance with Regulation S. For a description of certain restrictions on
transfer, see "Transfer Restrictions" beginning on page 91.
Morgan Stanley & Co. Incorporated expects to deliver the Certificates to
purchasers on September 27, 2000.
MORGAN STANLEY DEAN WITTER SEABURY SECURITIES LLC
September 22, 2000
<PAGE>
EXHIBIT 4.1
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Get More Information..................................................... iv
Incorporation of Certain Documents by Reference........................................ iv
Forward-Looking Statements............................................................. v
Summary of Offering.................................................................... 1
Risk Factors........................................................................... 11
Use of Proceeds........................................................................ 21
Capitalization......................................................................... 21
Selected Financial and Operating Data and Glossary..................................... 22
Management's Discussion and Analysis of Financial Condition and Results of Operations.. 25
Business............................................................................... 31
Description of the Certificates........................................................ 40
Description of the Deposit Agreements.................................................. 54
Description of the Escrow Agreements................................................... 56
Description of the Liquidity Facilities................................................ 57
Description of the Intercreditor Agreement............................................. 62
Description of the Aircraft and the Appraisals......................................... 66
Description of the Equipment Notes..................................................... 67
Exchange Offer; Registration Rights.................................................... 81
Certain U.S. Federal Income Tax Consequences........................................... 83
Certain Maryland Taxes................................................................. 87
ERISA Considerations................................................................... 87
Private Placement...................................................................... 89
Transfer Restrictions.................................................................. 90
Legal Matters.......................................................................... 92
Independent Auditors................................................................... 92
Experts................................................................................ 92
Index of Certain Defined Terms......................................................... AI-1
Appraisal Reports...................................................................... AII-1
Accredited Investor Letter............................................................. AIII-1
</TABLE>
_______________
ii
<PAGE>
THIS CONFIDENTIAL OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY CERTIFICATE OFFERED HEREBY BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH
AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS OFFERING MEMORANDUM NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF MIDWAY, THE TRUSTS, THE DEPOSITARY OR THE LIQUIDITY
PROVIDERS OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
This offering memorandum is highly confidential and has been prepared by
Midway solely for use in connection with the proposed placement of the
Certificates. Morgan Stanley & Co. Incorporated and Seabury Securities LLC
(collectively, the "Placement Agents") and Midway reserve the right to reject
any offer to purchase, in whole or in part, for any reason, or to sell less than
all of the Certificates offered hereby. This offering memorandum is personal to
the offeree to whom it has been delivered by the Placement Agents and does not
constitute an offer to any other person or to the public in general to subscribe
for or otherwise acquire the Certificates. Distribution of this offering
memorandum to any person other than the offeree and those persons, if any,
retained to advise such offeree with respect thereto is unauthorized, and any
disclosure of any of its contents, without the prior written consent of Midway,
is prohibited. Each offeree, by accepting delivery of this offering memorandum,
agrees to the foregoing and to make no photocopies of this offering memorandum,
and, if the offeree does not purchase the Certificates or the placement is
terminated for any reason, to return this offering memorandum to: Morgan
Stanley & Co. Incorporated, 1585 Broadway, New York, NY 10036, Attention:
Equipment Finance Group. Copies of the documents referred to herein may be
obtained from Midway at Midway Airlines Corporation, 2801 Slater Road,
Morrisville, North Carolina 27560, Attention: General Counsel (telephone (919)
595-6009 and facsimile (919) 595-1705).
________________________
You agree, if you purchase Certificates, that we will treat your purchase
as your representation, warranty, acknowledgment and agreement that (1) you have
been afforded an opportunity to request from Midway and to review, and have
received, all additional information considered by you to be necessary to verify
the accuracy of, or to supplement, the information contained herein, (2) you
have not relied on a Placement Agent or the Liquidity Provider or any person
affiliated with a Placement Agent or the Liquidity Provider in connection with
your investigation of the accuracy of such information or your investment
decision and (3) no person has been authorized to give any information or to
make any representation concerning Midway or the Certificates other than as
contained herein and information given by duly authorized officers of Midway in
connection with investors' examination of Midway and the terms of this offering
and, if given or made, any such other information or representation should not
be relied upon as having been authorized by Midway, a Placement Agent or the
Liquidity Provider.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF MIDWAY, THE TRUSTS, THE DEPOSITARY AND THE LIQUIDITY PROVIDERS
AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE
CERTIFICATES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE
NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE CERTIFICATES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT, AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE BY THE PLACEMENT
AGENTS AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH HEREIN
AND NOTHING CONTAINED IN THIS OFFERING MEMORANDUM IS, OR SHALL BE RELIED UPON
AS, A PROMISE OR REPRESENTATION, WHETHER AS TO THE PAST OR THE FUTURE. THE
PLACEMENT AGENTS HAVE NOT INDEPENDENTLY VERIFIED ANY OF SUCH INFORMATION AND
ASSUME NO RESPONSIBILITY FOR ITS ACCURACY OR COMPLETENESS.
________________________
iii
<PAGE>
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE UNIFORM
SECURITIES ACT WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER
ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
________________________
Market data and certain industry forecasts used throughout this offering
memorandum were obtained from internal surveys, market research, publicly
available information and industry publications. Industry publications
generally state that the information contained therein has been obtained from
sources believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. Similarly, internal surveys, industry forecasts
and market research, while believed to be reliable, have not been independently
verified, and none of Midway or the Placement Agents make any representation as
to the accuracy of such information.
________________________
See "Risk Factors", immediately following the summary herein, for a
description of certain factors relating to an investment in the Certificates
offered hereby. None of Midway or the Placement Agents, or any of their
respective representatives, is making any representation to any offeree or
purchaser of the Certificates hereby regarding the legality of an investment by
such offeree or purchaser under applicable legal investment or similar laws.
Each investor should consult with its own advisors as to legal, tax, business,
financial and related aspects of a purchase of the Certificates.
________________________
WHERE YOU CAN GET MORE INFORMATION
We are subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the SEC:
New York Regional Office, Seven World Trade Center, 13th Floor, New York, New
York 10048; and Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60601. Copies of such material can be
obtained from the Public Reference Section of the SEC, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. You may call the
SEC at 1-800-SEC-0330 for further information on the operation of the Public
Reference Section. The SEC also maintains an Internet Web Site at
http://www.sec.gov that contains reports and other information.
In the event that we are no longer required to file annual, quarterly and
special reports, proxy statements, and other information with the SEC, we have
agreed to file with the SEC (unless the SEC will not accept such a filing) and
provide to the Trustee and the holders of Certificates annual reports and the
information, documents and other reports otherwise required pursuant to Sections
13 and 15(d) of the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by Midway with the Commission under
the Exchange Act, and are incorporated herein by reference:
1. Midway's Current Report on Form 8-K reporting settlement of a pending
lawsuit, filed on January 6, 2000;
2. Midway's Current Report on Form 8-K reporting January 2000 traffic,
filed on February 14, 2000;
iv
<PAGE>
3. Midway's Current Report on Form 8-K reporting exercise of option to
terminate lease of four aircraft, filed on March 15, 2000;
4. Midway's Current Report on Form 8-K reporting closing of loan from
Reedy Creek Investments LLC, filed on April 14, 2000;
5. Midway's Current Report on Form 8-K reporting record date for a rights
offering, filed on June 8, 2000;
6. Midway's Current Report on Form 8-K reporting a term sheet to lease
three aircraft, filed on July 19, 2000;
7. Midway's Current Report on Form 8-K reporting its intention to issue
shares of common stock in Midway, filed on August 2, 2000;
8. Midway's Quarterly Reports on Form 10-Q for the quarters ended March
31 and June 30, 2000; and
9. Midway's Annual Report on Form 10-K for the fiscal year ended December
31, 1999.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this offering memorandum and prior to
the termination of this offering of the Certificates are incorporated by
reference and become a part of this offering memorandum from their date of
filing. Any statement contained in this offering memorandum or in a document
incorporated by reference is modified or superseded for purposes of this
offering memorandum to the extent that a statement contained in any such
document 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 offering memorandum.
On request, we will provide anyone who receives a copy of this offering
memorandum with a copy of any or all of the documents incorporated in this
offering memorandum by reference. Written or telephone requests for such copies
should be directed to our principal office: Midway Airlines Corporation, 2801
Slater Road, Morrisville, North Carolina 27560, Attention: General Counsel
(telephone (919) 595-6009 and facsimile (919) 595-1705).
FORWARD-LOOKING STATEMENTS
This offering memorandum includes or incorporates forward-looking
statements. We have based these forward-looking statements on our current
expectations and projections about future events. Many of these statements may
be identified by the use of forward-looking words such as "believe", "expect",
"anticipate", "should", "plan", "estimate", and "potential", among others. These
forward-looking statements are subject to risks, uncertainties and assumptions
including, among other things, those discussed under "Risk Factors" and
elsewhere in this offering memorandum.
To the extent that any of the statements contained herein relating to
Midway's expectations, assumptions and other matters relating to Midway are
forward-looking, they are made in reliance upon the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such statements are based
on current expectations that involve a number of uncertainties and risks that
could cause actual results to differ materially from those projected in the
forward-looking statements, including, but not limited to, risks associated
with:
. our significant debt and lease obligations;
. the impact of competitors and competitive aircraft and aircraft financing
availability;
. the ability to recruit and retain employees at a time when unemployment
rates are at extremely low levels and the cost of labor is increasing;
. our dependence on the Raleigh-Durham market;
. aircraft operating costs, particularly fuel costs;
. management of growth and complying with FAA policies;
. the continued productivity of our workforce;
. dependence on key personnel; and
. other regulatory requirements.
v
<PAGE>
As a result of the foregoing and other factors, no assurance can be given
as to Midway's future results and achievements. We will not update these
forward-looking statements, even though our situation may change in the
future.
vi
<PAGE>
SUMMARY OF OFFERING
This summary highlights selected information from this offering memorandum
and is qualified in its entirety by the detailed information and financial
statements (including the notes thereto) appearing elsewhere or incorporated by
reference in this offering memorandum and may not contain all the information
that may be important to you. We urge you to carefully read and review the
entire offering memorandum before making any decision to participate in this
offering. Except as otherwise required by the context, references in this
offering memorandum to "we," "us," or "Midway" mean Midway Airlines Corporation
and the term "you" refers to prospective investors in the Certificates. We
purchased the Midway name from Midway Airlines, Inc., a carrier which sought
bankruptcy protection in 1991. We are otherwise not affiliated or in any way
connected with Midway Airlines, Inc. Certain capitalized terms used herein are
defined elsewhere in this offering memorandum on the pages indicated in the
"Index of Certain Defined Terms" attached hereto as Appendix I.
Summary of Terms of Certificates
<TABLE>
<CAPTION>
Class A Class B Class C
Certificates Certificates Certificates
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Aggregate Face Amount $129,801,000 $51,110,000 $16,661,000
Ratings:
Moody's................................................... Baa1 Ba1 Ba2
Standard & Poor's......................................... A- BBB- BB+
Initial Loan to Aircraft Value (cumulative) /(1)/.......... 39.8% 55.6% 59.2%
Expected Principal Distribution Window (in years).......... 0.5 - 18.5 0.5 - 13.5 0.5 - 5.5
Initial Average Life (in years)............................ 12.2 8.2 2.9
Regular Distribution Dates................................. April 1 and October 1 April 1 and October 1 April 1 and October 1
Final Expected Distribution Date........................... April 1, 2019 April 1, 2014 April 1, 2006
Final Legal Distribution Date.............................. October 1, 2020 October 1, 2015 October 1, 2007
Minimum Denomination....................................... $ 100,000 $ 100,000 $ 100,000
(S) 1110 Protection........................................ Yes Yes Yes
Liquidity Facility Coverage................................ 3 semiannual 3 semiannual 3 semiannual
interest payments interest payments interest payments
</TABLE>
_____________
(1) These percentages are calculated as of October 1, 2001, the first Regular
Distribution Date after all Aircraft are scheduled to have been delivered. In
making such calculations, we have assumed that all Aircraft are delivered prior
to such date, that the maximum principal amount of the Equipment Notes is issued
and that the aggregate appraised Aircraft base value is $319,473,800 as of such
date. The appraised base value is only an estimate and reflects certain
assumptions, which assumptions may not reflect current market conditions. See
"Description of the Aircraft and the Appraisals -Appraisals."
1
<PAGE>
Equipment Notes and the Aircraft
Set forth below is certain information about the Equipment Notes expected
to be held in the Trusts and the aircraft (the "Aircraft") expected to secure
such Equipment Notes:
<TABLE>
<CAPTION>
Expected Maximum Principal
Aircraft Registration Expected Aircraft Appraised Amount of
Type Number (1) Delivery Month (2) Value (3) Equipment Notes (4)
------------------ ---------------- ---------------------- --------------- ----------------------
<S> <C> <C> <C> <C>
Boeing 737-700 N361ML September, 2000 $39,790,000 $25,067,700
Boeing 737-700 N362ML October, 2000 40,026,667 25,216,800
Boeing 737-700 N363ML November, 2000 40,056,667 25,235,700
Boeing 737-700 N364ML January, 2001 40,300,000 25,389,000
Boeing 737-700 N365ML February, 2001 40,363,333 25,428,900
Boeing 737-700 N366ML April, 2001 40,693,333 25,636,800
Boeing 737-700 N367ML June, 2001 40,786,667 25,695,600
Boeing 737-700 N368ML August, 2001 41,053,333 25,863,600
</TABLE>
___________
(1) The tail number identified with respect to each Aircraft is a projection
only, based on the current manufacturing schedule of the manufacturer. A
different aircraft may actually be delivered to Midway by the manufacturer on
any delivery date and in such case such substituted aircraft shall be an
"Aircraft" for purposes of the offering contemplated hereby. In addition, the
financing of an Aircraft may not take place on the date such Aircraft is
actually delivered from the manufacturer, provided that such financing will
occur prior to November 30, 2001 (the "Delivery Period Termination Date"),
provided that, if a labor strike occurs at The Boeing Company prior to the
scheduled Delivery Period Termination Date, the Delivery Period Termination
Date will be extended by the number of days such strike continued in effect.
(2) The dates for Aircraft delivery reflect the scheduled delivery months
under Midway's purchase agreement with the manufacturer. The actual delivery
date of any Aircraft may be subject to delay.
(3) The appraised base value of each Aircraft set forth above is the lesser
of the average and median values of such Aircraft as appraised by three
independent appraisal and consulting firms, projected as of the scheduled
delivery month of each Aircraft. Such appraisals are based upon varying
assumptions (which may not reflect current market conditions) and upon
varying methodologies. An appraisal is only an estimate of value and should
not be relied upon as a measure of realizable value. See "Risk Factors Risk
Factors Relating to the Certificates and the Offering Appraisals and
Realizable Value of Aircraft".
(4) The actual principal amount may be less depending on the circumstances of
the financing of such Aircraft. The aggregate principal amount of all of the
Equipment Notes will not exceed the aggregate face amount of the Certificates.
2
<PAGE>
Loan to Aircraft Value Ratios
The following table sets forth loan to Aircraft value ratios ("LTVs") for
each Class of Certificates as of October 1, 2001, the first Regular Distribution
Date that occurs after all the Aircraft are scheduled to have been delivered,
and each October 1 Regular Distribution Date thereafter, assuming that Equipment
Notes of each series in the maximum principal amount for all of the Aircraft are
acquired by the Trusts prior to the Delivery Period Termination Date. The LTVs
for any Class of Certificates as of dates prior to the Delivery Period
Termination Date are not meaningful, since the property of the Trusts will not
include during such period all of the Equipment Notes expected to be acquired by
the Trusts and the related Aircraft will not be included in the calculation. The
table should not be considered a forecast or prediction of expected or likely
LTVs but simply a mathematical calculation based upon one set of assumptions.
See "Risk Factors -- Risk Factors Relating to the Certificates and the
Offering --The realizable value of Aircraft may be less than its appraised
value."
The following table was compiled on an aggregate basis. However, the
Equipment Notes for an Aircraft will not have a security interest in any other
Aircraft. This means that any excess proceeds realized from the sale of an
Aircraft or other exercise of remedies will not be available to cover any
shortfalls on the Equipment Notes relating to any other Aircraft. See
"Description of the Equipment Notes--Loan to Value Ratios of Equipment Notes"
for examples of LTVs for the Equipment Notes issued in respect of individual
Aircraft, which may be more relevant in a default situation than the aggregate
values shown below.
<TABLE>
<CAPTION>
Assumed Class B
Aggregate Class A Class A Certificates Class C Class C
Aircraft Certificates Certificates Pool Class B Certificates Certificates
Date Value (1) Pool Balance (2) LTV (3) Balance (2) Certificates LTV (3) Pool Balance (2) LTV (3)
---- ------------ ---------------- ------------ ------------ -------------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 1, 2001 $319,473,800 $127,125,405 39.8% $50,639,894 55.6% $11,436,335 59.2%
October 1, 2002 309,781,700 121,924,425 39.4 50,179,486 55.6 10,218,469 58.9
October 1, 2003 300,089,600 117,809,787 39.3 49,368,273 55.7 8,269,467 58.5
October 1, 2004 290,397,500 113,469,095 39.1 47,512,425 55.4 6,392,103 57.6
October 1, 2005 280,705,400 109,306,683 38.9 45,039,630 55.0 3,462,780 56.2
October 1, 2006 271,013,300 105,532,579 38.9 42,543,868 54.6 0 NA
October 1, 2007 261,321,200 101,758,475 38.9 34,900,277 52.3 0 NA
October 1, 2008 251,629,100 97,984,372 38.9 25,863,114 49.2 0 NA
October 1, 2009 241,937,000 94,210,268 38.9 16,189,057 45.6 0 NA
October 1, 2010 232,244,900 90,436,164 38.9 12,615,462 44.4 0 NA
October 1, 2011 222,552,800 86,662,060 38.9 7,876,557 42.5 0 NA
October 1, 2012 212,860,700 82,733,012 38.9 4,611,410 41.0 0 NA
October 1, 2013 203,168,600 76,834,618 37.8 3,763,991 39.7 0 NA
October 1, 2014 193,476,500 69,166,446 35.7 0 NA 0 NA
October 1, 2015 183,784,400 54,500,186 29.7 0 NA 0 NA
October 1, 2016 172,893,567 38,511,196 22.3 0 NA 0 NA
October 1, 2017 159,970,767 21,080,180 13.2 0 NA 0 NA
October 1, 2018 57,590,667 3,344,875 5.8 0 NA 0 NA
</TABLE>
___________
(1) We have assumed that the initial appraised value (determined as described
under "--Equipment Notes and the Aircraft") of each Aircraft declines by 3%
per year for the first 15 years after the year of delivery of such Aircraft
and by 4% per year for the next five years. Other rates or methods of
depreciation would result in materially different LTVs and no assurance can be
given (1) that the depreciation rates and method assumed for the purpose of
the table are the ones most likely to occur or (2) as to the actual future
value of any Aircraft. Many of the factors affecting the value of the Aircraft
are discussed herein under "Risk Factors -- Factors Relating to the
Certificates and the Offering -- The realizable value of Aircraft may be less
than its appraised value."
(2) In calculating the outstanding balances, we have assumed that the Trusts
will acquire the maximum principal amount of Equipment Notes for all Aircraft.
(3) The LTVs for each Class of Certificates were obtained for each October 1
Regular Distribution Date by dividing (x) the expected outstanding balance of
such Class together with the expected outstanding balance of all other Classes
senior in right of payment to such Class after giving effect to the
distributions expected to be made on such date, by (y) the assumed value of
all of the Aircraft ("Assumed Aggregate Aircraft Value") on such date based on
the assumptions described above. The outstanding balances and LTVs may change
if, among other things, the aggregate principal amount of the Equipment Notes
acquired by the Trusts is less than the maximum permitted under the terms of
this offering or the amortization of the Equipment Notes differs from the
assumed amortization schedule calculated for purposes of this offering
memorandum.
3
<PAGE>
Cash Flow Structure
Set forth below is a diagram illustrating the structure for the offering of
the Certificates and certain cash flows.
[GRAPH]
_______________________
(1) Each Leased Aircraft will be subject to a separate Lease and a related
Indenture; each Owned Aircraft will be subject to a separate Indenture.
(2) Funds held as Deposits relating to each Trust will be withdrawn to
purchase Equipment Notes on behalf of such Trust from time to time during the
Delivery Period as each Aircraft is delivered to us. If any funds remain as
Deposits with respect to any Trust at the Delivery Period Termination Date,
such funds will be withdrawn by the Escrow Agent and distributed to the
holders of the Certificates issued by such Trust, together with accrued and
unpaid interest thereon and, in certain circumstances, a Deposit Make-Whole
Premium payable by us with respect to the remaining Deposits applicable to
such Trust.
(3) The Liquidity Facility for each Trust will cover three consecutive
semiannual interest payments with respect to the Certificates issued by such
Trust.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Trusts.............................................. The Class A Trust, the Class B Trust and the Class C Trust will each be
formed pursuant to a separate Pass Through Trust Agreement between
Midway and Allfirst Bank, as trustee under each Trust.
Certificates Offered................................ Class A Certificates
Class B Certificates
Class C Certificates
Each Certificate will represent a fractional undivided interest in a
related Trust.
Use of Proceeds..................................... The proceeds from the sale of the Certificates initially will be held in
escrow and deposited with the Depositary. Each Trust will withdraw
funds from the escrow relating to such Trust to acquire Equipment Notes
to be issued in connection with the financing of a portion of the
purchase price of eight new Boeing model 737-700 aircraft. The Aircraft
are scheduled to be delivered to us during the period September 2000
through August 2001. We intend to either lease or purchase the Aircraft.
Subordination Agent, Trustee, Paying Agent and Loan
Trustee............................................. Allfirst Bank.
Escrow Agent........................................ First Union Trust Company, National Association.
Depositary.......................................... Allfirst Bank.
Initial Liquidity Provider.......................... Morgan Stanley Capital Services Inc. ("MSCS") will provide a separate
liquidity facility for the benefit of each Trust. The obligations of
MSCS under its liquidity facilities will be fully and unconditionally
guaranteed by its parent company, Morgan Stanley Dean Witter & Co.
("MSDW"), which is also the parent company of Morgan Stanley & Co.
Incorporated.
Trust Property...................................... The property of each Trust will include:
. Equipment Notes acquired by such Trust;
. All rights of such Trust to acquire Equipment Notes under the Note
Purchase Agreement;
. All rights of such Trust under the related Escrow and Paying Agent
Agreement;
. All rights of such Trust under an intercreditor agreement (including
all monies receivable pursuant to such rights);
. All monies receivable under the Liquidity Facilities for such Trust;
and
. Funds from time to time deposited with the Trustee in accounts
relating to such Trust.
Regular Distribution Dates.......................... April 1 and October 1, commencing April 1, 2001.
Record Dates........................................ The fifteenth (15/th/) day preceding a related Distribution Date.
Distributions....................................... The Trustee and the Paying Agent, as applicable, will distribute all
payments of principal, premium (if any) and interest received on the
Equipment Notes held in each Trust and all payments of principal (if
any) interest and Deposit Make-Whole Premium (if any) on the Deposits
relating to each Trust to the holders of the Certificates of such Trust,
subject, in the case of payments on the Equipment Notes, to the
subordination provisions applicable to the Certificates.
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Subject to the subordination provisions applicable to the Certificates,
scheduled payments of principal and interest made on the Equipment Notes
will be distributed on the applicable Regular Distribution Dates.
Subject to the subordination provisions applicable to the Certificates,
payments of principal, premium (if any) and interest made on the
Equipment Notes resulting from any early redemption or purchase of such
Equipment Notes will be distributed on a special distribution date after
not less than fifteen (15) days' notice to holders of the related
Certificates.
Escrowed Funds...................................... Funds paid to the Escrow Agent by the Placement Agents will be deposited
with the applicable Depositary and held as Deposits pursuant to separate
Deposit Agreements for each Trust. Funds may be withdrawn by the Escrow
Agent at the direction of the applicable Trustee from time to time to
purchase Equipment Notes prior to the Delivery Period Termination Date.
On each Regular Distribution Date, the applicable Depositary will pay to
the Paying Agent interest accrued on the Deposits relating to each Trust
at a rate per annum equal to the interest rate applicable to the
Certificates issued by such Trust. The Paying Agent, on behalf of the
Escrow Agent, will pay such interest to the applicable Receiptholders.
The Deposits relating to a Trust and interest paid thereon will not be
subject to the subordination provisions applicable to the Certificates.
The Deposits cannot be used to pay any other amount in respect of the
Certificates.
Unused Escrow Funds................................. It is possible that less than all of the Deposits held in escrow will be
used to purchase Equipment Notes by the deadline established for
purposes of this offering. This may occur because of delays in the
delivery of Aircraft, variations in the terms of each Aircraft financing
or other reasons. See "Description of the Certificates -- Obligation to
Purchase Equipment Notes". If any funds remain as Deposits with respect
to any Trust at the Delivery Period Termination Date (or earlier under
certain circumstances), such funds will be withdrawn at such time by the
Escrow Agent for such Trust and distributed, with accrued and unpaid
interest, to the Certificateholders of such Trust after at least fifteen
(15) days' prior written notice. If unused Deposits distributed with
respect to all of the Trusts exceed $3 million (the "Par Redemption
Amount") such distribution will include a premium on any excess unused
Deposits above the Par Redemption Amount payable by Midway equal to the
Deposit Make-Whole Premium, provided that no premium shall be paid with
respect to Deposits relating to Aircraft that are not or will not be
delivered by the manufacturer prior to the Delivery Period Termination
Date due to any reason not occasioned by Midway's fault or negligence
(such Deposits, in the aggregate, the "Non-Delivery Redemption Amount").
See "Description of the Deposit Agreements -- Unused Deposits; Prepayment
of Deposits". If all the Aircraft are acquired and unused Deposits
remain, it is more likely that a distribution of such unused Deposits
will be made with respect to Class C Certificates, which bear interest
at a higher rate than the Class A and Class B Certificates.
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Obligation to Purchase Equipment Notes.............. Pursuant to the Note Purchase Agreement, the Class A, Class B and Class
C Trustees, respectively, will be obligated to purchase the Series A,
Series B and Series C Equipment Notes issued with respect to each
Aircraft. Midway may enter into a leveraged lease financing or a
secured debt financing with respect to any of the Aircraft. Each
financing will be made pursuant to forms of financing agreements
attached to the Note Purchase Agreement. In the case of a Leased
Aircraft, the terms of the financing agreements entered into may differ
from the forms of such agreements described in this offering memorandum
because a third party--the Owner Participant--will provide a portion of
the financing of the Aircraft and may request changes. However, under
the Note Purchase Agreement, the terms of such financing agreements must
(1) contain the Mandatory Document Terms set forth in the Note Purchase
Agreement and (2) not vary the Mandatory Economic Terms set forth in the
Note Purchase Agreement. In addition, Midway must (1) certify to the
Trustees that any such modifications do not materially and adversely
affect the Certificateholders or (2) if such agreements are modified in
any material respect, obtain written confirmation from each Rating
Agency that the use of versions of such agreements modified in any
material respect will not result in a withdrawal, suspension or
downgrading of the rating of any Class of Certificates. The Trustees
will not be obligated to purchase Equipment Notes if, at the time of
issuance, Midway is in bankruptcy or certain other specified events have
occurred. The Trustees will have no right or obligation to purchase
Equipment Notes after the Delivery Period Termination Date. See
"Description of the Certificates -- Obligation to Purchase Equipment
Notes."
Liquidity Facilities................................ Under the Liquidity Facility for each Trust, the Liquidity Provider
will, if necessary, make advances in an aggregate amount sufficient to
pay interest on the applicable Class of Certificates on up to three
successive semiannual Regular Distribution Dates at the applicable
Stated Interest Rate for such Certificates. The Liquidity Facilities
cannot be used to pay any other amount in respect of the Certificates
and will not cover amounts held in escrow as Deposits with a Depositary.
Notwithstanding the subordination provisions applicable to the
Certificates, the holders of the Certificates to be issued by each Trust
will be entitled to receive and retain the proceeds of drawings under
the Liquidity Facility for such Trust.
Upon each drawing under any Liquidity Facility to pay interest on the
Certificates, the Subordination Agent will reimburse the applicable
Liquidity Provider for the amount of such drawing. Such reimbursement
obligation and all interest, fees and other amounts owing to the
applicable Liquidity Provider under each Liquidity Facility and certain
other agreements will rank equally with comparable obligations relating
to the other Liquidity Facilities and will rank senior to the
Certificates in right of payment.
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Subordination....................................... The Trusts, the Liquidity Provider and the Subordination Agent will
enter into an intercreditor agreement which will provide that
distributions on the Certificates will be made in the following order:
. First, to holders of the Class A Certificates;
. Second, to the holders of the Class B Certificates; and
. Third, to the holders of the Class C Certificates.
Certain payments to the Liquidity Provider will be made prior to
payments on all or some of the Certificates as discussed under
"Description of the Intercreditor Agreement--Distributions."
If Midway is in bankruptcy or certain other specified events have
occurred and, in either case, Midway is continuing to meet certain of
its obligations, the subordination provisions applicable to the
Certificates permit distributions to be made to junior Certificates
prior to making distributions in full on the senior Certificates.
Control of Loan Trustee............................. The holders of at least a majority of the outstanding principal amount
of Equipment Notes issued under each Indenture will be entitled to
direct the Loan Trustee under such Indenture in taking action as long as
no Indenture Default is continuing thereunder. If an Indenture Default
has occurred and is continuing, subject to certain conditions, the
Controlling Party will direct the Loan Trustees (including in exercising
remedies, such as accelerating such Equipment Notes or foreclosing the
lien on the Aircraft securing such Equipment Notes).
The "Controlling Party" will be:
. The Class A Trustee until payment of final distributions to holders
of Class A Certificates; and thereafter,
. The Class B Trustee until payment of final distributions to holders
of Class B Certificates; and thereafter,
. The Class C Trustee; and
. Under certain circumstances, the Liquidity Provider with the greatest
amount of obligations owed to it.
Purchase Rights of Certificateholders............... If Midway is in bankruptcy or certain other specified events have
occurred,
. The Class B Certificateholders shall have the right to purchase all,
but not less than all, of the Class A Certificates,
. The Class C Certificateholders shall have the right to purchase all,
but not less than all, of the Class A and Class B Certificates,
in each case at a purchase price equal to the outstanding balance of the
applicable Class of Certificates plus accrued and unpaid interest.
PTC Events of Default............................... PTC Events of Default are the failure to pay within 10 Business Days
after it is due:
. the outstanding balance of any Class of Certificates on the Final
Legal Distribution Date; or
. interest due on the applicable Class of Certificates on any Distribution
Date (unless the Subordination Agent shall have made an Interest Drawing,
or a withdrawal from the Cash Collateral Account for such class of
Certificates, with respect thereto in an aggregate amount sufficient to pay
such interest and shall have distributed such amount to the Trustee
entitled thereto).
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Equipment Notes
(a) Issuer......................................... Leased Aircraft. If we lease an Aircraft, the Aircraft will be owned by
an owner trust (each, an "Owner Trust") created by the related Owner
Participant and the Equipment Notes for such Aircraft will be issued by
the applicable Owner Trustee. The Owner Trustee will not be
individually liable for such Equipment Notes. However, our scheduled
rental obligations under the related Lease will be in amounts sufficient
to pay scheduled payments on such Equipment Notes.
Owned Aircraft. If we purchase an Aircraft, the related Equipment Notes
will be issued by us.
(b) Interest....................................... The Equipment Notes held in each Trust will accrue interest at the
applicable rate per annum for such Trust set forth on the cover page of
this offering memorandum, payable on April 1 and October 1 of each year,
commencing on the later of April 1, 2001 and the first such date to
occur after the initial issuance thereof, and such interest payments
will be passed through to Certificateholders of such Trust on each such
date until the final distribution date for such Certificates, in each
case subject to the Intercreditor Agreement. Interest is calculated on
the basis of a 360-day year consisting of twelve 30-day months. See
"Description of the Certificates -- General" and "-- Payments and
Distributions."
(c) Principal...................................... Principal payments on the Equipment Notes held in each Trust are
scheduled to be passed through to the Certificateholders of each such
Trust on April 1 or October 1, or both, in certain years. See
"Description of the Certificates -- Pool Factors."
(d) Redemption and Purchase........................ Aircraft Event of Loss. If an Event of Loss occurs with respect to an
Aircraft, all of the Equipment Notes issued with respect to such
Aircraft will be redeemed, unless such Aircraft is replaced by us under
the related lease or financing agreements. The redemption price in such
case will be the unpaid principal amount of such Equipment Notes,
together with accrued interest, but without any premium. See
"Description of the Equipment Notes--Redemption."
Optional Redemption. The issuer of the Equipment Notes with respect to
an Aircraft may elect to redeem them prior to maturity. The redemption
price in such case will be the unpaid principal amount of such Equipment
Notes, together with accrued interest plus a Make-Whole Premium. See
"Description of the Equipment Notes--Redemption."
Purchase by Owner. If an event of default under a Lease is continuing,
the applicable Owner Trustee or Owner Participant may elect to purchase
all of the Equipment Notes with respect to such Aircraft, subject to the
terms of the applicable Indenture. The purchase price in such case will
be the unpaid principal amount of such Equipment Notes, together with
accrued interest, but without any premium (provided that a Make-Whole
Premium will be payable under certain circumstances specified in the
applicable Indenture). See "Description of the Equipment
Notes--Redemption." Midway, as owner of an Owned Aircraft, has no
comparable purchase right under the Owned Aircraft Indentures.
(e) Security....................................... The Equipment Notes issued with respect to each Aircraft will be secured
by a security interest in such Aircraft and, in the case of Leased
Aircraft, in the related Owner Trustee's rights under the Lease with
respect to such Aircraft (with certain limited exceptions).
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The Equipment Notes issued in respect of an Aircraft will not be secured
by any other Aircraft or Leases. This means that any excess proceeds
from the sale of an Aircraft or other exercise of remedies with respect
to such Aircraft will not be available to cover any shortfall with
respect to any other Aircraft.
By virtue of the Intercreditor Agreement, the Equipment Notes are
cross-subordinated. This means that payments received on a junior series
of Equipment Notes issued in respect of one Aircraft may be applied in
accordance with the priority of payment provisions set forth in the
Intercreditor Agreement to make payments in respect of a more senior
Class of Certificates
There will not be cross-default provisions in the Indentures or in the
Leases so long as any related Equipment Notes are outstanding
thereunder. This means that if the Equipment Notes issued with respect
to one or more Aircraft are in default and the Equipment Notes issued
with respect to the remaining Aircraft are not in default, no remedies
will be exercisable with respect to the remaining Aircraft.
(f) Section 1110 Protection........................ It is a condition to the Trustees' obligation to purchase Equipment
Notes with respect to each Aircraft that outside counsel to Midway,
which is expected to be Fulbright & Jaworski L.L.P., provide its opinion
to the Trustees that:
. if such Aircraft is a Leased Aircraft, the Owner Trustee, as lessor under
the Lease for such Aircraft, and the related Leased Aircraft Trustee, as
assignee of such Owner Trustee's rights under such Lease pursuant to the
related Leased Aircraft Indenture, will be entitled to the benefits of
Section 1110 of the U.S. Bankruptcy Code with respect to the airframe and
engines comprising such Aircraft; or
. if such Aircraft is an Owned Aircraft, the Owned Aircraft Trustee will be
entitled to the benefits of Section 1110 of the U.S. Bankruptcy Code with
respect to the airframe and engines comprising such Aircraft.
Exchange Offer; Registration Rights................. Pursuant to an Exchange and Registration Rights Agreement among Midway,
the Placement Agents and the Trusts, Midway is obligated, at no cost to
the holders of the Certificates, to either consummate an exchange offer
pursuant to an effective registration statement or cause resales of the
Certificates to be registered under the Securities Act. If one of these
events does not happen within 210 days after the Issuance Date, the
interest rate on the Certificates will increase by 0.50% until the
exchange offer or registration is complete. See "Exchange Offer;
Registration Rights."
Certain Federal Income Taxes Consequences........... Each Trust will not be subject to U.S. federal income taxation. Each
beneficial owner of a Certificate who is a U.S. Certificateholder (as
defined herein) generally will be required to report on its federal
income tax return its pro rata share of income from the relevant
Deposits at the related Certificate interest rate, income from the
Equipment Notes at the interest rate thereon (including amounts paid by
the Liquidity Provider) and income on other property held by the related
Trust and will be permitted to deduct, subject to applicable
limitations, its share of the deductions and losses of the related
Trust. See "Certain U.S. Federal Income Tax Consequences."
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ERISA Considerations................................ Each person who acquires a Certificate will be deemed to have
represented that either: (a) no employee benefit plan assets have been
used to purchase such Certificate or (b) the purchase and holding of
such Certificate are exempt from the prohibited transaction restrictions
of the Employee Retirement Income Security Act of 1974 and the Internal
Revenue Code of 1986 pursuant to one or more prohibited transaction
exemptions. See "ERISA Considerations."
Rating of the Certificates.......................... It is a condition to the issuance of the Certificates that the
Certificates be rated by Moody's and Standard & Poor's, as set forth
below. Standard & Poor's has indicated that its rating applies to a unit
consisting of Certificates representing the Trust Property and Escrow
Receipts initially representing undivided interests in certain rights to
the Deposits. Amounts deposited under the Escrow Agreements are not
property of Midway and are not entitled to the benefits of Section 1110
of the U.S. Bankruptcy Code. Neither the Certificates nor the Escrow
Receipts may be separately assigned or transferred.
Certificates Moody's Standard & Poor's
------------ ------- -----------------
Class A Baa1 A-
Class B Ba1 BBB-
Class C Ba2 BB+
A rating is not a recommendation to purchase, hold or sell Certificates,
since 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 if, in the opinion of
such Rating Agency, circumstances (including the downgrading of Midway
or the Liquidity Provider) so warrant. The senior unsecured debt rating
of Midway is currently subject to a negative outlook by Standard &
Poor's. See "Risk Factors -- Factors Related to the Certificates and
the Offering -- Ratings of the Certificates is not a recommendation to
purchase, hold or sell Certificates."
Rating of the Depositary............................ The Depositary is rated as set forth below.
Moody's Standard & Poor's
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Short-term P-1 A-1
Rating of the Initial Liquidity Provider (as MSDW, the guarantor of MSCS's obligations as the Liquidity Provider,
guaranteed)......................................... meets the threshold rating requirements.
Threshold Rating of Liquidity Provider.............. Moody's Standard & Poor's
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Short-term P-1 A-1
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RISK FACTORS
You should read carefully this entire offering memorandum and the documents
incorporated by reference in this offering memorandum before investing in the
Certificates.
Risk Factors Related to Midway and the Airline Industry
The airline industry is characterized by low gross profit margins and high
fixed costs, and is highly competitive.
Our business, as is typical in the airline industry generally, is
characterized by low gross profit margins and high fixed costs, principally for
debt service, fuel and personnel. The expenses of each flight do not vary
significantly with the number of passengers carried and, therefore, a relatively
small change in the number of passengers, or in average fare paid or traffic mix
(the ratio of typically high-yielding business passengers to typically low-
yielding leisure passengers), could have a disproportionate effect on an
airline's operating and financial results. Accordingly, a minor shortfall from
expected revenue levels could have a material adverse effect on our results of
operations.
Low fare competition in Raleigh-Durham and the lower fare environment on
the East Coast has adversely affected our average fares and our yields since
June 30, 1999 and will continue to do so in the future.
The airline industry is highly competitive and is particularly susceptible
to price discounting because airlines incur only nominal costs to provide
service to passengers occupying otherwise unsold seats. We currently compete
with other air carriers either directly or indirectly on all of our routes.
Nearly all of these carriers have greater financial resources than we do, and
many of them have lower unit costs than we do. Furthermore, the introduction of
service or discounted fares by another airline in markets served by us could
also have an adverse impact upon our business, financial condition and results
of operations.
Since late 1997, we have experienced, and likely will continue to
experience, increased competition in the Raleigh-Durham market. In 1999, both
Southwest Airlines and MetroJet, the low-fare division of US Airways, initiated
service at Raleigh-Durham International Airport ("RDU"). Southwest began service
to five cities from RDU with 12 daily flights and, as of September 12, 2000,
operates service to seven cities (Austin, Texas; Baltimore, Maryland; Chicago-
Midway, Illinois; Kansas City, Missouri; Nashville, Tennessee; Orlando, Florida
and Tampa, Florida) with 17 daily flights. Although MetroJet announced plans to
serve six cities from RDU with 17 daily flights and began providing some of
these services in 1999, MetroJet has since withdrawn all of its services at RDU.
Introduction of low fare services at RDU and elsewhere along the East Coast
by Southwest and MetroJet in 1999 led to a significantly lower fare environment
in all of our markets. For example, our average fare for the six months ended
June 30, 2000 was 14.7% lower than the average fare for the six months ended
June 30, 1999, decreasing from $111 to $95, and our yield decreased 13.1% in the
same period. While competition from Southwest and MetroJet at RDU and in other
East Coast markets has already adversely impacted fares in all of our markets,
increases in Southwest's services at RDU could have a more direct adverse impact
on our ability to profitably expand into new markets, and upon our traffic and
load factors, resulting in an adverse impact upon our business, financial
condition and results of operations.
We believe that Southwest's ability to further increase its services at RDU
beyond 20 to 24 daily flights is now limited by lack of gate availability at
RDU. However, the Raleigh-Durham Airport Authority has announced its intention
to construct a temporary facility that will add five new gates to RDU's Terminal
A by spring 2001. The Raleigh Durham Airport Authority intends to operate the
temporary facility only while constructing a permanent facility that will add 12
to 15 additional gates at Terminal A approximately five years after completion
of the temporary facility. The construction of the five temporary gates and the
12-15 permanent gates at RDU's Terminal A will allow Southwest and other
airlines to add new services, or to increase current services, at RDU.
We have a significant amount of debt and capital lease obligations that
could adversely affect our ability to meet our strategic goals.
We have a large amount of indebtedness when compared to the equity of our
stockholders. At June 30, 2000, our long-term debt and capital lease
obligations, including current portion, accounted for 53% of our pro forma total
capitalization (after giving effect to a rights offering we completed in July
2000). As of June 30, 2000, we had minimum operating and capital lease
obligations through the year ending December 31, 2016 aggregating approximately
$475 million. In addition, based on current interest rates, we estimate that
our operating and capital lease obligations will increase by approximately $55
million annually following the recent completion of the long term financing for
3 Canadair Regional Jets ("CRJs") together with the future financing for 2 CRJs
currently on interim lease, and the financing of the 15 Boeing 737-700 aircraft
("737s") and the 3 CRJs
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currently subject to firm orders, which financings are scheduled to be completed
by October 2002. This amount will increase if current interest rates increase
during the aircraft delivery period. Furthermore, the 5 additional 737s expected
to be leased under five-year operating leases will increase annual lease
expenses by an increment of approximately $17 million per year. These additional
lease obligations, as well as any increase in interest rates, could materially
adversely affect our results of operations. The degree to which we are
leveraged, as well as our rent expense, could have significant consequences,
including the following:
. our ability to obtain additional financing to support capital expansion
plans and for working capital and other purposes could be limited;
. a substantial portion of our cash flow will be required to service our
obligations under securities issued in aircraft financing transactions and
rent expense, diverting such cash from our operations; and
. we will be more vulnerable to adverse changes in general economic and
industry conditions and we may be less able to withstand competitive
pressures than our competitors that are less highly leveraged.
Our ability to make scheduled principal and interest payments on or to
refinance our obligations underlying securities issued in aircraft financing
transactions and our other debt obligations will depend upon our future
operating performance and cash flow, which are in turn dependent upon prevailing
economic conditions and financial, competitive, regulatory, business and other
factors, many of which are beyond our control. There can be no assurance that
our cash flows will be sufficient for the payment of our debt and lease
obligations. If we are unable to meet interest, principal or lease payments, we
could be required to seek renegotiation of such payments or obtain additional
equity or debt financing. To the extent we finance our activities with
additional debt, we may become subject to certain financial and other covenants
that may restrict our ability to pursue our growth strategy. There can be no
assurance that any such efforts would be successful or timely or that we could
obtain any such financing or refinancing on acceptable terms.
Increases in aircraft fuel costs will adversely affect our financial
results.
Because fuel costs constitute a significant portion of our total operating
expenses before recapitalization and equipment retirement charges (approximately
12.6%, 10.7% and 11.5% for the years ended December 31, 1997, 1998 and 1999,
respectively, and 9.3% and 15.8% for the six months ended June 30, 1999 and
2000, respectively), significant changes in fuel costs will materially affect
our results of operations. We estimate that for the year ended December 31,
1999, a ten percent increase in the price per gallon of aircraft fuel would have
increased our total operating expenses (excluding equipment retirement charges)
in 1999 by 1.1%. Our fuel costs increased approximately 140% for the six months
ended June 30, 2000, from the six months ended June 30, 1999, primarily as a
result of a 100% increase in average fuel prices. This increase, and any
further increases in the cost of fuel, will adversely impact our results of
operations in 2000 compared to 1999.
Historically, jet fuel costs have been subject to wide price fluctuations.
Jet fuel availability is also subject to periods of market surplus and shortage.
Because of the effect of such events on price and availability of oil, the cost
and future availability of jet fuel cannot be predicted with any degree of
certainty.
Our fuel requirements are met by approximately a dozen different suppliers.
We contract with these suppliers as fuel is needed, and the terms vary as to
price and quantity. We have not entered into any agreement that fixes the price
or guarantees the supply of fuel over any period of time.
In the event of a fuel supply shortage, higher fuel prices or curtailment
of scheduled service could result. There can be no assurance that increases in
the price of fuel can be offset by higher fares.
Our business is labor intensive and the general inflationary trend in labor
costs, along with the location of our hub and our position in the industry, will
increase our costs and may lead to excessive turn-over and attrition rates.
Our business, as is typical in the airline industry generally, is labor
intensive, with labor costs representing approximately 15.1%, 17.4%, 19.6%,
19.7% and 18.9% of our operating expenses before recapitalization and equipment
retirement charges for calendar years 1997, 1998 and 1999 and for the six months
ended June 30, 1999 and 2000, respectively. We are required to carry the same
number of crew on our flights regardless of the number of passengers carried.
The Raleigh-Durham area has experienced an unemployment rate which is
significantly less than the national average over the last several years. We
compete for labor against employers in the area that are leaders in the high-
technology, medical services, telecommunications, bio-technology and
pharmaceutical industries. We also compete for labor in highly skilled
positions (such as pilots and mechanics) against major airlines which offer wage
and benefit packages that generally exceed our wage and benefit packages. While
we maintain an active recruiting program for all job classifications, offer
competitive terms of employment and endeavor to maintain positive relationships
with our employees, we have in the past and may in the future suffer excessive
turn-over and attrition rates, which
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could have an adverse impact upon our operations. We also expect wages to
continue to increase both as a percentage of our overall costs and on a gross
basis.
Our growth strategy involves significant risk.
Our growth strategy involves increasing the frequency of flights to markets
we currently serve, increasing the number of markets served and maximizing
connecting opportunities. Opening new markets requires us to commit a
substantial amount of resources, both before the new services commence and
throughout the early phases of the new operation. There can be no assurance that
these efforts will be successful. As part of our growth strategy, we are also
increasing the size of the planes we operate, and we currently have firm orders
to purchase fifteen 737s and we intend to lease five 737s that will increase the
number of either 120 or 128 seat 737s we operate from two to 22 by October 2002.
In addition, we may also need to obtain additional slots at certain destinations
in order to implement our growth strategy. A slot is an authorization to take
off or land at the designated airport within a specified time window. There can
be no assurance that we will be able to identify and successfully establish new
markets or that we will be able to fill a sufficient number of seats on the
larger planes to operate profitably or that we will be able to obtain additional
slots on a timely basis or on commercially reasonable prices, if at all. Our
failure to implement our growth strategy could have a material adverse effect on
our financial condition and results of operations.
Our business is dependent on the Raleigh-Durham market.
Our growth has focused and will, at least in the near-term, continue to
focus on adding flights to and from our Raleigh-Durham base of operations,
established in March 1995. Because all of our current flights have Raleigh-
Durham as the origin or destination, we remain highly dependent upon the
Raleigh-Durham market. Our growth strategy continues to emphasize the Raleigh-
Durham hub. A reduction in our share of the Raleigh-Durham market or reduced
passenger traffic to or from Raleigh-Durham could have a material adverse effect
on our financial condition and results of operations. In addition, our
dependence on a single hub and on a route network operating largely on the East
Coast makes our business more susceptible to adverse weather conditions along
the East Coast than some of our competitors that may be better able to spread
weather-related risks over larger route systems. For example, the snowstorms in
January 2000 that closed our hub at RDU for three and one-half days and
effectively closed our route system for another two days, had a significant
adverse impact on our first half 2000 results.
We are dependent on our relationship with American Airlines.
We maintain a significant relationship with American Airlines. Part of this
relationship includes contractual arrangements with American that allow Midway
to participate in the AAdvantage(R) frequent flyer program and accept
AAirpass(R) tickets and American first class upgrades from its passengers. We
currently lease the Raleigh-Durham International Airport facility and purchase a
number of services, including yield management and ground handling, from
American.
Our contract with American to participate in the AAdvantage(R) frequent
flyer program extends through April 30, 2001, and gives us the ability to offer
AAdvantage(R) miles on several additional routes, though we may, as part of our
growth strategy, select routes that are not covered by our agreement with
American. The ability to offer AAdvantage(R) miles on additional routes and the
extension of the term of the agreement are the subject of ongoing discussions
between Midway and American. We believe that our participation in the
AAdvantage(R) program gives us access to a flexible and extremely powerful
marketing tool. However, due to the potential limitations of the agreement
(including the number of additional markets and the term of the agreement),
there can be no assurance that we will be able to offer AAdvantage(R) frequent
flyer benefits to our customers after the expiration of our current contract
with American, and we may in the future choose or be obligated to develop our
own frequent flyer program or participate in an alternate program.
American may terminate Midway's participation in the AAdvantage(R) program
under several circumstances, including:
. our commencement of a new frequent flyer program or our participation in
another frequent flyer program;
. any person or group becoming the owner of 20% or more of our outstanding
voting securities or any "Disqualified Investor" becoming the owner of 10%
or more of our outstanding voting securities;
. our making a significant acquisition; or
. our entering into any marketing-oriented collaborative agreement with
another airline which American reasonably believes would likely materially
adversely affect American's interests or objectives under any of its or its
affiliates' agreements with us.
"Disqualified Investor" is defined as:
. any other airline or airline-related services company;
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. any person or entity offering a frequent traveler program; or
. any person or entity that American believes would likely, by virtue of its
affiliation with us, materially adversely affect American's interests or
objectives under any of its or its affiliates' agreements with us.
In addition, American may terminate our lease of the Raleigh-Durham
International Airport facility, our license of the yield management system and
one other service agreement that we have with American if any person or group
acquires 30% or more of our voting securities. Finally, if we pay any dividends
or make any other cash or asset distribution to our stockholders without
American's consent at any time prior to our payment in full of a certain
promissory note to American, then American may terminate the Raleigh-Durham
International Airport facility lease, our right to offer AAdvantage(R) frequent
flyer benefits, our license of the yield management system and one other service
agreement that we have with American.
We are subject to extensive government regulation.
We are subject to regulation by the United States Department of
Transportation ("DOT"), the FAA and certain other governmental agencies. The DOT
principally regulates economic issues affecting air service such as air carrier
certification and fitness, insurance, consumer protection and competitive
practices. The FAA primarily regulates flight operations, in particular matters
affecting air safety, such as airworthiness requirements for aircraft and pilot
and flight attendant certification. We believe we are in compliance with all
requirements necessary to maintain in good standing our operating authority
granted by the DOT and our air carrier operating certificate issued by the FAA.
Additional laws and regulations have been proposed from time to time that could
significantly increase the cost of our airline operations by, for instance,
imposing additional requirements or restrictions on operations. There can be no
assurance that we will continue to be able to comply with all present and future
rules and regulations or that the cost of continued compliance will not have a
material adverse effect on our results of operations.
The FAA also has authority to issue maintenance directives and other
mandatory orders relating to, among other things, inspection of aircraft and
engines, fire retardant and smoke detection devices, increased security
precautions, collision and windshear avoidance systems, noise abatement and the
mandatory removal and replacement of aircraft parts that have failed or may fail
in the future. Depending upon the scope of the FAA's order, these requirements
may cause us to incur substantial, unanticipated expenses.
We are also subject to numerous other federal and state laws and
regulations relating to protection of the environment, radio communications,
labor relations, equal employment opportunity and other matters.
In August 1998, the Compliance and Enforcement Branch of the FAA conducted
an inspection of our compliance with certain regulations related to our alcohol
and drug testing programs. In September 1998, the FAA notified us that it was
investigating alleged violations discovered in the August 1998 inspection. We
responded to these alleged violations in October 1998. In May 1999, the FAA
requested that we provide them with an update of certain matters raised during
the investigation. We promptly provided this information to the FAA. While we
are unable to determine whether the FAA will pursue an assessment as a result of
the findings of this investigation, or what the amount of any such assessment
might be, a substantial assessment could have a material adverse effect on our
results of operations.
In September 1997, the Civil Aviation Security Division of the FAA
conducted an investigation of our compliance with certain regulations requiring
us to verify the accuracy of background information provided by our employees
who have access to secure airport areas. We revised our background check
procedures during the course of the FAA's investigation and then obtained and
verified the necessary background information of those employees who had been
identified by the FAA as having insufficient background check documentation. The
investigation will likely result in the finding of violations of these
regulations. We have received no communications from the FAA in this respect
since 1998. While we are unable to determine whether the FAA will pursue an
assessment as a result of the findings of this investigation, or what the amount
of any such assessment might be, a substantial assessment could have a material
adverse effect on our results of operations.
We have incurred operating losses from time to time.
We began commercial flight operations in 1993 and incurred substantial
losses through September 30, 1996. Although we were profitable in the 13
quarters from October 1, 1996 through December 31, 1999, we incurred a loss of
$7.6 million in the first quarter of 2000. The first quarter 2000 loss was
primarily the result of:
. a $9.5 million pre-tax charge related to an option we exercised for the
early return of four Fokker F100s ("F100s") in the first quarter of 2001, a
writedown of the value of certain leasehold improvements associated with
those aircraft and related costs;
. an increase in fuel expense of $5.9 million year-over-year driven by a 122%
increase in fuel prices;
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. $1.2 million in 737 induction costs, including rent expense incurred prior
to revenue service and increased initial training costs; and
. an estimated $4 million impact from snowstorms in January, which closed our
hub at RDU for three and one-half days and effectively closed our route
system for another two days.
Although we were once again profitable in the second quarter of 2000, there
can be no assurance that we will be profitable in the future.
We operate a limited number of aircraft.
We have a fleet of 33 jet aircraft, 28 of which are leased and five of
which, all CRJs, are owned. The limited number of aircraft we operate involves
financial risks not present for larger carriers that are able to spread their
operating costs over more equipment and routes. In addition, the lessor of four
of our F100s has the right to terminate each of these leases on six months'
prior notice, provided that no lease can be terminated if it would result in a
fourth termination of any F100 lease in any 12-month period, including scheduled
terminations. Finally, in the event aircraft are removed from service for
unscheduled maintenance, repairs or other reasons, any resulting interruption in
service could materially and adversely affect our service, reputation and
profitability.
We depend on a limited number of aircraft types.
As of August 31, 2000, our fleet of 33 aircraft consists of eight 98-seat
F100s, 23 50-seat CRJs and two 128-seat 737s. As of August 31, 2000, we have
firm orders for 3 additional newly manufactured CRJs, all of which are scheduled
to be delivered by December 2001. We have firm orders to purchase 15 additional
737s with deliveries scheduled to begin in September 2000 and end in October
2002. We have options to acquire 10 additional 737s. We also intend to lease 5
additional newly manufactured 737s scheduled to be delivered in November 2000
and January, July, October and November 2001. We intend to acquire up to 4 CFM
56-7B spare engines to support the operation of the 737 fleet. In December 1999,
we settled a pending lawsuit with the lessor of 4 F100s previously operated by
us. As a result of this settlement, we recorded a pre-tax charge of
approximately $700,000 during the fourth quarter of 1999 and obtained an option
to terminate leases on four other F100s. On February 29, 2000, we exercised this
option to terminate the leases on these 4 F100s prior to their scheduled lease
expirations in 2003 and 2004, resulting in a revised scheduled return date of
these aircraft in the first half of 2001. Our dependence on the F100s and CRJs
for the vast majority of our flights could have a material adverse effect on us
in the event of a government directive prohibiting or restricting the use of one
of these aircraft types or in the case of adverse public perception of one of
these aircraft types. In addition, delay in delivery of the 737s may adversely
affect our growth and results of operations.
Maintenance of our F100s, which are no longer being manufactured, is more
expensive than maintenance of similar aircraft still in production.
Eight of our current 33 aircraft are F100s. Fokker Aircraft B.V., a Dutch
corporation, has ceased operations. As a result, the F100 is no longer being
manufactured. Our cost to maintain F100s generally exceeds the cost of
maintaining similar aircraft that are presently in production. Vendors and
suppliers of key parts are generally fewer in number and their products are more
expensive, and engineering is not as readily available. Our inability to obtain
parts and servicing for our F100s on a timely and cost-effective basis could
have a material adverse effect on our financial condition and results of
operations.
We depend in part on landing slots leased from others.
The regulations of the Federal Aviation Administration ("FAA") currently
limit the availability of, and permit the buying, selling, trading and leasing
of, certain airline slots at Chicago's O'Hare, New York's LaGuardia and Kennedy
International, and Ronald Reagan Washington National airports. We currently
lease seven of our eighteen slots at New York's LaGuardia Airport and ten of our
twelve slots at Ronald Reagan Washington National Airport from other airlines.
Leases for two of our slots at New York's LaGuardia Airport and for four of our
slots at Ronald Reagan Washington National Airport are scheduled to expire on
October 28, 2000. Leases for our remaining five slots at LaGuardia Airport and
six slots at Ronald Reagan Washington National Airport are scheduled to expire
on March 31, 2001. All of the leased slots at LaGuardia Airport will be replaced
by slot exemptions we have received from the DOT. Two of the slots under the
lease expiring on October 28, 2000 at Ronald Reagan Washington National Airport
will be replaced by two slot exemptions we have received from the DOT. To the
extent we cannot renew or replace the slot lease expiring on March 31, 2001 at
Ronald Reagan Washington National Airport, our business will be harmed. Our
route between Raleigh-Durham International Airport and Ronald Reagan Washington
National Airport is among our most important, and, as a result, an inability to
renew or replace these leases could have a material adverse effect on our
financial condition and results of operations.
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We are dependent on a limited number of routes.
We derive a substantial majority of our operating income from a small
number of our routes. Any circumstance causing a reduction in demand on such
routes or the introduction of increased competitive pressures on such routes
could have a material adverse effect on our financial condition and results of
operations.
We are required to purchase four Airbus A320 aircraft that we no longer
desire to purchase.
Pursuant to a March 1995 purchase agreement, we are obligated to purchase
four Airbus A320 aircraft with deliveries in 2005 and 2006. To support the
operation of the four A320 aircraft, we also agreed to purchase one IAE V2527-A5
spare engine scheduled for delivery in November 2005 from International Aero
Engines AG. The purchase of the A320s and the associated spare engine no longer
fit with our current strategy. We are considering several alternatives with
respect to the A320s, including restructuring our agreement with Airbus or
transferring our positions. There can be no assurance that we will be able to
restructure or transfer our rights and obligations under this purchase
agreement. If we are required to take delivery of these aircraft or if we incur
significant financial expense in lieu of taking delivery, our financial position
and results of operations could be materially adversely affected.
Our business could be adversely affected if we lose the services of the key
personnel upon whom we depend.
Our management and operations are dependent upon the efforts of our
Chairman of the Board, President and Chief Executive Officer, Robert R. Ferguson
III, and a small number of management and operating personnel. We do not
maintain key-man life insurance on any executive officer. The loss of the
services of key members of management could have an adverse impact on our
business.
Our business is seasonal and cyclical.
Our financial results are sensitive to seasonal variations in traffic. The
highest levels of traffic and revenue are generally realized in the second
quarter and the lowest levels of traffic and revenue are generally realized in
the third quarter. Given our high proportion of fixed costs, such seasonality
affects our profitability from quarter to quarter.
Many of our areas of operations experience adverse weather in the winter,
causing a greater percentage of our flights to be canceled and/or delayed than
in other quarters. For example, the snowstorms in January 2000 closed our hub
at RDU for three and one-half days and effectively closed our route system for
another two days.
In addition, the airline industry is highly sensitive to general economic
conditions. Because a substantial portion of airline travel (both business and
leisure) is discretionary, the industry tends to experience adverse financial
results during general economic downturns. Any general reduction in airline
passenger traffic may materially and adversely affect our results of operations,
particularly since current industry traffic patterns are based in part on
substantial stimulation of discretionary air travel.
Many of our employees are represented by labor unions.
Our pilots, fleet service (ramp) agents and flight attendants are
represented by labor unions. The pilots' representative, Air Line Pilots
Association, was elected in December 1997. The fleet service employees'
representative, International Association of Machinists & Aerospace Workers,
AFL-CIO (IAM), was elected in June 1998. The flight attendants' representative,
the Association of Flight Attendants, AFL-CIO (AFA), was elected in December
1998. Prior to those dates, none of our employees were represented by a union.
Our pilots ratified a collective bargaining agreement with Midway that became
effective on April 1, 2000. With respect to the fleet service employees, a
contract proposal was tentatively agreed upon by the IAM and Midway, but the
agreement submitted to the employees for ratification on October 28, 1999 was
rejected. The IAM filed an application for mediation with the National Mediation
Board (NMB) on November 3, 1999. In February 2000, with the assistance of an
NMB-appointed mediator, we reached agreement with the IAM and members of the
fleet service agent negotiating committee on another tentative collective
bargaining agreement. The agreement was then submitted to the fleet service
agents for ratification. On March 20, 2000, we were informally advised that the
fleet service agents again voted not to approve the agreement. Further mediation
of this matter has commenced and additional meetings will be held. Negotiations
with the AFA are ongoing.
Although we believe mutually acceptable agreements can be reached with the
unions representing our fleet service agents and flight attendants, the ultimate
outcome of the negotiations is unknown at this time. Union representation of
any of our employees could result in employee compensation and working condition
demands that may increase our operating expenses and adversely affect our
profitability.
Our controlling stockholders may have interests that conflict with those of
the holders of the Certificates.
On June 26, 2000, we commenced a rights offering, giving our stockholders
the right to purchase, at a price of $5.20 per share, one share of our common
stock for each share they owned. In addition, we offered them the right to
purchase additional
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shares to the extent stockholders did not exercise their rights to purchase
stock. We undertook the rights offering to raise capital to allow us to reduce
to $10 million the commitment under our $30 million revolving credit facility
with Reedy Creek Investments, L.L.C., an entity that is wholly owned by our two
principal stockholders, James H. Goodnight, Ph.D. and John P. Sall. The
revolving credit agreement required us to reduce this commitment to $10 million
by September 30, 2000. The proceeds of the loans under the revolving credit
facility were used for working capital and capital expenditure requirements,
including the funding of pre-delivery deposits due to aircraft manufacturers.
On July 26, 2000, we completed the rights offering. We issued an additional
6,561,163 shares of our common stock, raising the number of issued and
outstanding shares of our common stock to 15,174,755. We raised approximately
$34 million in the rights offering before our expenses of approximately
$400,000.
As a result of the completion of the offering, James H. Goodnight, Ph.D.
and John P. Sall, who together beneficially owned approximately 47.4% of our
outstanding common stock prior to the rights offering, now own approximately
66.1% of our outstanding common stock. Although we are not aware of any
arrangement or understanding, contractual or otherwise, that obligates Dr.
Goodnight and Mr. Sall to act in concert with respect to us, such level of stock
ownership by Dr. Goodnight and Mr. Sall may allow them to elect all of their
designees to the Board of Directors and to control the outcome of virtually all
matters submitted for a vote of stockholders. In addition, they may have an
interest in pursuing acquisitions, divestitures or other transactions that, in
their judgment, could enhance their equity investment, even though such
transactions might involve risks to the holders of the Certificates.
In November 1999, Dr. Goodnight and Mr. Sall submitted to us a proposal to
merge us with a company owned by Dr. Goodnight and Mr. Sall. In the merger
proposal, all of the shares of our stock not owned by Dr. Goodnight and Mr. Sall
would have been exchanged for cash at $8.00 per share. A Special Committee
comprised of independent members of the Board of Directors was appointed to
review the proposal. The Special Committee and Dr. Goodnight and Mr. Sall were
unable to reach an agreement with respect to the value of our common stock, and
in December 1999 the merger proposal had been withdrawn by Dr. Goodnight and Mr.
Sall.
It should be noted that our stockholders are not restricted from disposing
any of their stock ownership in Midway.
Risk Factors Related to the Certificates and the Offering
The realizable value of Aircraft may be less than its appraised value.
The appraised value of each Aircraft is based upon the lesser of the
average and median value of such Aircraft as appraised by the Appraisers (the
"Appraisals"). The Appraisals are based on various assumptions and
methodologies, which vary among the Appraisers. The assumptions and
methodologies used in preparing each of the Appraisals are discussed in the
summaries of the Appraisers' reports with respect to the Appraisals included in
Appendix II hereto. Other appraisals that are prepared 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. Appraisals are estimates
of values as of future delivery dates. In addition, the value of the Aircraft in
the event of the exercise of remedies under the applicable Indenture will depend
on various factors, including:
. market and economic conditions at the time;
. the availability of similar aircraft;
. the availability of buyers;
. the condition of the Aircraft; and
. whether the Aircraft are sold separately or together.
Accordingly, there can be no assurance that the proceeds realized upon any such
exercise with respect to the Equipment Notes and the Aircraft pursuant to the
applicable Indenture would be as appraised or sufficient to satisfy in full
payments due on the Equipment Notes issued thereunder or the Certificates. See
"Description of the Aircraft and the Appraisals."
The Equipment Notes issued with respect to any Aircraft are not cross-
collateralized with respect to any other Aircraft. Therefore, upon an Indenture
Default, even if the Aircraft as a group could be sold for more than the total
amounts payable in
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respect of all of the outstanding Equipment Notes, if one Aircraft were sold for
less than the total amount payable in respect of the related Equipment Notes,
there would not be sufficient proceeds to pay all Classes of Certificates in
full.
Our failure to adequately maintain Aircraft may adversely affect its value.
We are responsible for the maintenance, service, repair and overhaul of the
Aircraft, but only to the extent described in the Leases or an Owned Aircraft
Indenture. Our failure (or the failure of any Sublessee or Permitted Lessee) to
adequately maintain, service, repair or overhaul an Aircraft may adversely
affect the value of such Aircraft and thus, upon a liquidation of the Aircraft,
may affect the proceeds available to repay the holders of the Equipment Notes
and, therefore, the Certificateholders. Under the Leases or any Owned Aircraft
Indenture, the applicable maintenance standards will vary depending upon the
jurisdiction in which an Aircraft is registered and whether an Aircraft is
leased or subleased.
Our failure to maintain adequate insurance on the Aircraft may adversely
affect amounts available to pay Certificateholders upon an Event of Loss.
We are responsible for the maintenance of public liability, property damage
and all-risk aircraft hull insurance on the Aircraft to the extent described in
the Leases or the Owned Aircraft Indentures. Our failure to adequately insure
the Aircraft, or the retention of self-insurance amounts (e.g., uninsured
deductibles), will affect the proceeds which could be obtained upon an Event of
Loss and, thus, may affect the proceeds available to repay the holders of the
Equipment Notes and, therefore, the Certificateholders.
With respect to required insurance, we may, in the case of public
liability, property damage and all-risk hull insurance, maintain insurance
having deductibles subject to certain maximum amounts. See "Description of the
Equipment Notes -- The Leases and Certain Provisions of the Owned Aircraft
Indentures -- Insurance."
It may be difficult, expensive and time-consuming for a Loan Trustee to
repossess an Aircraft upon default.
The Leases and the Owner Aircraft Indentures do not contain any general
geographic restriction on our (or any Sublessee's or Permitted Lessee's) ability
to operate the Aircraft. Although we have no current intention to do so, we are
permitted, upon compliance with the applicable Lease or an Owned Aircraft
Indenture, as the case may be, to register an Aircraft in foreign jurisdictions
and to sublease an Aircraft. While the Loan Trustees' rights and remedies in the
event of a default under the applicable Leases or an Owned Aircraft Indenture
include the right to repossess an Aircraft, it may be difficult, expensive and
time-consuming to obtain possession of an Aircraft, particularly when an
Aircraft located outside the United States has been registered in a foreign
jurisdiction or is subleased to a foreign operator. Any such exercise of the
right to repossess the Aircraft may be subject to the limitations and
requirements of applicable law, including the need to obtain consents or
approvals for deregistration or re-export of the Aircraft, which may be subject
to delays and to political risk. When a defaulting Sublessee or other permitted
transferee is the subject of a bankruptcy, insolvency or similar event, such as
protective administration, additional limitations may apply.
Furthermore, certain jurisdictions may accord higher priority to certain
other liens or third-party rights over the Aircraft. These factors could limit
the benefits of the security interest in an Aircraft.
As permitted under the Leases, at any time an Airframe subject to a Lease
might not be equipped with Engines subject to the same Lease and Engines subject
to a Lease might not be on an Airframe subject to that Lease. As a result,
notwithstanding our agreement in the Leases to transfer title to the Lessor of
engines not owned by the applicable Owner Trustee that are attached to
repossessed Aircraft, at the time of obtaining repossession it could be
difficult, expensive and time-consuming to assemble an Aircraft consisting of an
Airframe and the Engines subject to the same Lease.
The priority of distributions and subordination provisions of the
Intercreditor Agreement may affect the timing and amount of payments to
Certificateholders.
According to the intercreditor agreement among the Trusts, the Liquidity
Provider and the Subordination Agent (the "Intercreditor Agreement"), the
Liquidity Provider receives payment of all amounts owed to it before the holders
of any Class of Certificates receive any funds. In addition, in certain default
situations the Subordination Agent and the Trustees will receive certain
payments before the holders of any Class of Certificates. See "Description of
the Intercreditor Agreement--Priority of Distributions." Certain Classes of
Certificates are subordinated to other Classes in rights to distributions. See
"Description of the Intercreditor Agreement--Priority of Distributions."
Consequently, a payment default under any Equipment Note or a Triggering Event
may cause the distribution to more senior Classes of Certificates of payments
received from payment on one or more junior series of Equipment Notes. If this
should occur, the interest accruing on the remaining Equipment Notes would be
less than the interest accruing on the remaining Certificates. This is because
the remaining Certificates of the junior Classes accrue interest at a higher
rate than the remaining Equipment Notes, which include series applicable to the
senior Classes bearing interest at a lower
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rate. As a result of this possible interest shortfall, the holders of one or
more junior Classes of Certificates may not receive the full amount due to them
after a payment default under any Equipment Note even if all Equipment Notes are
eventually paid in full.
Upon an Indenture Default, the Controlling Party will have the right to
direct the activities of the Loan Trustee without regard to the effect such
actions will have on the junior classes of Certificates.
The holders of at least a majority of the outstanding principal amount of
Equipment Notes issued under each Indenture will be entitled to direct the Loan
Trustee under such Indenture in taking action as long as no Indenture Default
has occurred and is continuing thereunder. If an Indenture Default is
continuing, subject to certain conditions, the Controlling Party will direct the
Loan Trustees (including in exercising remedies, such as accelerating such
Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment
Notes). See "Description of the Certificates -- Indenture Defaults and Certain
Rights Upon an Indenture Default."
The "Controlling Party" will be:
. The Class A Trustee until payment of final distributions to holders of
Class A Certificates; and thereafter,
. The Class B Trustee until payment of final distributions to holders of
Class B Certificates; and thereafter,
. The Class C Trustee, and
. Under certain circumstances, the Liquidity Provider if the obligations owed
to it have not been paid in full. If there is more than one Liquidity
Provider, the Liquidity Provider which is owed the greatest amount of
obligations shall have such right.
During the continuation of any Indenture Default, the Controlling Party may
accelerate and sell the Equipment Notes issued under such Indenture, subject to
certain limitations. See "Description of the Intercreditor Agreement--
Intercreditor Rights--Sale of Equipment Notes or Aircraft." The market for
Equipment Notes during any Indenture Default may be very limited, and we cannot
assure you as to the price at which they could be sold. If the Controlling Party
sells any Equipment Notes for less than their outstanding principal amount,
certain holders of Certificates will receive a smaller amount of principal
distributions than anticipated and will not have any claim for the shortfall
against Midway, any Owner Trustee, any Owner Participant, any Trustee or any
Loan Trustee.
Ratings of the Certificates is not a recommendation to purchase, hold or
sell Certificates.
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated "Baa1" by Moody's Investors Service, Inc. ("Moody's") and
"A-" by Standard & Poor's Ratings Services, a Division of The McGraw-Hill
Companies Inc. ("Standard & Poor's") and together with Moody's, the "Rating
Agencies"), the Class B Certificates be rated "Ba1" by Moody's and "BBB-" by
Standard & Poor's, and the Class C Certificates be rated "Ba2" by Moody's and
"BB+" by Standard & Poor's. A rating is not a recommendation to purchase, hold
or sell Certificates, inasmuch as such rating does not address market price or
suitability for a particular investor. We cannot assure you that a rating will
remain unchanged 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 Midway, the Depositary
or the Liquidity Provider) so warrant. The rating of the Certificates is based
primarily on the default risk of the Equipment Notes and the Depositary, the
availability of the Liquidity Facilities for the holders of the Class A, Class B
and Class C Certificates, the collateral value provided by the Aircraft and the
subordination provisions applicable to the Certificates. The foregoing ratings
address the likelihood of timely payment of interest (at the nondefault rate)
when due on the Certificates and the ultimate payment of principal of the
Certificates by the Final Legal Distribution Date. Such ratings do not address
the possibility of a PTC Event of Default or an Indenture Default or other
circumstances (such as an Event of Loss) which could result in the payment of
the outstanding principal amount of the Certificates prior to the Final Expected
Distribution Date. Standard & Poor's has indicated that its rating applies to a
unit consisting of Certificates representing the Trust Property and Escrow
Receipts initially representing undivided interests in certain rights to
Deposits initially totaling $197,572,000. Amounts deposited under the Deposit
Agreements are not our property and are not entitled to the benefits of Section
1110 of the U.S. Bankruptcy Code. Neither the Certificates nor the Escrow
Receipts may be separately assigned or transferred.
The reduction, suspension or withdrawal of the ratings of the Certificates
will not, in and of itself, constitute an Event of Default.
The senior unsecured debt rating of Midway is currently subject to a
negative outlook by Standard & Poor's and any downgrading of such rating may
result in the downgrading of the ratings of one or more Classes of the
Certificates.
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The terms pursuant to which we lease Aircraft financed hereunder may differ
from the terms described herein.
The beneficial owners of some of the Leased Aircraft (each, an "Owner
Participant") have not yet been identified. In connection with the negotiation
of definitive documents for a Leased Aircraft the Owner Participant may request
revisions to the Participation Agreement, Lease, Trust Agreement and Indenture
applicable to the Owner Trust related to such Aircraft. As a result, the terms
of such documents applicable to such Aircraft may differ from the descriptions
of them contained in this offering memorandum. However, these documents must
still contain certain economic terms and document terms. See "Description of the
Certificates - Obligation to Purchase Equipment Notes. "
A portion of the Deposits may be repaid without premium.
Under certain circumstances, less than all of the Deposits held in escrow
may be used to purchase Equipment Notes by the Delivery Period Termination Date.
See "Description of the Deposit Agreements - Unused Deposits." If any funds
remain as Deposits with respect to any Trust after the Delivery Period
Termination Date, they will be withdrawn by the Escrow Agent for such Trust and
distributed, with accrued and unpaid interest, to the holders of Escrow Receipts
relating to the respective Trust after at least fifteen (15) days' prior written
notice. If unused Deposits distributed with respect to all of the Trusts exceeds
the Par Redemption Amount, such distribution will include a premium on any
unused Deposits in excess of the Par Redemption Amount, provided that, if any
Aircraft is not delivered by the manufacturer prior to the Delivery Period
Termination Date due to any reason not occasioned by our fault or negligence, no
such premium will be paid with respect to the unused Deposits to be distributed
as a result of such failure to deliver. See "Description of the Deposit
Agreements - Unused Deposits." If we acquire all the Aircraft and unused
Deposits remain, it is more likely that a distribution of such unused Deposits
will be made with respect to the Class C Certificates, which bear interest at a
higher rate than the Class A and the Class B Certificates.
We cannot assure you that an active trading market will develop for the
Certificates.
Prior to this offering, there has been no public market for the
Certificates and neither we nor any Trust intends to apply for listing of the
Certificates on any securities exchange or for quotation of the Certificates on
The Nasdaq Stock Market's National Market or otherwise. Accordingly, we cannot
assure you as to the liquidity of any markets that may develop for the
Certificates, the ability of the holders to sell their Certificates or at what
price holders of the Certificates will be able to sell their Certificates.
Future trading prices of the Certificates will depend on many factors including,
among other things, prevailing interest rates, our operating results and the
market for similar securities. The Placement Agents may assist in resales of the
Certificates, but they are not required to do so. A secondary market for the
Certificates may not develop. If a secondary market does develop, it might not
continue or it might not be sufficiently liquid to allow the resale of any
particular Certificates. In addition, such market-making activities may be
limited during the Exchange Offer and during the pendency of the Shelf
Registration Statement. If an active public market does not develop, the market
price and liquidity of the Certificates may be adversely affected. Each
purchaser of Certificates offered hereby in making its purchase will be deemed
to have made certain acknowledgements, representations and agreements. Transfers
of Certificates are subject to certain restrictions. See "Transfer
Restrictions."
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USE OF PROCEEDS
The proceeds from the sale of the Certificates of a Trust (collectively,
the "Certificates") being offered hereby will be used to purchase Equipment
Notes during the Delivery Period issued, at our election, either (1) by each
Owner Trustee to finance a portion of the purchase price of the Leased Aircraft
or (2) by us to finance a portion of the purchase price of the Owned Aircraft.
Prior to utilization of such proceeds to purchase Equipment Notes, such proceeds
from the sale of the Certificates of each Trustee will be deposited with the
Depositary on behalf of the applicable Escrow Agent for the benefit of the
Certificateholders of such Trust.
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000 (1)
on an actual basis and (2) on a pro forma basis to give effect to the completion
of our rights offering on July 26, 2000 and the application of the net proceeds
therefrom. It is anticipated that the eight Aircraft being financed hereby will
be leased, and will be treated for accounting purposes as operating leases and,
accordingly, will not affect our capitalization. However, should we purchase,
rather than lease, one or more of the Aircraft, our long-term debt and capital
lease obligations will increase by an amount equal to the amount borrowed, less
any current portion thereof. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources."
This table should be read in conjunction with our Financial Statements, the
notes thereto and the other financial data included elsewhere in this offering
memorandum or incorporated herein by reference.
<TABLE>
<CAPTION>
June 30, 2000 June 30, 2000
Actual Pro Forma
------ ---------
(in thousands)
<S> <C> <C>
Liabilities:
Related party line of credit, current portion $ 10,000 -
Current portion of long-term debt and capital lease obligations 6,534 $ 6,534
Related party line of credit, long term portion 10,000 -
Long-term debt and capital lease obligations 116,371 116,371
-------- --------
Total debt and capital lease obligations 142,905 122,905
Stockholder's equity:
Preferred Stock, $0.01 par value, 12 million shares authorized; none issued and outstanding - -
Common Stock, $0.01 par value, 25 million shares authorized; 8,613,592 shares issued and 86 152
outstanding actual; 15,174,755 shares issued and outstanding pro forma
Additional paid-in capital 54,372 88,024
Retained earnings ($51.1 million of accumulated deficit eliminated in the quasi-reorganization as 22,641 22,641
of June 30, 1997) -------- --------
Total stockholders' equity 77,099 110,817
-------- --------
Total capitalization $220,004 $233,722
======== ========
</TABLE>
21
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA AND GLOSSARY
The following table presents selected historical financial data for each of
the five years in the five-year period ended December 31, 1999 and the balance
sheet information as of December 31 of each such year, which have been derived
from our audited financial statements. The statements of income information for
the six months ended June 30, 1999 and 2000 and the balance sheet information as
of June 30, 1999 and 2000 have been derived from our unaudited financial
statements which, in the opinion of our management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position and results of operations for such periods.
Operating results for the six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the entire year. The
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and the accompanying notes included in our Annual Report on Form 10-K
for the year ended December 31, 1999 and Form 10-Q for the six-month period
ended June 30, 2000 included elsewhere or incorporated herein by reference. See
"Where You Can Find More Information."
<TABLE>
<CAPTION>
Six Months
ended
Year ended December 31, June 30,
---------------------------------------------------------- ----------------------
1995 1996(1) 1997(1) 1998(1) 1999 1999 2000
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Unaudited)
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues:
Passenger $118,568 $173,541 $179,000 $205,566 $213,018 $108,047 $130,683
Other 4,034 6,493 7,275 5,873 4,928 2,491 3,602
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating revenues 122,602 180,034 186,275 211,439 217,946 110,538 134,285
Operating expenses
Wages, salaries and related costs 19,874 24,619 25,757 31,822 38,875 18,545 25,204
Aircraft fuel 16,782 27,300 21,499 19,623 22,738 8,804 21,103
Aircraft and engine rentals 30,889 34,113 30,495 29,927 31,429 14,714 22,544
Commissions 9,382 13,728 13,978 15,071 14,229 7,296 7,552
Maintenance, materials and repairs 13,551 17,930 17,006 17,103 13,388 7,035 7,599
Other rentals and landing fees 11,924 12,711 9,812 9,646 10,098 4,930 6,800
Depreciation and amortization 2,056 1,346 1,999 6,162 7,938 3,572 4,734
Other operating expenses 43,769 54,603 49,862 53,541 59,773 29,279 38,100
Restructuring (2) 6,004 - - - - - -
Impairment of long-lived assets (3) - 16,941 - - - - -
Equipment retirement charges (4) - - - 2,413 2,765 2,008 9,163
Recapitalization (5) - - 750 - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 154,231 203,291 171,158 185,308 201,233 96,183 142,799
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) (31,269) (23,257) 15,117 26,131 16,713 14,355 (8,514)
Interest income (expense), net (413) (1,841) 114 (1,972) (1,621) (1,423) (1,260)
Other income (expense) (222) 834 - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total other income (expense) (635) (1,007) 114 (1,972) (1,621) (1,423) (1,260)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary gain (32,264) (24,264) 15,231 24,159 15,092 12,932 (9,774)
Income tax expense (benefit) - - 6,306 9,178 5,736 4,914 (3,714)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary gain (32,264) (24,264) 8,925 14,981 9,356 8,018 (6,060)
Extraordinary gain (6) - - 15,969 - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) (32,264) (24,264) 24,894 14,981 9,356 8,018 (6,060)
Preferred dividends (1,440) - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) available for common
stockholders $(33,704) $(24,264) $ 24,894 $ 14,981 $ 9,356 $ 8,018 $ (6,060)
========== ========== ========== ========== ========== ========== ==========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Six Months
ended
Year ended December 31, June 30,
--------------------------------------------------------- ---------------------
1995 1996(1) 1997(1) 1998(1) 1999 1999 2000
-------- -------- --------- --------- --------- --------- ---------
(Unaudited)
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Per share amounts (7)
Basic earnings (loss) per share:
Income (loss) before extraordinary gain $1.47 $1.75 $1.09 $0.93 ($0.70)
Extraordinary gain 2.64 - - - -
--------- --------- --------- --------- ---------
Net income (loss) $4.11 $1.75 $1.09 $0.93 ($0.70)
========= ========= ========= ========= =========
Weighted average shares used in computing
basic earnings (loss) per share 6,059,051 8,574,972 8,602,395 8,602,392 8,611,007
========= ========= ========= ========= =========
Diluted earnings (loss) per share:
Income (loss) before extraordinary gain $1.24 $1.54 $0.98 $0.83 ($0.70)
Extraordinary gain 2.22 - - - -
--------- --------- --------- --------- ---------
Net income (loss) $3.46 $1.54 $0.98 $0.83 ($0.70)
========= ========= ========= ========= =========
Weighted average shares used in computing
diluted earnings (loss) per share 7,193,794 9,731,527 9,507,175 9,607,747 8,611,007
========= ========= ========= ========= =========
Other Financial Data:
Cash flows provided by (used in)
Operating activities $ (805) $5,784 $10,283 $22,257 $21,979 $17,358 $ 5,338
Investing activities (6,876) (2,614) (25,219) (9,681) (51,345) (26,255) (26,174)
Financing activities 3,571 4,836 58,640 (18,349) 7,981 (3,029) 16,610
</TABLE>
<TABLE>
<CAPTION>
Six Months
ended
Year ended December 31, June 30,
---------------------------------------------------------- ---------------------
1995 1996(1) 1997 1998 1999 1999 2000
--------- --------- --------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Statistics: (8)
Available seat miles (000s) 1,387,921 1,758,560 1,387,864 1,544,945 1,565,781 751,125 982,007
Revenue passenger miles (000s) 692,681 998,959 875,752 1,008,567 1,031,583 490,299 682,869
Load factor 49.9% 56.8% 63.1% 65.3% 65.9% 65.3% 69.5%
Break-even load factor (9) 60.8% 59.2% 57.5% 56.8% 60.4% 56.2% 69.9%
Departures 24,403 29,192 26,898 35,990 46,751 21,268 30,883
Block hours 38,933 48,682 42,867 55,783 71,705 32,792 47,036
Passenger revenue per ASM (cents) 8.54 9.87 12.90 13.31 13.60 14.4 13.3
Yield (cents) 17.12 17.37 20.44 20.38 20.65 22.0 19.1
Average fare $89 $99 $108 $103 $103 $111 $95
Operating cost per available seat mile
(cents) (10) 10.68 10.60 12.28 11.84 12.68 (12.5) (13.6)
Onboard passengers 1,338,438 1,742,957 1,660,140 1,995,117 2,063,192 974,946 1,382,578
Average seats per departure 108 104 101 88 68 72 66
Average stage length (miles) 532 571 524 475 471 470 454
Aircraft (average during period) 11.0 13.7 13.0 18.1 22.8 21.2 30.4
Aircraft utilization (hours per day) 9.9 9.8 9.0 8.4 8.6 8.5 8.5
Fuel price per gallon (cents) (11) 69.0 80.6 73.4 57.3 61.7 40 80
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of June 30,
---------------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1999 2000
--------- --------- --------- --------- --------- --------- --------
(dollars in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash, cash equivalents, restricted cash and
short-term investments $ 2,799 $ 12,805 $ 58,071 $ 58,248 $ 38,564 $ 56,598 $ 39,828
Working capital (deficit) (41,117) (42,198) 20,826 32,880 4,414 20,187 (22,191)
Equipment and property, net 9,258 6,669 46,574 103,007 120,405 108,197 127,542
Equipment purchase deposits, net 7,749 1,846 17,133 18,103 61,824 29,895 92,916
Total assets 56,010 38,384 139,810 203,581 256,689 218,533 306,199
Long-term debt and capital lease
obligations (net of current maturities) 7,307 11,704 39,187 78,764 103,349 77,280 116,371
Stockholders' equity (deficiency) (18,385) (40,569) 48,486 70,463 83,136 78,481 77,099
</TABLE>
__________
(1) Midway reclassified certain balances to reflect classifications in
1997, 1998 and 1999 financial statements.
(2) Midway recorded restructuring charges in 1995 of $6.0 million related
to the return of four A320 aircraft and other related one-time charges.
(3) Midway recorded an impairment loss of $16.9 million from certain
long-lived assets, primarily intangible assets, that were determined by
Midway's management to be impaired in accordance with SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of."
(4) Midway recorded equipment retirement charges related to the return of
four Fokker and one Airbus aircraft to their lessors. See Note 2 of Notes
to Financial Statements incorporated herein by reference to Midway's Annual
Report on Form 10-K for the year ended December 31, 1999.
(5) Midway recorded a one-time charge of $0.75 million in 1997 related to
its recapitalization. See Note 12 of Notes to Financial Statements
incorporated herein by reference to Midway's Annual Report on Form 10-K for
the year ended December 31, 1999.
(6) Extraordinary gain consists of one-time gains recognized in connection
with Midway's recapitalization. See Note 12 of Notes to Financial
Statements incorporated herein by reference to Midway's Annual Report on
Form 10-K for the year ended December 31, 1999.
(7) Since Midway was recapitalized in February 1997 and all prior
capital stock was canceled at that time, per share amounts prior to 1997
are not meaningful and are thus not presented.
(8) The airline operating terms used in this table have the following
meanings:
Aircraft (average during period): The average number of aircraft operated
during the period.
Aircraft utilization: The average number of block hours operated in
scheduled service per day per aircraft for the total fleet of aircraft.
Available seat miles (ASMs): The number of seats available for scheduled
passengers multiplied by the number of miles those seats were flown.
Average fare: The average fare paid by a revenue passenger.
Average seats per departure: The average number of available seats per
departing aircraft.
Average stage length: The average number of miles flown per flight.
Block hour: The total time an aircraft is in motion from brake release at
the origination to brake application at the destination.
Break-even load factor: The load factor at which scheduled passenger
revenues would have been equal to operating plus non-operating
expenses/(income) (holding yield constant).
Cost per available seat mile (CASM): Operating expenses plus non-operating
expenses/(income) divided by ASMs.
Departure: A scheduled aircraft flight.
Fuel price per gallon: The average price per gallon of jet fuel for the
fleet (excluding into plane fees).
Load factor: RPMs divided by ASMs.
Onboard passengers: The number of revenue passengers carried.
Revenue passenger miles (RPMs): The number of miles flown by revenue
passengers.
Passenger revenue per available seat mile (PRASM): Passenger revenues
divided by ASMs.
Yield: The average scheduled passenger fare paid for each mile a scheduled
revenue passenger is carried.
(9) "Break-even load factor" as represented above excludes restructuring,
impairment of long-lived assets, equipment retirement charges and
recapitalization expenses divided by the product of available seat miles
and yield. Had restructuring, impairment of long-lived assets, equipment
retirement charges and recapitalization expenses been included for the
years ended December 31, 1995, 1996, 1997, 1998 and 1999 and the six months
ended June 30, 1999 and 2000 the break-even load factor would have been
63.3%, 64.6%, 57.8%, 57.6%, 61.2%, 57.5% and 74.7%, respectively.
(10) "Operating cost per available seat mile" as represented above equals
total operating costs less restructuring, impairment of long-lived assets,
equipment retirement charges and recapitalization expenses, divided by
available seat miles. Had restructuring, impairment of long-lived assets,
equipment retirement charges and recapitalization expenses been included
for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 and the
six months ended June 30, 1999 and 2000 cost per available seat mile would
have been 11.11 cents, 11.56 cents, 12.33 cents, 11.99 cents, 12.85
cents,12.80 cents and 14.54 cents, respectively.
(11) Excludes taxes and into-plane fees.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements, the notes thereto and the other financial data included elsewhere or
incorporated by reference in this offering memorandum.
Overview
We began commercial operations in November 1993, operating from our base at
Chicago's Midway Airport. Operations there were unprofitable, and following
American's announcement of its intention to reduce service from its hub at RDU,
we relocated our entire operations from Midway Airport to RDU in March 1995. We
entered into agreements with American to sublease certain of American's gates
and to participate in the AAdvantage(R) program. At the time of the move, our
management committed to expanding Midway's fleet through the addition of five
Airbus A320s and four F-100s, to a total of five A320s and 12 F100s. A
combination of factors, including inadequate capital resources, the increased
fleet capacity, the lack of marketing presence and unusually bad weather,
resulted in significant losses during 1995 and 1996. Following unsuccessful
efforts to renegotiate lease terms, one of our lessors required the return of
four A320s during the first four months of 1996. This reduced our fleet to a
level of 12 F100s and one A320, which level was maintained until late 1997 when
the first two CRJs were received. Initial operations with the CRJs began in
January 1998. We received 8 additional CRJs in 1998, 8 CRJs in 1999, and 7 CRJs
in 2000, and expect to receive no additional CRJs in 2000. We also received and
placed in service our first two 737s in January and February 2000, and expect to
receive four additional 737s in 2000, three of which will be partially financed
with the proceeds of this offering. In the fourth quarter of 1998, we also
removed from service two F100s, and we removed from service two additional F100s
in the first half of 1999 and the remaining A320 in June 1999, all on their
scheduled lease expiry dates. We intend to remove four additional F100s from
service in the first half of 2001.
In February 1997, we completed a recapitalization, resulting in a change in
ownership and management. The recapitalization resulted in reductions in annual
expenses, including a decrease in aircraft rental expense, a decrease in
facility rentals, a decrease in the cost of certain services and a reduction in
net interest expense. In addition to the recapitalization, but at approximately
the same time, we discontinued certain unprofitable flight operations. Since the
recapitalization, we experienced a significant improvement in operating
performance and financial condition through 1999. We believe that our improved
results through 1999 were attributable to the benefits realized from the
recapitalization, route restructuring, improved yield management, increased
passenger demand and a generally strong economic environment.
Our business plan is designed to result in premium yields by providing
local business travelers with frequent flight schedules, superior operational
performance and high quality customer service. Our growth strategy involves
increasing the frequency of flights to markets Midway currently serves and
increasing the number of markets served. To implement our strategy, we agreed to
acquire up to thirty new CRJs, with deliveries that began in December 1997. We
believe our efforts to identify favorable markets and provide premium non-stop
service will enable us to generate a high degree of loyalty among our passengers
and to attract a larger percentage of business travelers on our flights than
other carriers. We generally offer the same range of fares that our competitors
offer, with exceptions in particular markets where we discount certain
categories of fares more than our competition to stimulate the market or charge
a premium where passengers are willing to pay slightly higher fares because of
the convenience of our non-stop jet flights and its superior service. The vast
majority of our revenues are a function of the average fare paid by our
passengers and the number of such passengers.
Because of our premium service, focus on business travelers, small average
number of seats per departure and shorter average stage lengths, our cost per
available seat mile is higher than most major carriers. We recognize the
importance of a competitive cost structure and expect to lower unit costs
through growth and the restructuring of various functions. In addition to the
cost savings resulting from the recapitalization, we have recently entered into
new maintenance contracts, reduced dependence on third-party vendors for flight
reservation call handling, reduced credit card processing fees and reduced
certain insurance costs. We have also implemented an automated voice-response
flight information system.
Based on the current interest rate environment, we estimate that our
aircraft rental expenses will increase by approximately $22 million per year as
a result of the financing of the eight 737s contemplated hereby. See "Risk
Factors -- Factors Related to Midway and the Industry -- Leverage."
Although the introduction of regional jet aircraft has shortened average
stage length, it has resulted in additional cost benefits, including greater
economies of scale and more efficient utilization of facilities and personnel.
In addition, we expect that our unit costs will be further reduced with the
introduction of the 737s into our fleet. We believe that the 737s have
approximately the
25
<PAGE>
same cost per trip as the F100s they replace but, with approximately 30 more
seats per departure, they have 30% lower unit costs than the F100s.
Results of Operations
Fuel prices have continued to be up significantly from the six months ended
June 30, 1999. Fuel expense increased $12.3 million, or 139.7% during the six
months ended June 30, 2000. Results of operations for the six months ended June
30, 2000 were also impacted by snowstorms in January, which closed our hub at
RDU for three and one-half days and effectively closed our route system for
another two days. We exercised our option to terminate early four Fokker leases,
which resulted in a pre-tax charge of $9.2 million. For the six months ended
June 30, 2000 our net loss was $6.1 million. Revenue for the six months ended
June 30, 2000 was up 21.5% over the six months ended June 30, 1999 to $134.3
million.
The following chart shows the results of operations for the six months
ended June 30, 2000 and 1999 with and without the equipment retirement charges.
<TABLE>
<CAPTION>
With Equipment Retirement Without Equipment Retirement
Charges Charges
Six Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Dollars in millions except per share amounts
<S> <C> <C> <C> <C>
Operating income (loss)................... $(8.5) $14.4 $0.6 $16.3
Operating margin.......................... (6.3)% 13.0% 0.5% 14.8%
Net income (loss)......................... $(6.1) $8.0 $(0.4) $9.3
Diluted earnings (loss) per share......... $(0.70) $0.83 $(0.04) $0.96
</TABLE>
Unusual Items
Six Months ended June 30, 2000
. $9.2 million ($5.7 million net of taxes) equipment retirement charges
related to the exercise of an option to return four leased F100s prior to
the scheduled return at the end of their leases.
. $0.3 million ($0.2 million net of taxes) interest expense for the decrease
in carrying value of debt discount proportionate to the $1.5 million
decrease in principal related to the F100 lease termination option
agreement.
Six Months ended June 30, 1999
. $2.0 million ($1.2 million after taxes) equipment retirement charges
related to the retirement of three aircraft during the first six months of
1999.
26
<PAGE>
Selected Operating Data
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
--------------------------------------------------------------------
Favorable Favorable
(Unfavorable) (Unfavorable)
2000 1999 Variance Variance %
-------- ----------
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Available seat miles (000s)...................... 982,007 751,125 230,882 30.7%
Revenue passenger miles (000s)................... 682,869 490,299 192,570 39.3%
Load factor...................................... 69.5% 65.3% 4.2 pts 6.4%
Break-even load factor (1)....................... 69.9% 56.2% 13.7)pts (24.4%)
Departures....................................... 30,883 21,268 9,615 45.2%
Block Hours...................................... 47,036 32,792 14,244 43.4%
Total revenue per available seat mile (cents).... 13.3 14.4 (1.1) (7.5%)
Yield (cents).................................... 19.1 22.0 (2.9) (13.1%)
Average fare..................................... $95 $111 ($16) (14.7%)
Operating Cost per available seat mile (cents) (1) (13.6) (12.5) (1.1) (8.5%)
Total Cost per available seat mile (seat) (1).... (13.7) (12.7) (1.0) (7.9%)
Onboard passengers............................... 1,382,578 974,946 407,632 41.8%
Average seats per departure...................... 66 72 (6) (8.6%)
Average stage length (miles)..................... 454 470 (16) (3.3%)
Aircraft (average during period)................. 30.4 21.2 9.2 43.4%
Aircraft utilization (hours per day)............. 8.5 8.5 (0.0) (0.0%)
Fuel price per gallon (cents) (2)................ 80 40 (40) (100.0%)
</TABLE>
(1) Excludes equipment retirement charges.
(2) Excludes taxes and into-plane fees.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Capacity. In the six months ended June 30, 2000, we produced 982 million
ASMs, an increase of 231 million or 30.7% from the six months ended June 30,
1999. The increase in ASM production was attributable to 45.2% more departures
(to 30,883), offset somewhat by a 3.3% shorter average stage length (to 454
miles) and 8.6% fewer seats per departure (to 66 seats). These changes resulted
from the change in our fleet (see below). The ASM production was lower than what
it otherwise would have been due to the severe January weather.
As of August 31,
Aircraft 2000 1999
-------- ---- ----
F100s (98 seats) 8 8
CRJs (50 seats) 23 12
737s (128 seats) 2 --
---- ----
33 20
Operating Revenues. Our operating revenues increased 21.5% to $134.3
million for the six months ended June 30, 2000 from $110.5 million for the six
months ended June 30, 1999. The increase is attributable to a 41.8% increase in
the number of passengers boarded to 1.4 million from 1.0 million partially
offset by a 14.7% decrease in average fare to $95. Passenger revenue per ASM
decreased 7.5% to 13.3 cents per ASM due to a 13.1% decrease in passenger yield
(revenue per RPM) to 19.1 cents, partially offset by 4.2 percentage point
increase in load factor to 69.5%. Cargo revenue increased 29.6% to $1.2 million
for the six months ended June 30, 2000 from $0.9 million for the six months
ended June 30, 1999. The increase is due to a 37.9% increase in mail pounds
carried and a 23.7% increase in freight pounds carried during the six months
ended June 30, 2000. Other revenue increased 53.4% to $2.4 million for the six
months ended June 30, 2000 from $1.6 million for the six months ended June 30,
1999, due to a change in the revenue sharing arrangement with our commuter
affiliate and increases in administrative fee revenue and charters.
27
<PAGE>
Operating Expenses. Our operating expenses increased 48.5% to $142.8
million for the six months ended June 30, 2000 from $96.2 million for the six
months ended June 30, 1999. Total expenses increased due to overall increases in
the size, capacity, and passengers served in the six months ended June 30, 2000.
Total operating expense per ASM increased 13.6% to 14.54 cents from 12.80 cents.
Excluding the one-time equipment retirement charges in 2000 and 1999, operating
expense per ASM increased 8.6% to 13.61 cents from 12.53 cents. This increase is
attributable primarily to higher fuel prices, the winter storms, the increase in
the fleet size shown above, and the 8.6% decrease in seats per departure,
partially offset by savings in commissions.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------------
2000 1999
------------------------------- --------------------------------
Percent of Cost per ASM Percent of Cost per ASM
Total Expenses (Cents) Total Expenses (Cents)
---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Operating Expenses:
Wages, salaries and related costs...................... 17.5% 2.57 18.9% 2.46
Aircraft fuel.......................................... 14.6 2.15 9.0 1.17
Aircraft and engine rentals............................ 15.7 2.30 15.1 1.96
Commissions............................................ 5.2 0.77 7.5 0.97
Maintenance, materials and repairs..................... 5.3 0.77 7.2 0.94
Other rentals and landing fees......................... 4.7 0.69 5.1 0.66
Depreciation and amortization.......................... 3.3 0.48 3.7 0.47
Other operating expenses 26.4 3.88 30.0 3.90
---------- -------- ----------- ----------
Sub-total operating expenses before equipment
retirement charges.................................. 92.7 13.61 96.5 12.53
Equipment retirement charges........................... 6.4 0.93 2.1 0.27
---------- -------- ----------- ----------
Total operating expenses............................... 99.1 14.54 98.5 12.80
Other income (expenses)................................ 0.9 0.13 1.5 0.19
---------- -------- ----------- ----------
Total expenses......................................... 100.0% 14.67 100.0% 12.99
========== ======== =========== ==========
</TABLE>
Wages, salaries and related costs increased $6.7 million or 35.9% to $25.2
million for the six months ended June 30, 2000 from $18.5 million for the six
months ended June 30, 1999. The increase is attributable to increased staffing
associated with the addition of new aircraft and stations throughout the six
months, annual wage increases for all personnel and general hiring to fill
specific needs within Midway. For the six months ended June 30, 2000, there was
no expense recorded for discretionary bonuses versus $1.3 million in 1999.
Wages, salaries and related cost per ASM increased 0.11 cents or 4.5% to 2.57
cents. The increase in unit costs is attributable to the items noted above as
well as the changes noted in "Capacity".
Aircraft fuel expense increased 139.7% to $21.1 million for the six months
ended June 30, 2000 from $8.8 million for the six months ended June 30, 1999.
The increase was due to a 100% increase in the average liquid fuel price per
gallon to 80 cents from 40 cents and a 33.9% increase in gallons of fuel
consumed due to the increased number of flights. Aircraft fuel expense per ASM
increased 83.8% to 2.15 cents driven by the 79% increase in total fuel cost per
gallon (including taxes and into plane fees).
Aircraft and engine rental expense increased 53.2% to $22.5 million for the
six months ended June 30, 2000 from $14.7 million for the six months ended June
30, 1999. The increase in expense is attributable to the rent expense on
additional leased CRJs and 737s, partially offset by the return of two F100s and
the Airbus A320 in the first half of 1999, and the reduction in the use of
leased spare engines. Aircraft and engine rentals expense per ASM increased
17.3% to 2.30 cents from 1.96 cents. The increase in aircraft and engine rental
expense per ASM resulted primarily from the increase in the number of leased
aircraft in 2000 and the higher cost per ASM of the leased aircraft, partially
offset by the return of the two F100s and one A320 aircraft in the first half of
1999.
Commission expense increased 3.5% to $7.6 million for the six months ended
June 30, 2000 from $7.3 million for the six months ended June 30, 1999. This was
due to a 34.5% increase in agency-generated revenues, partially offset by a
reduction in average commission paid. Commission expense per ASM decreased 20.6%
to 0.77 cents from 0.97 cents, driven by the reduction in commission rate paid
and partially offset by an increase in travel agency revenues as a percent of
passenger revenue to 71.8%.
Maintenance, materials and repairs expense increased 8.0% to $7.6 million
for the six months ended June 30, 2000 from $7.0 million in the six months ended
June 30, 1999. The expense increase is largely attributable to the 43.4%
increase in block hours. Maintenance, materials and repairs expense per ASM
decreased 18.1% to 0.77 cents from 0.94 cents.
Other rentals and landing fees expense increased 37.9% to $6.8 million for
the six months ended June 30, 2000 from $4.9 million for the six months ended
June 30, 1999 primarily due to the 45.2% increase in departures. Other rentals
and landing fees
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expense per ASM increased 4.5% to 0.69 cents from 0.66 cents, due to the use of
more space and thus higher rental costs at certain facilities (mainly at RDU)
and increased slot costs.
Depreciation and amortization expense increased 32.5% to $4.7 million for
the six months ended June 30, 2000 from $3.6 million for the six months ended
June 30, 1999. Depreciation and amortization expense per ASM increased 2.1% to
0.48 cents from 0.47 cents in the six months ended June 30, 1999. During the six
months ended June 30, 2000 we increased our investment in fixed assets including
capitalized interest for the 737-700 fleet, purchases primarily for the 737-700
and CRJ fleet, and ground service equipment.
Other operating expense increased 30.1% to $38.1 million for the six months
ended June 30, 2000 from $29.3 million for the six months ended June 30, 1999.
Other operating expenses consist primarily of reservations, ground handling,
advertising, general and administrative expense, training and insurance. The
increase in expense is attributable to the 45.2% increase in departures and to
the 41.8% increase in passengers. Other operating expense per ASM decreased 0.5%
to 3.88 cents from 3.90 cents in 1999.
Interest income decreased 40.6% to $0.8 million for six months ending June
30, 2000 due to lower average cash balances due to pre-delivery deposits for the
CRJ and 737 fleets. Interest expense decreased 25.6% to $2.1 million due to the
offset of interest expense by the capitalized interest on aircraft purchase
deposits. Net interest expense per ASM for the six months ending June 30, 2000
was 0.13 cents compared to net interest expense per ASM of 0.19 cents in the
comparable prior period.
Seasonality
As is common in our industry, we experience seasonal factors during certain
periods of the year that have combined in the past to reduce our traffic,
profitability and cash generation in certain periods as compared to the
remainder of the year. The highest levels of traffic and revenue are generally
realized in the second quarter and the lowest levels of traffic and revenue are
generally realized in the third quarter. Given our high proportion of fixed
costs, this seasonality affects our profitability from quarter to quarter. In
addition, many of our areas of operations experience adverse weather during the
winter, causing a greater percentage of our flights to be canceled and/or
delayed than in other quarters.
During January 2000, the snowstorms that closed our hub at RDU for three
and one-half days and effectively closed our route system for another two days,
had a significant adverse impact on our first half 2000 results.
Liquidity and Capital Resources
Liquidity
Our working capital decreased during the six months ended June 30, 2000
compared to the year ended December 31, 1999. As of June 30, 2000, we had cash,
restricted cash, and short-term investments of $39.8 million and a working
capital deficit of $22.2 million compared to cash, restricted cash, and
short-term investments of $38.6 million and working capital of $4.4 million as
of December 31, 1999. During the six months ended June 30, 2000, cash,
restricted cash, and short-term investments increased $1.3 million, reflecting
net cash provided by operating activities of $11.4 million (excluding changes in
restricted cash), net cash used in investing activities of $26.7 million
(excluding purchases and sales of short-term investments), and net cash provided
by financing activities of $16.6 million. During the six months ended June 30,
2000, net cash provided by operating activities was primarily due to increases
in accrued liabilities, advance ticket sales, depreciation and amortization
offset by the net loss and increases in receivables; net cash used in investing
activities was due to purchases of equipment and property and equipment purchase
deposits; and net cash provided by financing activities was due to proceeds from
issuance of revolving debt.
Capital Resources
Our aircraft purchase obligations amount to approximately $593 million as
of June 30, 2000. Our remaining pre-delivery deposit obligations amount to
approximately $7.2 million. Our anticipated near-term, non-aircraft capital
expenditures amount to approximately $15.0 million. Together, these obligations
exceed our internal capital resources and accordingly, we will be required to
obtain capital from external sources. A substantial portion of the required
external capital has been committed to us by the aircraft and engine
manufacturers, subject to satisfaction of certain conditions. Additionally, we
raised approximately $34.1 million before expenses as a result of our issuance
of 6,561,163 new shares of common stock pursuant to a rights offering which
expired on July 26, 2000. Approximately $5.0 million of the proceeds of the
offering were used to repay amounts outstanding under a $30 million revolving
credit facility provided by an entity owned by two stockholders, James H.
Goodnight, Ph.D. and John P. Sall. As a result of the completion of the rights
offering, the commitment under this facility reduced to $10 million, all of
which is available. On August 11, 2000 we closed a financing with a syndicate of
banks who have agreed to provide us with up to $37.5 million, in the aggregate,
to either make advances to us for cash pre-delivery deposits previously made
pursuant to our purchase agreement with The Boeing Company or to make
pre-delivery deposits that become due under such agreement. In
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connection with such financing, we also obtained subordinated debt financing in
the amount of approximately $37.9 million. As of August 31, 2000, outstanding
balances under these facilities totaled $54.2 million. We continue to pursue
external financing for aircraft purchase obligations and anticipated capital
expenditures.
Capital Expenditures
Our cash outflows for capital expenditures in the six months ended June 30,
2000 and 1999 were $10.0 million and $7.2 million, respectively, excluding
financed purchases. Debt financed purchases in the six months ended June 30,
2000 and 1999 were $2.1 million and $0, respectively. We paid $16.9 million and
$14.8 million in aircraft pre-delivery deposits in the six months ended June 30,
2000 and 1999, respectively. During the second quarter of 2000, $8.2 million for
pre-delivery deposits for aircraft purchases was paid directly by the lender to
the aircraft manufacturer.
As of August 31, 2000, we have in place firm orders to purchase three
additional newly manufactured CRJs, all of which are scheduled to be delivered
by December 2001. We also have options to acquire up to fourteen additional
CRJs. We expect to arrange a combination of third-party debt and leveraged lease
financing. For each aircraft that is purchased (as opposed to leased), we
anticipate an initial cash outlay of approximately $4 million.
We have placed firm orders to purchase fifteen 737s, and have leased two
additional 737s. Deliveries of the two leased 737s occurred in December 1999 and
January 2000, and delivery for the other fifteen 737s is scheduled to begin in
September 2000 and end in October 2002. We have options to acquire ten
additional 737s. We expect to arrange a combination of third party debt and
leveraged lease financing, but will use available standby lease financing in the
event that we are unable to arrange more attractive financing from third party
sources. We also intend to lease five additional newly manufactured 737s
scheduled to be delivered in November 2000, and January, July, October and
November 2001. We intend to purchase up to four CFM 56-7B spare engines to
support the operation of our 737s.
Other Financing
We have significant lease obligations for aircraft that are classified as
operating leases and therefore are not reflected as liabilities on our balance
sheet. The remaining terms of such leases range from less than one year to
approximately seventeen years. Our total rent expense for the six months ended
June 30, 2000 and 1999 under all non-cancelable aircraft operating leases was
approximately $22.5 million and $14.0 million, respectively.
Contingencies
As of June 30, 2000, the outstanding balance under the $30 million credit
facility described above was $20 million, of which $10 million is classified as
related party line of credit, current portion in the balance sheet as of June
30, 2000. The credit facility carries a variable interest rate based on LIBOR
plus 3% per annum payable monthly, and a commitment fee of 0.5% on the average
daily unused balance payable quarterly. Pursuant to the terms of this credit
facility, we were obligated to undertake a rights offering of common stock.
Amounts borrowed and outstanding under this credit facility in excess of $10
million, if any, was required to be repaid and the remaining available loan
commitment reduced to $10 million on the earlier of September 30, 2000 or the
date on which we complete the rights offering. The rights offering was completed
on July 26, 2000. As of August 31, 2000, the outstanding balance under this
credit facility is $0. The outstanding balance of all loans made under this
credit facility is due and payable on March 31, 2002.
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BUSINESS
We were incorporated under the laws of the State of Delaware in 1983 as Jet
Express Inc. and renamed Midway Airlines Corporation in November 1993 in
connection with our commencement of jet operations. We are an all jet aircraft
operator serving 23 destinations in 13 states and the District of Columbia from
our hub at Raleigh-Durham International Airport ("RDU") in North Carolina, where
we currently carry more passengers and operate more flights than any other
airline. We organize our business to attract and retain business travelers by
providing frequent non-stop service from RDU to major business destinations,
maintaining a high level of service and offering American Airlines Inc.
("American") AAdvantage(R) frequent flyer miles.
As of August 31, 2000, we operate one of the youngest all jet fleets in the
United States with eight 98-seat F100s, 23 50-seat CRJs and two 128-seat 737s.
We have firm orders for three additional CRJs to be delivered by December 2001
and fifteen 737s to be delivered by October 2002. In addition, we intend to
lease five additional 737s under five-year operating leases. These aircraft will
be delivered one in November 2000, and one in each of January, July, October and
November 2001. The additional aircraft will be utilized to replace some or all
of the F100s, to serve existing Midway destinations with greater frequency, and
to enter new routes, providing our customers with more non-stop jet
destinations. We have options to acquire 10 additional 737s and 14 additional
CRJs. On February 29, 2000, we exercised our option to terminate four F100
leases prior to their scheduled termination dates. We will return these four
aircraft in the first half of 2001 at a pre-tax cost of $2.1 million per
aircraft.
RDU has been our base of operations since March 1995, when we relocated
from Chicago following American's reduction in service in the Raleigh-Durham
market. RDU offers modern facilities with room for us to grow. We lease 19 of
the 26 gates at one of RDU's two terminals, Terminal C. The remaining seven
gates in Terminal C are used or controlled by American. Substantially all of the
gates at RDU's other terminal are now occupied, but a planned expansion of that
facility will add five new gates in the spring of 2001 and up to 15 new gates by
the end of 2006.
We supplement our service pattern and support our hub at RDU with feeder
service provided through a code share agreement with Corporate Flight
Management, Inc. d/b/a Corporate Airlines ("Corporate Airlines"). Corporate
Airlines began providing code share services using our code in May 1997, and now
provides these services to seven cities using turboprop aircraft. Our agreement
with Corporate Airlines is scheduled to run through March 2005 and covers eight
aircraft.
We maintain a significant relationship with American. Part of this
relationship includes contractual arrangements with American that allow us to
offer AAdvantage(R) miles to, and accept AAirpass(R) tickets, American first
class upgrades and AAdvantage(R) reward travel from, our passengers. We also
contract with American for other services, including yield management and ground
handling.
Operating Strategy
The principal elements of our operating strategy are:
. Attract High-yielding Local Business Travelers. Based on 1999 data, our
yields were higher than the yields of many major carriers. To attract
high-yielding passengers, we have designed our operations to serve the
needs of business travelers flying to and from Raleigh-Durham. We have
developed relationships with major corporations located in the
Raleigh-Durham area, and offer these business travelers frequent non-stop
jet service, as well as an attractive, high quality in-flight product and
AAdvantage(R) frequent flyer miles.
. Maintain High Quality Operations. Because our business customers require
consistent, dependable performance, we are committed to meeting the highest
operational standards. We believe our completion factor and on-time
performance levels are higher than those of the major carriers. We achieved
these performance measures by (1) operating one of the youngest all jet
fleets in the United States, with an average age of 2.4 years as of August
31, 2000, (2) maintaining spare aircraft to ensure a high completion
factor, and (3) using high quality maintenance providers such as affiliates
of Bombardier Inc. and Rolls-Royce plc.
. Provide Quality Customer Service. We seek to generate a high degree of
loyalty and customer preference by providing high quality in-flight
amenities and customer service. We emphasize customer service from
reservation to destination and offer tangible amenities such as greater leg
room, leather seating, hot towel and mint service, gourmet coffee, quality
snacks, and a quiet, modern all-jet fleet.
. Continue to Reduce Operating Costs. Because of our focus on business
travelers and premium service, our small average number of seats per
departure and our relatively short average stage length, we operate with a
cost per available seat mile that is higher than most major carriers. We
are committed to maintaining a competitive cost structure and continuously
seek cost
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reduction opportunities. In addition to the cost savings resulting from the
Recapitalization, we have entered into new maintenance contracts, reduced
dependence on third-party vendors for reservation call handling, reduced
the cost of credit card processing, reduced certain insurance costs,
lowered our average commission expenses, and implemented an automated
voice-response flight information system. We expect that our unit costs
will be reduced further with the introduction of the 737s into our fleet.
We believe that the 737s have approximately the same cost per trip as the
F100s they replace, but, with approximately 30 more seats per departure,
they have 30% lower unit costs than the F100s.
Growth Strategy
We continue to believe that RDU remains relatively under-served with
respect to non-stop flights. We also believe that our RDU hub can serve as a
convenient connecting point for East Coast leisure and some business travelers.
To address these needs and to better serve our core business customers, since
December 1997, we have placed in service a net of 18 additional aircraft.
Currently, we have firm orders to purchase 15 additional 737s and 3 additional
CRJs and we intend to lease 5 additional 737s.
The principal elements of our growth strategy are:
. Increase Frequencies to Current Markets. Our market share and route
profitability are greatest on routes where we offer the same or higher
frequency and better timing of flights compared to our competitors. Our
core customers are business travelers who generally pay higher fares and
select an airline primarily based on convenience of schedule. Introduction
of the CRJs and 737s has enabled us to increase frequency and offer more
convenient scheduling to current markets, while selectively increasing
capacity in markets. With the delivery of the CRJs and 737s, we have
increased our scheduled flights from typically three flights per day per
market to typically five flights per day per market.
. Increase Number of Markets Served. We have identified a number of
additional new market opportunities that we believe can support non-stop
service from Raleigh-Durham. In addition, we believe that existing demand
on a number of routes currently served with 19-seat turboprop aircraft by
our code sharing commuter partner, Corporate Airlines, can support 50-seat
CRJ service. We believe that some customers have a strong preference for
jet service, and will pay a premium or choose a connecting flight to avoid
flying on turboprop aircraft. We have introduced CRJ jet service in several
of these markets. Since the introduction of CRJs in late 1997, jet service
has been initiated from RDU to Buffalo, New York; Charleston, South
Carolina; Columbus, Ohio; Indianapolis, Indiana; Jacksonville, Florida;
Louisville, Kentucky; Myrtle Beach, South Carolina; New Orleans, Louisiana;
Norfolk, Virginia; Rochester, New York; and Wilmington, North Carolina. We
recently announced our plans to commence new services to San Jose,
California in November 2000 and to Steamboat Springs, Colorado in December
2000. In some markets, the jet service supplements turboprop service.
. Maximize Connecting Opportunities. Our growth at our RDU hub has resulted
in, and will continue to result in, the addition of new markets and an
increase of frequencies in current markets. As the hub expands and our
average seats per departure grows, we believe we can attract a larger share
of passengers connecting over RDU.
Opening new markets requires the commitment of a substantial amount of
resources, both before the new services commence and throughout the early phases
of the new operation. We cannot assure you that we will be able to identify and
successfully establish new markets.
Raleigh-Durham Market
We believe that we are well positioned to benefit from the rapidly
expanding Raleigh-Durham area. Raleigh-Durham's metropolitan population is
approximately 1.4 million.
We currently carry more passengers and operate more flights at RDU than any
other airline. Air travel at RDU has grown by an average of 11% per year from
1995 to 1999, compared to 5% for the United States as a whole. We believe that
the area's growing business community offers opportunities for us to expand at
RDU with regional jets and the larger 737s. Our growth has focused and will
likely continue to focus on adding flights to and from our Raleigh-Durham base
of operations. Because all of our current flights have Raleigh-Durham as the
origin or destination, we remain highly dependent upon the Raleigh-Durham
market. Thus, a reduction in our share of the Raleigh-Durham market, reduced
fares, or reduced passenger traffic to or from Raleigh-Durham could have a
material adverse effect on our financial condition and results of operations. In
addition, our dependence on a single hub and on a route network operating
largely on the East Coast makes us more susceptible to adverse weather
conditions along the East Coast than some of our competitors that may be better
able to spread weather-related risks over larger route systems.
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Services
Routes and Schedule
Midway currently provides non-stop service from RDU to the following 23
cities: Atlanta, Georgia; Boston, Massachusetts; Buffalo, New York; Charleston,
South Carolina; Columbus, Ohio; Ft. Lauderdale, Florida; Hartford, Connecticut;
Indianapolis, Indiana; Jacksonville, Florida; Louisville, Kentucky; Myrtle
Beach, South Carolina; Newark, New Jersey; New Orleans, Louisiana; New
York/LaGuardia, New York; Orlando, Florida; Norfolk, Virginia; Philadelphia,
Pennsylvania; Rochester, New York; Stewart/Newburgh, New York; Tampa, Florida;
Washington, D.C.; West Palm Beach, Florida; and Wilmington, North Carolina. We
believe that business travelers select an airline primarily based on convenience
of schedule, with a strong preference for frequent, non-stop service. We believe
that three flights per day is the minimum service pattern necessary to
successfully serve our core business customers, and therefore we currently offer
between three and six flights per business day in most of our jet markets. The
introduction of the CRJs has allowed us to increase frequency in several markets
without necessarily increasing overall capacity in these markets. The
introduction of the 737s has allowed us to increase frequency and capacity in
several markets at peak times of travel, maximizing our revenue at times of high
demand.
Midway's commuter partner, Corporate Airlines, provides non-stop turboprop
aircraft service to the following seven cities from RDU: Charleston, Columbia,
Greenville-Spartanburg, and Myrtle Beach, South Carolina; New Bern and
Wilmington, North Carolina; and Norfolk, Virginia.
High Quality Customer Service
We have consistently promoted, and been recognized by our customers for
quality customer service that distinguishes us from other airlines. We believe
we have attained our superior level of customer service through the efforts of
our professional and personable employees and the provision of amenities such as
greater leg room, leather seating, gourmet coffee, quality snacks, and a quiet,
modern all jet fleet. Although we are not required by regulation to report
on-time statistics and baggage delivery performance, we consistently rank high
relative to the nation's ten largest airlines that do report these statistics to
the DOT. For example, for the 12 months ended December 31, 1999, using DOT
statistics and statistics compiled from our own reports, our on-time performance
and baggage delivery performance ranked among the best in the industry.
Maintenance and Support
We are dedicated to providing the highest level of maintenance quality and
reliability. Our emphasis on high quality maintenance is evidenced by our
experienced maintenance management, extensive and recurrent mechanic training
and selection of high quality maintenance providers. We perform all low level
checks and non-routine maintenance at RDU or at a maintenance facility in
Orlando, Florida. Major inspections and overhauls of the airframes and engines
are conducted by contract vendors whose work and procedures are closely
monitored by our maintenance management personnel. The principal contract
vendors currently engaged by us to perform major inspections of the airframe and
to perform engine overhauls include affiliates of Bombardier Inc. and
Rolls-Royce plc.
Eight of our current 33 aircraft are F100s. Fokker Aircraft B.V., a Dutch
corporation, has ceased operations. As a result, the F100 is no longer being
manufactured. Further, our cost to maintain F100s generally exceeds the cost of
similar aircraft that are presently in production. Vendors and suppliers of key
parts are generally fewer in number and their products more expensive, and
engineering is not as readily available.
Sales and Marketing
Pricing and Yield Management
Our strategy is designed to result in premium yields. We believe our
efforts to identify favorable markets and provide premium non-stop service
enables us to generate a high degree of loyalty among our passengers and to
attract a large percentage of business travelers on our flights. Pursuant to an
agreement, American provides yield management services to us. The services have
enabled us to significantly enhance our ability to maximize revenues. Our
contract for the services currently extends through August 2001, at which time
we intend to begin performing these services internally, using software
developed and maintained by Sabre, Inc.
Distribution
We sell approximately 72% of our tickets through travel agents. Travel
agents receive commissions from airlines based on the price of the tickets they
sell. In 1995, many airlines began limiting or capping the amount of commissions
they would pay to
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agents for certain higher priced tickets. In October 1999, several major
carriers lowered their base commission rate from 8% to 5%. We announced on
February 25, 2000 that we would restructure our travel agency commission rate to
a 5% base with no cap.
We pay additional commissions, referred to as "overrides", to some travel
agents in connection with special revenue programs. We believe these override
programs result in incremental revenue to us. Special distribution services
offered by us include our full-time staffing of the "Carolina Desk" within our
sales department to answer travel agent questions or otherwise attend to the
needs of these and other important customers. We believe that the combination of
higher available commissions, the development of relationships between travel
agents and our senior management, and the devotion of resources to meet the
needs of these agencies has resulted in strong support of us by travel agencies.
Corporate Relationships
We believe that we receive a substantial share of travel from the local
Raleigh-Durham business community on the routes that we serve. We believe that
this success is in part a result of our significant efforts to meet the demands
of our core business customers, our established relationships with many local,
national and international corporations in the Raleigh-Durham area, and the
support we receive as the "hometown" airline. Discounts are offered to a limited
number of corporations in exchange for a premium share of their travel.
Employees of some of these corporations may also be offered discounts for
leisure weekend travel on flights that would otherwise operate with empty seats.
This program, called "Midway Weekend Madness", has helped build loyalty in the
Raleigh-Durham market. Our sales agents visit customers on a regular basis to
solicit their input and to answer questions. Each sales manager is supported by
a help desk staffed full time by employees trained to meet these customers'
needs.
American Relationship
We maintain a significant relationship with American. Part of this
relationship includes contractual arrangements with American that allow us to
participate in the AAdvantage(R) frequent flyer program and accept AAirpass(R)
tickets and American first class upgrades from its passengers. We lease from
American the RDU facility and purchases a number of important services,
including yield management and ground handling.
American may terminate our participation in the AAdvantage(R) program under
several circumstances, including (1) our commencement of a new frequent flyer
program or our participation in another frequent flyer program, (2) any person
or group becoming the owner of 20% or more of our outstanding voting securities
or any "Disqualified Investor" becoming the owner of 10% or more of our
outstanding voting securities, (3) the making of a significant acquisition by us
or (4) our entering into any marketing-oriented collaborative agreement with
another airline which American reasonably believes would likely materially
adversely affect American's interests or objectives under any of its or its
affiliates' agreements with us. A "Disqualified Investor" is defined as (1) any
other airline or airline-related services company, (2) any person or entity
offering a frequent traveler program or (3) any person or entity that American
believes would likely, by virtue of its affiliation with us, materially
adversely affect American's interests or objectives under any of its or its
affiliates' agreements with us. In addition, American may terminate our lease of
the RDU facility and one other service agreement that we have with American if
any person or group acquires 30% or more of our voting securities. Finally, if
we pay any dividends or make any other cash or asset distribution to our
stockholders without American's consent at any time prior to our payment in full
of a certain promissory note to American, then American may terminate the RDU
facility lease, our right to offer AAdvantage(R) frequent flyer benefits, our
license of the yield management system and one other service agreement.
Frequent Flyer Program
We have been a partner in American's AAdvantage(R) frequent flyer program
since March 1995. Upon our arrival at RDU, our participation in this program
quickly facilitated our access to a large and loyal group of AAdvantage(R)
members in the Raleigh-Durham area and along the East Coast. For payment of a
per-mile fee, we are able to offer our passengers the ability to obtain award
mileage on most current flights (other than those to and from Columbus, Ohio;
Indianapolis, Indiana; and Louisville, Kentucky). AAdvantage(R) award
certificates can be redeemed for travel on us, American or other AAdvantage(R)
partners. Our contract with American extends through April 30, 2001, and gives
us the ability to offer AAdvantage(R) miles on several additional routes, though
we may add new routes without having the ability to offer AAdvantage(R) miles.
The ability to offer AAdvantage(R) miles on additional routes and the extension
of the term of the agreement are the subject of ongoing discussions between us
and American. We believe our participation in the AAdvantage(R) program gives us
access to a flexible and extremely powerful marketing tool. However, due to the
potential limitations of the agreement (including the number of additional
markets and the term of the agreement), we may in the future choose or be
obligated to develop our own frequent flyer program or participate in an
alternate program.
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Marketing
We market our services through listings in global distribution systems and
the Official Airline Guide; through advertising and promotions in newspapers,
magazines, billboards and radio; and through direct contact with travel
agencies, corporate travel departments, wholesalers and consolidators. We
maintain a nationwide toll-free telephone number for use by passengers to make
reservations and purchase tickets and have sales representatives assigned to all
regions where we operate.
Employees and Labor Relations
As of August 31, 2000, we had the number of full time equivalent employees
in the categories listed below:
Flight Operations 419
Inflight 240
Passenger Services 589
Maintenance 90
Reservations & Marketing 207
Accounting & Finance 32
Administrative 86
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Total 1,663
=========
The Railway Labor Act ("RLA") governs the labor relations of employers and
employees engaged in the airline industry. Comprehensive provisions are set
forth in the RLA establishing the right of airline employees to organize and
bargain collectively along craft or class lines and imposing a duty upon air
carriers and their employees to exert every reasonable effort to make and
maintain collective bargaining agreements. The RLA contains detailed procedures
that must be exhausted before a lawful work stoppage can occur.
Our pilots, fleet service (ramp) agents, and flight attendants are
represented by labor unions. The pilots' representative, the Air Line Pilots
Association ("ALPA "), was elected in December 1997, the ramp employees'
representative, International Association of Machinists and Aerospace Workers,
AFL-CIO ("IAM"), was elected in June 1998, and the flight attendants'
representative, the Association of Flight Attendants, AFL-CIO ("AFA") was
elected in December 1998. Prior to those dates, none of our employees was
represented by a union. Our pilots ratified a collective bargaining agreement
with us that became effective on April 1, 2000. With respect to the fleet
service employees, we agreed upon a contract proposal with the IAM, and
submitted the agreement to the employees for ratification on October 28, 1999,
who rejected it. The IAM filed an application for mediation with the National
Mediation Board ("NMB") on November 3, 1999, and the NMB appointed a mediator on
November 8, 1999. In February 2000, with the assistance of an NMB-appointed
mediator, we reached agreement with the IAM and members of the fleet service
agent negotiating committee on a collective bargaining agreement. The agreement
was then submitted to the fleet service agents for ratification. On March 20,
2000, we were informally advised that the fleet service agents voted not to
approve the agreement. Further mediation of this matter has commenced and
additional meetings will be held in September 2000. Negotiations with the AFA
have not yet concluded.
We believe our management and employees have a good relationship. Members
of our management, including our President and Chief Executive Officer, meet
with pilots, flight attendants, customer service agents, and other employees on
a periodic basis to discuss our objectives as well as more specific
labor-related issues such as scheduling, compensation, and work rules.
Management believes it has addressed concerns in a timely and responsive manner.
Government Regulation
General
We are subject to the jurisdiction of and regulation by the DOT, the FAA
and certain other governmental agencies. The DOT principally regulates economic
issues affecting air service such as air carrier certification and fitness,
insurance, authorization of proposed scheduled and charter operations, consumer
protection and competitive practices. In 1993, we were granted a Certificate of
Public Convenience and Necessity pursuant to Section 401 of the Federal Aviation
Act authorizing us to engage in air
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transportation. The DOT has authority to investigate and institute proceedings
to enforce its economic regulations and may in certain circumstances assess
civil penalties, revoke operating authority and seek criminal sanctions.
The FAA primarily regulates flight operations, in particular matters
affecting air safety, such as airworthiness requirements for aircraft, and pilot
and flight attendant certification. The FAA requires each carrier to obtain an
operating certificate and operations specifications authorizing the carrier to
operate at specific airports using specified equipment. All of our aircraft must
have and maintain certificates of airworthiness issued by the FAA. We hold an
FAA air carrier operating certificate under Part 121 of the Federal Aviation
Regulations. The FAA has the authority to modify, suspend temporarily or revoke
permanently our authority or that of our licensed personnel, after notice and a
hearing, for failure to comply with regulations promulgated by the FAA, and to
assess civil penalties for such failures.
The FAA also has authority to issue maintenance directives and other
mandatory orders relating to, among other things, inspection of aircraft and
engines, fire retardant and smoke detection devices, increased security
precautions, collision and windshear avoidance systems, noise abatement and the
mandatory removal and replacement of aircraft parts that have failed or may fail
in the future.
We are regulated by the Environmental Protection Agency and state and local
agencies with respect to the protection of the environment and to the discharge
of materials into the environment. At our aircraft line maintenance facilities,
we use materials that are regulated as hazardous substances under federal and
state law. We maintain programs to protect the safety of our employees who use
these materials and to manage and dispose of any waste generated by the use of
these materials, and believe that we are in substantial compliance with all
applicable laws and regulations.
In addition, the Immigration and Naturalization Service, the U.S. Customs
Service, and the Animal and Plant Health Inspection Service of the Department of
Agriculture have jurisdiction over inspection of our aircraft, passengers and
cargo to ensure our compliance with U.S. immigration, customs and import laws.
We are also subject to other federal and state laws and regulations
relating to protection of the environment, radio communications, labor
relations, equal employment opportunity and other matters.
Safety
We have never had an accident, and are dedicated to ensuring our customers'
safety. The FAA monitors our compliance with maintenance, flight operations and
safety regulations, maintains representatives on-site and performs frequent spot
inspections, and we believe we have a strong and open relationship with our
regional FAA office. We believe we are in compliance with all requirements
necessary to maintain in good standing our operating authority granted by the
DOT and our air carrier operating certificate issued by the FAA. A modification,
suspension or revocation of any of our DOT or FAA authorizations or certificates
could have a material adverse effect upon us.
Slots
The FAA's regulations currently limit the availability of, and permit the
buying, selling, trading, and leasing of, certain airline slots at Chicago's
O'Hare, New York's LaGuardia and Kennedy International, and Ronald Reagan
Washington National airports. A slot is an authorization to take off or land at
the designated airport within a specified time window.
We currently lease seven of our eighteen slots at New York's LaGuardia
Airport and ten of our twelve slots at Ronald Reagan Washington National Airport
from other airlines. Leases for two of our slots at New York's LaGuardia Airport
and for four of our slots at Ronald Reagan Washington National Airport are
scheduled to expire on October 28, 2000. Leases for our remaining five slots at
LaGuardia Airport and six slots at Ronald Reagan Washington National Airport are
scheduled to expire on March 31, 2001. All of the leased slots at LaGuardia
Airport will be replaced by slot exemptions we have received from the DOT. Two
of the slots under the lease expiring on October 28, 2000 at Ronald Reagan
Washington National Airport will be replaced by two slot exemptions we have
received from the DOT. To the extent we cannot renew or replace the slot lease
expiring on March 31, 2001 at Ronald Reagan Washington National Airport, our
business will be harmed. Our route between Raleigh-Durham International Airport
and Ronald Reagan Washington National Airport is among our most important, and,
as a result, an inability to renew or replace these leases could have a material
adverse effect on our financial condition and results of operations.
The DOT's slot regulations require the use of each slot at least 80% of the
time, measured on a bimonthly basis. Failure to meet this utilization threshold
without a waiver from the DOT, which is granted only under exceptional
circumstances, subjects the slot to recall by the DOT. In addition, the slot
regulations provide that slots may be withdrawn by the DOT at any time without
compensation to the carrier holding or operating the slot to meet the DOT's
operational needs, such as providing slots for international carriers or
essential air transportation.
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Foreign Ownership
Pursuant to law and the regulations of the DOT, we must be effectively
controlled by United States citizens. In this regard, our President and at least
two-thirds of our Board of Directors must be United States citizens and not more
than 25% of our voting stock may be owned by foreign nationals (although subject
to DOT approval the percent of foreign economic ownership may be as high as
49%).
Fuel
The cost of fuel is a significant operating expense, constituting
approximately 12.6%, 10.7% and 11.5% of total operating expenses before
recapitalization and equipment retirement charges for the years ended December
31, 1997, 1998, and 1999, respectively, and 9.3% and 15.8% for the six months
ended June 30, 1999 and 2000, respectively. Our fuel costs increased
approximately 140% for the six months ending June 30, 2000, from the six months
ending June 30, 1999, primarily as a result of a 100% increase in average fuel
prices during the respective six month periods. This increase in the cost of
fuel will adversely impact our results of operations in 2000 compared to 1999.
Historically, jet fuel costs have been subject to wide price fluctuations. Jet
fuel availability is also subject to periods of market surplus and shortage.
Because of the effect of such events on price and availability of oil, the cost
and future availability of jet fuel cannot be predicted with any degree of
certainty.
Our fuel requirements are met by approximately a dozen different suppliers.
We contract with these suppliers as fuel is needed, and the terms vary as to
price and quantity. We have not entered into any agreement that fixes the price
of fuel over any period of time.
Competition
The airline industry is highly competitive and we compete with other air
carriers either directly or indirectly on all of our routes. Nearly all of these
carriers have greater financial resources than we do, and most of them have
lower unit costs than we do. Furthermore, the introduction of service or
discounted fares by another airline in markets served by us could have an
adverse impact upon our business, financial condition and results of operation.
Since late 1997, we have experienced, and likely will continue to
experience, increased competition in the Raleigh-Durham market. In 1999, both
Southwest Airlines and MetroJet, the low-fare division of US Airways, initiated
service at Raleigh-Durham International Airport. Southwest began service to five
cities from RDU with 12 daily flights and, as of September 12, 2000, operates
service to seven cities (Austin, Texas; Baltimore, Maryland; Chicago-Midway,
Illinois; Kansas City, Missouri; Nashville, Tennessee; Orlando, Florida and
Tampa, Florida) with 17 daily flights. Although MetroJet announced plans to
serve six cities from RDU with 17 daily flights and began providing some of
those services in 1999, MetroJet has since withdrawn al of its services at RDU.
We believe that Southwest's ability to further increase its services at RDU
beyond 20-24 daily flights is now limited by lack of gate availability at RDU.
However, the Raleigh-Durham Airport Authority has announced its intention to
construct a temporary facility that will add five new gates to RDU's Terminal A
by spring 2001. The Raleigh Durham Airport Authority intends to operate the
temporary facility for only five years while constructing a permanent facility
that will add 12-15 additional gates at Terminal A approximately five years
after completion of the temporary facility. The construction of the five
temporary gates and the 12-15 permanent gates at RDU's Terminal A will allow
Southwest and other airlines to add new services, or to increase current
services at RDU.
Introduction of low fare services at RDU and elsewhere along the East Coast
by Southwest and MetroJet in 1999 led to a significantly lower fare environment
in all of the Company's markets. For example, our average fare for the six
months ended June 30, 2000 was 14.7% lower than the average fare for the six
months ended June 30, 1999, going from $111 to $95, and our yield decreased
13.1% in the same period. While competition from Southwest and MetroJet at RDU
and in other East Coast markets has already adversely impacted fares in all of
our markets, increases in Southwest's services at RDU could have a more direct
adverse impact on our ability to profitably expand into new markets, upon our
traffic and load factors, resulting in an adverse impact upon our business,
financial condition and results of operations.
Insurance
We maintain insurance policies of types customary in the industry and in
amounts management believes are adequate to meet DOT requirements and to protect
us and our property against material loss. The policies principally provide
coverage for public liability, passenger liability, baggage and cargo liability,
property damage, including coverage for loss or damage to its flight equipment,
and worker's compensation insurance. There can be no assurance, however, that
the amount of insurance carried by us will be sufficient to protect us from
material loss.
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Flight Equipment
As of August 31, 2000, we operate a fleet of eight F100s, twenty-three CRJs
and two 737s, with an average age of 2.4 years. The F100s are configured with
eight first class seats and 90 coach seats, the CRJs are configured with 50
single class coach seats, and the 737s are configured with eight first class
seats and 120 coach seats. All of the aircraft meet Stage 3 noise requirements
imposed by federal law. We believe that our young all-jet fleet gives us a
significant advantage in attracting and retaining business travelers and
improves our reliability statistics. The age of our fleet and those aircraft
owned and leased, at August 31, 2000, was as follows:
Owned Leased Total Average Age
----------- ------------ ----------- -------------
737s -- 2 2 0.7 years
CRJs 5 18 23 1.4 years
F100s -- 8 8 6.2 years
As of August 31, 2000, we have firm orders for three additional newly
manufactured CRJs, all of which are scheduled to be delivered by December 2001.
We also have options to acquire up to 14 additional CRJs with delivery dates for
the first seven of these aircraft extending over a one-year period beginning in
2002. We have firm orders to purchase fifteen additional 737s with deliveries
scheduled to begin in September 2000 and end in October 2002. We have options to
acquire 10 additional 737s. We also intend to lease five additional newly
manufactured 737s for delivery in November 2000, and January, July, October and
November 2001. To support our operations, we acquired two spare Rolls Royce Tay
650-15 engines in 1998 for the F100 fleet, and two General Electric CF34-3B1
spare engines to support the CRJ fleet. We intend to acquire up to four CFM
56-7B spare engines to support the operation of the 737 fleet. The mix of our
fleet between 98-seat F100s, 50-seat CRJs, and 128-seat 737s should allow us to
meet expected passenger volumes while maintaining a competitive cost structure,
and should enhance our ability to more efficiently match our aircraft to our
route network requirements.
We currently lease eight F100s. In December 1999, we settled a pending
lawsuit with the lessor of four F100s previously operated by us. As a result of
this settlement, we recorded a pre-tax charge of approximately $700,000 during
the fourth quarter of 1999 and obtained an option to terminate leases on four
other F100s. On February 29, 2000, we exercised this option to terminate the
leases on these four F100s prior to their scheduled lease expirations in 2003
and 2004, resulting in a revised scheduled return date of these aircraft in the
first half of 2001. We are required to pay the lessor $2,125,000 upon the
termination of each of these four leases, of which $4,250,000 is payable in each
of the first two quarters of 2001. In addition, we are required to perform
certain maintenance tasks on these aircraft prior to their return. During the
six months ended June 30, 2000, we recorded $9,200,000 in equipment retirement
charges related to the exercise of this option. As of June 30, 2000, we have
recorded liabilities of $8,800,000 related to the lease termination penalties
and related expenses. The remaining $363,000 charge relates to the write-down of
leasehold improvements resulting from the shortened lease terms.
Pursuant to a March 1995 purchase agreement, we are obligated to purchase
four Airbus A320 aircraft with deliveries in 2005 and 2006. To support the
operation of the four A320 aircraft, we also agreed to purchase one IAE V2527-A5
spare engine scheduled for delivery in November 2005 from International Aero
Engines AG. The purchase of the A320s and the associated spare engine no longer
fit with our current strategy. We are considering several alternatives with
respect to the A320s, including restructuring our agreement with Airbus or
transferring our positions.
Facilities
Of the 26 gates at the newer of RDU's two terminals, Terminal C, we
currently lease 19 gates through February 2013. Midway's corporate headquarters
and reservations facility are located in Morrisville, North Carolina where we
lease approximately 40,000 square feet of space. The Morrisville facility lease
expires in 2008. We also occupy space in Orlando, Florida, where we perform
aircraft maintenance.
At most airports other than RDU, we obtain the use of gates as part of
third-party ground handling contracts.
We currently have a sufficient number of leased gates and other airport
facilities, but our operations may be constrained at certain airports by
insufficient availability of gates on attractive terms or other factors.
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Litigation
We are a party to routine litigation incidental to our business. Management
believes that none of this litigation is likely to have a material adverse
effect on our consolidated financial position or results of operations.
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DESCRIPTION OF THE CERTIFICATES
The Certificates offered hereby will be issued pursuant to three separate
Pass Through Trust Agreements (the "Pass Through Trust Agreements") to be
entered into between Midway and the Trustee. The following summary describes
certain terms of the Certificates offered hereby and the Pass Through Trust
Agreements. The statements under this caption are a summary and do not purport
to be complete, make use of terms as defined in the Pass Through Trust
Agreements and are qualified in their entirety by reference to all of the
provisions of the Certificates, the Pass Through Trust Agreements, the Deposit
Agreements, the Escrow Agreements, the Intercreditor Agreement and the Note
Purchase Agreement. Except as otherwise indicated, the following summary relates
to each of the Trusts and the Certificates issued by each Trust. The terms and
conditions governing each of the Trusts will be substantially the same, except
as described under "Subordination" below and except that the principal amount,
the interest rate, scheduled repayments of principal and maturity date
applicable to the Equipment Notes held by each Trust and the final expected
distribution date as specified on the cover hereof (the "Final Expected
Distribution Date") applicable to each Trust will differ. Citations to the
relevant sections of the Pass Through Trust Agreements appear below in
parentheses unless otherwise indicated. Copies of the Pass Through Trust
Agreements will be available from the Trustee.
General
The Certificates of each Trust will be issued in fully registered form only
and will be subject to the provisions described below under "Book-Entry;
Delivery and Form." Each Certificate represents a fractional undivided interest
in one of the three Midway Airlines 2000-1 Pass Through Trusts (the "Class A
Trust", the "Class B Trust" and the "Class C Trust", and, collectively, the
"Trusts") created by the Pass Through Trust Agreement pursuant to which such
Certificate is issued. The Certificates are referred to herein as the "Class A
Certificates", the "Class B Certificates", and the "Class C Certificates".
The property of each Trust (the "Trust Property") will consist of:
. subject to the Intercreditor Agreement, Equipment Notes acquired under the
Note Purchase Agreement and issued, at Midway's election in connection with
the financing of each Aircraft during the Delivery Period, either (1) on a
nonrecourse basis by the trustees of separate owner trusts (each, an "Owner
Trustee") in connection with separate leveraged lease transactions with
respect to each Leased Aircraft to finance a portion of the purchase price
of such Leased Aircraft by the Owner Trustee, in which case the applicable
Aircraft will be leased to Midway, or (2) on a recourse basis by Midway in
connection with separate secured loan transactions with respect to each
Owned Aircraft to finance a portion of the purchase price of such Owned
Aircraft by Midway,
. the rights of such Trust to acquire Equipment Notes under the Note Purchase
Agreement,
. the rights of such Trust under the applicable Escrow Agreement to request
the Escrow Agent to withdraw from the Depositary funds sufficient to enable
such Trust to purchase Equipment Notes during the Delivery Period,
. the rights of such Trust under the Intercreditor Agreement (including all
monies receivable in respect of such rights),
. all monies receivable under the Liquidity Facility for such Trust and
. funds from time to time deposited with the Trustee in accounts relating to
such Trust.
Certificates will represent fractional undivided interests in the Equipment
Notes and other property held in the related Trust and distributions thereon
will be made only from the Trust Property. The Certificates will be issued only
in minimum denominations of $100,000 and integral multiples of $1,000 in excess
thereof. (Sections 3.01 and 3.10). (Unless otherwise specified, "Section"
references refer to sections of the Pass Through Trust Agreements.)
Pursuant to the Escrow Agreement applicable to each Trust, the holders of
the Certificates of such Trust (the "Certificateholders") as holders of the
Escrow Receipts affixed to each Certificate are entitled to certain rights with
respect to the Deposits relating to such Trust. Accordingly, any transfer of a
Certificate will have the effect of transferring the corresponding rights with
respect to the Deposits, and rights with respect to the Deposits may not be
separately transferred by Certificateholders. Rights with respect to the
Deposits and the Escrow Agreement relating to a Trust, except for the right to
request withdrawals for the purchase of Equipment Notes, will not constitute
Trust Property of such Trust.
The Certificates do not represent an interest in or obligation of Midway,
the Trustee, any of the Loan Trustees or Owner Trustees in their individual
capacities, any Owner Participant or any affiliate of any thereof. The existence
of each Trust will not limit the liability that Certificateholders of such Trust
would otherwise incur if such holders owned directly the corresponding Equipment
Notes or incurred directly the obligations of such Trust.
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Payments and Distributions
The following description of distributions on the Certificates should be
read in conjunction with the description of the Intercreditor Agreement, which
may have the consequence of altering the effect of the following provisions in a
default situation. See "Description of the Intercreditor Agreement - Priority of
Distributions."
Payments of principal, Make-Whole Premium (if any) and interest with
respect to the Equipment Notes or other Trust Property held in each Trust will
be distributed by the Paying Agent (in the case of the Deposits) or by the
Trustee (in the case of Trust Property of such Trust) to Certificateholders of
such Trust on each Regular Distribution Date or as soon thereafter as receipt of
such payments is confirmed, except in the case of certain types of Special
Payments.
The Equipment Notes held in each Trust will accrue interest at the
applicable rate per annum for Certificates issued by such Trust set forth on the
cover page of this offering memorandum plus any additional margin specified by
the Registration Rights Agreement for such Certificates (the "Stated Interest
Rate"), payable on April 1 and October 1 of each year commencing on the later of
April 1, 2001 and the first such date to occur after the initial issuance
thereof. All such interest payments will be passed through to Certificateholders
of such Trust on each such date until the final Distribution Date for such
Trust, in each case, subject, in the case of payments on the Equipment Notes, to
the Intercreditor Agreement. Interest is calculated on the basis of a 360-day
year consisting of twelve 30-day months.
Interest will accrue on the Deposits relating to each Trust at a rate equal
to the Stated Interest Rate for the Certificates issued by such Trust. The
Deposits relating to a Trust and interest paid thereon will not be subject to
the subordination provisions applicable to the Certificates. Payments of
interest on the Certificates to be issued by each Trust will be supported by a
separate Liquidity Provider for the benefit of the holders of such Certificates
in an amount sufficient to pay interest thereon at the Stated Interest Rate for
such Trust on three successive Regular Distribution Dates except that the
Liquidity Facilities with respect to such Trust will not cover interest payable
by the Depositary on the Deposits relating to such Trust. Notwithstanding the
subordination provisions of the Intercreditor Agreement, the Liquidity Facility
for any Class of Certificates does not provide for drawings thereunder to pay
principal of or interest or Make-Whole Premium on the Certificates of any other
Class. Therefore, only the holders of the Certificates to be issued by a
particular Trust will be entitled to receive and retain the proceeds of drawings
under the Liquidity Facility for such Trust. See "Description of the Liquidity
Facilities."
Payments of principal on the Equipment Notes held in each Trust are
scheduled to be received by the Trustee on April 1 or October 1, or both, in
certain years depending upon the terms of the Equipment Notes held in such
Trust, subject to the Intercreditor Agreement. Scheduled payments of interest on
the Deposits and interest and principal on the Equipment Notes are herein
referred to as "Scheduled Payments," and April 1 and October 1 of each year are
herein referred to as "Regular Distribution Dates." See "Description of the
Equipment Notes -- Principal and Interest Payments." The "Final Expected
Distribution Date" for each Class of Certificates is set forth on the cover page
of this offering memorandum. The "Final Legal Distribution Date" for each of the
Class A, B and C Certificates is October 1, 2020, October 1, 2015 and October 1,
2007 respectively.
The Paying Agent with respect to each Escrow Agreement will distribute on
each Regular Distribution Date to the Certificateholders of the Trust to which
such Escrow Agreement relates all Scheduled Payments received in respect of the
related Deposits, the receipt of which is confirmed by the Paying Agent on such
Regular Distribution Date. The Trustee of each Trust will distribute, subject to
the Intercreditor Agreement, on each Regular Distribution Date to the
Certificateholders of such Trust all Scheduled Payments, the receipt of which is
confirmed by the Trustee on such Regular Distribution Date. Each
Certificateholder of each Trust will be entitled to receive a pro rata share of
any distribution in respect of Scheduled Payments of interest on the Deposits
relating to such Trust and, subject to the Intercreditor Agreement, of principal
and interest made on the Equipment Notes held in such Trust. Each such
distribution of Scheduled Payments will be made by the applicable Paying Agent
or Trustee of each Trust to the Certificateholders of record of such Trust on
the Record Date applicable to such Scheduled Payment subject to certain
exceptions. (Sections 4.01 and 4.02; Escrow Agreement, Section 2.03). If a
Scheduled Payment is not received by the applicable Paying Agent or Trustee on a
Regular Distribution Date but is received within five days thereafter, it will
be distributed to such holders of record on the date received. If it is received
after such five-day period, it will be treated as a Special Payment and
distributed as described below.
Any payment in respect of, or any proceeds of, any Equipment Note or the
Trust Indenture Estate under (and as defined in) each Indenture other than a
Scheduled Payment (each, a "Special Payment") will be distributed on, in the
case of an early redemption or a purchase of the Equipment Notes relating to any
Aircraft, the date of such early redemption or purchase (which shall be a
Business Day), and otherwise on the Business Day specified for distribution of
such Special Payment (each, a "Special Distribution Date") pursuant to a notice
delivered by the Trustee as soon as practicable after the Trustee has received
funds for such Special Payment, in each case subject to the Intercreditor
Agreement.
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Any unused Deposits to be distributed after the Delivery Period Termination
Date or the occurrence of a Triggering Event, together with accrued and unpaid
interest thereon and any premium payable by Midway (each also a "Special
Payment"), will be distributed on a date 15 days after the Paying Agent has
received notice of the event requiring such distribution (also a "Special
Distribution Date"). However, if such date is within 10 days before or after a
Regular Distribution Date, in which case such Special Payment shall be made on
such Regular Distribution Date.
Each Paying Agent, in the case of the Deposits, and each Trustee, in the
case of Trust Property or any premium payable by Midway in connection with
certain distributions of unused Deposits, will mail a notice to the
Certificateholders of the applicable Trust stating the scheduled Special
Distribution Date, the related Record Date, the amount of the Special Payment
and the reason for the Special Payment. In the case of a redemption or purchase
of the Equipment Notes held in the related Trust or any distribution of unused
Deposits after the Delivery Period Termination Date or the occurrence of a
Triggering Event, such notice will be mailed not less than 15 days prior to the
date such Special Payment is scheduled to be distributed, and in the case of any
other Special Payment, such notice will be mailed as soon as practicable after
the Trustee has confirmed that it has received funds for such Special Payment.
(Section 4.02(c); Escrow Agreement, Sections 1.03 and 2.06). Each distribution
of a Special Payment, other than a final distribution, on a Special Distribution
Date for any Trust will be made by the Paying Agent or Trustee, as applicable,
to the Certificateholders of record of such Trust on the Record Date applicable
to such Special Payment. See "Indenture Defaults and Certain Rights Upon an
Indenture Default" and "Description of the Equipment Notes -- Redemption."
Each Pass Through Trust Agreement requires that the Trustee establish and
maintain, for the related Trust and for the benefit of the Certificateholders of
such Trust, one or more non-interest bearing accounts (the "Certificate
Account") for the deposit of payments representing Scheduled Payments on the
Equipment Notes received by the Trustee. Each Pass Through Trust Agreement also
requires that the Trustee establish and maintain, for the related Trust and for
the benefit of the Certificateholders of such Trust, one or more accounts (the
"Special Payments Account") for the deposit of payments representing Special
Payments, which account shall be non-interest bearing except in certain
circumstances where the Trustee may invest amounts in such account in certain
permitted investments. (Sections 4.01 and 4.04) Pursuant to the terms of each
Pass Through Trust Agreement, the Trustee is required to deposit any Scheduled
Payments relating to the applicable Trust received by it in the Certificate
Account of such Trust and to deposit any Special Payments so received by it in
the Special Payments Account of such Trust. (Section 4.01) All amounts so
deposited will be distributed by the Trustee on a Regular Distribution Date or a
Special Distribution Date (each, a "Distribution Date"), as appropriate.
(Section 4.02).
Each Escrow Agreement requires that the Paying Agent establish and
maintain, for the benefit of the Receiptholders, one or more accounts (the
"Paying Agent Account"), which shall be non-interest bearing. Pursuant to the
terms of the Escrow Agreement, the Paying Agent is required to deposit interest
on Deposits relating to such Trust and any unused Deposits withdrawn by the
Escrow Agent in the Paying Agent Account. All amounts so deposited will be
distributed by the Paying Agent on a Regular Distribution Date or Special
Distribution Date, as appropriate.
Distributions by the Trustee from the Certificate Account or the Special
Payments Account of each Trust on a Regular Distribution Date or a Special
Distribution Date in respect of Certificates issued by such Trust in definitive
form will be made to each Certificateholder of record of such Certificates on
the applicable Record Date. (Section 4.02) The final distribution for each
Trust, however, will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee for such Trust specified in
the notice given by the Trustee of such final distribution. The Trustee will
mail such notice of the final distribution to the Certificateholders of such
Trust, specifying the date set for such final distribution and the amount of
such distribution. (Section 11.01) See "Termination of the Trusts."
Distributions in respect of Certificates issued in global form will be made as
described in "Book-Entry; Delivery and Form" below.
If any Regular Distribution Date or Special Distribution Date is not a
Saturday, Sunday or other day on which commercial banks are authorized or
required to close in New York, New York, Baltimore, Maryland or Charlotte, North
Carolina (any other day being a "Business Day"), distributions scheduled to be
made on such Regular Distribution Date or Special Distribution Date will be made
on the next succeeding Business Day without additional interest.
Pool Factors
The "Pool Balance" for each Trust or for the Certificates issued by any
Trust indicates, as of any date, the original aggregate face amount of the
Certificates of such Trust less the aggregate amount of all payments made in
respect of the Certificates of such Trust or in respect of Deposits relating to
such Trust other than payments made in respect of interest or Make-Whole Premium
thereon or reimbursement of any costs and expenses in connection therewith. The
Pool Balance for each Trust as of any Regular Distribution Date or Special
Distribution Date shall be computed after giving effect to any special
distribution with respect to unused Deposits, the payment of principal, if any,
on the Equipment Notes or other Trust Property held in such Trust and the
distribution thereof to be made on that date.
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The "Pool Factor" for each Trust as of any Regular Distribution Date or
Special Distribution Date is the quotient (rounded to the seventh decimal place)
computed by dividing (1) the Pool Balance by (2) the original aggregate face
amount of the Certificates of such Trust. The Pool Factor for each Trust as of
any Regular Distribution Date or Special Distribution Date shall be computed
after giving effect to any special distribution with respect to unused Deposits,
the payment of principal, if any, on the Equipment Notes or other Trust Property
held in such Trust and the distribution thereof to be made on that date. The
Pool Factor for each Trust will be 1.0000000 on the date of issuance of the
Certificates; thereafter, the Pool Factor for each Trust will decline as
described herein to reflect reductions in the Pool Balance of such Trust. The
amount of a Certificateholder's pro rata share of the Pool Balance of a Trust
can be determined by multiplying the par value of the holder's Certificate of
such Trust by the Pool Factor of such Trust as of the applicable Regular
Distribution Date or Special Distribution Date. Notice of the Pool Factor and
the Pool Balance for each Trust will be mailed to Certificateholders of such
Trust on each Regular Distribution Date and Special Distribution Date.
The following table sets forth an illustrative aggregate principal
amortization schedule for the Equipment Notes held in each Trust (the "Assumed
Amortization Schedule") and resulting Pool Factors with respect to such Trust.
The actual aggregate principal amortization schedule applicable to a Trust and
the resulting Pool Factors with respect to such Trust may differ from those set
forth below, since the amortization schedule for the Equipment Notes issued with
respect to an Aircraft may vary from such illustrative amortization schedule so
long as it complies with the Mandatory Economic Terms. In addition, the table
set forth below assumes that each Aircraft is delivered in the month scheduled
for its delivery (see "Description of the Aircraft and the Appraisals -- The
Appraisals" for the delivery schedule), that Equipment Notes in the maximum
principal amount in respect of all of the Aircraft are purchased by the Trusts
and that no early redemption or purchase, or default in the payment of
principal, in respect of any Equipment Notes occurs. Actual circumstances may
vary from these assumptions, which would result in differences in the aggregate
principal amortization schedule applicable to a Trust and in the resulting Pool
Factors.
43
<PAGE>
<TABLE>
<CAPTION>
Class A Trust Class B Trust Class C Trust
Equipment Notes Equipment Notes Equipment Notes
Scheduled Class A Trust Scheduled Class B Trust Scheduled Class C Trust
Payments of Expected Pool Payments of Expected Pool Payments of Expected Pool
Date Principal Factor Principal Factor Principal Factor
--------------- --------------- ------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 1, 2001 $ 1,584,073.74 0.9877961 $470,105.69 0.9908021 $ 3,534,751.71 0.7878428
October 1, 2001 1,091,520.88 0.9793869 0.00 0.9908021 1,689,913.72 0.6864135
April 1, 2002 4,850,343.82 0.9420194 460,408.69 0.9817939 1,217,865.45 0.6133167
October 1, 2002 350,636.66 0.9393181 0.00 0.9817939 0.00 0.6133167
April 1, 2003 4,114,638.24 0.9076185 811,212.55 0.9659220 1,949,002.41 0.4963368
April 1, 2004 4,340,691.35 0.8741774 1,855,848.24 0.9296111 1,877,363.84 0.3836566
April 1, 2005 4,126,216.05 0.8423886 2,472,794.49 0.8812293 2,929,323.07 0.2078375
October 1, 2005 36,196.50 0.8421097 0.00 0.8812293 0.00 0.2078375
April 1, 2006 3,774,103.74 0.8130336 2,495,762.39 0.8323981 3,462,779.80 0.0000000
April 1, 2007 3,298,724.24 0.7876199 7,643,590.59 0.6828464 0.00 0.0000000
October 1, 2007 475,379.52 0.7839576 0.00 0.6828464 0.00 0.0000000
April 1, 2008 3,774,103.72 0.7548815 9,037,163.81 0.5060284 0.00 0.0000000
April 1, 2009 3,774,103.76 0.7258054 9,674,056.17 0.3167493 0.00 0.0000000
April 1, 2010 3,774,103.72 0.6967293 3,573,594.96 0.2468296 0.00 0.0000000
April 1, 2011 3,774,103.74 0.6676533 4,738,905.53 0.1541099 0.00 0.0000000
April 1, 2012 3,495,950.71 0.6407201 3,265,146.53 0.0902252 0.00 0.0000000
October 1, 2012 433,097.86 0.6373835 0.00 0.0902252 0.00 0.0000000
April 1, 2013 5,898,393.86 0.5919416 847,419.09 0.0736449 0.00 0.0000000
April 1, 2014 7,668,171.55 0.5328653 3,763,991.27 0.0000000 0.00 0.0000000
April 1, 2015 14,666,259.89 0.4198749 0.00 0.0000000 0.00 0.0000000
April 1, 2016 15,988,990.20 0.2966941 0.00 0.0000000 0.00 0.0000000
April 1, 2017 17,431,015.81 0.1624038 0.00 0.0000000 0.00 0.0000000
April 1, 2018 16,219,783.55 0.0374450 0.00 0.0000000 0.00 0.0000000
October 1, 2018 1,515,521.57 0.0257693 0.00 0.0000000 0.00 0.0000000
April 1, 2019 3,344,875.32 0.0000000 0.00 0.0000000 0.00 0.0000000
</TABLE>
The actual schedule of principal payments and the resulting schedule of
Pool Balances and Pool Factors may change from that set forth above. In
addition, the Pool Factor and Pool Balance of each Trust will be recomputed if
there has been an early redemption, purchase or a default in the payment of
principal or interest in respect of one or more issues of the Equipment Notes
held in a Trust, as described in "Indenture Defaults and Certain Rights Upon an
Indenture Default" and "Description of the Equipment Notes -- Redemption", or a
special distribution attributable to unused Deposits after the Delivery Period
Termination Date or the occurrence of a Triggering Event, as described in
"Description of the Deposit Agreements." In the event of (1) any such
redemption, purchase or default or (2) any other change in the schedule of
principal payments from the Assumed Amortization Schedule, the Pool Factors and
the Pool Balances of each Trust so affected will be recomputed after giving
effect thereto and notice thereof will be mailed to the Certificateholders of
such Trust promptly after the Delivery Period Termination Date in the case of
clause (2) and promptly after the occurrence of any event described in clause
(1).
Obligation to Purchase Equipment Notes
Each Trustee will be obligated to purchase the Equipment Notes issued with
respect to the Aircraft during the Delivery Period, subject to the terms and
conditions of a note purchase agreement (the "Note Purchase Agreement") and the
applicable Participation Agreement. Under the Note Purchase Agreement, Midway
agrees to finance each Aircraft in the manner provided therein. Midway will have
the option of entering into a leveraged lease financing or a secured debt
financing with respect to each Aircraft.
44
<PAGE>
. If Midway chooses to enter into a leveraged lease financing with respect to
an Aircraft (such Aircraft, a "Leased Aircraft"), the Note Purchase
Agreement provides for the relevant parties to enter into a participation
agreement (each, a "Leased Participation Agreement"), a Lease and an
indenture (each, a "Leased Aircraft Indenture") relating to the financing
of such Leased Aircraft.
. If Midway chooses to enter into a secured debt financing with respect to an
Aircraft (such Aircraft, an "Owned Aircraft"), the Note Purchase Agreement
provides for the relevant parties to enter into a participation agreement
(each, an "Owned Participation Agreement", and together with the other
Owned Participation Agreements and the Leased Participation Agreements, the
"Participation Agreements") and an indenture (each, an "Owned Aircraft
Indenture," and together with the other Owned Aircraft Indentures and the
Leased Aircraft Indentures, the "Indentures") relating to the financing of
such Owned Aircraft.
The financing of an Aircraft may not take place on the date such Aircraft
is actually delivered from the manufacturer, provided that such financing will
occur prior to the Delivery Period Termination Date. The description of the
above-mentioned agreements in this offering memorandum is based on the forms of
such agreements to be utilized pursuant to the Note Purchase Agreement. In the
case of a Leased Aircraft, the terms of the agreements actually entered into may
differ from the forms of such agreements and, consequently, may differ from the
description of such agreements contained in this offering memorandum. See "Risk
Factors -- Risk Factors Relating to the Certificates and the offering -- The
terms pursuant to which we lease Aircraft financed hereunder may differ from the
terms described herein." However, under the Note Purchase Agreement, the terms
of such agreements are required to (1) contain the Mandatory Document Terms and
(2) not vary the Mandatory Economic Terms. In addition, Midway is obligated (1)
to certify to the Trustees that any such modifications do not materially and
adversely affect the Certificateholders (provided that the Note Purchase
Agreement provides that, among other terms, the shortening of certain grace
periods for Events of Loss and Events of Default is not materially adverse to
the Certificateholders) and (2) to obtain written confirmation from each Rating
Agency that the use of versions of such agreements modified in any material
respect will not result in a withdrawal, suspension or downgrading of the rating
of any Class of Certificates. Further, under the Note Purchase Agreement, it is
a condition precedent to the obligation of each Trustee to purchase the
Equipment Notes related to the financing of an Aircraft that no Triggering Event
shall have occurred. The Trustees will have no right or obligation to purchase
Equipment Notes after the Delivery Period Termination Date.
The "Mandatory Economic Terms," defined in the Note Purchase Agreement
require, among other things, that:
. the maximum principal amount of all the Equipment Notes issued with respect
to an Aircraft not exceed the maximum principal amount of Equipment Notes
indicated for each such Aircraft as set forth in "Offering Memorandum
Summary -- Equipment Notes and the Aircraft" under the column "Maximum
Principal Amount of Equipment Notes";
. the loan to aircraft value with respect to an Aircraft (with the assumed
value of any Aircraft for these purposes to equal the value for such
Aircraft set forth in "Offering Memorandum Summary -- Equipment Notes and
the Aircraft" under the column "Appraised Value") at the time of issuance
of the related Equipment Notes and on any Regular Distribution Date
thereafter not exceed 42% in the case of Series A Equipment Notes, 56% in
the case of Series B Equipment Notes and 63% in the case of Series C
Equipment Notes;
. the initial average life of the Series A Equipment Notes not extend beyond
12.5 years, of the Series B Equipment Notes not extend beyond 9.2 years and
of the Series C Equipment Notes not extend beyond 3.5 years in each case
from the Issuance Date;
. as of the first Regular Distribution Date immediately following the
Delivery Period Termination Date (or if earlier, the date of the occurrence
of a Triggering Event), and after giving effect to any Expected
Distributions required to be made on such date, the average life of the
Class A Certificates, the Class B Certificates and the Class C Certificates
shall not extend beyond, respectively, 12.4 years, 8.3 years and 3.0 years
from the Issuance Date (computed without regard to the acceleration of any
Equipment Notes and after giving effect to any special distribution on the
Certificates thereafter required in respect of unused Deposits);
. the final maturity date of each Series of Equipment Notes shall not be
later than the Final Expected Distribution Date of the related Class of
Certificates;
. the original aggregate principal amount of all of the Equipment Notes of
each Series shall not exceed the original aggregate face amount of the
Certificates issued by the corresponding Trust;
. the interest rate and the April 1 and October 1 payment dates with respect
to the Equipment Notes may not be changed;
45
<PAGE>
. basic rent and termination values under the related Lease must be
sufficient to pay amounts due in respect of principal and interest with
respect to the related Equipment Notes;
. the amounts payable under the all-risk aircraft hull insurance maintained
with respect to each Aircraft must be sufficient to pay the applicable
termination value, subject to certain rights of self-insurance; and
(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
Notes in the related Indentures;
(d) the minimum liability insurance amount on such Leased Aircraft in the
related Lease; and
(e) the indemnification of the Loan Trustees, Subordination Agent, Paying
Agents, Liquidity Providers, Trustees, Escrow Agents and registered
holders of the Equipment Notes with respect to certain taxes and
expenses, in each case, must be provided as set forth in the form of
Participation Agreement, Lease and Indenture (collectively, the
"Aircraft Operative Agreements"), as the case may be (or in the case of
clause (d), may be in a greater amount, or in the case of this clause
(e), may provide for modifications to such indemnification provisions
so long as such modifications are not materially adverse to the Loan
Trustees, Subordination Agent, Paying Agents, Liquidity Providers or
the Trustees.
The "Mandatory Document Terms" prohibit modifications in any material
adverse respect to certain specified provisions of the Aircraft Operative
Agreements.
. In the case of the Indentures, such provisions include:
(a) the granting clause of the Indentures so as to deprive the holders of a
first priority security interest in the Aircraft, the Lease and certain
of Midway's rights under its purchase agreement with the Aircraft
manufacturer or to eliminate the obligations intended to be secured
thereby;
(b) certain provisions relating to the issuance, prepayment, purchase,
payments and ranking of the Equipment Notes (including the obligations
to pay the Make-Whole Premium in certain circumstances);
(c) certain provisions regarding Indenture Events of Default, remedies
relating thereto and rights of the related Owner Trustee and related
Owner Participant in such circumstances;
(d) certain provisions relating to any replaced airframe or engines with
respect to an Aircraft; and
(e) the provision that New York law will govern the Indentures.
. In the case of the Lease, such provisions include the obligations of Midway
to:
(a) pay basic rent and termination value to the Loan Trustee;
(b) furnish certain opinions with respect to a replacement airframe; and
(c) 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 Loan Trustee of rights expressly granted to it under
the Leases.
. In the case of the Participation Agreement, such provisions include:
(a) certain conditions to the obligations of the Loan Trustee to
participate in the purchase price of these Aircraft by releasing the
debt portion thereof from the Deposit Account, involving good title to
such Aircraft, obtaining a certificate of airworthiness with respect to
such Aircraft, entitlement to the benefits of Section 1110 of the U.S.
Bankruptcy Code with respect to such Aircraft and filings of certain
documents with the Federal Aviation Administration;
(b) certain provisions regarding the obligation of Midway to record the
Indenture with the Federal Aviation Administration and to maintain such
Indenture as a first-priority perfected mortgage on the related
Aircraft;
(c) certain provisions requiring the delivery of legal opinions; and
(d) the provision that New York law will govern the Participation
Agreement.
46
<PAGE>
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 Subordination Agent, the Trustees, the
Paying Agents, the Liquidity Providers, the Loan Trustees or the
Certificateholders.
Reports to Certificateholders
On each Regular Distribution Date and Special Distribution Date, the
applicable Paying Agent and Trustee will include with each distribution of a
Scheduled Payment or Special Payment, respectively, to Certificateholders of the
related Trust a statement, giving effect to such distribution to be made on such
Regular Distribution Date or Special Distribution Date, setting forth the
following information (per $1,000 aggregate principal amount of Certificate for
such Trust, as to (1), (2), (3), (4) and (5) below
(1) the aggregate amount of such funds distributed on such Distribution
Date under the Pass Through Trust Agreement and the Escrow Agreement,
indicating the amount allocable to each source including any portion
thereof paid by the Liquidity Provider;
(2) the amount of such distribution under the Pass Through Trust
Agreement allocable to principal and the amount allocable to Make-Whole
Premium (including any premium paid by Midway with respect to unused
Deposits) (if any);
(3) the amount of such distribution under the Pass Through Trust
Agreement allocable to interest;
(4) the amount of such distribution under the Escrow Agreement
allocable to interest;
(5) the amount of such distribution under the Escrow Agreement
allocable to unused Deposits (if any); and
(6) the Pool Balance and the Pool Factor for such Trust. (Section
4.03).
With respect to the Certificates registered in the name of Cede & Co.
("Cede"), as nominee for The Depository Trust Company ("DTC"), on the Record
Date prior to each Distribution Date, the applicable Trustee will request from
DTC a Securities Position Listing setting forth the names of all participants in
DTC who are credited with ownership of such Certificates ("DTC Participants")
reflected on DTC's books as holding interests in the Certificates on such record
date. On each Distribution Date, the applicable Paying Agent and Trustee will
mail to each such DTC Participant the statement described above and will make
available additional copies as requested by such DTC Participant for forwarding
to holders of Certificates.
In addition, after the end of each calendar year, the applicable Trustee
will prepare for each Certificateholder of each Trust at any time during the
preceding calendar year a report containing the sum of the amounts determined
pursuant to clauses (1), (2), (3), (4) and (5) above with respect to the Trust
for such calendar year or, in the event such person was a Certificateholder
during only a portion of such calendar year, for the applicable portion of such
calendar year, and such other items as are readily available to such Trustee and
which a Certificateholder shall reasonably request as necessary for the purpose
of such Certificateholder's preparation of its U.S. federal income tax returns.
(Section 4.03) Such report and such other items shall be prepared on the basis
of information supplied to the applicable Trustee by the DTC Participants and
shall be delivered by such Trustee to such DTC Participants to be available for
forwarding by such DTC Participants to Certificateholders in the manner
described above. See " -- Book-Entry; Delivery and Form."
With respect to the Certificates issued in definitive form, the applicable
Paying Agent and Trustee will prepare and deliver the information described
above to each Certificateholder of record of each Trust as the name of such
Certificateholder appears on the records of the registrar of the Certificates.
Indenture Defaults and Certain Rights Upon an Indenture Default
An event of default under an Indenture (an "Indenture Default") will, with
respect to the Leased Aircraft Indentures, include an event of default under the
related Lease (a "Lease Event of Default").
Since the Equipment Notes issued under each Indenture will be held in more
than one Trust, a continuing event of default under any such Indenture would
affect the Equipment Notes held by each Trust. There are no cross-default
provisions in the Indentures or Leases in effect at any time when the related
Equipment Notes are outstanding. Consequently, events resulting in an Indenture
Default under any particular Indenture may or may not result in an Indenture
Default under any other Indenture. If an Indenture Default occurs under less
than all of the Indentures, notwithstanding the treatment of Equipment Notes
issued under any Indenture under which an Indenture Default has occurred,
payments of principal and interest on the Equipment Notes issued pursuant to the
remaining Indentures with respect to which an Indenture Default has not occurred
will continue to be distributed to the holders of the Certificates as originally
scheduled, subject to the Intercreditor Agreement. See "Description of the
Intercreditor Agreement -- Priority of Distributions."
47
<PAGE>
With respect to each Leased Aircraft, the applicable Owner Trustee and
Owner Participant will, under the related Indenture, have the right under
certain circumstances to cure Indenture Defaults that result from the occurrence
of a Lease Event of Default under the related Lease. If the Owner Trustee or the
Owner Participant exercises any such cure right, the Indenture Default will be
deemed to have been cured.
In the event that the same institution acts as Trustee of multiple Trusts,
in the absence of instructions from the Certificateholders of any such Trust,
such Trustee could be faced with a potential conflict of interest upon an
Indenture Default. In such event, each Trustee has indicated that it would
resign as Trustee of one or all such Trusts, and a successor trustee would be
appointed in accordance with the terms of the applicable Pass Through Trust
Agreement. Allfirst Bank will be the initial Trustee under each Trust.
Upon the occurrence and continuation of any Indenture Default under any
Indenture, the Controlling Party may accelerate and sell all (but not less than
all) of the Equipment Notes issued under such Indenture to any person, subject
to certain limitations. The proceeds of such sale will be distributed pursuant
to the provisions of the Intercreditor Agreement. Any proceeds received by the
applicable Trustee upon any such sale shall be deposited in the applicable
Special Payments Account and shall be distributed to the Certificateholders of
such Trust on a Special Distribution Date. (Sections 4.01 and 4.02). The market
for Equipment Notes at the time of the existence of any Indenture Default may be
very limited, and there can be no assurance as to the price at which they could
be sold. If such Trustee sells any such Equipment Notes for less than their
outstanding principal amount, certain Certificateholders will receive a smaller
amount of principal distributions than anticipated and will not have any claim
for the shortfall against Midway, any Owner Trustee, any Owner Participant, any
Trustee, any Loan Trustee, any Paying Agent or the Liquidity Provider.
Any amount, other than Scheduled Payments received on a Regular
Distribution Date or within five days thereafter, distributed to the Trustee of
any Trust by the Subordination Agent on account of the Equipment Notes or other
Trust Property held in such Trust following an Indenture Default under any
Indenture shall be deposited in the Special Payments Account for such Trust and
shall be distributed to the Certificateholders of such Trust on a Special
Distribution Date. (Section 4.02). In addition, if, following an Indenture
Default under any Leased Aircraft Indenture, the applicable Owner Participant or
Owner Trustee exercises its option to redeem or purchase the outstanding
Equipment Notes issued under such Leased Aircraft Indenture, the price paid by
such Owner Trustee for the Equipment Notes issued under such Leased Aircraft
Indenture and distributed to such Trust by the Subordination Agent shall be
deposited in the Special Payments Account for such Trust and shall be
distributed to the Certificateholders of such Trust on a Special Distribution
Date. (Section 4.02).
Any funds representing payments received with respect to any defaulted
Equipment Notes held in a Trust, or the proceeds from the sale of any Equipment
Notes, held by such Trustee in the Special Payments Account for such Trust
shall, to the extent practicable, be invested and reinvested by such Trustee in
Permitted Investments pending the distribution of such funds on a Special
Distribution Date. (Section 4.04) "Permitted Investments" are defined as
obligations of the United States or agencies or instrumentalities thereof the
payment of which is backed by the full faith and credit of the United States and
which mature in not more than 60 days or such lesser time as is required for the
distribution of any such funds on a Special Distribution Date or any mutual fund
the portfolio of which is limited to such obligations. (Section 1.01).
Each Pass Through Trust Agreement provides that the Trustee of the related
Trust shall, within 90 days after the occurrence of any default known to the
Trustee, give to the Certificateholders of such Trust notice, transmitted by
mail, of all uncured or unwaived defaults with respect to such Trust known to
it, provided that, except in the case of default in the payment of principal,
premium, if any, or interest on any of the Equipment Notes or other Trust
Property held in such Trust, the applicable Trustee shall 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. (Section 7.02).
Each Pass Through Trust Agreement contains a provision entitling the
Trustee of the related Trust, subject to the duty of such Trustee during a
default to act with the required standard of care, to be offered reasonable
security or indemnity by the holders of the Certificates of such Trust before
proceeding to exercise any right or power under such Pass Through Trust
Agreement at the request of such Certificateholders. (Section 7.03(e)).
In certain cases, the holders of the Certificates of a Trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of such Trust may on behalf of the holders of all the Certificates of such Trust
waive any past default under the related Pass Through Trust Agreement or, if the
Trustee of such Trust is the Controlling Party, may direct the Trustee to
instruct the applicable Loan Trustee to waive any past Indenture Default with
respect to such Trust and thereby annul any direction given by all such holders
to such Loan Trustee with respect thereto, except (1) a default in the deposit
of any Scheduled Payment or Special Payment or in the distribution thereof, (2)
a default in payment of the principal, Make-Whole Premium, if any, or interest
with respect to any of the Equipment Notes held in such Trust and (3) a default
in respect of any covenant or provision of the
48
<PAGE>
related Pass Through Trust Agreement that cannot be modified or amended without
the consent of each Certificateholder of such Trust affected thereby. (Section
6.05). Each Indenture will provide that, with certain exceptions, the holders of
the majority in aggregate unpaid principal amount of the Equipment Notes issued
thereunder may on behalf of all such holders waive any past default or Indenture
Default thereunder. Notwithstanding the foregoing provisions of this paragraph,
however, pursuant to the Intercreditor Agreement, only the Controlling Party
will be entitled to waive any such past default or Indenture Default.
Purchase Rights of Certificateholders
Upon the occurrence and during the continuation of a Triggering Event, with
ten days' written notice to the Trustee and each other Certificateholder of the
same Class:
. the Class B Certificateholders shall have the right to purchase all, but
not less than all, of the Class A Certificates, and
. the Class C Certificateholders shall have the right to purchase all, but
not less than all, of the Class A and the Class B Certificates;
in each case at a purchase price equal to the Pool Balance of the relevant Class
or Classes of Certificates plus accrued and unpaid interest thereon to the date
of purchase without Make-Whole 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 Certificates pro rata based on
the interest in the Trust held by each Certificateholder. (Section 6.01(b)).
PTC Event of Default
A "PTC Event of Default" is defined under the Intercreditor Agreement as
the failure to pay within 10 Business Days of the due date thereof either:
. the outstanding Pool Balance of the applicable Class of Certificates on the
Final Legal Distribution Date for such Class; or
. interest due on the applicable Class of Certificates on any Distribution
Date (unless the Subordination Agent shall have made an Interest Drawing,
or a withdrawal from the Cash Collateral Account for such class of
Certificates, with respect thereto in an aggregate amount sufficient to pay
such interest and shall have distributed such amount to the Trustee
entitled thereto).
Any failure to make expected principal distributions on any Class of
Certificates on any Regular Distribution Date (other than the Final Legal
Distribution Date) will not constitute a PTC Event of Default with respect to
such Certificates. A PTC Event of Default with respect to the most senior Class
of Certificates resulting from an Indenture Default under all Indentures, the
acceleration of, or failure to pay at final maturity, all of the outstanding
Equipment Notes or certain bankruptcy or insolvency events involving Midway will
each constitute a "Triggering Event". For a discussion of the consequences of a
Triggering Event, see "Description of the Intercreditor Agreement--Priority of
Distributions.".
Merger, Consolidation and Transfer of Assets
Midway will be prohibited from consolidating with or merging with or into
any other corporation or transferring or leasing all or substantially all of its
assets as an entirety to any other corporation unless, among other things,
. the surviving successor or transferee corporation shall (a) be a "citizen
of the United States" as defined in Section 40102(a)(15) of Title 49 of the
United States Code, as amended, relating to aviation (the "Transportation
Code") and (b) be a United States certificated air carrier so long as such
status is a condition of entitlement to the benefits of Section 1110 of the
U.S. Bankruptcy Code and (c) expressly assume all of the obligations of
Midway contained in the Pass Through Trust Agreements, the Indentures, the
Participation Agreements and the Leases, and any other operative documents;
and
. Midway shall have delivered a certificate and an opinion or opinions of
counsel indicating that such transaction complies with such conditions.
(Section 5.02).
The Pass Through Trust Agreements and the Indentures will not contain any
covenants or provisions which assure the applicable Trustee or
Certificateholders of protection in the event of a highly leveraged transaction,
including transactions effected by our management or affiliates, which may or
may not result in a change in control of Midway.
49
<PAGE>
Modifications of the Pass Through Trust Agreements and Certain other Agreements
Each Pass Through Trust Agreement contains provisions permitting the
execution of amendments or supplements to such Pass Through Trust Agreement or,
if applicable, to the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity Facility,
without the consent of the holders of any of the Certificates of such Trust:
. to evidence the succession of another corporation to Midway and the
assumption by such corporation of Midway's obligations under such Pass
Through Trust Agreement or the Note Purchase Agreement,
. to add to the covenants of Midway for the benefit of holders of such
Certificates or to surrender any right or power conferred upon Midway in
such Pass Through Trust Agreement, the Intercreditor Agreement or the Note
Purchase Agreement,
. to correct or supplement any provision of such Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the Note Purchase
Agreement, the Intercreditor Agreement or any Liquidity Facility which may
be defective or inconsistent with any other provision of such Pass Through
Trust Agreement, the Deposit Agreements, the Escrow Agreements, the Note
Purchase Agreement, the Intercreditor Agreement or any Liquidity Facility,
as applicable, or to cure any ambiguity or to modify any other provisions
with respect to matters or questions arising thereunder, provided such
action shall not materially adversely affect the interests of the holders
of such Certificates,
. as provided in the Intercreditor Agreement, to give effect to or provide
for a Replacement Liquidity Facility,
. to comply with any requirement of the SEC, any applicable law, rules or
regulations of any exchange or quotation system on which the Certificates
are listed, or any regulatory body,
. to modify, eliminate or add to the provisions of such Pass Through Trust
Agreements, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity
Facility to such extent as shall be necessary to qualify or continue the
qualification of such Pass Through Trust Agreement under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), or any
similar federal statute enacted after the execution of such Pass Through
Trust Agreement, and to add to such Pass Through Trust Agreement, the
Deposit Agreements, the Escrow Agreements, the Intercreditor Agreement, the
Note Purchase Agreement or any Liquidity Facility such provisions as may be
expressly permitted by the Trust Indenture Act, and
. to evidence and provide for the acceptance of appointment under such Pass
Through Trust Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity
Facility of a successor Trustee and to add or change any of the provisions
of such Pass Through Trust Agreement, the Deposit Agreements, the Escrow
Agreements, the Intercreditor Agreement, the Note Purchase Agreement or any
Liquidity Facility as shall be necessary to provide for or facilitate the
administration of the Trusts under the Pass Through Trust Agreements by
more than one Trustee.
In each case, such modification or supplement does not adversely affect the
status of the Trust as a grantor trust under Subpart E, Part I of Subchapter J
of Chapter 1 of Subtitle A of the Code for U.S. federal income tax purposes.
(Section 9.01).
Each Pass Through Trust Agreement also contains provisions permitting the
execution, with the consent of the holders of the Certificates of the related
Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust, of amendments or supplements adding any
provisions to or changing or eliminating any of the provisions of such Pass
Through Trust Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity Facility
to the extent applicable to such Certificateholders or of modifying the rights
and obligations of such Certificateholders under such Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the Intercreditor
Agreement, the Note Purchase Agreement or any Liquidity Facility. No such
amendment or supplement may, without the consent of the holder of each
Certificate so affected thereby:
. reduce in any manner the amount of, or delay the timing of, any receipt by
the Trustee (or, with respect to the Deposits, the Receiptholders) of
payments with respect to the Deposits, the Equipment Notes held in such
Trust or distributions in respect of any Certificate related to such Trust,
or change the date or place of any payment in respect of any Certificate,
or make distributions payable in coin or currency other than that provided
for in such Certificates, or impair the right of any Certificateholder of
such Trust to institute suit for the enforcement of any such payment when
due;
. permit the disposition of any Equipment Note held in such Trust, except as
provided in such Pass Through Trust Agreement, or otherwise deprive such
Certificateholder of the benefit of the ownership of the applicable
Equipment Notes;
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. alter the priority of distributions specified in the Intercreditor
Agreement in a manner materially adverse to such Certificateholders;
. reduce the percentage of the aggregate fractional undivided interests of
the Trust provided for in such Pass Through Trust Agreement, the consent of
the holders of which is required for any such supplemental trust agreement
or for any waiver provided for in such Pass Through Trust Agreement; or
. modify any of the provisions relating to the rights of the
Certificateholders in respect of the waiver of Events of Default or receipt
of payment.
In the event that a Trustee, as holder (or beneficial owner through the
Subordination Agent) of any Equipment Note in trust for the benefit of the
Certificateholders of the relevant Trust or as Controlling Party under the
Intercreditor Agreement, receives (directly or indirectly through the
Subordination Agent) a request for a consent to any amendment, modification,
waiver or supplement under any Indenture, any Participation Agreement, any
Lease, any Equipment Note or any other related document, the Trustee shall
forthwith send a notice of such proposed amendment, modification, waiver or
supplement to each Certificateholder of the relevant Trust as of the date of
such notice. The Trustee shall request from the Certificateholders a direction
as to:
. whether or not to take or refrain from taking (or direct the Subordination
Agent to take or refrain from taking) any action which a holder of such
Equipment Note or the Controlling Party has the option to direct,
. whether or not to give or execute (or direct the Subordination Agent to
give or execute) any waivers, consents, amendments, modifications or
supplements as a holder of such Equipment Note or as Controlling Party and
. how to vote (or direct the Subordination Agent to vote) any Equipment Note
if a vote has been called for with respect thereto.
Provided such a request for Certificateholder direction shall have been
made (in the case where the Certificateholders are entitled to direct the
Trustee), in directing any action or casting any vote or giving any consent as
the holder of any Equipment Note (or in directing the Subordination Agent in any
of the foregoing):
. other than as Controlling Party, the Trustee shall vote for or give consent
to any such action with respect to such Equipment Note in the same
proportion as that of (x) the aggregate face amount of all Certificates
actually voted in favor of or for giving consent to such action by such
direction of Certificateholders to (y) the aggregate face amount of all
outstanding certificates of the relevant Trust and
. as the Controlling Party, the Trustee shall vote as directed in such
Certificateholder direction by the Certificateholders evidencing fractional
undivided interests aggregating not less than a majority in interest in the
relevant Trust.
For purposes of the immediately preceding sentence, a Certificate shall
have been "actually voted" if the Certificateholder has delivered to the Trustee
an instrument evidencing such Certificateholder's consent to such direction
prior to two Business Days before the Trustee directs such action or casts such
vote or gives such consent. Notwithstanding the foregoing, but subject to
certain rights of the Certificateholders under the relevant Pass Through Trust
Agreement and subject to the Intercreditor Agreement, the Trustee may, in its
own discretion and at its own direction, consent and notify the relevant Loan
Trustee of such consent (or direct the Subordination Agent to consent and notify
the relevant Loan Trustee of such consent) to any amendment, modification,
waiver or supplement under the relevant Indenture, Participation Agreement or
Lease, any relevant Equipment Note or any other related document, if an
Indenture Default under any Indenture shall have occurred and be continuing, or
if such amendment, modification, waiver or supplement will not materially
adversely affect the interests of the Certificateholders. (Section 10.01).
Termination of The Trusts
The obligations of Midway, if any, and the Trustee with respect to a Trust
will terminate upon the distribution to Certificateholders of such Trust of all
amounts required to be distributed to them pursuant to the applicable Pass
Through Trust Agreement and the disposition of all property held in such Trust.
The Trustee will send to each Certificateholder of record of such Trust notice
of the termination of such Trust, the amount of the proposed final payment and
the proposed date for the distribution of such final payment for such Trust. The
final distribution to any Certificateholder of such Trust will be made only upon
surrender of such Certificateholder's Certificates at the office or agency of
the applicable Trustee specified in such notice of termination. (Section 11.01).
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The Trustee
The Trustee for each Trust will be Allfirst Bank. With certain exceptions,
the Trustee makes no representations as to the validity or sufficiency of the
Pass Through Trust Agreements, the Certificates, the Indentures or other related
documents. (Sections 7.04 and 7.15) The Trustee makes no representations as to
the validity or sufficiency of the Equipment Notes or the Leases. The Trustee of
any Trust shall not be liable, with respect to the Certificates of such Trust,
for any action taken or omitted to be taken by it in good faith in accordance
with the direction of the holders of a majority in principal amount of
outstanding Certificates of such Trust. Subject to certain provisions, the
Trustee shall be under no obligation to exercise any of its rights or powers
under any Pass Through Trust Agreement at the request of any holders of
Certificates issued thereunder unless there shall have been offered to the
Trustee reasonable indemnity or security. (Section 7.03(e)) Each Pass Through
Trust Agreement provides that the Trustee in its individual or any other
capacity may acquire and hold Certificates issued thereunder and, subject to
certain conditions, may otherwise deal with Midway and any Owner Trustee with
the same rights it would have if it were not the Trustee. (Section 7.05). The
Trustee will not be personally liable to any holder of a Certificate for any
amounts payable thereunder.
Book-Entry; Delivery and Form
General
The Certificates of each Trust sold in offshore transactions in reliance on
Regulation S will be represented initially by a single, temporary global
Certificate of such class, in definitive, fully registered form without interest
coupons (the "Temporary Regulation S Global Certificate") and will be deposited
with the Trustee of such Trust as custodian for DTC and registered in the name
of a nominee of DTC for the accounts of Morgan Guaranty Trust Company of New
York, Brussels office, in its capacity as operator of the Euroclear System, and
any successor thereto ("Euroclear") and Clearstream Banking, societe anonyme,
and any successor thereto ("Clearstream"). Each Temporary Regulation S Global
Certificate will be exchangeable for a single, permanent global Certificate of
the same Class (the "Permanent Regulation S Global Certificate," and together
with the Temporary Regulation S Global Certificate, the "Regulation S Global
Certificate") on or after November 6, 2000 upon certification that the
beneficial interests in such global Certificate are owned by persons outside the
United States to whom the Certificates could be transferred in accordance with
Rule 904 of Regulation S. On or prior to the 40th day after the later of the
commencement of this offering and the Closing Date, beneficial interests in the
Temporary Regulation S Global Certificate may be held only through Euroclear or
Clearstream, and any resale or other transfer of such interests to U.S. persons
shall not be permitted during such period unless such resale or transfer is made
pursuant to Rule 144A or Regulation S and in accordance with the certification
requirements described below.
The Certificates of each Trust sold in reliance on Rule 144A will be
represented by a single, permanent global Certificate, in definitive, fully
registered form without interest coupons (the "Restricted Global Certificate")
and will be deposited with the Trustee as custodian for DTC and registered in
the name of a nominee of DTC. The Global Certificates (as defined below) (and
any Certificates issued in exchange therefor) will be subject to certain
restrictions on transfer set forth therein and will bear the legend regarding
such restrictions set forth under "Transfer Restrictions." On or prior to the
40th day after the later of the commencement of this offering and the Closing
Date, a beneficial interest in the Temporary Regulation S Global Certificate may
be transferred to a person who takes delivery in the form of an interest in the
Restricted Global Certificate only upon receipt by the Trustee of a written
certification from the transferor (in the form provided in the applicable Pass
Through Trust Agreement) to the effect that such transfer is being made to a
person who the transferor reasonably believes is a "Qualified Institutional
Buyer" within the meaning of Rule 144A ("QIB") in a transaction meeting the
requirements of Rule 144A and in accordance with any applicable securities laws
of any state of the United States or any other jurisdiction. Beneficial
interests in the Restricted Global Certificate may be transferred to a person
who takes delivery in the form of an interest in the Regulation S Global
Certificate whether before, on or after such 40th day, only upon receipt by the
Trustee of a written certification (in the form provided in the applicable Pass
Through Trust Agreement) to the effect that such transfer is being made in
accordance with Regulation S under the Securities Act and, if such transfer
occurs on or prior to such 40th day, the interest will be held immediately
thereafter only through Euroclear or Clearstream. Any beneficial interest in one
of the Global Certificates that is transferred to a person who takes delivery in
the form of an interest in the other Global Certificate will, upon transfer,
cease to be an interest in such Global Certificate and become an interest in the
other Global Certificate and, accordingly, will thereafter be subject to all
transfer restrictions, if any, and other procedures applicable to beneficial
interests in such other Global Certificate for so long as it remains such an
interest. Except in the limited circumstances described below, owners of
beneficial interests in Global Certificates will not be entitled to receive
physical delivery of Definitive Certificates (as defined below). The
Certificates will not be issuable in bearer form.
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Certificates purchased by or transferred to Institutional Accredited
Investors which are not QIB ("Non-Global Purchasers") will be issued in
definitive, fully registered form without interest coupons ("Definitive
Certificates"). Upon the transfer of Definitive Certificates initially issued to
a Non-Global Purchaser to a QIB or in accordance with Regulation S, such
Definitive Certificates will be exchanged for an interest in a Global
Certificate. See "Transfer Restrictions."
DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code and a "clearing agency"
registered pursuant to the provision of Section 17A of the Exchange Act. DTC was
created to hold securities for its participants and to facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is 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 ("Indirect Participants").
Upon the issuance of the Regulation S Global Certificates and the
Restricted Global Certificates (each, a "Global Certificate" and collectively,
the "Global Certificates"), DTC or its custodian will credit, on its internal
system, the respective principal amount of the individual beneficial interests
represented by such Global Certificates to the accounts of persons who have
accounts with DTC. Such accounts initially will be designated by or on behalf of
the Placement Agents. Ownership of beneficial interests in the Global
Certificates will be limited to persons who have accounts with DTC
("Participants") or persons who hold interests through Participants. Ownership
of beneficial interests in the Global Certificates will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of Participants) and the records
of participants (with respect to interests of persons other than Participants).
The laws of some states require that certain purchasers of securities take
physical delivery of such securities. Such limits and such laws may limit the
market for beneficial interests in the Global Certificates. QIB's may hold their
interests in the Global Certificates directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
So long as DTC or its nominee is the registered owner or holder of the
Global Certificates, DTC or such nominee, as the case may be, will be considered
the sole record owner or holder of the Certificates represented by such Global
Certificates for all purposes under the related Pass Through Trust Agreements.
No beneficial owners of an interest in the Global Certificates will be able to
transfer that interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the Pass Through Trust Agreements and, if
applicable, Euroclear or Clearstream.
Payments of the principal of, premium, if any, and interest on the Global
Certificates will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither Midway, the Trustee, the Loan Trustee nor any
Paying Agent 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 Global Certificates or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Certificates
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial ownership interests in the principal amount of such
Global Certificates, as shown on the records of DTC or its nominee. We also
expect that payments by participants to owners of beneficial interests in such
Global Certificates held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Neither Midway, the Trustee, the Loan Trustee nor any Paying Agent will
have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
The information contained herein concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy thereof.
Definitive Certificates
Definitive Certificates will be issued in certificated form to the
Certificateholders or their nominees, rather than to DTC or its nominee, only if
(1) we advise the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as depository with respect to such
Certificates and we are unable to locate a qualified successor within 90 days of
receipt of such notice or, (2) after the occurrence of certain events of default
or other events specified in the Pass Through Trust Agreements,
Certificateholders with fractional undivided interests aggregating not less than
a majority in interest in such Trust advise the
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Trustee, Midway and DTC through DTC Participants in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the Certificateholders' best interests.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Certificateholders through
DTC Participants of the availability of Definitive Certificates. Upon surrender
by DTC of the certificates representing the Certificates and receipt of
instructions for re-registration, the Trustee will reissue the Certificates as
Definitive Certificates to Certificateholders.
Distributions of principal, premium, if any, and interest with respect to
Certificates will thereafter be made by the Trustee directly in accordance with
the procedures set forth in the Pass Through Trust Agreements, to holders in
whose names the Definitive Certificates were registered at the close of business
on the applicable Record Date. Such distributions will be made by check mailed
to the address of such holder as it appears on the register maintained by the
Trustee. The final payment on any Certificate, however, will be made only upon
presentation and surrender of such Certificate at the office or agency specified
in the notice of final distribution to Certificateholders.
Definitive Certificates issued in exchange for the Restricted Global
Certificates will bear the legend referred to under the heading "Transfer
Restrictions" and will be transferable and exchangeable at the office of the
Trustee upon compliance with the requirements set forth in the Pass Through
Trust Agreements. 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 shall be required.
Description of the Deposit Agreements
The following summary describes all material terms of the Deposit
Agreements. The summary does not purport to be complete and is qualified in its
entirety by reference to all of the provisions of the Deposit Agreements. The
provisions of the Deposit Agreements are substantially identical except as
otherwise indicated. Upon request, copies of such documents will be furnished to
any prospective investor in the Certificates. Requests for such documents should
be addressed to the Trustee.
General
Under the Escrow Agreements, the Escrow Agent with respect to each Trust
will enter into a separate Deposit Agreement (each, a "Deposit Agreement") with
Allfirst Bank (the "Depositary") pursuant to which the Depositary will establish
a separate account in the name of the Escrow Agent (each such account, a
"Deposit Account") into which the proceeds of the offering attributable to
Certificates of such Trust will be deposited (each, a "Deposit") on behalf of
such Escrow Agent, from which the Escrow Agent, upon request from the Trustee of
such Trust, will make withdrawals and into which such Trustee will make
re-deposits during the Delivery Period.
Pursuant to the Deposit Agreement with respect to each Trust, on each
Regular Distribution Date the Depositary will pay to the Paying Agent on behalf
of the applicable Escrow Agent, for distribution to the Certificateholders of
such Trust, an amount equal to interest accrued on the Deposits relating to such
Trust during the relevant interest period at a rate per annum equal to the
interest rate applicable to the Certificates issued by such Trust.
Upon each delivery of an Aircraft during the Delivery Period, the Trustee
for each Trust will request the Escrow Agent relating to such Trust to withdraw
from the Deposits relating to such Trust funds sufficient to enable the Trustee
of such Trust to purchase the Equipment Note of the series applicable to such
Trust issued with respect to such Aircraft. Accrued but unpaid interest on all
such Deposits withdrawn will be paid on the next Regular Distribution Date. Any
portion of any Deposit withdrawn which is not used to purchase such Equipment
Note will be re-deposited by each Trustee into an account relating to the
applicable Trust.
The Deposits relating to each Trust and interest paid thereon will not be
subject to the subordination provisions of the Intercreditor Agreement and will
not be available to pay any other amount in respect of the Certificates.
Unused Deposits
The Trustees' obligations to purchase the Equipment Notes issued with
respect to each Aircraft are subject to satisfaction of certain conditions at
the time of delivery, as set forth in the Note Purchase Agreement. See
"Description of the Certificates -- Obligation to Purchase Equipment Notes."
Since the Aircraft are scheduled for delivery from time to time during the
Delivery Period, no assurance can be given that all such conditions will be
satisfied at the time of delivery for each Aircraft. Moreover, since the
Aircraft will be newly manufactured, their delivery as scheduled is subject to
delays in the manufacturing process and to the Aircraft manufacturer's right to
postpone deliveries under its agreement with Midway. See "Description of the
Aircraft and
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Appraisals - Deliveries of Aircraft." Depending on the circumstances of the
financing of each Aircraft, the maximum aggregate principal amount of Equipment
Notes may not be issued.
If any funds remain as Deposits with respect to any Trust at the Delivery
Period Termination Date (or, if earlier, upon the acquisition by the Trusts of
the Equipment Notes with respect to all of the Aircraft, scheduled (or
rescheduled) for delivery prior to the Delivery Period Termination Date) such
funds will be withdrawn by the Escrow Agent and distributed, with accrued and
unpaid interest thereon, to the Certificateholders of such Trust after at least
15 days' prior written notice. If unused Deposits distributed with respect to
all of the Trusts exceed the Par Redemption Amount, such distribution will
include a premium on any excess unused Deposits above the Par Redemption Amount
payable by Midway equal to the Deposit Make-Whole Premium, provided that no
premium shall be paid with respect to the Non-Delivery Redemption Amount.
"Deposit Make-Whole Premium" means, with respect to the distribution of
unused Deposits to holders of any Class of Certificates, as of any date of
determination, an amount equal to the excess, if any, of (a) the present value
of the excess of (1) the scheduled payment of principal and interest to maturity
of the related series of Equipment Notes, assuming the maximum principal amount
thereof (the "Maximum Amount") minus the sum of (x) such Class of Certificates'
proportionate share (in the same proportion that the amount of unused Deposits
with respect to such Class of Certificates bears to the unused Deposits with
respect to all Classes of Certificates) of the Par Redemption Amount (after
deducting any Non-Delivery Redemption Amount) and (y) the portion of the
Non-Delivery Redemption Amount attributable to such Class were issued, on each
remaining Regular Distribution Date for such Class under the Assumed
Amortization Schedule over (2) the scheduled payment of principal and interest
to maturity of the Equipment Notes actually acquired by the Trustee for such
Class on each such Regular Distribution Date, such present value computed by
discounting such excess 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 plus 300 basis points in the case of the Class A
Certificates, 425 basis points in the case of the Class B Certificates and 515
basis points in the case of the Class C Certificates, over (b) the amount of
such unused Deposits to be distributed to the holders of such Certificates,
minus the sum of (x) such Class of Certificates' proportionate share of the Par
Redemption Amount and (y) the portion of the Non-Delivery Redemption Amount
attributable to such Class, plus accrued and unpaid interest on such net amount
to but excluding the date of determination from and including the preceding
Regular Distribution Date (or, if such date of determination precedes the first
Regular Distribution Date, the date of issuance of the Certificates).
Distribution Upon Occurrence of Triggering Event
If a Triggering Event shall occur prior to the Delivery Period Termination
Date, the Escrow Agent for each Trust will withdraw any funds then held as
Deposits with respect to such Trust and cause such funds, with accrued and
unpaid interest thereon but without any premium, to be distributed to the
Certificateholders of such Trust by the Paying Agent on behalf of the Escrow
Agent, after at least fifteen (15) days' prior written notice. Accordingly, if a
Triggering Event occurs prior to the Delivery Period Termination Date, the
Trusts will not acquire Equipment Notes issued with respect to Aircraft
delivered after the occurrence of such Triggering Event.
Depositary
Allfirst Bank will act as the Depositary. The Depositary's address is 25
South Charles Street, Mail Code 101-591, Baltimore, Maryland 21201 Attention:
Corporate Trust Department, telephone (410) 244-4626 facsimile (410) 244-4236.
Allfirst Bank (formerly The First National Bank of Maryland) is a Maryland
state-chartered commercial bank with trust powers. Allfirst Bank commenced
operations in Baltimore, Maryland on July 10, 1865 and is a successor to a
Maryland banking institution founded in 1806.
At June 30, 2000, Allfirst Bank had assets of $16.9 billion, net loans of
$10.8 billion, and deposits of $12.2 billion, and was the largest bank
headquartered in Maryland. Allfirst Bank operates over 255 full-service branch
offices and over 575 ATMs in Maryland, Pennsylvania, Washington, D.C., Delaware
and Northern Virginia.
Allfirst Financial Inc. (formerly First Maryland Bancorp), the parent
company, is incorporated under the laws of Delaware and is registered as a bank
holding company under the Bank Holding Company Act of 1956. Its principal
subsidiary is Allfirst Bank, the assets of which accounted for approximately 94%
of Allfirst Financial Inc.'s consolidated total assets at June 30, 2000.
Allfirst Financial Inc. is a subsidiary of Allied Irish Banks, p.l.c., whose
securities are traded on the London, Dublin and New York stock exchanges. Allied
Irish Banks, p.l.c. is the largest banking corporation organized under the laws
of Ireland based upon total assets. Under United States generally accepted
accounting principles, Allied Irish Banks, p.l.c. and its subsidiaries had total
assets of approximately $67.0 billion at December 31, 1999.
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The current ratings of Allfirst Bank are as follows:
Moody's Standard & Poor's
------- ----------------
Short Term Deposits and Letters of Credit: P-1 A-1
Long Term Deposits and Letters of Credit: A-1 A
Allfirst Bank files quarterly reports called "Consolidated Reports of
Condition and Income for a Bank with Domestic and Foreign Offices" ("Call
Reports") with the Federal Deposit Insurance Corporation. The Call Reports are
publicly available at the Federal Deposit Insurance Corporation, 550 17/th/
Street, N.W., Washington, D.C. 20429. Each Call Report consists of a balance
sheet, income statement, changes in equity capital and other supporting
schedules as of the end of the period to which the report relates. The Call
Reports are prepared substantially in accordance with generally accepted
accounting principles. While the Call Reports are supervisory and regulatory
documents, not primarily accounting documents, and do not provide a complete
range of financial disclosures about Allfirst Bank, they nevertheless provide
important information concerning the financial condition of Allfirst Bank.
In addition, financial information regarding Allfirst Financial Inc. is
contained in its Annual Report on Form 10-K and the Quarterly Reports on Form
10-Q as filed by Allfirst Financial Inc. with the SEC pursuant to the Exchange
Act. Copies of these reports are available from the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 or over the Internet on the SEC's website at
http://www.sec.gov.
Any of the above reports are available upon request, without charge, by
writing to Richard C. Cumbers, Vice President, Allfirst Financial Inc., 25 South
Charles Street, MS109-600, Baltimore, Maryland 21201 (telephone number: (410)
244-4000).
The descriptions of Allfirst Bank, Allfirst Financial Inc. and Allied Irish
Banks, p.l.c. above have been provided by the respective parties. None of
Allfirst Bank, Allfirst Financial Inc. or Allied Irish Banks, p.l.c., however,
has been involved in the preparation of or accepts responsibility for this
offering memorandum.
DESCRIPTION OF THE ESCROW AGREEMENTS
The following summary describes all material terms of the Escrow
Agreements. The summary does not purport to be complete and is qualified in its
entirety by reference to all of the provisions of the Escrow Agreements. The
provisions of the Escrow Agreements are substantially identical except as
otherwise indicated. Upon request, copies of such documents will be furnished to
any prospective investor in the Certificates. Requests for such documents should
be addressed to the Trustee.
First Union Trust Company, National Association, as escrow agent for each
Trust (each the "Escrow Agent"), each Paying Agent, each Trustee and the
Placement Agents will enter into a separate Escrow and Paying Agent Agreement
(each, an "Escrow Agreement") for the benefit of the Certificateholders of each
Trust as holders of the Escrow Receipts affixed thereto (in such capacity, a
"Receiptholder"). The cash proceeds of the offering of Certificates of each
Trust will be deposited on behalf of the Escrow Agent (for the benefit of
Receiptholders) with the Depositary as Deposits relating to such Trust.
The Escrow Agent of each Trust will be given irrevocable instructions (1)
to permit the Trustee of such Trust to cause funds to be withdrawn from such
Deposits on or prior to the Delivery Period Termination Date for the purpose of
enabling such Trustee to purchase Equipment Notes on and subject to the terms
and conditions of the Note Purchase Agreement and (2) to direct the Depositary
to pay interest on the Deposits accrued in accordance with the Deposit Agreement
to the Paying Agent for distribution to the Receiptholders.
Each Escrow Agreement requires that the Paying Agent establish and
maintain, for the benefit of the related Receiptholders, one or more Paying
Agent Account(s), which shall be non-interest-bearing. Pursuant to the terms of
the Escrow Agreement, the Paying Agent is required to deposit interest on
Deposits relating to each Trust and any unused Deposits withdrawn by the Escrow
Agent in the Paying Agent Account. All amounts so deposited will be distributed
by the Paying Agent on a Regular Distribution Date or Special Distribution Date,
as appropriate.
Upon receipt by the Depositary on behalf of the Escrow Agent of the cash
proceeds from the offering of the Certificates as described above, the Escrow
Agent will issue one or more escrow receipts ("Escrow Receipts") which will be
affixed by the relevant Trustee to each Certificate. Each Escrow Receipt
evidences a fractional undivided interest in amounts from time to time
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deposited into the Paying Agent Account and is limited in recourse to amounts
deposited into such Account. An Escrow Receipt may not be assigned or
transferred except in connection with the assignment or transfer of the
Certificate to which it is affixed. Each Escrow Receipt will be registered by
the Escrow Agent in the same name and manner as the Certificate to which it is
affixed.
DESCRIPTION OF THE LIQUIDITY FACILITIES
The following summary describes certain terms of the Liquidity Facilities
and certain provisions of the Intercreditor Agreement relating to the Liquidity
Facilities. The summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Liquidity Facilities and such
provisions of the Intercreditor Agreement. The provisions of the Liquidity
Facilities are substantially identical except as otherwise indicated. Upon
request, copies of such documents will be furnished to any prospective investor
in the Certificates. Requests for such documents should be addressed to the
Trustee.
General
The Liquidity Provider will enter into a separate revolving credit
agreement with the Subordination Agent (each, a "Liquidity Facility") with
respect to the Certificates of each Trust pursuant to which the Liquidity
Provider will make one or more advances to the Subordination Agent that will be
used solely to pay interest on such Certificates when due, subject to certain
limitations. The Liquidity Facility for each Trust is intended to enhance the
likelihood of timely receipt by the Certificateholders of the interest payable
on the Certificates of that Trust at their Stated Interest Rate on up to three
consecutive semiannual Regular Distribution Dates. If interest payment defaults
occur which exceed the amount covered by or available under the Liquidity
Facility for a Trust, the Certificateholders of that Trust will bear their
allocable share of the deficiencies to the extent that there are no other
sources of funds. Although MSCS is the initial Liquidity Provider for each
Trust, MSCS may be replaced by one or more other entities with respect to the
Trusts under certain circumstances. Therefore, the liquidity providers may
differ. The obligations of MSCS to make advances under the Liquidity Facilities
will be fully and unconditionally guaranteed by MSDW.
Drawings
The aggregate amount available under the Liquidity Facilities for each
Trust at October 1, 2001 the first Regular Distribution Date that occurs after
all the Aircraft are scheduled to have been delivered, assuming that Equipment
Notes in the maximum principal amount with respect to all Aircraft are acquired
by the Trusts, that all interest and principal due on or prior to October 1,
2001, is paid, and that the Exchange Offer is consummated before October 1, 2001
will be $16,818,691, $7,649,156, and $1,919,589, respectively.
Except as otherwise provided below, the Liquidity Facility for each Trust
will enable the Subordination Agent to make interest drawings ("Interest
Drawings") thereunder on any Regular Distribution Date to pay interest then due
and payable on the Certificates of such Trust at the Stated Interest Rate for
such 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 a Liquidity Facility with respect
to any Trust on any Regular Distribution Date to fund any shortfall of interest
on Certificates of such Trust will not exceed the then Maximum Available
Commitment under such Liquidity Facility.
"Maximum Available Commitment" at any time under each Liquidity Facility is
an amount equal to the then Required Amount of such Liquidity Facility less the
aggregate amount of each Interest Drawing outstanding under such Liquidity
Facility at such time, provided that following a Downgrade Drawing, a Final
Drawing or a Non-Extension Drawing under a Liquidity Facility, the Maximum
Available Commitment under such Liquidity Facility will be zero.
"Required Amount" means, for any day and with respect to any Trust, the sum
of the aggregate amount of interest, calculated at the Stated Interest Rate
applicable to the Certificates issued by such Trust, that would be payable on
such Certificates on each of the three successive semiannual Regular
Distribution Dates immediately following such day or, if such day is a Regular
Distribution Date, on such day and the succeeding two Regular Distribution
Dates, in each case calculated based on the Pool Balance for such Class on such
day and without regard to expected future payments of principal on such
Certificates.
The Liquidity Facility for any Class of Certificates will not provide for
drawings thereunder to pay for principal of or premium on the Certificates of
such Class or any interest on the Certificates of such Class in excess of the
Stated Interest Rate for such Class or more than three semiannual installments
of interest thereon or principal of or interest or premium on the Certificates
of any other Class. (Liquidity Facilities, Section 2.2; Intercreditor Agreement,
Section 3.6) In addition, the Liquidity Facility with respect to each Trust will
not provide for drawings thereunder to pay any amounts payable with respect to
the Deposits relating to such Trust.
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Each payment by the Liquidity Provider will reduce by the same amount the
Maximum Available Commitment under such Liquidity Facility, subject to
reinstatement as hereinafter described. With respect to any Interest Drawings
under a Liquidity Facility, upon reimbursement of the Liquidity Provider in full
for the amount of such Interest Drawings plus interest thereon, the Maximum
Available Commitment under such Liquidity Facility shall be reinstated to an
amount not to exceed the then Required Amount of such Liquidity Facility;
provided, however, that such Liquidity Facility shall not be so reinstated at
any time after (1) a Liquidity Event of Default has occurred and is continuing
and (2) less than 65% of the then aggregate outstanding principal amount of all
Equipment Notes are Performing Equipment Notes (Liquidity Facilities, Section
2.02(a)). With respect to any other drawings under such Liquidity Facility,
amounts available to be drawn thereunder are not subject to reinstatement.
Following the reduction of the Pool Balance for the applicable Trust, the
Maximum Commitment of the Liquidity Facility for such Trust will be
automatically reduced from time to time to an amount equal to the Required
Amount for such Trust. (Liquidity Facilities, Section 2.04(a)).
"Performing Equipment Note" means an Equipment Note issued pursuant to an
Indenture with respect to which no payment default has occurred and is
continuing (without giving effect to any acceleration); provided that if a
bankruptcy proceeding is commenced involving Midway under the U.S. Bankruptcy
Code, any payment default existing during the 60-day period under Section
1110(a)(2)(A) of the U.S. Bankruptcy Code (or such longer period as may apply
under Section 1110(b) of the U.S. Bankruptcy Code) (the "Section 1110 Period")
will not be taken into consideration, unless during the Section 1110 Period the
trustee in such proceeding or Midway (a) fails to agree pursuant to Section 1110
of the U.S. Bankruptcy Code to perform its obligations under the Lease related
to such Equipment Note (in the case of a Leased Aircraft) or under the Owned
Aircraft Indenture related to such Equipment Note (in the case of an Owned
Aircraft) or (b) does not cure any such payment default under Section
1110(a)(2)(B) of the U.S. Bankruptcy Code before the expiration of the period
applicable thereto as specified in such Section 1110(a)(2)(B). (Intercreditor
Agreement, Section 1.1).
Replacement of Liquidity Facilities
If at any time (1) the short-term unsecured debt rating of the Liquidity
Provider for any Trust or, if applicable, of any guarantor of the obligations of
a Liquidity Provider then issued by either Rating Agency is lower than the
Threshold Rating applicable to such Trust, or (2) any guarantee of a Liquidity
Provider's obligations under the relevant Liquidity Facilities becomes invalid
or unenforceable, then the Liquidity Facility provided by such Liquidity
Provider may be replaced by a Replacement Facility. If such Liquidity Facility
is not replaced with a Replacement Facility within 10 days after notice of the
downgrading or such guarantee becoming invalid or unenforceable and as otherwise
provided in the Intercreditor Agreement, the Subordination Agent will draw the
then Maximum Available Commitment under such Liquidity Facility (the "Downgrade
Drawing"). The Subordination Agent will deposit the proceeds of any Downgrade
Drawing in a cash collateral account (the "Cash Collateral Account") for such
Class of Certificates and will use these proceeds for the same purposes and
under the same circumstances and subject to the same conditions as cash payments
of Interest Drawings under such Liquidity Facility would be used. (Liquidity
Facilities, Section 2.02(c); Intercreditor Agreement, Section 3.6(c)).
A "Replacement Liquidity Facility" for any Liquidity Facility means an
irrevocable liquidity facility (or liquidity facilities) in substantially the
form of the replaced Liquidity Facility, including reinstatement provisions, or
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 Certificates (before downgrading of such ratings, if any, as a result of
the downgrading of the applicable Liquidity Provider), in a face amount (or in
an aggregate face amount) equal to the amount of interest payable on the
Certificates of such Trust (at the Stated Interest Rate for such Trust, and
without regard to expected future principal payments) on the three Regular
Distribution Dates following the date of replacement of such Liquidity Facility
and issued by a person (or persons) having unsecured short-term debt ratings
issued by both Rating Agencies that are equal to or higher than the Threshold
Rating for the relevant Class. (Intercreditor Agreement, Section 1.1). The
provider of any Replacement Facility will have the same rights (including,
without limitation, priority distribution rights and rights as "Controlling
Party") under the Intercreditor Agreement as the replaced initial Liquidity
Provider.
"Threshold Rating" means the short-term unsecured debt rating of P-1 by
Moody's and A-1 by Standard & Poor's, in the case of the Liquidity Provider for
each Trust.
The Liquidity Facility for each Trust will provide that the relevant
Liquidity Provider's obligations thereunder will expire on the earliest of:
. 364 days after the initial issuance date of the Certificates ("Issuance
Date").
. The date on which the Subordination Agent delivers to such Liquidity
Provider a certification that all of the Certificates of such Trust have
been paid in full.
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. The date on which the Subordination Agent delivers to such Liquidity
Provider a certification that a Replacement Liquidity Facility has been
substituted for such Liquidity Facility.
. The fifth Business Day following receipt by the Subordination Agent of a
Termination Notice from such Liquidity Provider (see "--Liquidity Events of
Default").
. The date on which no amount is or may (by reason of reinstatement) become
available for drawing under such Liquidity Facility.
. The date on which the Liquidity Provider honors a Downgrade Drawing, a
Non-Extension Drawing or a Final Drawing. (Liquidity Facilities, Sections
1.01 and 2.04(b)).
Each Liquidity Facility provides that the scheduled expiration date thereof
may be extended for additional 364-day periods by mutual agreement.
The Intercreditor Agreement will provide for the replacement of any
Liquidity Facility for any Trust if it is scheduled to expire earlier than 15
days after the Final Legal Distribution Date for the Certificates of such Trust
if such Liquidity Facility is not extended at least 25 days prior to its then
scheduled expiration date. If such Liquidity Facility is not so extended or
replaced by the 25th day prior to its then scheduled expiration date, the
Subordination Agent will draw its then Maximum Available Commitment (the
"Non-Extension Drawing"). The Subordination Agent will deposit the proceeds of
the Non-Extension Drawing in the Cash Collateral Account for the related Class
of Certificates as cash collateral to be used for the same purposes and under
the same circumstances, and subject to the same conditions, as cash payments of
Interest Drawings under such Liquidity Facility would be used. (Liquidity
Facilities, Section 2.02(b); Intercreditor Agreement, Section 3.6(d)).
Subject to certain limitations, Midway may, at its option, arrange for a
Replacement Liquidity Facility at any time to replace any Liquidity Facility for
any Trust (including without limitation any Replacement Liquidity Facility
described in the following sentence). In addition, any Liquidity Provider may,
at its option, arrange for a Replacement Liquidity Facility to replace a
non-extended Liquidity Facility during the period no earlier than 40 days and no
later than 25 days prior to the then scheduled expiration date of such Liquidity
Facility. (Intercreditor Agreement, Section 3.6(c) and (e)) If any Replacement
Liquidity Facility is provided at any time after a Downgrade Drawing or a
Non-Extension Drawing under any Liquidity Facility, the funds with respect to
such Liquidity Facility on deposit in the Cash Collateral Account for such Trust
will be returned to the Liquidity Provider being replaced. (Intercreditor
Agreement, Section 3.6(f)).
Upon receipt by the Subordination Agent of a Termination Notice with
respect to any Liquidity Facility from the applicable Liquidity Provider, the
Subordination Agent will request a final drawing ("Final Drawing") under such
Liquidity Facility in an amount equal to the then Maximum Available Commitment
thereunder. The Subordination Agent will hold the proceeds of such Final Drawing
in the Cash Collateral Account for the related Trust as cash collateral to be
used for the same purposes and under the same circumstances, and subject to the
same conditions, as cash payments of Interest Drawings under such Liquidity
Facility would be used. (Liquidity Facilities, Section 2.02(d); Intercreditor
Agreement, Section 3.6(i)).
Reimbursement of Drawings
The Subordination Agent must reimburse amounts drawn under any Liquidity
Facility by reason of an Interest Drawing, Final Drawing, Downgrade Drawing or
Non-Extension Drawing and interest thereon, but only to the extent that the
Subordination Agent has funds available therefor after giving effect to the
payments in accordance with the provisions set forth under "Description of
Intercreditor Agreement -- Priority of Distributions".
Interest Drawings and Final Drawings
Amounts drawn by reason of an Interest Drawing or Final Drawing will be
immediately due and payable, together with interest on the amount of such
drawing. From the date of each such drawing to (but excluding) the third
Business Day thereafter, interest will accrue at the Base Rate plus 2.25% per
annum. Thereafter, interest will accrue at LIBOR for the applicable interest
period plus 2.25% per annum. In the case of the Final Drawing, however, the
Subordination Agent may (x) convert the Final Drawing into a drawing bearing
interest at the Base Rate plus 2.25% per annum on the last day of an Interest
Period for such Drawing or (y) elect to maintain the Final Drawing as a drawing
bearing interest at Base Rate plus 2.25% per annum from the date of the Final
Drawing.
"Base Rate" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum is at all times equal to (a) the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or if such rate is not so published for any
day that is a Business Day, the
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average of the quotations for such day for such transactions received by the
applicable Liquidity Provider from three Federal funds brokers of recognized
standing selected by it, plus (b) one-quarter of one percent (1/4 of 1%) per
annum.
"LIBOR" means, with respect to any interest period, (1) the rate per annum
appearing on display page 3750 (British Bankers Association - LIBOR) of the Dow
Jones Markets Service (or any successor or substitute therefor) at approximately
11:00 A.M. (London time) two Business Days before the first day of such interest
period, as the rate for dollar deposits with a maturity comparable to such
interest period, or (2) if the rate calculated pursuant to clause (1) above is
not available, the average (rounded upwards, if necessary, to the next 1/16 of
1%) of the rates per annum at which deposits in dollars are offered for the
relevant interest period by three banks of recognized standing selected by the
applicable Liquidity Provider in the London interbank market at approximately
11:00 A.M. (London time) two Business Days before the first day of such interest
period in an amount approximately equal to the principal amount of the advance
to which such interest period is to apply and for a period comparable to such
interest period.
Downgrade Drawings and Non-extension Drawings
The amount drawn under any Liquidity Facility by reason of a Downgrade
Drawing or a Non-Extension Drawing will be treated as follows:
. Such amount will be released on any Distribution Date to the applicable
Liquidity Provider to the extent that such amount exceeds the Required
Amount.
. Any portion of such amount withdrawn from the Cash Collateral Account for
such Certificates to pay interest on such Certificates will be treated in
the same way as Interest Drawings.
. The balance of such amount will be invested in Eligible Investments (as
defined in the Intercreditor Agreement).
A Downgrade Drawing or Non-Extension Drawing under each Liquidity Facility,
other than any portion thereof applied to the payment of interest on the
Certificates of the applicable Class will bear interest at (x) the greater of
(A) an amount equal to the earnings, if any, plus 0.50% per annum on funds on
deposit in the Cash Collateral Account for such Class for the relevant interest
period and (B) interest on the outstanding amount from time to time of such
Downgrade Drawing or Non-Extension Drawing, (1) at the Base Rate plus 0.50% per
annum with respect to the period from the date of such drawing to (but
excluding) the third Business Day following the applicable Liquidity Provider's
receipt of the notice of such drawing, (2) thereafter subject to clause (y)
below, at a rate equal to LIBOR for the applicable interest period plus 0.50%
per annum, and (y) from and after the date, if any, on which it is converted
into a Final Drawing as described below under "-- Liquidity Events of Default",
at a rate equal to LIBOR for the applicable Interest Period (or, as described in
the fourth preceding paragraph, the Base Rate) plus 2.25% per annum. (Liquidity
Facilities, Sections 2.06 and 3.07)
Liquidity Events of Default
Events of Default under each Liquidity Facility (each, a "Liquidity
Event of Default") will consist of:
. The acceleration of all the Equipment Notes.
. Certain bankruptcy or similar events involving Midway. (Liquidity
Facilities, Section 1.01)
. If (1) a Liquidity Event of Default under any Liquidity Facility shall have
occurred and be continuing and (2) less than 65% of the then aggregate
outstanding principal amount of all Equipment Notes are Performing
Equipment Notes, the applicable Liquidity Provider may, in its discretion,
give a notice of termination of such Liquidity Facility (a "Termination
Notice"). The Termination Notice will have the following consequences:
. The related Liquidity Facility will expire on the fifth Business Day after
the date on which such Termination Notice is received by the Subordination
Agent.
. The Subordination Agent will promptly request, and the applicable Liquidity
Provider will make, a Final Drawing thereunder in an amount equal to the
then Maximum Available Commitment thereunder.
. Any Drawing remaining unreimbursed as of the date of termination will be
automatically converted into a Final Drawing under such Liquidity Facility.
. All amounts owing to the applicable Liquidity Provider automatically will
be accelerated.
Notwithstanding the foregoing, the Subordination Agent will be obligated to
pay amounts owing to the applicable Liquidity Provider only to the extent of
funds available therefor after giving effect to the payments in accordance with
the provisions set
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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 - Controlling Party," a Liquidity Provider may become the Controlling
Party with respect to the exercise of remedies under the Indentures.
(Intercreditor Agreement, Section 2.6(c)).
Liquidity Provider
The initial liquidity provider for the Class A Trust, the Class B Trust and
the Class C Trust will be MSCS (including any replacement therefor, the
"Liquidity Provider"). MSCS, a subsidiary of MSDW, commenced operation in August
1985 and was established to conduct, primarily as principal, an interest rate,
currency and equity derivatives products business. MSCS also engages in a
variety of other related transactions.
MSDW, the guarantor of MSCS's obligations under its Liquidity Facilities,
is a global financial services firm. MSDW has long-term unsecured debt ratings
of Aa3 from Moody's and A+ from S&P and short-term unsecured debt ratings of P-1
from Moody's and A-1 from S&P. MSDW files reports, proxy statements and other
information with the SEC pursuant to the information requirements of the
Exchange Act. Such information can be inspected and copied at the public
reference facilities of the SEC, or electronically accessed through the
Internet.
The descriptions of MSCS and MSDW above have been provided by the
respective parties. None of MSCS or MSDW, however, has been involved in the
preparation of or accepts responsibility for this offering memorandum. Morgan
Stanley & Co. Incorporated, a subsidiary of MSDW and an affiliate of MSCS, will
act as a Placement Agent for the Certificates.
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DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following summary describes certain provisions of the Intercreditor
Agreement. The summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Intercreditor Agreement. Upon
request, copies of the Intercreditor Agreement will be furnished to any
prospective investor in the Certificates. Requests for such document should be
addressed to the Trustee.
Intercreditor Rights
Controlling Party
With respect to any Indenture at any given time, the Trustee and the
Liquidity Provider will agree that the Loan Trustee under such Indenture will be
directed in taking, or refraining from taking, any action under such Indenture
or with respect to the Equipment Notes issued under such Indenture, by the
holders of at least a majority of the outstanding principal amount of the
Equipment Notes issued under such Indenture, so long as no Indenture Default
(which, with respect to Leased Aircraft, has not been cured by the applicable
Owner Trustee or Owner Participant) has occurred and is continuing under such
Indenture. For so long as the Subordination Agent is the registered holder of
the Equipment Notes, the Subordination Agent will act with respect to the
preceding sentence in accordance with the directions of the Trustees for whom
the Equipment Notes issued under such Indenture are held as Trust Property, to
the extent constituting, in the aggregate, directions with respect to the
required principal amount of Equipment Notes.
At any time an Indenture Default has occurred and is continuing under an
Indenture (which, with respect to Leased Aircraft, has not been cured by the
applicable Owner Trustee or Owner Participant), the Loan Trustee under such
Indenture will be directed in taking, or refraining from taking, any action
thereunder or with respect to the Equipment Notes issued under the related
Indenture, including acceleration of such Equipment Notes or foreclosing the
lien on the related Aircraft, by the Controlling Party, subject to the
limitations described below. (Intercreditor Agreement, Section 2.6(a)).
Notwithstanding the foregoing, no amendment, modification, consent or waiver
will, without the consent of each Liquidity Provider, reduce the amount of rent,
supplemental rent or termination values payable by Midway under any Lease or
reduce the amount of principal or interest payable by Midway under any Equipment
Note issued under any Owned Aircraft Indenture. (Intercreditor Agreement,
Section 9.1(b)) See "Description of the Certificates--Indenture Defaults and
Certain Rights Upon an Indenture Default" for a description of the rights of the
Certificateholders of each Trust to direct the respective Trustees.
The Controlling Party will be:
. The Class A Trustee until payment of Final Distributions to holders of
Class A Certificates; and thereafter;
. The Class B Trustee until payment of Final Distributions to the holders of
Class B Certificates; and thereafter;
. The Class C Trustee; and
. Under certain circumstances, and notwithstanding the foregoing, the
Liquidity Provider with the highest outstanding amount of unreimbursed
Liquidity Obligations as discussed in the next paragraph. (Intercreditor
Agreement, Section 2.6(c)).
At any time after 18 months from the earliest to occur of (x) the date on
which the entire available amount under any Liquidity Facility has been drawn
(for any reason other than a Downgrade Drawing or a Non-Extension Drawing) and
any amount remains unreimbursed, (y) the date on which the entire amount of any
Downgrade Drawing or Non-Extension Drawing has been withdrawn from the relevant
Cash Collateral Account to pay interest on the relevant Class of Certificates
and remains unreimbursed and (z) the date on which all Equipment Notes have been
accelerated, the Liquidity Provider with the highest outstanding amount of
unreimbursed Liquidity Obligations (so long as such Liquidity Provider has not
defaulted in its obligation to make any advance under any Liquidity Facility)
will have the right to become the Controlling Party with respect to any
Indenture.
For purposes of giving effect to the rights of the Controlling Party, the
Trustees (other than the Controlling Party) will irrevocably agree, and the
Certificateholders (other than the Certificateholders represented by the
Controlling Party) will be deemed to agree by virtue of their purchase of
Certificates, that the Subordination Agent, as record holder of the Equipment
Notes, will exercise its voting rights in respect of the Equipment Notes as
directed by the Controlling Party. (Intercreditor Agreement, Section 2.6(b)).
For a description of certain limitations on the Controlling Party's rights to
exercise remedies, see "Description of the Equipment Notes--Remedies.
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"Final Distributions" means, with respect to the Certificates of any Trust
on any Distribution Date, the sum of (x) the aggregate amount of all accrued and
unpaid interest on such Certificates (excluding interest payable, if any, on the
Deposits relating to such Trust) and (y) the Pool Balance of such Certificates
as of the immediately preceding Distribution Date (less the amount of the
Deposits for such Class of Certificates as of such preceding Distribution Date
other than any portion of such Deposits thereafter used to acquire Equipment
Notes pursuant to the Note Purchase Agreement). For purposes of calculating
Final Distributions with respect to the Certificates of any Trust, any premium
paid on the Equipment Notes held in such Trust that has not been distributed to
the Certificateholders of such Trust (other than such premium or a portion
thereof applied to the payment of interest on the Certificates of such Trust or
the reduction of the Pool Balance of such Trust) will be added to the amount of
such Final Distributions. (Intercreditor Agreement, Section 1.1).
Sale of Equipment Notes or Aircraft
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party will be entitled to accelerate and,
subject to the provisions of the immediately following sentence, sell all (but
not less than all) of the Equipment Notes issued under such Indenture to any
person. So long as any Certificates are outstanding, during nine months after
the earlier of (x) the acceleration of the Equipment Notes under any Indenture
or (y) the bankruptcy or insolvency of Midway, without the consent of each
Trustee, no Aircraft subject to the lien of such Indenture or such Equipment
Notes may be sold, if the net proceeds from such sale would be less than the
Minimum Sale Price for such Aircraft or such Equipment Notes. In addition, with
respect to any Leased Aircraft, the amount and payment dates of rentals payable
by Midway under the Lease for such Leased Aircraft may not be adjusted, if, as a
result of such adjustment, the discounted present value of all such rentals
would be less than 75% of the discounted present value of the rentals payable by
Midway under such Lease before giving effect to such adjustment, in each case,
discounted using the weighted average interest rate of the Equipment Notes
outstanding under such Indenture.
"Minimum Sale Price" means, with respect to any Aircraft or the Equipment
Notes issued in respect of such Aircraft, at any time, the lesser of (x) 75% of
the Appraised Current Market Value of such Aircraft and (y) the aggregate
outstanding principal amount of such Equipment Notes, plus accrued and unpaid
interest thereon.
Priority Of Distributions
Before A Triggering Event
So long as no Triggering Event has occurred, the payments in respect of the
Equipment Notes 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:
. to the Liquidity Provider to the extent required to pay the Liquidity
Expenses;
. to the Liquidity Provider to the extent required to pay interest accrued on
the Liquidity Obligations;
. (1) subject to the provisions of clause (2), to the Liquidity Provider to
the extent required to pay or reimburse the Liquidity Provider for the
Liquidity Obligations (other than amounts payable pursuant to the two
preceding clauses) and/or, (2) if applicable, to replenish each Cash
Collateral Account up to the Required Amount;
. to the Class A Trustee to the extent required to pay Expected Distributions
on the Class A Certificates;
. to the Class B Trustee to the extent required to pay Expected Distributions
on the Class B Certificates;
. to the Class C Trustee to the extent required to pay Expected Distributions
on the Class C Certificates; and
. to the Subordination Agent and each Trustee for the payment of certain fees
and expenses.
"Liquidity Expenses" means all amounts owing to the Liquidity Providers
under the Liquidity Facilities or certain other agreements other than any
interest accrued thereon or the principal amount of any drawing under the
Liquidity Facilities.
"Liquidity Obligations" means all principal, interest, fees and other
amounts owing to the Liquidity Providers under the Liquidity Facilities or
certain other agreements.
"Expected Distributions" means, with respect to the Certificates of any
Trust on any Distribution Date (the "Current Distribution Date"), the sum of (1)
accrued and unpaid interest on such Certificates (excluding interest, if any,
payable with respect to the Deposits relating to such Trust) and (2) the
difference between:
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(A) the Pool Balance of such Certificates as of the immediately preceding
Distribution Date (or, if the Current Distribution Date is the first
Distribution Date, the original aggregate face amount of the
Certificates of such Trust); and
(B) the Pool Balance of such Certificates as of the Current Distribution
Date calculated on the basis that (1) the principal of the Equipment
Notes held in such Trust has been paid when due (whether at stated
maturity, upon redemption, prepayment, purchase, acceleration or
otherwise) and such payments have been distributed to the holders of
such Certificates and (2) the principal of any Equipment Notes
formerly held in such Trust that have been sold has been paid in full
and such payments have been distributed to the holders of such
Certificates, but without giving effect to any reduction in the Pool
Balance as a result of any distribution attributable to Deposits
occurring after the immediately preceding Distribution Date (or, if
the Current Distribution Date is the first Distribution Date,
occurring after the initial issuance of the Certificates of such
Trust). (Intercreditor Agreement, Section 1.1).
For purposes of calculating Expected Distributions with respect to the
Certificates of any Trust, any premium paid on the Equipment Notes held in such
Trust that has not been distributed to the Certificateholders of such Trust
(other than such premium or a portion thereof applied to the payment of interest
on the Certificates of such Trust or the reduction of the Pool Balance of such
Trust) shall be added to the amount of such Expected Distributions.
After a Triggering Event
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 Notes and certain other payments
will be promptly distributed by the Subordination Agent in the following order
of priority:
. to the Subordination Agent, any Trustee, any Paying Agent, any
Certificateholder and the Liquidity Provider to the extent required to pay
certain out-of-pocket costs and expenses actually incurred by the
Subordination Agent, any Trustee or any Paying Agent or to reimburse any
Certificateholder or the Liquidity Provider in respect of payments made to
the Subordination Agent or any Trustee in connection with the protection or
realization of the value of the Equipment Notes or any Trust Indenture
Estate (collectively, the "Administration Expenses");
. to the Liquidity Provider to the extent required to pay the Liquidity
Expenses;
. to the Liquidity Provider to the extent required to pay interest accrued on
the Liquidity Obligations;
. (1) subject to the provisions of clause (2), to the Liquidity Provider to
the extent required to pay the outstanding amount of all Liquidity
Obligations and/or, (2) if applicable with respect to any particular
Liquidity Facility, to replenish the Cash Collateral Account with respect
to such Liquidity Facility up to the Required Amount for the related Class
of Certificates (less the amount of any repayments of Interest Drawings
under such Liquidity Facility while sub-clause (x) of this clause is
applicable) unless, in the case of this clause (2), (x) less than 65% of
the aggregate outstanding principal amount of all Equipment Notes are
Performing Equipment Notes and a Liquidity Event of Default has occurred
and is continuing under such Liquidity Facility or (y) a Final Drawing has
occurred under such Liquidity Facility;
. to the Subordination Agent, any Trustee or any Certificateholder to the
extent required to pay certain fees, taxes, charges and other amounts
payable;
. to the Class A Trustee to the extent required to pay Adjusted Expected
Distributions on the Class A Certificates;
. to the Class B Trustee to the extent required to pay Adjusted Expected
Distributions on the Class B Certificates; and
. to the Class C Trustee to the extent required to pay Adjusted Expected
Distributions on the Class C Certificates.
"Adjusted Expected Distributions" means, with respect to the Certificates
of any Trust on any Current Distribution Date, the sum of (1) accrued and unpaid
interest on such Certificates (excluding interest, if any, payable with respect
to the Deposits relating to such Trust) and (2) the greater of:
(A) the difference between (x) the Pool Balance of such Certificates as of
the immediately preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date, the original
aggregate face amount of the Certificates of such Trust) and (y) the
Pool Balance of such Certificates as of the Current Distribution Date
calculated on the basis that (1) the principal of the Non-Performing
Equipment Notes held in such Trust has been paid in full and such
payments have been distributed to the holders of such Certificates,
(2) the principal of the Performing Equipment Notes held in such Trust
has been paid when due (but without giving effect to any acceleration
of Performing Equipment Notes except to the extent monies are received
as a result of such acceleration) and such
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payments have been distributed to the holders of such Certificates and
(3) the principal of any Equipment Notes formerly held in such Trust
that have been sold has been paid in full and such payments have been
distributed to the holders of such Certificates, but without giving
effect to any reduction in the Pool Balance as a result of any
distribution attributable to Deposits occurring after the immediately
preceding Distribution Date (or, if the Current Distribution Date is
the first Distribution Date, occurring after the initial issuance of
the Certificates of such Trust), and
(B) the amount of the excess, if any, of (1) the Pool Balance of such
Class of Certificates as of the immediately preceding Distribution
Date (or, if the Current Distribution Date is the first Distribution
Date, the original aggregate face amount of the Certificates of such
Trust), less the amount of the Deposits for such Class of Certificates
as of such preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date, the original
aggregate amount of the Deposits for such Class of Certificates) other
than any portion of such Deposits thereafter used to acquire Equipment
Notes pursuant to the Note Purchase Agreement, over (2) the Aggregate
LTV Collateral Amount for such Class of Certificates for the Current
Distribution Date;
provided that, until the date of the initial LTV Appraisals for all of the
Aircraft, clause (B) will not apply.
For purposes of calculating Expected Distributions or Adjusted Expected
Distributions with respect to the Certificates of any Trust, any premium paid on
the Equipment Notes held in such Trust that has not been distributed to the
Certificateholders of such Trust (other than such premium or a portion thereof
applied to the payment of interest on the Certificates of such Trust or the
reduction of the Pool Balance of such Trust) will be added to the amount of
Expected Distributions or Adjusted Expected Distributions.
"Aggregate LTV Collateral Amount" for any Class of Certificates for any
Distribution Date means (1) the sum of the applicable LTV Collateral Amounts for
each Aircraft, minus (2) the Pool Balance for each Class of Certificates, if
any, senior to such Class, after giving effect to any distribution of principal
on such Distribution Date with respect to such senior Class or Classes.
"LTV Collateral Amount" of any Aircraft for any Class of Certificates
means, as of any Distribution Date, the lesser of (1) the LTV Ratio for such
Class of 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 and as defined in the relevant Lease, in the case of a Leased
Aircraft, or relevant Indenture, in the case of an Owned Aircraft, the amount of
the insurance proceeds paid to the related Loan Trustee in respect thereof to
the extent then held by such Loan Trustee (and/or on deposit in the Special
Payments Account) or payable to such Loan Trustee in respect thereof) and (2)
the outstanding principal amount of the Equipment Notes secured by such Aircraft
after giving effect to any principal payments of such Equipment Notes on or
before such Distribution Date.
"LTV Ratio" means for the Class A Certificates 42%, for the Class B
Certificates 56% and for the Class C Certificates 63%.
"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 occurs and any Equipment Note becomes a
Non-Performing Equipment Note, the Subordination Agent will obtain LTV
Appraisals of the Aircraft securing such Equipment Note as soon as practicable
and additional LTV Appraisals on or prior to each anniversary of the date of
such initial LTV Appraisals; provided that if the Controlling Party reasonably
objects to the appraised value of the Aircraft shown in such LTV Appraisals, the
Controlling Party has the right to obtain or cause to be obtained substitute LTV
Appraisals (including LTV Appraisals based upon physical inspection of such
Aircraft).
"LTV Appraisal" means a current fair market value appraisal (which may be a
"desk-top" appraisal) performed by any 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 and both having knowledge of all
relevant facts.
"Non-Performing Equipment Note" means an Equipment Note that is not a
Performing Equipment Note.
Interest Drawings under the Liquidity Facility and withdrawals from the
Cash Collateral Account, in each case in respect of interest on the Certificates
of any Trust will be distributed to the Trustee for such Trust, notwithstanding
the priority of distributions set forth in the Intercreditor Agreement and
otherwise described herein. All amounts on deposit in the Cash Collateral
Account for any Trust which are in excess of the Required Amount for such Trust
will be paid to the Liquidity Provider.
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Voting Of Equipment Notes
In the event that the Subordination Agent, as the registered holder of any
Equipment Note, receives a request for its consent to any amendment,
modification or waiver under such Equipment Note or other related document, if
no Indenture Default with respect thereto shall have occurred and be continuing,
the Subordination Agent shall request instructions for each Series of Equipment
Notes from the Trustee of the Trust which holds such Series of Equipment Notes.
The Trustee in turn will request directions from Certificateholders of such
Trust. Except in any instance where the consent of each Certificateholder is
required to be obtained , the Trustee is not required to request directions if
such consent will not adversely affect the Certificateholders or if an Event of
Default shall have occurred and be continuing under the Pass Through Agreement
of such Trust (Section 10.01). If any Indenture Default shall have occurred and
be continuing with respect to such Indenture, the Subordination Agent will
exercise its voting rights as directed by the Controlling Party. (Intercreditor
Agreement, Section 9.1(b)).
The Subordination Agent
Allfirst Bank will be the Subordination Agent under the Intercreditor
Agreement. Midway and its affiliates may from time to time enter into banking
and trustee relationships with the Subordination Agent and its affiliates. The
Subordination Agent's address is 25 South Charles Street, Baltimore, Maryland
21201, Attention: Corporate Trust Department.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. Either the Controlling Party or the Liquidity Provider may remove the
Subordination Agent for cause as provided in the Intercreditor Agreement. In
such circumstances, a successor Subordination Agent will be appointed as
provided in the Intercreditor Agreement. Any resignation or removal of the
Subordination Agent and appointment of a successor Subordination Agent does not
become effective until acceptance of the appointment by the successor
Subordination Agent.
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
The Aircraft
The Aircraft comprise eight 737s. The Aircraft are designed to be in
compliance with Stage III noise level standards, which constitute the most
restrictive regulatory standards currently in effect in the United States for
aircraft noise abatement. The table below sets forth certain additional
information for the Aircraft.
<TABLE>
<CAPTION>
Appraised Value
(Dollars)
-----------------------------------------------
Expected FAA Scheduled
Aircraft Engine Registration Delivery
Type Type Number (1) Month (2) AISI AvS SH&E
----------------- ------------- -------------- ---------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Boeing 737-700 CFM-56-7B20 N361ML September, 2000 $39,110,000 $39,790,000 $40,600,000
Boeing 737-700 CFM-56-7B20 N362ML October, 2000 39,200,000 40,180,000 40,700,000
Boeing 737-700 CFM-56-7B20 N363ML November, 2000 39,290,000 40,180,000 40,700,000
Boeing 737-700 CFM-56-7B20 N364ML January, 2001 39,480,000 40,520,000 40,900,000
Boeing 737-700 CFM-56-7B20 N365ML February, 2001 39,570,000 40,520,000 41,000,000
Boeing 737-700 CFM-56-7B20 N366ML April, 2001 39,750,000 41,130,000 41,200,000
Boeing 737-700 CFM-56-7B20 N367ML June, 2001 39,930,000 41,130,000 41,300,000
Boeing 737-700 CFM-56-7B20 N368ML August, 2001 40,120,000 41,540,000 41,500,000
</TABLE>
(1) The tail number identified with respect to each Aircraft is a
projection only, based on the current manufacturing schedule of the
manufacturer. A different aircraft may actually be delivered to Midway by
the manufacturer on any delivery date and in such case such substituted
aircraft shall be an "Aircraft" for purposes of the offering contemplated
hereby. In addition, the financing of an Aircraft may not take place on the
date such Aircraft is actually delivered from the manufacturer, provided
that such financing will occur prior to the Delivery Period Termination
Date.
(2) The months for Aircraft delivery reflect the scheduled delivery
months under Midway's purchase agreement with the manufacturer. The actual
delivery month of any such Aircraft may be subject to delay.
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Deliveries of Aircraft
The Note Purchase Agreement provides that final delivery of the Aircraft
for purposes of purchase of Equipment Notes by the Trust must occur by the
Delivery Period Termination Date (the "Delivery Period"). In addition, if a
labor strike occurs at The Boeing Company prior to the scheduled expiration of
the Delivery Period, the expiration date of the Delivery Period will be extended
by the number of days that such strike continued in effect.
Appraised Value
The appraised values set forth in the foregoing chart were determined by
Aircraft Information Services, Inc. ("AISI") as of August 7, 2000; AvSolutions,
Inc. ("AvS") as of August 9, 2000; and Simat, Helliesen & Eichner, Inc. ("SH&E")
as of June 20, 2000. Each Appraiser was asked to provide its opinion as to the
appraised base value of each Aircraft projected as of the scheduled delivery
month for each such Aircraft. As part of this process, all three Appraisers
performed "desk-top" appraisals without any physical inspection of the Aircraft.
The appraisals are based on various assumptions and methodologies, which vary
among the appraisals. The Appraisers have delivered letters summarizing their
respective appraisals, copies of which are annexed to this offering memorandum
as Appendix II. For a definition of appraised base value and 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. It 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 its appraised base value. 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 Notes and the Aircraft pursuant to the applicable Indenture would
equal the appraised value of such Aircraft or be sufficient to satisfy in full
payments due on the Equipment Notes issued thereunder or the Certificates.
Conversion Option
Midway may, pursuant to the Note Purchase Agreement, initially finance an
Aircraft as an Owned Aircraft and subsequently convert such Aircraft into a
Leased Aircraft (subject to written confirmation from each Rating Agency that
such conversion will not result in a withdrawal, suspension or downgrading of
the ratings of any Class of Certificates). Such conversion option would be
utilized, for example, if Midway has not finalized arrangements with an Owner
Participant in connection with a leveraged lease financing. If such conversion
occurs on or prior to the Delivery Period Termination Date, Midway will have the
ability to have the applicable Owner Trustee issue reoptimized Equipment Notes
under a Leased Aircraft Indenture (subject to the Mandatory Economic Terms and
written confirmation from each Rating Agency that such reoptimization will not
result in a withdrawal, suspension or downgrading of the ratings of any Class of
Certificates) in replacement for the Equipment Notes issued under the applicable
Owned Aircraft Indenture.
Midway will only be permitted to convert an Owned Aircraft into a Leased
Aircraft if it (1) obtains a written confirmation from each Rating Agency that
such conversion will not result in a withdrawal, suspension or downgrading of
the ratings of any Class of Certificates, (2) provides the Owned Aircraft
Trustee with an opinion of counsel (both counsel and opinion reasonably
satisfactory to the relevant Owned Aircraft Trustee) that the Trusts will not be
subject to U.S. federal income tax as a result of such conversion and (3)
furnish to the relevant Owned Aircraft Trustee either (A) an opinion of counsel
(both counsel and opinion reasonably satisfactory to the relevant Owned Aircraft
Trustee) that the Certificateholders will not recognize gain or loss for U.S.
federal income tax purposes and will be subject to U.S. federal income tax on
the same amount and in the same manner and at the same time as would have been
the case if such conversion had not occurred or (B) both an opinion of counsel
(both counsel and opinion reasonably satisfactory to the relevant Owned Aircraft
Trustee) that the Certificateholders should not recognize gain or loss for U.S.
federal income tax purposes in connection with such conversion and should be
subject to U.S. federal income tax on the same amount and in the same manner and
at the same time as would have been the case if such conversion had not occurred
and an indemnity in favor of the Certificateholders in form and substance
reasonably satisfactory to the relevant Owned Aircraft Trustee.
DESCRIPTION OF THE EQUIPMENT NOTES
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 all of the provisions of the Equipment Notes, the
Indentures, the Leases, the Participation Agreements, the trust agreements under
which the Owner Trustees act on behalf of the Owner Participants (the "Trust
Agreements") and the Note Purchase Agreement. Except as otherwise indicated, the
following summaries
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relate to the Equipment Notes, the Indenture, the Lease, the Participation
Agreement and the Trust Agreement, as the case may be, relating to each
Aircraft. The provisions of such documents relating to any Leased Aircraft may
be modified, subject to the Mandatory Document Terms and the Mandatory Economic
Terms. Midway is seeking commitments from prospective Owner Participants with
respect to leveraged leases for some or all of the Aircraft.
Under the Note Purchase Agreement, Midway will have the option of entering
into a leveraged lease financing or a debt financing with respect to each
Aircraft. The Note Purchase Agreement provides for the relevant parties to enter
into either (1) with respect to each Leased Aircraft, a Participation Agreement,
a Lease and a Leased Aircraft Indenture (among other documents) relating to the
financing of such Aircraft and (2) with respect to each Owned Aircraft, a
Participation Agreement and an Owned Aircraft Indenture relating to the
financing of such Owned Aircraft. The description of such agreements in this
offering memorandum is based on the forms of such agreements annexed to the Note
Purchase Agreement.
Midway is seeking the commitment of one or more companies to act as the
Owner Participant with respect to leveraged leases for some or all of the
Aircraft. Such Owner Participants may request revisions to the forms of the
Participation Agreement, the Lease and the Leased Aircraft Indenture that are
contemplated by the Note Purchase Agreement, so that the terms of such
agreements applicable to any particular Leased Aircraft may differ from the
description of such agreements contained in this offering memorandum. However,
under the Note Purchase Agreement, the terms of such agreements are required to
(1) contain the Mandatory Document Terms and (2) not vary the Mandatory Economic
Terms. In addition, Midway will be obligated (1) to certify to the Trustees that
any such modifications do not materially and adversely affect the
Certificateholders (provided that the Note Purchase Agreement provides that,
among other terms, the shortening of certain grace periods for Events of Loss
and Events of Default is not materially adverse to the Certificateholders) and
(2) to obtain written confirmation from each Rating Agency that the use of
versions of such agreements modified in any material respect would not result in
a withdrawal, suspension or downgrading of the ratings of any Class of
Certificates. See "Description of the Certificates -- Obligation to Purchase
Equipment Notes." Each Owner Participant will be required to satisfy certain
requirements, including having a minimum combined capital and surplus or net
worth.
General
The Equipment Notes will be issued in three series (the "Series A Equipment
Notes," the "Series B Equipment Notes," and the "Series C Equipment Notes" and
collectively the "Equipment Notes") in respect of each of the Aircraft. Each
Trust will purchase one series of Equipment Notes such that all of the Equipment
Notes held in each Trust will have an interest rate equal to the interest rate
applicable to the Certificates issued by such Trust. All of the Equipment Notes
held in each Trust will accrue interest at the applicable rate per annum for
such Trust, payable on April 1 and October 1 of each year, commencing on the
later of April 1, 2001 and the first such date to occur after the initial
issuance thereof. The maturity dates of the Equipment Notes acquired by each
Trust will occur on or before the Final Expected Distribution Date (as specified
on the cover hereof) applicable to the Certificates issued by such Trust. The
Equipment Notes issued with respect to each Leased Aircraft will be secured by a
security interest in such Leased Aircraft and an assignment of certain rights
under the lease relating thereto (each, a "Lease"), including the right to
receive rentals payable with respect to such Leased Aircraft by Midway. The
Equipment Notes issued with respect to each Owned Aircraft will be secured by a
security interest in such Owned Aircraft. Although neither the Certificates nor
the Equipment Notes issued with respect to the Leased Aircraft are obligations
of, or guaranteed by, Midway, the amounts unconditionally payable by Midway for
lease of the Leased Aircraft will be sufficient to pay in full when due all
amounts required to be paid on the Equipment Notes issued with respect to the
Leased Aircraft. The Equipment Notes issued with respect to the Owned Aircraft
will be direct obligations of Midway.
The Equipment Notes with respect to each Leased Aircraft (the "Leased
Aircraft Notes") will be issued under a separate Leased Aircraft Indenture
between First Union Trust Company, National Association, as Owner Trustee of a
trust for the benefit of the Owner Participant who will be the beneficial owner
of such Aircraft, and Allfirst Bank, as Leased Aircraft Trustee. The Equipment
Notes with respect to each Owned Aircraft (the "Owned Aircraft Notes") will be
issued under a separate Owned Aircraft Indenture between Midway and Allfirst
Bank, as Owned Aircraft Trustee.
The related Owner Trustee will lease each Leased Aircraft to Midway
pursuant to a separate Lease between such Owner Trustee and Midway with respect
to such Leased Aircraft. Under each Lease, Midway will be obligated to make or
cause to be made rental and other payments to the related Leased Aircraft
Trustee on behalf of the related Owner Trustee, which rental and other payments
will be at least sufficient to pay in full when due all payments required to be
made on the Equipment Notes issued with respect to such Leased Aircraft (other
than upon an acceleration of the Equipment Notes when no Lease Event of Default
has occurred). The Equipment Notes issued with respect to the Leased Aircraft
are not, however, direct obligations of, or guaranteed by, Midway. Midway's
rental obligations under each Lease and Midway's obligations under the Equipment
Notes issued with respect to each Owned Aircraft will be general obligations of
Midway.
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Each Owner Participant has the right to sell, assign or otherwise transfer
its interests as Owner Participant in any of such leveraged leases, subject to
the terms and conditions of the relevant Participation Agreement and related
documents.
Subordination
Series B Equipment Notes issued under any Indenture will be subordinated in
right of payment to Series A Equipment Notes issued under such Indenture; and
any Series C Equipment Notes issued under such Indenture will be subordinated in
right of payment to such Series A Equipment Notes and such Series B Equipment
Notes. On each Equipment Note payment date, (1) payments of interest and
principal due on Series A Equipment Notes issued under such Indenture will be
made prior to payments of interest and principal due on Series B Equipment Notes
issued under such Indenture, and (2) payments of interest and principal due on
such Series B Equipment Notes will be made prior to payments of interest and
principal due on any Series C Equipment Notes issued under such Indenture.
Principal and Interest Payments
Subject to the provisions of the Intercreditor Agreement, interest paid on
the Equipment Notes held in each Trust will be passed through to the
Certificateholders of such Trust on the dates and at the rate per annum set
forth on the cover page of this offering memorandum until the final expected
Regular Distribution Date for such Trust. Subject to the provisions of the
Intercreditor Agreement, principal paid on the Equipment Notes held in each
Trust will be passed through to the Certificateholders of such Trust in
scheduled amounts on the dates set forth herein until the final expected Regular
Distribution Date for such Trust.
Interest will be payable on the unpaid principal amount of each Equipment
Note at the rate applicable to such Equipment Note on April 1 and October 1 in
each year, commencing on the later of April 1, 2001 and the first Regular
Distribution Date to occur after issuance thereof. Such interest will be
computed on the basis of a 360-day year of twelve 30-day months.
Scheduled principal payments on the Equipment Notes will be made on April 1
or October 1, or both, in certain years, subject to certain adjustments, in
accordance with the principal repayment schedule set forth herein under
"Description of the Certificates -- Pool Factors."
If any date scheduled for any payment of principal, Make-Whole Premium (if
any) or interest with respect to the Equipment Notes is not a Business Day, such
payment will be made on the next succeeding Business Day without any additional
interest.
All payments of principal amount, interest, Make-Whole Premium, if any, and
other amounts to be made by the Owner Trustee with respect to Equipment Notes
issued in respect of a Leased Aircraft will be payable only from the income and
proceeds from the collateral pledged pursuant to the related Indenture (the
"Trust Indenture Estate"). All payments of principal amount, interest,
Make-Whole Premium, if any, and other amounts to be made by Midway with respect
to Equipment Notes issued in respect of the Owned Aircraft will be the direct
obligation of Midway. In the case of each Equipment Note, each payment of
principal amount, Make-Whole Premium, if any, and interest or other amounts due
thereon will be applied in the following order: (1) to the payment of accrued
interest on such Equipment Note (as well as any interest on any overdue
principal amount, Make-Whole Premium, if any, and to the extent permitted by law
any interest) to the date of such payment; (2) to the payment of any other
amount (other than the principal amount) due under the Indenture or such
Equipment Note; and (3) to the payment of the principal amount of such Equipment
Note then due. (Indentures, Section 5.07).
Redemption
If an Event of Loss occurs with respect to an Aircraft and such Aircraft is
not replaced by Midway under the related Lease (in the case of a Leased
Aircraft) or under the related Owned Aircraft Indenture (in the case of an Owned
Aircraft), the Equipment Notes issued with respect to such Aircraft will be
redeemed, in whole, in each case at a price equal to the aggregate unpaid
principal amount thereof, together with accrued interest thereon, to, but not
including, the date of redemption and other amounts payable to the holders of
the Equipment Notes under the applicable Indenture and Participation Agreement,
but without any premium, on a Special Distribution Date. (Indentures, Section
6.02(a)(1) and (b)).
If Midway exercises its right to terminate a Lease under its voluntary
termination or early buyout options under such Lease, the Equipment Notes
relating to the applicable Leased Aircraft will be redeemed (unless Midway
elects to assume the Equipment Notes on a full recourse basis), in whole, on a
Special Distribution Date at a price equal to the aggregate unpaid principal
amount thereof, together with accrued interest thereon to, but not including,
the date of redemption, plus a Make-Whole Premium provided that in lieu of
redeeming the Leased Aircraft Notes in connection with any such purchase of an
Aircraft, Midway may elect to assume all of the obligations of the relevant
Owner Trustee under the related Leased Aircraft Indenture pursuant to Section
2.11 of the Leased Aircraft Indenture and Section 7.11 of the relevant Leased
Aircraft Participation Agreement. In connection with any such assumption of the
Owner Trustee's obligations in respect of the Equipment Notes relating to the
applicable Leased Aircraft,
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the Leased Aircraft Indenture will be amended and restated to be substantially
the same as an Owned Aircraft Indenture. In addition, as conditions to any such
assumption, Midway shall (1) obtain a written confirmation from each Rating
Agency that such assumption will not result in a withdrawal, suspension or
downgrading of the ratings of any Class of Certificates, (2) deliver to the
Leased Aircraft Trustee an opinion of counsel (both counsel and opinion
reasonably satisfactory to the relevant Leased Aircraft Trustee) that the Trusts
will not be subject to U.S. federal income tax as a result of such assumption
and (3) deliver to the relevant Leased Aircraft Trustee either (A) an opinion of
counsel (both counsel and opinion reasonably satisfactory to the relevant Leased
Aircraft Trustee) that the Certificateholders will not recognize gain or loss
for U.S. federal income tax purposes in connection with such assumption and will
be subject to U.S. federal income tax on the same amount and in the same manner
and at the same time as would have been the case if such assumption had not
occurred or (B) both an opinion of counsel (both counsel and opinion reasonably
satisfactory to the relevant Leased Aircraft Trustee) that the
Certificateholders should not recognize gain or loss for U.S. federal income tax
purposes in connection with such assumption and should be subject to U.S.
federal income tax on the same amount and in the same manner and at the same
time as would have been the case if such assumption had not occurred and an
indemnity in favor of the Certificateholders in form and substance reasonably
satisfactory to the relevant Leased Aircraft Trustee. Upon the effectiveness of
such assumption, the Owner Trustee and the Owner Participant will be released
from further obligations under the related Indenture and the related
Participation Agreement. (Leased Aircraft Indentures, Sections 6.02(a)(ii) and
2.11; Leased Aircraft Participation Agreements, Section 7.11; Leases, Sections
13(b)). See "The Leases and Certain Provisions of the Owned Aircraft Indentures-
Lease Termination" and "The Leases and Certain Provisions of the Owned Aircraft
Indentures - Renewal and Purchase Options." If notice of such redemption is
given in connection with a termination of the Lease, such notice is revocable
and is deemed revoked in the event that the Lease does not in fact terminate on
the specified termination date. (Indentures, Section 6.02(c)).
All, but not less than all, of the Equipment Notes issued with respect to a
Leased Aircraft may be redeemed prior to maturity as part of a refunding or
refinancing thereof under the applicable Participation Agreement or otherwise
with the consent of Midway, and all of the Equipment Notes issued with respect
to the Owned Aircraft may be redeemed in whole prior to maturity at any time at
the option of Midway, in each case at a price equal to the aggregate unpaid
principal amount thereof, together with accrued interest thereon to, but not
including, the date of redemption, plus a Make-Whole Premium. (Indentures,
Section 6.02). If notice of such a redemption is given in connection with a
refinancing of Equipment Notes with respect to a Leased Aircraft or in
connection with the redemption of Equipment Notes with respect to an Owned
Aircraft, such notice may be revoked on or prior to the proposed redemption or
refinancing date and is deemed revoked in the event such proposed refinancing or
redemption does not in fact occur. (Indentures, Section 6.03).
If, with respect to a Leased Aircraft, (1) one or more Lease Events of
Default have occurred and are continuing or (2) the Equipment Notes with respect
to such Aircraft have been accelerated or the Leased Aircraft Trustee with
respect to such Equipment Notes takes action or notifies the applicable Owner
Trustee that it intends to take action to foreclose the lien of the related
Leased Aircraft Indenture or otherwise commence the exercise of any significant
remedy under such Indenture or the related Lease, then in each case all, but not
less than all, of the Equipment Notes issued with respect to such Leased
Aircraft may be purchased by the related Owner Trustee or Owner Participant on
the applicable purchase date at a price equal to the aggregate unpaid principal
thereof, together with accrued and unpaid interest thereon to, but not
including, the date of purchase, but without any premium (provided that a
Make-Whole Premium is payable if such Equipment Notes are to be purchased
pursuant to clause (1) when a Lease Event of Default has occurred and has been
continuing for less than 180 days). (Leased Aircraft Indentures, Section 8.02).
Midway, as owner of the Owned Aircraft, has no comparable right under the Owned
Aircraft Indentures to purchase the Equipment Notes under such circumstances.
"Make-Whole Premium" means, with respect to any Equipment Note, the amount
(as determined by an independent investment banker selected by Midway) by which
(a) the present value of the remaining scheduled payments of principal and
interest to maturity of such Equipment Note computed by discounting such
payments on a semiannual basis on each payment dated under the applicable
Indenture (assuming a 360-day year of twelve 30-day months) using a discount
rate equal to the Treasury Yield (in the case of each of the Series A Equipment
Notes and the Series B Equipment Notes) and the Treasury Yield plus 50 basis
points (in the case of each of the Series C Equipment Notes) exceeds (b) the
outstanding principal amount of such Equipment Note plus accrued interest to the
date of redemption (other than any overdue portion thereof).
For purposes of determining the Make-Whole Premium, "Treasury Yield" means,
at the time of determination with respect to any Equipment Note, the interest
rate (expressed as a semiannual 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 semiannual yield to maturity for United
States Treasury securities maturing on the Average Life Date (as defined below)
of such Equipment Note 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, (A) one maturing as close as possible to, but earlier
than, the Average Life Date of such Equipment Note and (B) the other maturing as
close as possible to, but later than,
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the Average Life Date of such Equipment Note, 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
Note is reported on the most recent H.15 (519), such weekly average yield to
maturity as published in such H.15 (519). "H.15 (519)" means the weekly
statistical release designated as such, or any successor publication, published
by the Board of Governors of the Federal Reserve System. The date of
determination of a Make-Whole Premium shall be the third Business Day prior to
the applicable payment date or redemption 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 redemption date.
"Average Life Date" for any Equipment Note is the date which follows the
redemption date by a period equal to the Remaining Weighted Average Life of such
Equipment Note. "Remaining Weighted Average Life" on a given date with respect
to any Equipment Note is the number of days equal to the quotient obtained by
dividing (a) the sum of each of the products obtained by multiplying (1) the
amount of each then remaining scheduled payment of principal of such Equipment
Note by (2) the number of days from and including such prepayment date to but
excluding the dates on which payment of principal is scheduled to be made, by
(b) the then outstanding principal amount of such Equipment Note.
Security
The Equipment Notes issued with respect to each Leased Aircraft will be
secured by (1) an assignment by the related Owner Trustee to the related Leased
Aircraft Trustee of such Owner Trustee's rights, except for certain limited
rights, under the Lease with respect to the related Aircraft, including the
right to receive payments of rent thereunder, (2) a mortgage to such Leased
Aircraft Trustee of such Aircraft, subject to the rights of Midway under such
Lease, and (3) an assignment to such Leased Aircraft Trustee of certain of such
Owner Trustee's rights under the purchase agreement between Midway and the
Aircraft manufacturer. Unless and until an Indenture Default with respect to a
Leased Aircraft has occurred and is continuing, the Leased Aircraft Trustee may
not exercise the rights of the Owner Trustee under the related Lease, except the
Owner Trustee's right to receive payments of rent due thereunder. The assignment
by the Owner Trustee to the Leased Aircraft Trustee of its rights under the
related Lease will exclude certain rights of such Owner Trustee and the related
Owner Participant, including the rights of the Owner Trustee and the Owner
Participant with respect to indemnification by Midway for certain matters,
insurance proceeds payable to such Owner Trustee in its individual capacity or
to such Owner Participant under public liability insurance maintained by Midway
under such Lease or by such Owner Trustee or such Owner Participant, insurance
proceeds payable to such Owner Trustee in its individual capacity or to such
Owner Participant under certain casualty insurance maintained by such Owner
Trustee or such Owner Participant under such Lease, and certain reimbursement
payments made by Midway to such Owner Trustee. (Leased Aircraft Indenture,
Granting Clause)
The Equipment Notes will not be cross-collateralized, and, consequently,
the Equipment Notes issued in respect of any one Aircraft will not be secured by
any of the other Aircraft or replacement aircraft therefor (as described in
"--Certain Provisions of the Leases and the Owned Aircraft Indentures -- Events
of Loss") or the Leases related thereto.
The Equipment Notes issued with respect to each Owned Aircraft will be
secured by (1) a mortgage to the Owned Aircraft Trustee of such Aircraft and (2)
an assignment to the Owned Aircraft Trustee of certain of Midway's rights under
its purchase agreement with the Aircraft manufacturer.
Funds, if any, held from time to time by the Loan Trustee with respect to
any Aircraft, including funds held as the result of an Event of Loss to such
Aircraft or, with respect to a Leased Aircraft, termination of the Lease, if
any, relating thereto, will be invested and reinvested by such Loan Trustee, at
the direction of Midway (unless an Event of Default shall have occurred and be
continuing) in investments described in the related Lease or, in the case of the
Owned Aircraft, the related Indenture.
Loan to Value Ratios of Equipment Notes
The following table sets forth illustrative loan to Aircraft value ratios
for the Equipment Notes issued in respect of an Aircraft as of the October 1
Regular Distribution Dates that occur after the scheduled date of original
issuance of such Equipment Notes, assuming that the Equipment Notes in the
maximum principal amount are issued in respect of such Aircraft. This example
was utilized by Midway in preparing the Assumed Amortization Schedule, although
the amortization schedule for the Equipment Notes issued with respect to an
Aircraft may vary from such assumed schedule so long as it complies with the
Mandatory Economic Terms. Accordingly, the schedule set forth below may not be
applicable in the case of any particular Aircraft. See "Description of the
Certificates - Pool Factors." The LTV was obtained by dividing (1) the
outstanding principal balance (assuming no payment default) of such Equipment
Note as of each such Regular Distribution Date (determined immediately after
giving effect to the payments scheduled to be made on such date) by (2) the
assumed value (the "Assumed Aircraft Value") of the Aircraft securing such
Equipment Notes.
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The table contains forward-looking information that is based on the
assumption (the "Depreciation Assumption") that the initial appraised value of
the Aircraft set forth opposite the initial Regular Distribution Date included
in the table depreciates by 3% per year for the first 15 years after the year of
delivery of such Aircraft and 4% per year for the next five years. Other rates
or methods of depreciation would result in materially different loan to Aircraft
value ratios and no assurance can be given (1) that the depreciation rates and
method assumed for the purpose of the table are the ones most likely to occur or
(2) as to the actual future value of any Aircraft. Many of the factors affecting
the value of the Aircraft are discussed herein under "Risk Factors -- Factors
Relating to the Certificates and the Offering -- The realizable value of
Aircraft may be less than its appraised value." Thus the table should not be
considered a forecast or prediction of expected or likely loan to Aircraft value
ratios but simply a mathematical calculation based on one set of assumptions.
<TABLE>
<CAPTION>
Equipment
Note Assumed
Outstanding Aircraft Loan to
Balance Value Value
Date (millions) (millions) Ratio
------------------------ ----------------------- ----------------------- --------------------
<S> <C> <C> <C>
October 1, 2001 $23.64 $40.36 58.6%
October 1, 2002 22.93 39.15 58.6
October 1, 2003 22.16 37.94 58.4
October 1, 2004 21.30 36.73 58.0
October 1, 2005 20.15 35.52 56.7
October 1, 2006 18.80 34.31 54.8
October 1, 2007 17.32 33.10 52.3
October 1, 2008 15.70 31.89 49.2
October 1, 2009 14.18 30.68 46.2
October 1, 2010 13.33 29.47 45.2
October 1, 2011 12.41 28.25 43.9
October 1, 2012 11.42 27.04 42.2
October 1, 2013 10.37 25.83 40.2
October 1, 2014 8.79 24.62 35.7
October 1, 2015 6.93 23.41 29.6
October 1, 2016 4.90 22.20 22.1
October 1, 2017 2.69 20.59 13.1
</TABLE>
Limitation of Liability
The Equipment Notes issued with respect to the Leased Aircraft are not
direct obligations of, or guaranteed by, Midway, any Owner Participant or the
Leased Aircraft Trustees or the Owner Trustees in their individual capacities.
None of the Owner Trustees, the Owner Participants or the Leased Aircraft
Trustees, or any affiliates thereof, will be personally liable to any holder of
an Equipment Note or, in the case of the Owner Trustees and the Owner
Participants, to the Leased Aircraft Trustees for any amounts payable under the
Equipment Notes or, except as provided in each Leased Aircraft Indenture, for
any liability under such Leased Aircraft Indenture. All payments of principal
of, premium, if any, and interest on the Equipment Notes issued with respect to
any Leased Aircraft (other than payments made in connection with an optional
redemption or purchase of Equipment Notes issued with respect to a Leased
Aircraft by the related Owner Trustee or the related Owner Participant) will be
made only from the assets subject to the lien of the Indenture with respect to
such Leased Aircraft or the income and proceeds received by the related Leased
Aircraft Trustee therefrom (including rent payable by Midway under the Lease
with respect to such Leased Aircraft).
The Equipment Notes issued with respect to the Owned Aircraft will be
direct obligations of Midway.
Except as otherwise provided in the Indentures, each Owner Trustee and each
Loan Trustee, in its individual capacity, will not be answerable or accountable
under the Indentures or under the Equipment Notes under any circumstances
except, among other things, for its own willful misconduct or gross negligence.
None of the Owner Participants will have any duty or responsibility under any of
the Leased Aircraft Indentures or the Equipment Notes or the Leased Aircraft
Trustees or to any holder of any Equipment Note.
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Indenture Defaults, Notice and Waiver
Indenture Defaults under each Indenture include: (a) in the case of an
Indenture related to a Leased Aircraft, the occurrence of any Lease Event of
Default under the related Lease (other than the failure to make certain
indemnity payments and other payments to the related Owner Trustee or Owner
Participant unless a notice is given by such Owner Trustee that such failure
will constitute an Indenture Default), (b) the failure by the Owner Trustee in
the case of a Leased Aircraft Indenture (other than as a result of a Lease
Default or Lease Event of Default) or Midway, in the case of an Owned Aircraft
Indenture, to pay (A) any interest or principal or Make-Whole Premium, if any,
when due, under such Indenture or under any Equipment Note issued thereunder
continued for more than ten Business Days or (B) any other amounts for more than
thirty days, (c) in the case of a Leased Aircraft Indenture, any representation
or warranty made by the related Owner Trustee or Owner Participant in such
Indenture or in the case of an Owned Aircraft, any representation or warranty by
Midway, in such Indenture, the related Participation Agreement or certain
related documents furnished to the Loan Trustee or holder of any Note pursuant
thereto being false or incorrect in any material respect when made and
continuing to be material and adverse to the interests of the holder of any
Equipment Note and remaining unremedied after notice and specified cure periods,
(d) failure by the related Owner Trustee or Owner Participant in the case of a
Leased Aircraft Indenture or Midway in the case of an Owned Aircraft Indenture
to perform or observe certain material covenants or obligations for the benefit
of the Loan Trustee or holders of Equipment Notes under such Indenture or
certain related documents, continued after notice and specified cure periods, or
(e) the occurrence of certain events of bankruptcy, reorganization or insolvency
of the related Owner Trustee or Owner Participant or Midway, as the case may be.
There are no cross-default provisions in the Indentures or the Leases in effect
at any time when the relevant Equipment Notes are outstanding. Consequently,
events resulting in an Indenture Default under any particular Indenture may or
may not result in an Indenture Default occurring under any other Indenture.
(Indentures, Section 7.01).
The Loan Trustee will give the holders of the Equipment Notes and, if
applicable, the Owner Trustee and the Owner Participant prompt written notice of
any Indenture Default of which the Loan Trustee has actual knowledge and, in the
case of an Indenture related to a Leased Aircraft, if the Indenture Default
results from a Lease Event of Default, it will give the holders of the Equipment
Notes, the Owner Trustee and the Owner Participant not less than ten Business
Days' prior written notice of the date on or after which the Loan Trustee may
commence the exercise of any remedy described in "-- Remedies" below.
If Midway fails to make any semiannual basic rental payment due under any
Lease with respect to a Leased Aircraft, within a specified period after notice
from the Loan Trustee of such failure the applicable Owner Trustee or Owner
Participant may furnish to the Loan Trustee the amount due on the Equipment
Notes issued with respect to such Leased Aircraft, together with any interest
thereon on account of the delayed payment thereof, in which event the Loan
Trustee and the holders of outstanding Equipment Notes issued under such
Indenture may not exercise any remedies otherwise available under such Indenture
or such Lease as the result of such failure to make such rental payment, unless
the relevant Owner Trustee or Owner Participant has previously cured the
preceding three consecutive payment defaults or six total payment defaults with
respect to basic rental payments. (Indentures, Section 8.03).
The Owner Trustee and/or the Owner Participant also have certain rights,
but not obligations, to cure Indenture Defaults that may be cured by the payment
of money.
In the case of a Leased Aircraft Indenture, if an Owner Trustee or Owner
Participant pays the amount due on the Equipment Notes to the Loan Trustee or
cures the Indenture Default, the Owner Trustee or Owner Participant will be
subrogated to the rights of the Loan Trustee and the holders of the Equipment
Notes in respect of the Rent which was overdue at the time of such payment, as
well as interest payable by Midway on account of its being overdue, and
thereafter the Owner Trustee or the Owner Participant, as the case may be, will
be entitled to receive such overdue Rent and interest thereon upon receipt by
the Loan Trustee; provided, however, that (1) if the principal amount and
interest on the Equipment Notes is due and payable following an Indenture
Default, such subrogation will, until the principal amount of, interest on,
Make-Whole Premium, if any, and all other amounts due with respect to all
Equipment Notes has been paid in full, be subordinate to the rights of the Loan
Trustee and the holders of the Equipment Notes in respect of such payment of
overdue Rent and interest and (2) the Owner Trustee will not be entitled to
recover any such payments except pursuant to the foregoing right of subrogation,
by demand or suit for damages.
The holders of a majority in principal amount of the outstanding Equipment
Notes issued under any Indenture, by notice to the Loan Trustee, may on behalf
of all the holders and the Liquidity Providers waive any existing default and
its consequences under the Indenture with respect to such Aircraft, except a
default in the payment of the principal of, interest on, or Make-Whole Premium,
if any, on any such Equipment Notes or a default in respect of any covenant or
provision of such Indenture that cannot be modified or amended without the
consent of each holder of Equipment Notes affected thereby. (Indentures, Section
7.11).
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<PAGE>
Remedies
Each Indenture provides that if an Indenture Default occurs and is
continuing, the related Loan Trustee may, and upon receipt of written demand
from the holders of a majority in principal amount of the Equipment Notes
outstanding under such Indenture shall, subject, in the case of a Leased
Aircraft Indenture, to the applicable Owner Participant's or Owner Trustee's
right to cure, as discussed above, declare the principal of all such Equipment
Notes issued thereunder immediately due and payable, together with all accrued
but unpaid interest thereon (without the Make-Whole Premium). The holders of a
majority in principal amount of Equipment Notes outstanding under such Indenture
may rescind any such declaration at any time before the sale or disposition of
the Trust Indenture Estate if (1) there has been paid to the related Loan
Trustee an amount sufficient to pay all principal and interest on any such
Equipment Notes, to the extent such amounts have become due otherwise than by
such declaration of acceleration and (2) all other Indenture Defaults under such
Indenture (other than the nonpayment of principal that has become due solely
because of such acceleration) have been cured or waived. (Indentures, Section
7.02(c)).
Each Indenture provides that if an Indenture Default under such Indenture
has occurred and is continuing, the related Loan Trustee may exercise certain
rights or remedies available to it under such Indenture or under applicable law,
including, with respect to an Owned Aircraft Indenture, one or more remedies
under such Indenture with respect to the related Aircraft or, with respect to a
Leased Aircraft Indenture, one or more of the remedies under such Indenture or
(if the corresponding Lease has been declared in default) under the related
Lease. If an Indenture Default arises solely by reason of one or more events or
circumstances which constitute a Lease Default or Lease Event of Default, the
related Leased Aircraft Trustee's right to exercise remedies under a Leased
Aircraft Indenture is subject, with certain exceptions, to its having proceeded
to declare the Lease in default and commence the exercise one or more of the
dispossessory remedies under the Lease with respect to such Leased Aircraft;
provided that the requirement to exercise one or more of such remedies under
such Lease shall not apply in circumstances where such exercise has been
involuntarily stayed or prohibited by applicable law or court order for a
continuous period (a "Continuous Stay Period") in excess of the Section 1110
Period; provided further, however, that the requirement to exercise one or more
of such remedies under such Lease shall nonetheless be applicable during a
Continuous Stay Period subsequent to the expiration of the Section 1110 Period
to the extent that the continuation of such Continuous Stay Period subsequent to
the expiration of the Section 1110 Period (A) results from an agreement by
Midway or the trustee or the debtor-in-possession in such proceeding during the
Section 1110 Period with the approval of the relevant court to perform such
Lease in accordance with Section 1110(a)(2)(A) of the U.S. Bankruptcy Code and
continues to perform as required by Section 1110(a)(2)(A-B) of the U.S.
Bankruptcy Code or (B) is an extension of the Section 1110 Period with the
consent of such Leased Aircraft Trustee pursuant to Section 1110(b) of the U.S.
Bankruptcy Code or (C) is the consequence of such Leased Aircraft Trustee's own
failure to give any requisite notice to any person. "-- Certain Provisions of
the Leases and the Owned Aircraft Indentures -- Lease Events of Default." Such
remedies may be exercised by the related Loan Trustee to the exclusion of the
related Owner Trustee, subject to certain conditions specified in such
Indenture, and Midway, subject to the terms of such Lease. Any Aircraft sold in
the exercise of such remedies will be free and clear of any rights of those
parties, including the rights of Midway under any Lease with respect to such
Aircraft; PROVIDED that no exercise of any remedies by the related Leased
Aircraft Trustee may affect the rights of Midway under any Lease unless a Lease
Event of Default has occurred and is continuing. (Leased Aircraft Indentures,
Sections 7.02 and 7.03; Leases, Section 17) The Owned Aircraft Indentures will
not contain such limitations on the Owned Aircraft Trustee's ability to exercise
remedies upon an Indenture Default under an Owned Aircraft Indenture.
If the Equipment Notes issued in respect of one Aircraft are in default,
the Equipment Notes issued in respect of the other Aircraft may not be in
default, and, if not, no remedies will be exercisable under the applicable
Indentures with respect to such other Aircraft.
Section 1110 of the U.S. Bankruptcy Code provides in relevant part that,
except as described in the following sentence, the right of lessors, conditional
vendors and holders of security interests with respect to "equipment" (as
defined in Section 1110) to take possession of such equipment in compliance with
the provisions of a lease, conditional sale contract or security agreement, as
the case may be, is not affected by any other provision of the U.S. Bankruptcy
Code. Section 1110 of the U.S. Bankruptcy Code provides in relevant part,
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 an event of default
may not be exercised for 60 days following the date of commencement of the
reorganization proceedings and may not be exercised at all if, within such 60
day period (or such longer period consented to by the lessor, conditional vendor
or holder of a security interest and approved by the court), 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). "Equipment" is defined in Section 1110, in part,
as "an aircraft, aircraft engine, propeller, appliance, or spare part (as
defined in section 40102 of Title 49 of the United States Code) that is subject
to a security interest granted by, leased to, or conditionally sold to a debtor
that at the time such transaction is entered into, holds an air carrier
operating certificate issued by the Secretary of Transportation pursuant to
chapter 447 of Title 49 of the United States Code for aircraft capable of
carrying 10 or more individuals or 6,000 pounds or more of cargo."
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<PAGE>
It is a condition to the Trustee's obligation to purchase Equipment Notes
with respect to each Aircraft that outside counsel to Midway, which is expected
to be Fulbright & Jaworski L.L.P., provide its opinion to the Trustees that, if
Midway were to become a debtor under Chapter 11 of the U.S. Bankruptcy Code, the
Owner Trustee, as lessor under each of the Leases, and the Loan Trustee of the
Leased Aircraft Indentures, as assignee of such Owner Trustee's rights under
each of the Leases pursuant to each of the related Indentures, and the Loan
Trustee under each Owned Aircraft Indenture, as holder of a security interest in
the related Owned Aircraft, would be entitled to the benefits of Section 1110 of
the U.S. Bankruptcy Code with respect to the airframe and engines comprising the
related Aircraft, but such opinion may provide that such Owner Trustee or any
such Loan Trustee may not be entitled to such benefits with respect to any
replacement of an Aircraft after an Event of Loss in the future (the
consummation of which replacement is conditioned upon the contemporaneous
delivery of an opinion of counsel to the effect that the related Loan Trustee's
entitlement to Section 1110 benefits should not be diminished as a result of
such replacement) or with respect to the replacement of an engine in accordance
with the terms of the Lease (but Section 1110 would be available as to the
original airframe and engine(s) and might or might not be independently
available as to the replaced engine(s)). This opinion will be subject to certain
qualifications and assumptions including the assumptions that Midway at the time
of entering into the applicable Lease or Owned Aircraft Indenture holds an air
carrier operating certificate issued by the Secretary of Transportation pursuant
to chapter 447 of Title 49 of the United States Code for aircraft capable of
carrying 10 or more individuals or 6,000 pounds or more of cargo. See
"--Certain Provisions of the Leases and the Owned Aircraft Indentures - Events
of Loss." The opinion will not address the availability of Section 1110 with
respect to the bankruptcy proceedings of any possible lessee of an Owned
Aircraft which may be leased by Midway, or of any sublessee of a Leased Aircraft
which may be subleased by Midway. For a description of certain limitations on
the Loan Trustee's exercise of rights contained in the Indenture, see
"--Indenture Defaults, Notice and Waiver."
If an Indenture Default under any Indenture occurs and is continuing, any
sums held or received by the related Loan Trustee may be applied to reimburse
such Loan Trustee for any tax, expense or other loss incurred by it and to pay
any other amounts due to such Loan Trustee prior to any payments to holders of
the Equipment Notes issued under such Indenture. (Indentures, Section 5.03).
In the event of bankruptcy, insolvency, receivership or like proceedings
involving an Owner Participant, it is possible that, notwithstanding that the
applicable Aircraft is owned by the related Owner Trustee in trust, such
Aircraft and the related Lease and Equipment Notes might become part of such
proceeding. In such event, payments under such Lease or on such Equipment Notes
may be interrupted and the ability of the related Loan Trustee to exercise its
remedies under the related Indenture might be restricted, though such Loan
Trustee would retain its status as a secured creditor in respect of the related
Lease and the related Aircraft.
Modification of Indentures and Leases
Without the consent of holders of a majority in principal amount of the
Equipment Notes outstanding under any Indenture, the provisions of such
Indenture and any related Lease, Participation Agreement or Trust Agreement may
not be amended or modified, except to the extent indicated below.
Certain provisions of any Leased Aircraft Indenture, and of the Lease,
Participation Agreement and Trust Agreement related thereto, may be amended or
modified by the parties thereto without the consent of the relevant Loan Trustee
or any holders of the Equipment Notes outstanding under such Indenture, subject
to certain conditions. In the case of each Lease, such provisions include, among
others, provisions relating to (1) the return to the related Owner Trustee of
the related Aircraft at the end of the term of such Lease, (2) the renewal of
such Lease and the option of Midway at the end of the term of such Lease to
purchase the related Aircraft, (3) maintenance, operation and use of the
Aircraft and (4) the list of countries in which a permitted sublessee may be
headquartered or in which an Aircraft may, in some circumstances, be
re-registered. (Indentures, Section 8.01).
Without the consent of the holder of each Equipment Note outstanding under
any Indenture affected thereby and the Liquidity Provider, no amendment of or
supplement to such Indenture may, among other things (a) reduce the principal
amount of, or Make-Whole Premium, if any, or interest payable on, any Equipment
Notes issued under such Indenture or change the date on which or the priority
with respect to which any principal, Make-Whole Premium, if any, or interest is
due and payable, (b) create any security interest with respect to the property
prior to or pari passu with the lien of such Indenture, except as provided in
such Indenture, or deprive any holder of an Equipment Note issued under such
Indenture of the benefit of the lien of such Indenture upon the property subject
thereto or (c) reduce the percentage in principal amount of outstanding
Equipment Notes issued under such Indenture necessary to modify or amend any
provision of such Indenture or to waive compliance therewith. (Indentures,
Section 13.02).
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<PAGE>
Indemnification
Midway will be required to indemnify each Loan Trustee, each Owner
Participant, each Owner Trustee, each Liquidity Provider, the Subordination
Agent, the Escrow Agent and each Trustee, but not the holders of Certificates,
for certain losses, claims and other matters. Midway will be required under
certain circumstances to indemnify each Owner Participant against the loss of
depreciation deductions and certain other benefits allowable for certain income
tax purposes with respect to the related Leased Aircraft.
The Loan Trustee is not under any obligation to take any action, risk
liability or expend its own funds under the Indenture if it has reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk is not reasonably assured to it.
The Leases and Certain Provisions of the Leases and the Owned Aircraft
Indentures
Each Leased Aircraft will be leased to Midway by the relevant Owner Trustee
under the relevant Lease. Each Owned Aircraft will be owned by Midway.
Lease Terms and Rentals
Each Leased Aircraft will be leased separately for a term (with respect to
any Leased Aircraft, the "Term") commencing on the date of the delivery of such
Aircraft to the relevant Owner Trustee and expiring not earlier than the latest
maturity date of the Equipment Notes issued pursuant to the related Indenture.
Basic Rent payments for each Aircraft are payable semiannually on each Lease
Payment Date. Such payments, together with certain other payments that Midway is
obligated to make or cause to be made under the related Lease, have been
assigned by the Owner Trustee under the related Indenture to provide the funds
necessary to make payments of principal and interest due or expected to be due
from the Owner Trustee on the Equipment Notes issued under such Indenture and
Liquidity Obligations under the related Liquidity Facility. In certain cases,
the Basic Rent payments under the Leases may be adjusted, but each Lease
provides that under no circumstances will rent payments by Midway be less than
the scheduled payments on the related Equipment Notes. (Leases, Section 3(f))
The balance of any such Basic Rent payment and such other payments, after
payment of amounts due or expected to be due on the related Equipment Notes and
certain other amounts, will be paid over to the related Owner Trustee.
(Indentures, Section 5.01) Midway's obligations to pay rent and to make, or
cause to be made, other payments under each Lease are general unsecured
obligations of Midway and will rank pari passu in right of payment with all
other general unsecured indebtedness of Midway, and would be senior in right of
payment to any subordinated indebtedness of Midway if any such subordinated
indebtedness should exist. The rental obligations will also be effectively
subordinated to any secured indebtedness of Midway to the extent of the value of
the assets securing such indebtedness.
Semiannual payments of interest on the Equipment Notes issued by Midway
under an Owned Aircraft Indenture are payable on April 1 and October 1 of each
year, commencing on the later of April 1, 2001 and the first such date after
issuance thereof. Semiannual payments of principal under the Equipment Notes
issued by Midway under an Owned Aircraft Indenture are payable on April 1 or
October 1, or both, in certain years.
Maintenance and Operation
Each Owned Aircraft will be owned by Midway. Midway's obligations in
respect of each of the Leased Aircraft will be those of a lessee under a "net
lease." Accordingly, Midway is obligated to cause (x) each Leased Aircraft to be
duly registered in the name of the Owner Trustee (except to the extent the
relevant Owner Trustee or Owner Participant fails to meet applicable citizenship
requirements) and (y) each Owned Aircraft to be duly registered in the name of
Midway, and in each such case, to pay all costs of operating the Aircraft and,
at the expense of Midway, and to the extent set forth in such Lease or Owned
Aircraft Indenture, as the case may be, to maintain, service, repair and
overhaul the Aircraft (or cause the Aircraft to be maintained, serviced,
repaired and overhauled) so as to keep the Aircraft in such operating condition
as may be necessary to enable the airworthiness certification of such Aircraft
to be maintained in good standing at all times under the applicable rules and
regulations of the country of registry of the Aircraft, except during temporary
periods of grounding or during storage or the conduct of maintenance procedures,
in each case subject to certain limitations. Notwithstanding anything to the
contrary set forth above, Midway is also required to cause the Aircraft to be
maintained in accordance with maintenance standards at least comparable to those
required by the FAA or the central civil aviation authority of the United
Kingdom, France, Germany, Japan, the Netherlands or Canada. (Leases, Section
5(d); Owned Aircraft Indentures, Section 4.01(d); Participation Agreements,
Section 6.03(b)).
Midway will not (and will not permit any Sublessee, in the case of a Leased
Aircraft, or Permitted Lessee, in the case of an Owned Aircraft to) use or
operate any Aircraft in violation of any applicable law or in violation of any
airworthiness certificate, license of registration relating to the Aircraft
issued by any competent government authority unless (1) the validity thereof is
being
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contested in good faith and by appropriate proceedings which do not involve a
material danger of the sale, forfeiture or loss of the Airframe or any Engine or
(2) it is not possible for Midway to comply with the laws of a jurisdiction
other than the United States (or other than any jurisdiction in which the
Aircraft is then registered) because of a conflict with the applicable laws of
the United States (or such jurisdiction in which the Aircraft is then
registered). (Leases, Section 5(c); Owned Aircraft Indentures, Section 4.01(e)).
Midway must make (or cause to be made) all alterations, modifications and
additions to each Airframe and Engine necessary to meet the applicable standards
of the FAA or any other applicable governmental authority of another
jurisdiction in which the Aircraft may be registered, provided, that Midway may,
in good faith, contest the validity or application of any such standard in any
reasonable manner which does not materially adversely affect the Lessor (in the
case of a Leased Aircraft) or the lien of the Indenture. Midway (or any
Sublessee, in the case of a Leased Aircraft, or Permitted Lessee, in the case of
an Owned Aircraft) may add further parts and make other alterations,
modifications and additions to any Airframe or any Engine as Midway (or any
Sublessee, in the case of a Leased Aircraft, or Permitted Lessee, in the case of
an Owned Aircraft) may deem desirable in the proper conduct of its business,
including removal of parts, so long as such alterations, modifications or
additions do not (x) in Midway's reasonable judgment, diminish the value,
utility, condition or airworthiness of such Airframe or Engine below the value,
utility, condition or airworthiness thereof immediately prior to such
alteration, modification, addition or removal (assuming such Airframe or Engine
was maintained in accordance with the Lease or Owned Aircraft Indenture, as the
case may be), except that the value (but not the utility, condition or
airworthiness) of any Airframe or Engine may be reduced from time to time by the
value of the obsolete parts which are removed so long as the aggregate value of
such obsolete parts removed and not replaced shall not exceed $300,000 per
Aircraft. In the case of a Leased Aircraft, title to parts incorporated or
installed in or added to such Airframe or Engine as a result of such
alterations, modifications or additions vest in the Owner Trustee subject to
certain exceptions. In certain circumstances, Midway (or any Sublessee, in the
case of a Leased Aircraft, or Permitted Lessee, in the case of an Owned
Aircraft) is permitted to remove parts which were added by Midway (or any
Sublessee, in the case of a Leased Aircraft, or Permitted Lessee in the case of
an Owned Aircraft) (without replacement) from an Airframe or Engine so long as
certain conditions are met and any such removal does not, among other things
specified in each Lease, materially diminish or impair the value, utility,
condition or airworthiness which such Airframe or Engine would have had at such
time had such addition, alteration or modification not occurred. (Leases,
Sections 7(a), 7(b), 7(c) and 7(d); Owned Aircraft Indentures, Sections 4.03(a),
4.03(b), 4.03(c) and 4.03(d)).
Except as set forth above, Midway is obligated to replace or cause to be
replaced all parts (other than severable parts added at the option of Midway or
unsuitable parts that Midway is permitted to remove to the extent described
above) that are incorporated or installed in or attached to any Airframe or any
Engine and become worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use. Any such
replacement parts become subject to the related Lease (in the case of a Leased
Aircraft) and the lien of the related Indenture in lieu of the part replaced.
(Leases, Sections 7(a) and 7(b); Owned Aircraft Indentures, Sections 4.03(a) and
4.03(b)).
Registration, Subleasing and Possession
Midway may, under certain circumstances, re-register an Aircraft in certain
jurisdictions outside the United States, subject to, among other conditions and
limitations specified in each Lease (in the case of a Leased Aircraft) or Owned
Aircraft Indenture (in the case of an Owned Aircraft) and the related
Participation Agreement, the lien of the related Indenture continuing as a first
priority security interest in the related Aircraft and (in the case of a Leased
Aircraft) Lease. Midway is also permitted, subject to certain limitations, to
sublease or lease, as the case may be, any Aircraft to any United States
certificated air carrier which is not subject to bankruptcy or similar
proceedings when the sublease or lease, as the case may be, begins, to certain
airframe or engine manufacturers or to certain foreign entities so long as, in
the case of any Leased Aircraft, the term of any such sublease does not extend
beyond the term of the Lease applicable to such Aircraft, subject to certain
exceptions. In addition, subject to certain limitations, Midway is permitted to
transfer possession of any Airframe or any Engine other than by sublease or
lease, as the case may be, including transfers of possession by Midway or any
Sublessee, in the case of a Leased Aircraft or Permitted Lessee, in the case of
an Owned Aircraft, in connection with certain interchange and pooling
arrangements, transfers to the United States government and any instrumentality
or agency thereof, and transfers in connection with maintenance or
modifications. There are no general geographical restrictions on Midway's (or
any Sublessee's, in the case of a Leased Aircraft, or Permitted Sublessee's in
the case of an Owned Aircraft) ability to operate the Aircraft. (Leases, Section
5(a); Owned Aircraft Indentures, Section 4.01(a)). The extent to which the
relevant Loan Trustee's lien would be recognized in an Aircraft if such Aircraft
were located in certain countries is uncertain. See "Risk Factors - Factors
Relating to the Certificates and the Offering - It may be difficult, expensive
and time-consuming for a Loan Trustee to repossess an Aircraft upon default." In
addition, any exercise of the right to repossess an Aircraft may be difficult,
expensive and time-consuming, particularly when such Aircraft is located outside
the United States and has been registered in a foreign jurisdiction or subleased
to a foreign operator, and may be subject to the limitations and requirements of
applicable law, including the need to obtain consents or approvals for
deregistration or re-export of the Aircraft,
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which may be subject to delays and political risk. When a defaulting Sublessee
or Permitted Lessee, as the case may be, or other permitted transferee is the
subject of a bankruptcy, insolvency or similar event such as protective
administration, additional limitations may apply.
In addition, in the case of a Leased Aircraft at the time of obtaining
repossession of the Aircraft under the related Lease or foreclosing on the lien
on the Aircraft under the related Indenture, an Airframe subject to such Lease
may not be equipped with Engines subject to the same Lease and, in such case,
Midway is required to deliver engines attached to such Airframe which shall be
of the same or improved model as the Engines (and, in any event, the two engines
returned shall be of the same model) and suitable for installation and use on
the Airframe, and be in as good an operating condition as, such Engines,
assuming such Engines were in the condition and repair required by the terms
hereof immediately prior to such termination. Notwithstanding Midway's agreement
in each Lease, in the event Midway fails to transfer title to engines not owned
by the Owner Trustee that are attached on repossessed Aircraft, it could be
difficult, expensive and time-consuming to assemble an Aircraft consisting of an
Airframe and Engines subject to the Lease. See "Risk Factors - Factors Relating
to the Certificates and the Offering - It may be difficult, expensive and
time-consuming for a Loan Trustee to repossess an Aircraft upon default."
Liens
Midway is required to maintain each Aircraft free of any liens, other than:
. the respective rights of Midway;
. the lien of the relevant Indenture, and any other rights existing pursuant
to the Operative Agreements related thereto and, in the case of the Leased
Aircraft, the rights of the Owner Participant and Owner Trustee under the
applicable Lease, Indenture and other Operative Agreements;
. the rights of others in possession of the Aircraft in accordance with the
terms of the Lease or the Owned Aircraft Indenture (including Sublessees
and Permitted Lessees);
. certain other customary liens permitted under such documents, including
liens for taxes of Midway or any Sublessee or Permitted Lessee, as the case
may be, either not yet due or being contested in good faith with due
diligence and by appropriate proceedings so long as such proceedings do not
involve any material danger of the sale, forfeiture or loss of such
Airframe or any Engine;
. materialmen's, mechanics' and other similar liens arising in the ordinary
course of Midway's (or any Sublessee's or Permitted Lessee's) business
securing obligations that are not overdue, or are being contested in good
faith by appropriate proceedings not involving any material danger of the
sale, forfeiture or loss of such Airframe or Engines;
. judgment liens for which there has been served a stay of execution;
. salvage and similar rights of insurers;
. certain liens attributable to the Loan Trustee, or in the case of a Leased
Aircraft, the Owner Participant or Owner Trustee; and
. any other lien with respect to which Midway (or any Sublessee or Permitted
Lessee) has provided a bond or other security adequate in the reasonable
opinion of, in the case of a Leased Aircraft, the Owner Trustee or, in the
case of an Owned Aircraft, the Loan Trustee. (Leases, Section 10; Owned
Aircraft Indentures, Section 4.06).
Insurance
Subject to certain exceptions, Midway is obligated, at its or any
Sublessee's or Permitted Lessee's, as the case may be, expense, to maintain or
cause to be maintained on each Aircraft, with insurers of recognized
responsibility, public liability and property damage insurance (exclusive of
manufacturer's product liability insurance) and all-risk aircraft hull
insurance, in such amounts, covering such risks and in such form as Midway
customarily maintains with respect to other aircraft owned or operated by
Midway, in each case similar to such Aircraft; provided, however, that, except
to the extent of any self-insurance, the all-risk hull insurance shall be at
least in an amount equal to the Termination Value (as specified in the
applicable Lease) of such Aircraft (except with respect to any Owned Aircraft,
in which case in an amount equal to the outstanding principal amount of the
related Equipment Notes plus six months interest). (Leases, Sections 9(a) and
9(b); Owned Aircraft Indentures, Sections 4.05(a) and 4.05(b)).
Subject to certain exceptions, the policies covering loss of or damage to
an Aircraft shall be made payable, up to the Termination Value for such Aircraft
(in the case of a Leased Aircraft) or up to the amount of outstanding principal
of the Equipment Notes plus accrued interest (in the case of an Owned Aircraft),
to the related Loan Trustee for any loss involving
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proceeds in excess of $2 million and the entire amount of any loss involving
proceeds of $2 million or less and not involving an Event of Loss shall be paid
to Midway, except that in the event a Lease Event of Default (in the case of a
Leased Aircraft) or Indenture Event of Default (in the case of an Owned
Aircraft) or a payment default or certain bankruptcy defaults (a "Specified
Default") occurs and is continuing the relevant Loan Trustee can notify the
insurers that all insurance proceeds must be paid to the relevant Loan Trustee.
(Leases, Section 9(c)).
With respect to required insurance, Midway may, in addition to maintaining
normal deductibles, in the case of public liability and property damage
insurance and all-risk hull insurance, maintain self-insurance, by way of
deductible or otherwise, per occurrence or on a fleet-wide basis of not more
than $15 million. (Leases, Section 9(d); Owned Aircraft Indentures, Section
4.05(d)).
In respect of each Aircraft, Midway is required to cause the relevant Owner
Trustee, if applicable, and Loan Trustee and certain other persons to be
included as additional insureds as their respective interests may appear under
all liability insurance policies required by the terms of the Lease or Owned
Aircraft Indenture, as the case may be, with respect to such Aircraft. (Leases,
Section 9(c); Owned Aircraft Indentures, Section 4.05(c)).
Subject to certain customary exceptions, Midway may not operate (or permit
any Sublessee or Permitted Lessee to operate) any Aircraft in any area that is
excluded from coverage by any insurance policy in effect with respect to such
Aircraft and required by the Lease or owned Aircraft Indenture, as the case may
be. (Leases, Section 5(c); Owned Aircraft Indentures, Section 4.01(c)).
Midway's obligation to provide any insurance required by each Lease or
Owned Aircraft Indenture, as the case may be, shall be satisfied if
indemnification from, or insurance provided by, the United States government
against the risks requiring such insurance under such Lease or Owned Aircraft
Indenture, when added to the amount of insurance against such risks otherwise
maintained by or for the benefit of Midway, has a combined effect substantially
the same as the amount of insurance against such risks otherwise required by
such Lease or the Owned Aircraft Indenture, as the case may be. (Leases,
Sections 9(a) and 9(b); Owned Aircraft Indentures, Sections 4.05(a) and
4.05(b)).
Lease Termination
So long as no Event of Default shall be continuing, Midway may terminate
any Lease on any Termination Date occurring after the fifth anniversary of the
delivery date, if it determines that such Aircraft is obsolete or surplus to
Midway's equipment requirements and subject to certain other limitations
specified in such Leases. Upon payment of the Termination Value for such
Aircraft, which will be in an amount at least equal to the outstanding principal
amount of the related Equipment Notes and an amount equal to the Make-Whole
Premium, if any, payable on such date of payment, together with certain
additional amounts and together with all accrued and unpaid interest thereon,
the lien of the relevant Indenture shall be released, the relevant Lease shall
terminate, and the obligation of Midway thereafter to make scheduled rent
payments under such Lease shall cease. (Leases, Section 14; Leased Aircraft
Indentures, Section 6.02).
Renewal and Purchase Options
At the end of the term of each Lease after final maturity of the related
Equipment Notes and subject to certain conditions, Midway will have certain
options to renew such Lease for additional limited periods. In addition, Midway
will have the right at the end of the term of each Lease to purchase the
Aircraft subject thereto for an amount to be calculated in accordance with the
terms of such Lease. (Leases, Section 13).
Midway will also have the option to purchase the Aircraft subject to a
Lease on certain specified dates and upon the occurrence of certain events prior
to the end of the term of the Lease. In the event Midway exercises such a
purchase option in respect of an Aircraft, the purchase price therefor shall be
calculated in accordance with the provisions of the related Lease, but in any
event shall be sufficient to pay all principal of, Make-Whole Premium, if any,
on and interest on the related Equipment Notes in full and, upon payment
thereof, Midway shall acquire such Aircraft free of the lien of the related
Indenture, unless upon satisfaction of certain conditions, Midway chooses to
assume on a full recourse basis all of such Owner Trustee's obligations in
respect of the related Equipment Notes and acquires the Aircraft subject to the
lien of the related Indenture. (Leases, Section 13(b); Leased Aircraft
Indentures, Sections 2.12 and 6.02; Participation Agreements, Section 7.11) See
"Description of the Equipment Notes - Redemption."
Events of Loss
If an Event of Loss occurs with respect to any Aircraft, Midway is
obligated either (1) so long as no Event of Default (in the case of a Leased
Aircraft) or Indenture Event of Default (in the case of an Owned Aircraft) is
continuing, to replace such Aircraft or (2) to pay to the related Owner Trustee
or the Owned Aircraft Trustee, as the case may be, the applicable Termination
Value or the outstanding principal amount of the Equipment Notes plus accrued
interest, as the case may be, together with certain additional
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amounts. If Midway elects to replace such Aircraft, it must do so no later than
180 days after the related Event of Loss, with an airframe or airframe and
engines (such airframe and engines to be of the same or a comparable or improved
model) free and clear of all liens (other than permitted liens) and having a
value and utility at least equal to such airframe or engines, as the case may
be, comprising part of the Aircraft immediately prior to the Event of Loss,
assuming maintenance, condition and airworthiness thereof in accordance with the
relevant Lease or the Owned Aircraft Indenture, as the case may be. If Midway
elects to pay the Termination Value or the outstanding amount of principal and
interest, as the case may be, for such Aircraft or elects to replace such
Aircraft but fails to do so within the time periods specified therefor, Midway
must make such payment not later than the 180th day after the Event of Loss.
Upon making such payment with respect to a Leased Aircraft together with all
other amounts then due under the related Lease with respect to such Aircraft,
which in all circumstances will be at least sufficient to pay in full as of the
date of payment the principal amount of the related Equipment Notes and all
accrued and unpaid interest due thereon (but without any Make-Whole Premium),
the Lease for such Aircraft shall terminate and the obligation of Midway to make
the scheduled Basic Rent payments with respect thereto shall cease. Upon making
such payment with respect to an Owned Aircraft, the Equipment Notes issued with
respect to such Owned Aircraft will be redeemed in full. (Leases, Sections 8(a);
Owned Aircraft Indenture, Section 4.04(a); Indentures, Sections 5.02, 6.02 and
9.08).
If an Event of Loss occurs with respect to an Engine alone, Midway is
required to replace such Engine within 90 days from the date of such Event of
Loss with another engine, free and clear of all liens (other than permitted
liens), of the same or improved make and model and having a value and utility
and in as good operating condition as the Engine being replaced (assuming that
such Engine had been maintained in accordance with the Lease or the Owned
Aircraft Indenture, as the case may be). (Leases, Section 7(e); Owned Aircraft
Indenture, Section 4.03(e); Indentures, Section 9.08).
An "Event of Loss" with respect to an Aircraft, Airframe or any Engine
means any of the following events with respect thereto:
. theft, hijacking or disappearance for a period in excess of 30 consecutive
days (or 60 consecutive days so long as Lessee is diligently pursuing
recovery of such property), or with respect to any Leased Aircraft, such
shorter period ending on the expiration of the Term;
. destruction, damage beyond economic repair or rendition of such property
permanently unfit for normal use for any reason whatsoever;
. any event which results in an insurance settlement with respect to such
property on the basis of an actual, constructive or compromised total loss;
. with respect to the Airframe only, requisition of use of such property by
any foreign government or purported government or any agency or
instrumentality thereof (other than the United States government), for a
period in excess of 180 consecutive days (for certain specified countries)
or 30 consecutive days (for any other country) or, with respect to any
Leased Aircraft, such shorter period ending on the expiration of the Term;
. with respect to any Leased Aircraft, and with respect to the Airframe only,
requisition of use of such property by the United States government for a
period extending beyond the Term;
. condemnation, confiscation or seizure of, or requisition of title of such
property by any foreign government or purported government or any agency or
instrumentality thereof or by the United States government, for a period in
excess of 10 consecutive days or such shorter period ending on the
expiration of the Term;
. with respect to an Engine only, the requisition or taking of use thereof by
any government, or instrumentality or agency thereof and any divestiture of
title or ownership deemed to be an Event of Loss with respect to an Engine
pursuant to the terms of the Lease; and
. as a result of any law, rule, regulation, order or other action by the FAA
or other governmental body having jurisdiction, the use of the Aircraft or
Airframe in the normal course of air transportation of passengers shall
have been prohibited by virtue of a condition affecting all 737s equipped
with engines of the same make and model as the Engines for a period of 180
consecutive days (or, in the case of a Leased Aircraft, beyond the end of
the Term), unless the Lessee, prior to the expiration of such 180-day
period, shall be diligently carrying forward all necessary and desirable
steps to permit normal use of the Aircraft and shall within 12 months have
conformed at least one 737 (but not necessarily the Aircraft) to the
requirements of any such law, rule, regulation, order or action, and shall
be diligently pursuing conformance of the Aircraft in a non-discriminatory
manner.
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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 which is a part of such
Aircraft. (Leases, Section 8; Owned Aircraft Indentures, Section 4.04).
Lease Events of Default
Lease Events of Default include:
. failure by Midway to pay any payment of Basic Rent, Termination Value or
Supplemental Rent constituting any Make-Whole Premium under such Lease
within 10 days after the same shall have become due;
. failure by Midway to pay Supplemental Rent (other than Termination Value or
any Make-Whole Premium) when due and such failure continues for 30 days
after Midway's receipt of written notice thereof (which default may be
declared in certain instances only by the Owner Participant);
. failure by Midway to perform or observe any other covenant or agreement to
be performed or observed by it under the applicable Lease or any Operative
Agreement and such failure shall have continued unremedied for a period of
30 days after Midway shall have received written notice of such failure;
PROVIDED, HOWEVER, that no such failure shall constitute a Lease Event of
Default so long as such failure can be remedied, Midway is diligently
proceeding to remedy such failure, and such failure is remedied within a
period of up to 180 days of receipt of such notice;
. any representation or warranty (other than tax representations and
warranties) made by Midway under the Operative Agreements shall have proved
to have been incorrect in any material respect when made, remains material
when discovered and is not cured within 30 days after notice to Midway of
such incorrectness by the Owner Trustee;
. the occurrence of certain events of bankruptcy, reorganization or
insolvency of Midway; and
. failure by Midway to carry and maintain (or cause to be carried and
maintained) insurance on or in respect of any Aircraft in accordance with
the provisions of such Lease, subject to certain exceptions and grace
periods. (Leases, Section 16).
If a Lease Event of Default has occurred and is continuing and the Lease
has been declared to be in default, the Owner Trustee may, subject to certain
limitations relating to aircraft subject to the CRAF Program, exercise one or
more of the remedies provided in such Lease with respect to the related
Aircraft. Such remedies include the right to repossess and use or operate such
Aircraft, to sell or release such Aircraft free and clear of Midway's rights and
retain the proceeds and to require Midway to pay as liquidated damages any
accrued and unpaid Basic Rent plus an amount equal to the excess of the
Termination Value of such Aircraft over the net sale proceeds thereof plus
interest thereon or the excess of the Termination Value of such Aircraft over
the Fair Market Value of the Aircraft, plus interest thereon. (Leases, Section
17).
Indenture Defaults under the Owned Aircraft Indenture are discussed above
under "Indenture Defaults, Notice and Waiver." Remedies under the Owned Aircraft
Indenture are discussed above under "--Remedies."
Certain Defined Terms Under the Leases
"Basic Rent" means, for any Aircraft, the aggregate periodic rent payable
throughout the Basic Term for such Aircraft pursuant to the related Lease
subject to certain adjustments.
"CRAF Program" means the Civil Reserve Air Fleet Program administered by
the United States government.
"Sublessee" means any sublessee permitted under a Lease from time to time.
"Supplemental Rent" means all amounts, liabilities, indemnities and
obligations (other than Basic Rent) which Midway assumes or agrees to pay under
each Lease and the agreements related thereto.
Certain Defined Terms Under the Owned Aircraft Indentures
"Permitted Lessee" means any lessee permitted under an Owned Aircraft
Indenture from time to time.
EXCHANGE OFFER; REGISTRATION RIGHTS
Midway will enter into a registration rights agreement (the "Registration
Rights Agreement") with the Placement Agents pursuant to which Midway will
agree, for the benefit of and at no cost to the holders of the Certificates, (1)
to use its best efforts to file with the SEC within 120 days after the Issuance
Date a registration statement (the "Exchange Offer Registration Statement") with
respect to the offer to exchange (the "Exchange Offer") each Class of
Certificates for a new class of certificates issued by the same Trust (the
"Exchange Certificates"), which will have terms identical in all material
respects to the Certificates entitled to make such exchange (except that the
Exchange Certificates will not contain terms with respect to transfer
restrictions or interest
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rate increases as described herein and the Exchange Certificates will be
available only in book-entry form) and (2) to use its best efforts to cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 180 days after the Issuance Date. Promptly after the
Exchange Offer Registration Statement has been declared effective, Midway will
offer the Exchange Certificates in exchange for surrender of the Certificates.
Midway will keep the Exchange Offer open for not less than 20 Business Days (or
longer if required by applicable law) after the date notice of the Exchange
Offer is mailed to the holders of the Certificates. For each Certificate duly
tendered to the applicable Trustee pursuant to the Exchange Offer and not
validly withdrawn by the holder thereof, the holder of such Certificate will
receive an Exchange Certificate having a face amount equal to that of the
tendered Certificate.
Based on an interpretation of the Securities Act by the staff of the SEC
set forth in several no-action letters to third parties, and subject to the
immediately following sentence, we believe that the Exchange Certificates issued
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof without further compliance with the registration
and prospectus delivery provisions of the Securities Act. However, any purchaser
of Certificates who is our "affiliate" or who intends to participate in the
Exchange Offer for the purpose of distributing the Exchange Certificates (1)
will not be able to rely on the interpretation by the staff of the SEC set forth
in the above referenced no-action letters, (2) will not be able to tender
Certificates in the Exchange Offer and (3) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the Certificates, unless such sale or transfer is made
pursuant to an exemption from such requirements.
Each holder of the Certificates who participates in the Exchange Offer will
be required to make certain representations, including that (1) it is neither an
affiliate of Midway or the Trustee nor a broker-dealer tendering Certificates
acquired directly from us for its own account, (2) any Exchange Certificates to
be received by it are being acquired in the ordinary course of its business and
(3) it has no arrangement with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Certificates. In
addition, in connection with any resales of the Exchange Certificates, any
broker-dealer (a "Participating Broker-Dealer") who acquired the Certificates
for its own account as a result of market-making activities or other trading
activities must deliver a prospectus meeting the requirements of the Securities
Act. The SEC has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the Exchange
Certificates (other than a resale of an unsold allotment from the original sale
of the Certificates) with the prospectus contained in the Exchange Offer
Registration Statement. Under the Registration Rights Agreement, we are required
to allow Participating Broker-Dealers and other persons, if any, subject to
similar prospectus delivery requirements to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such
Exchange Certificates for a period of 90 days after the completion of the
Exchange Offer.
In the event that any changes in law or the applicable interpretations of
the staff of the SEC do no permit us to effect the Exchange Offer, if the
Exchange Offer Registration Statement is not declared effective within 180 days
after the Issuance Date under certain circumstances or the Exchange Offer is not
consummated within 210 days after the Issuance Date under certain other
circumstances, at the request of a holder not eligible to participate in the
Exchange Offer or under certain other circumstances described in the
Registration Rights Agreement, Midway will, in lieu of effecting the
registration of the Exchange Certificates pursuant to the Exchange Offer
Registration Statement and at no cost to the holders of Certificates, (a) as
promptly as practicable, file with the SEC a shelf registration statement (the
"Shelf Registration Statement") covering resales of the Certificates, (b) use
its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act by the 180th day after the Issuance Date and
(c) use its best efforts to keep effective the Shelf Registration Statement for
a period of two years after its effective date (or for such shorter period as
shall end when all of the Certificates covered by the Shelf Registration
Statement have been sold pursuant thereto or may be freely sold pursuant to Rule
144 under the Securities Act). Midway will, in the event of the filing of a
Shelf Registration Statement, provide to each holder of the Certificates copies
of the prospectus which is a part of the Shelf Registration Statement, notify
each such holder when the Shelf Registration Statement for such Certificates has
become effective and take certain other actions as are required to permit
unrestricted resales of such Certificates. A holder of Certificates who sells
such Certificates pursuant to the Shelf Registration Statement generally will be
required to be named as selling securityholder in the related prospectus and to
deliver the prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations). In
addition, each holder of such Certificates will be required to deliver
information to be used in connection with the Shelf Registration Statement
within the time periods set forth in the Registration Rights Agreement in order
to have their Certificates included in the Shelf Registration Statement.
In the event that either the consummation of the Exchange Offer or the
declaration by the SEC of a Shelf Registration Statement to be effective (a
"Registration Event") does not occur on or prior to the 210/th/ day after the
Issuance Date, the interest rate per annum borne by the Equipment Notes shall be
increased by 0.50%, from and including such 210/th/ day to but excluding the
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earlier of (1) the date on which a Registration Event occurs and (2) the date on
which all of the Certificates otherwise become transferable by
Certificateholders (other than affiliates or former affiliates of Midway)
without further registration under the Securities Act. In the event that the
Shelf Registration Statement ceases to be effective at any time during the
period specified by the Registration Rights Agreement for more than 60 days,
whether or not consecutive, during any 12-month period, the interest rate per
annum borne by the Equipment Notes shall be increased by 0.50% from the 61st day
of the applicable 12-month period such Shelf Registration Statement ceases to be
effective until such time as the Shelf Registration Statement again becomes
effective (or, if earlier, the end of such period specified by the Registration
Rights Agreement).
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Trustee.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
General
The following summary describes the material U.S. federal income tax
consequences to Certificateholders of the purchase, ownership and disposition of
the Certificates offered hereby and in the opinion of Fulbright & Jaworski
L.L.P., special tax counsel to Midway ("Tax Counsel"), is accurate in all
material respects with respect to the matters discussed therein. Except as
otherwise specified, the summary is addressed to beneficial owners of
Certificates ("U.S. Certificateholders") that are:
. citizens or residents of the United States,
. corporations, partnerships or other entities created or organized in or
under the laws of the United States or any state therein or the District of
Columbia,
. estates the income of which is subject to U.S. federal income taxation
regardless of its source, or
. generally, trusts that meet the following two tests: (a) a U.S. court is
able to exercise primary supervision over the administration of the trust
and (b) one or more U.S. persons have the authority to control all
substantial decisions of the trust ("U.S. Persons") that will hold the
Certificates as capital assets.
This summary does not address the tax treatment of U.S. Certificateholders
that may be subject to special tax rules, such as banks, insurance companies,
dealers in securities or commodities, tax-exempt entities, holders that will
hold Certificates as part of a straddle or holders that have a "functional
currency" other than the U.S. dollar, nor, except as specifically indicated,
does it address the tax treatment of U.S. Certificateholders that do not acquire
Certificates at the initial offering price as part of the initial offering. The
summary does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to a decision to purchase Certificates. This
summary does not describe any tax consequences arising under the laws of any
state, locality or taxing jurisdiction other than the United States.
This summary is based upon the tax laws and practice of the United States
as in effect on the date of this offering memorandum, as well as judicial and
administrative interpretations thereof available on or before such date. All of
the foregoing are subject to change, which change could apply retroactively.
Prospective investors should note that no rulings have been sought from the U.S.
Internal Revenue Service (the "IRS") with respect to the tax consequences
described below, and no assurance can be given that the IRS will not take
contrary positions. The Trusts are not indemnified for any U.S. federal income
taxes that may be imposed upon them, and the imposition of any such taxes on a
Trust could result in a reduction in the amounts available for distribution to
the Certificateholders of such Trust. Prospective investors should consult their
own tax advisors with respect to the federal, state, local and foreign tax
consequences to them of the purchase, ownership and disposition of the
Certificates
Tax Status of the Trusts
In the opinion of Tax Counsel, while there is no authority addressing the
characterization of entities that are similar to the Trusts in all material
respects, each Trust will not be classified as an association or a publicly
traded partnership taxable as a corporation for U.S. federal income tax purposes
and will not be subject to federal income tax. Each Trust will file federal
income tax returns and report to investors on the basis that it is a grantor
trust under Subpart E, Part I of Subchapter J of the Code. If a Trust were
treated as a partnership for U.S. federal income tax purposes rather than as a
grantor trust, in the opinion of Tax Counsel, the consequences to U.S.
Certificateholders and, to the extent described below, Non-U.S.
Certificateholders, would not be materially different. The remainder of this
discussion describes the consequences of the treatment as a grantor trust.
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Certificateholders who are not U.S. Persons should consult their own tax
advisors as to the suitability to them of an investment in the Certificates.
Taxation of Certificateholders Generally
A U.S. Certificateholder will be treated as owning its pro rata undivided
interest in the relevant Deposits and each of the Equipment Notes, the Trust's
contractual rights and obligations under the Note Purchase Agreement, and any
other property held by the Trust. Accordingly, each U.S. Certificateholder's
share of interest paid on Equipment Notes will be taxable as ordinary income, as
it is paid or accrued, in accordance with such U.S. Certificateholder's method
of accounting for U.S. federal income tax purposes, and a U.S.
Certificateholder's share of Make-Whole Premium, if any, paid on redemption of
an Equipment Note will be treated as capital gain. Each U.S. Certificateholder's
share of interest income on the Deposits will be taxable as it is paid or
accrued, in accordance with such holder's method of accounting for U.S. federal
income tax purposes. In addition, the Deposits may be subject to the original
issue discount and contingent payment rules, with the result that a U.S.
Certificateholder may be required to include interest income from a Deposit
using the accrual method of accounting regardless of its normal method and with
a possible slight deferral in the timing of income recognition as compared to
holding a single debt instrument with terms comparable to a Certificate. A U.S.
Certificateholder's share of Deposit Make-Whole Premium, if any, paid with
respect to the return of unused Deposits may be treated as ordinary income. Any
amounts received by a Trust under a Liquidity Facility will be treated for U.S.
federal income tax purposes as having the same characteristics as the payments
they replace.
An Owner Participant's conveyance of its interest in an Owner Trust should
not constitute a taxable event to U.S. Certificateholders with respect to
Equipment Notes attributable to the Leased Aircraft. However, if an Owner Trust
were to assume Midway's obligations under Equipment Notes with respect to an
Owned Aircraft upon conversion to a Leased Aircraft or if Midway were to assume
an Owner Trust's obligations under the Equipment Notes upon its purchase of a
Leased Aircraft pursuant to an option to purchase such aircraft prior to the end
of its lease term, either such assumption may be treated for U.S. federal income
tax purposes as a taxable exchange by U.S. Certificateholders of the Equipment
Notes for "new" Equipment Notes resulting in the recognition of taxable gain or
loss equal to the difference, if any, between the U.S. Certificateholder's
adjusted basis in its interest in the Equipment Notes and the amount realized on
such exchange (except to the extent attributable to accrued interest, which
would be taxable as interest income if not previously included in income). For
this purpose the amount realized (and the issue price of the "new" Equipment
Note) will be equal to the fair market value of the U.S. Certificateholder's pro
rata share of the respective Equipment Notes at such time if the Equipment Notes
are considered to be "publicly traded" within the meaning of applicable Treasury
regulations promulgated under the Code on original issue discount and otherwise
will equal to their principal amount (or, under certain circumstances, a lesser
imputed principal amount). Although the Certificates may be "tradable on an
established market" for purposes of these Treasury regulations, the Equipment
Notes will not be so tradable. There is no authority under the current Treasury
regulations or otherwise, however, that addresses the determination of the
amount realized in this context or one similar in all material respects. In the
event of an assumption by an Owner Trustee of Midway's obligations under
Equipment Notes with respect to an Owned Aircraft, Midway will (i) provide to
the relevant Owned Aircraft Trustee with an opinion of counsel that the Trusts
will not be subject to U.S. federal income tax as a result of such assumption
and (ii) furnish to the relevant Owned Aircraft Trustee either (A) an opinion
that the Certificateholders will not recognize gain or loss for U.S. federal
income tax purposes in connection with such assumption and will be subject to
U.S. federal income tax on the same amounts and in the same manner and at the
same time as would have been the case if such assumption had not occurred or (B)
furnish to the relevant Owned Aircraft Trustee both an opinion of counsel that
the Certificateholders should not recognize gain or loss for U.S. federal income
tax purposes in connection with such assumption and should be subject to U.S.
federal income tax on the same amount and in the same manner and at the same
time as would have been the case if such assumption had not occurred and an
indemnity in favor of the Certificateholders in form and substance reasonably
satisfactory to the relevant Owned Aircraft Trustee. Similarly, in the event of
an assumption by Midway of an Owner Trust's obligations under Equipment Notes
with respect to Leased Aircraft, Midway will (i) furnish to the relevant Leased
Aircraft Trustee an opinion that the Trusts will not be subject to U.S. federal
income taxation as a result of such assumption and (ii) furnish to the relevant
Leased Aircraft Trustee either (A) an opinion of counsel to the effect that no
Certificateholders will be required to recognize gain or loss for U.S. federal
income tax purposes in connection with such assumption and will be subject to
U.S. federal income tax on the same amounts and in the same manner and at the
same time as would have been the case if such assumption had not occurred or (B)
both an opinion of counsel that the Certificateholders should not recognize gain
or loss for U.S. federal income tax purposes in connection with such assumption
and should be subject to U.S. federal income tax on the same amount and in the
same manner and at the same time as would have been the case if such assumption
had not occurred and an indemnity in favor of the Certificateholders in form and
substance reasonably satisfactory to the relevant Leased Aircraft Trustee.
In the case of a subsequent purchaser of a Certificate, the purchase price
for the Certificate should be allocated among the relevant Deposits and the
assets held by the relevant Trust (including the Equipment Notes and the rights
and obligations under the Note Purchase Agreement with respect to Equipment
Notes not theretofore issued) in accordance with their relative fair market
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<PAGE>
values at the time of purchase. Any portion of the purchase price allocable to
the right and obligation under the Note Purchase Agreement to acquire an
Equipment Note should be included in the purchaser's basis in its share of the
Equipment Note when issued. Although the matter is not entirely clear, in the
case of a purchaser after initial issuance of the Certificates but prior to the
Delivery Period Termination Date, if the purchase price reflects a "negative
value" associated with the obligation to acquire an Equipment Note pursuant to
the Note Purchase Agreement being burdensome under conditions existing at the
time of purchase (e.g., as a result of the interest rate on the unissued
Equipment Notes being below market at the time of purchase of a Certificate),
such negative value probably would be added to such purchaser's basis in its
interest in the Deposits and the remaining assets of the Trust and reduce such
purchaser's basis in its share of the Equipment Notes when issued. The preceding
two sentences do not apply to purchases of Certificates following the Delivery
Period Termination Date.
A U.S. Certificateholder who is treated as purchasing an interest in a
Deposit or an Equipment Note at a market discount (generally, at a cost less
than its remaining principal amount) that exceeds a statutorily defined de
minimis amount will be subject to the "market discount" rules of the Code. These
rules provide, in part, that gain on the sale or other disposition of a debt
instrument with a term of more than one year and partial principal payments
(including partial redemptions) on such a debt instrument are treated as
ordinary income to the extent of accrued but unrecognized market discount. The
market discount rules also provide for deferral of interest deductions with
respect to debt incurred to purchase or carry a debt instrument that has market
discount. A U.S. Certificateholder who purchases an interest in a Deposit or an
Equipment Note at a premium may elect to amortize the premium as an offset to
interest income on the Deposit or Equipment Note under rules prescribed by the
Code and Treasury regulations promulgated under the Code.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding Trust as provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Trustee and the Liquidity
Provider, will be borne by parties other than the Certificateholders. It is
possible that such fees and expenses will be treated as constructively received
by the Trust, in which event a U.S. Certificateholder will be required to
include in income and will be entitled to deduct its pro rata share of such fees
and expenses. If a U.S. Certificateholder is an individual, estate or trust, the
deduction for such holder's share of such fees or expenses will be allowed only
to the extent that all of such holder's miscellaneous itemized deductions,
including such holder's share of such fees and expenses, exceed 2% of such
holder's adjusted gross income. In addition, in the case of U.S.
Certificateholders who are individuals, certain otherwise allowable itemized
deductions will be subject generally to additional limitations on itemized
deductions under applicable provisions of the Code.
Effect of Subordination of Class B and Class C Certificateholders
In the event that the Class B Trust or the Class C Trust (such Trusts being
the "Subordinated Trusts" and the related Certificates being the "Subordinated
Certificates") receives less than the full amount of the receipts of interest,
principal or premium paid with respect to the Equipment Notes held by it (any
shortfall in such receipts being the "Shortfall Amounts") because of the
subordination of the Equipment Notes held by such Trust under the Intercreditor
Agreement, the corresponding owners of beneficial interests in the Subordinated
Certificates (the "Subordinated Certificateholders") would probably be treated
for federal income tax purposes as if they had (1) received as distributions
their full share of such receipts, (2) paid over to the relevant senior 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,
. 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 senior
class of Certificateholders,
. a loss would only be allowed to such Subordinated Certificateholders when
their right to receive reimbursement of such Shortfall Amount becomes
worthless (i.e., when it becomes clear that funds will not be available
from any source to reimburse such loss), and
. 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.
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Sale or Other Disposition of the Certificates
Upon the sale, exchange or other disposition of a Certificate and a related
Deposit, a U.S. Certificateholder generally will recognize capital gain or loss
(subject to the possible recognition of ordinary income under the market
discount rules) equal to the difference between the amount realized on the
disposition (other than any amount attributable to accrued interest which will
be taxable as ordinary income) allocable to the related Equipment Notes or other
Trust property and the related Deposits and the U.S. Certificateholder's
adjusted tax basis in the Equipment Notes and any other property held by the
corresponding Trust or the related Deposit, respectively. A U.S.
Certificateholder's adjusted tax basis in the Certificate will equal the
holder's cost for its Certificate (other than the portion thereof allocated to
Deposits and not yet applied to the purchase of Equipment Notes or distributed)
less any payments of principal received and any previously recognized losses. A
U.S. Certificateholder's basis allocable to the related Deposit will be the
dollar amount thereof. Any gain or loss will be long-term capital gain or loss
to the extent attributable to property held by the Trust for more than one year.
In the case of individuals, estates and trusts, the maximum rate of U.S. federal
income tax on net long-term capital gains generally is 20%, compared to a 39.6%
maximum rate for short-term capital gains. Any gain with respect to an interest
in a Deposit likely will be treated as ordinary income.
Foreign Certificateholders
Subject to the discussion of backup withholding below, payments of
principal and interest on the Equipment Notes to, or on behalf of, any
beneficial owner of a Certificate that is not a U.S. Person (a "Non-U.S.
Certificateholder") will not be subject to U.S. federal withholding tax;
provided, in the case of interest, that
. such Non-U.S. Certificateholder does not actually or constructively own 10%
or more of the total combined voting power of all classes of the stock of
Midway or any Owner Participant or any transferee of such Owner
Participant's interest in the relevant owner trust,
. such Non-U.S. Certificateholder is not a controlled foreign corporation for
U.S. tax purposes that is related to Midway or any Owner Participant or any
transferee of such Owner Participant's interest in the relevant owner trust
and
. either (A) the Non-U.S. Certificateholder certifies, under penalties of
perjury, that it is not a U.S. Person and provides its name and address and
certain other information or (B) a securities clearing organization, bank
or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial institution") and
holds the Certificate certifies, under penalties of perjury, that such
statement has been received from the Non-U.S. Certificateholder by it or by
another financial institution and furnishes the payor with a copy thereof.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a Certificate or upon receipt of premium paid on an Equipment
Note by a Non-U.S. Certificateholder will not be subject to U.S. federal income
or withholding taxes if (1) such gain is not effectively connected with a U.S.
trade or business of the holder and (2) in the case of an individual, such
holder is not present in the United States for 183 days or more in the taxable
year of the sale, exchange, retirement or other disposition or receipt.
Any interest or gain described in the two preceding paragraphs will be
subject to regular U.S. federal income tax at graduated rates if it is
effectively connected with the conduct of a U.S. trade or business by a Non-U.S.
Certificateholder.
Backup Withholding
Payments made on the Certificates and proceeds from the sale of
Certificates will not be subject to a backup withholding tax of 31% unless, in
general, the Certificateholder fails to comply with certain reporting procedures
or otherwise fails to establish an exemption from such tax under applicable
provisions of the Code.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a refund or credit against such
holder's U.S. federal income tax liability, if any, provided the required
information is furnished to the IRS.
Exchange Offer
The exchange of the Exchange Certificates for the Certificates pursuant to
the Exchange Offer will not be treated as a taxable event for U.S. federal
income tax purposes. Receipt of Exchange Certificates will be treated as a
continuation of the original investment in the Certificates. Similarly, there
would be no U.S. federal income tax consequences to a holder of the Certificates
that does not participate in the Exchange Offer.
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CERTAIN MARYLAND TAXES
The Trustee is a state-chartered commercial bank, with trust powers, having
its corporate trust office in the State of Maryland. In the opinion of Ober,
Kaler, Grimes & Shriver, a Professional Corporation, counsel to the Trustee,
under currently applicable law, assuming that the Trusts will not be classified
as an association, a corporation or a publicly traded partnership taxable as a
corporation for federal income tax purposes and will not be subject to federal
income taxation, (1) the Trusts, by virtue of the Trustee being located in the
State of Maryland, will not be subject to any tax (including, without
limitation, net or gross income, tangible or intangible property, net worth,
capital, franchise or doing business tax), fee or other governmental charge
under the laws of the State of Maryland or any political subdivision thereof,
and (2) Certificateholders that are not residents of or otherwise subject to tax
in Maryland will not be subject to any tax (including, without limitation, net
or gross income, tangible or intangible property, net worth, capital, franchise
or doing business tax), fee or other governmental charge under the laws of the
State of Maryland or any political subdivision thereof as a result of
purchasing, holding (including receiving payments with respect to) or selling a
Certificate.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
imposes certain requirements on employee benefit plans subject to Title 1 of
ERISA ("ERISA Plans"), and on those persons who are fiduciaries with respect to
ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including, but not limited to, the requirement of investment
prudence and diversification and the requirement that an ERISA Plan's
investments be made in accordance with the documents governing the ERISA Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (as well as those of a plan
that is not subject to ERISA but which is subject to section 4975 of the Code,
such as individual retirement accounts (together with ERISA Plans, "Plans")) and
certain persons (referred to as "Parties In Interest" or "Disqualified Persons")
having certain relationships to such Plans, unless a statutory or administrative
exemption is applicable to the transaction. A party in interest or disqualified
person who engages in a prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code.
The Department of Labor has promulgated a regulation, 29 CFR Section
2510.3-101 (the "Plan Asset Regulation"), describing what constitutes the assets
of a Plan with respect to the Plan's investment in an entity for purposes of
ERISA and Section 4975 of the Code. Under the Plan Asset Regulation, if a Plan
invests (directly or indirectly) in a Certificate, the Plan's assets will
include both the Certificate and an undivided interest in each of the underlying
assets of the corresponding Trust, including the Equipment Notes held by such
Trust, unless it is established that equity participation in the Trust by
benefit plan investors (including but not limited to Plans and entities whose
underlying assets include Plan assets by reason of an employee benefit plan's
investment in the entity) is not "significant" within the meaning of the Plan
Asset Regulation. In this regard, the extent to which there is equity
participation in a particular Trust by, or on behalf of, Plans will not be
monitored. If the assets of a Trust are deemed to constitute the assets of a
Plan, transactions involving the assets of such Trust could be subject to the
prohibited transaction provisions of ERISA and section 4975 of the Code unless a
statutory or administrative exemption is applicable to the transaction.
The fiduciary of a Plan that proposes to purchase and hold any Certificates
should consider, among other things, whether such purchase and holding may
involve (1) the direct or indirect extension of credit to a party in interest or
a disqualified person, (2) the sale or exchange of any property between a Plan
and a party in interest or a disqualified person, or (3) the transfer to, or use
by or for the benefit of, a party in interest or a disqualified person, of any
Plan assets. Such parties in interest or disqualified persons could include,
without limitation, Midway and its affiliates, the Owner Participants, the
Placement Agents, the Trustees, the Escrow Agent, the Depositary, the Owner
Trustees and the Liquidity Provider. In addition, whether or not the assets of a
Trust are deemed to be Plan assets under the Plan Asset Regulation, if
Certificates are purchased by a Plan and Certificates of a subordinate Class are
held by a party in interest or a disqualified person with respect to such Plan,
the exercise by the holder of the subordinate Class of Certificates of its right
to purchase the senior Classes of Certificates upon the occurrence and during
the continuation of a Triggering Event could be considered to constitute a
prohibited transaction unless a statutory or administrative exemption were
applicable. Depending on the identity of the Plan fiduciary making the decision
to acquire or hold Certificates on behalf of a Plan, Prohibited Transaction
Class Exemption ("PTCE") 91-38 (relating to investments by bank collective
investment funds), PTCE 84-14 (relating to transactions effected by a "qualified
professional asset manager"), PTCE 95-60 (relating to investments by an
insurance company general account), PTCE 96-23 (relating to transactions
directed by an in-house asset manager) or PTCE 90-1 (relating to investments by
insurance company pooled separate accounts) (collectively, the "Class
Exemptions") could provide an exemption from the prohibited transaction
provision of ERISA and section 4975 of the Code. However, there can be no
assurance that any of these Class Exemptions or any other exemption will be
available with respect to any particular transaction involving the Certificates.
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Governmental plans and certain church plans, while not subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to
state or other federal laws that are substantially similar to the foregoing
provisions of ERISA and the Code. Fiduciaries of any such plans should consult
with their counsel before purchasing any Certificates.
Any Plan fiduciary which proposes to cause a Plan to purchase any
Certificates should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and
section 4975 of the Code to such an investment, and to confirm that such
purchase and holding will not constitute or result in a non-exempt prohibited
transaction or any other violation of an applicable requirement of ERISA.
In addition to the Class Exemptions referred to above, an individual
exemption may apply to the purchase, holding and secondary market sale of Class
A Certificates by Plans, provided that certain specified conditions are met. In
particular, the Department of Labor has issued individual administrative
exemptions to the Placement Agents which are substantially the same as the
administrative exemption issued to Morgan Stanley & Co. Incorporated, Prohibited
Transaction Exemption 90-24 et al. (55 Fed. Reg. 20,548 (1990)), as amended (the
"Underwriter Exemption"). The Underwriter Exemption generally exempts from the
application of certain, but not all, of the prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of the Code certain transactions relating
to the initial purchase, holding and subsequent secondary market sale of pass
through certificates which represent an interest in a trust that holds secured
credit instruments that bear interest or are purchased at a discount in
transactions by or between business entities (including Equipment Notes secured
by leases) and certain other assets, provided that certain conditions set forth
in the Underwriter Exemption are satisfied.
The Underwriter Exemption sets forth a number of general and specific
conditions which must be satisfied for a transaction involving the initial
purchase, holding or secondary market sale of certificates representing a
beneficial ownership interest in a trust to be eligible for exemptive relief
thereunder. In particular, the Underwriter Exemption requires that the
acquisition of certificates by a Plan be on terms that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an unrelated
party; the rights and interests evidenced by the certificates not be
subordinated to the rights and interests evidenced by other certificates of the
same trust estate; the certificates at the time of acquisition by the Plan be
rated in one of the three highest generic rating categories by Moody's, Standard
& Poor's, Duff & Phelps Credit Rating Co. or Fitch Investors Service, L.P.; and
the investing Plan be an accredited investor as defined in Rule 501(a)(1) of
Regulation D of the SEC under the Securities Act (and by its acquisition or
acceptance of a Certificate or an interest therein, will be deemed to have
represented and warranted that it is).
In addition, the trust corpus generally must be invested in qualifying
receivables, such as the Equipment Notes, but may not in general include a
pre-funding account (except for a limited amount of pre-funding which is
invested in qualifying receivables within a limited period of time following the
closing not to exceed three months).
With respect to the investment restrictions set forth in the Underwriter
Exemption, an investment in a Certificate will evidence both an interest in the
respective Trust as well as an interest in the Deposits held in escrow by an
Escrow Agent for the benefit of the Certificateholder. Under the terms of the
Escrow Agreement, the proceeds from the offering of the Certificates of each
Class will be paid over by the Placement Agents to the Depositary on behalf of
the Escrow Agent (for the benefit of such Certificateholders as the holders of
the Escrow Receipts) and will not constitute property of the Trusts. Under the
terms of each Escrow Agreement, the Escrow Agent will be irrevocably instructed
to enter into the Deposit Agreements with the Depositary and to effect
withdrawals upon the receipt of appropriate notice from the relevant Trustee so
as to enable such Trustee to purchase the identified Equipment Notes on the
terms and conditions set forth in the Note Purchase Agreement. Interest on the
Deposits relating to each Trust will be paid to the Certificateholders of such
Trust as Receiptholders through a Paying Agent appointed by the Escrow Agent.
Pending satisfaction of such conditions and withdrawal of such Deposits, the
Escrow Agent's rights with respect to the Deposits will remain plan assets
subject to the fiduciary responsibility and prohibited transaction provisions of
ERISA and section 4975 of the Code.
There can be no assurance that the Department of Labor would agree that the
Underwriter Exemption will be applicable to Class A Certificates in these
circumstances. In particular, the Department of Labor might assert that the
escrow arrangement is tantamount to an impermissible pre-funding rendering the
Underwriter Exemption inapplicable. In addition, even if all of the conditions
of the Underwriter Exemption are satisfied with respect to the Class A
Certificates, no assurance can be given that the Underwriter Exemption would
apply with respect to all transactions involving the Class A Certificates or the
assets of the Class A Trust. In particular, it appears that the Underwriter
Exemption would not apply to the purchase by Class B Certificateholders or Class
C Certificateholders of Class A Certificates in connection with the exercise of
their rights upon the occurrence and during the continuance of a Triggering
Event. Therefore, the fiduciary of a Plan considering the purchase of a Class A
Certificate should consider the availability of the exemptive relief provided by
the Underwriter Exemption, as well as the availability of any other exemptions
that may be applicable.
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The Underwriter Exemption does not apply to the Class B or Class C
Certificates.
Each person who acquires or accepts a Certificate or an interest therein,
will be deemed by such acquisition or acceptance to have represented and
warranted that either: (1) no Plan assets have been used to purchase such
Certificate or an interest therein or (2) the purchase and holding of such
Certificate or interest therein are exempt from the prohibited transaction
restrictions of ERISA and the Code pursuant to one or more prohibited
transaction statutory or administrative exemptions.
Each Plan fiduciary (and each fiduciary for a governmental or church plan
subject to rules similar to those imposed on Plans under ERISA) should consult
with its legal advisor concerning an investment in any of the Certificates.
PRIVATE PLACEMENT
Subject to the terms and conditions set forth in the Placement Agreement
dated September 22, 2000 among Midway and the Placement Agents (the "Placement
Agreement"), we have agreed to cause the Trusts to sell to each Placement Agent,
and each Placement Agent has severally agreed to purchase, the respective
aggregate amounts of Certificates set forth after their names below.
<TABLE>
<CAPTION>
Principal Amount of Principal Amount of Principal Amount of
Placement Agent Class A Certificates Class B Certificates Class C Certificates
----------------------------------------------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C>
Morgan Stanley & Co. Incorporated.......................... $64,901,000 $25,555,000 $8,331,000
Seabury Securities LLC..................................... 64,900,000 25,555,000 8,330,000
-------------------- -------------------- --------------------
Total................................................... $129,801,000 $51,110,000 $16,661,000
==================== ==================== ====================
</TABLE>
The Placement Agreement provides that the obligation of the Placement
Agents to pay for and accept delivery of the Certificates is subject to, among
other conditions, the delivery of certain legal opinions by their counsel.
Pursuant to the Placement Agreement, subject to the conditions thereof, the
Placement Agents have agreed to purchase the Certificates at the price indicated
on the cover page hereof. After the initial offering of the Certificates, the
offering prices and other selling terms may from time to time be varied by the
Placement Agents.
We have been advised by the Placement Agents that the Placement Agents
propose to resell the Certificates initially at the prices set forth on the
cover page hereof to the purchasers as described under "Transfer Restrictions."
The Placement Agreement provides that we will indemnify the Placement
Agents against certain liabilities, including liabilities under the Securities
Act, and will contribute to payments the Placement Agents may be required to
make in respect thereof.
The Certificates are new securities for which there currently is no market.
Neither Midway nor any Trust intends to apply for listing of the Certificates on
any securities exchange or otherwise. The Placement Agents have advised us that
one or more of them currently intend to make a market in the Certificates and,
if issued, the Exchange Certificates as permitted by applicable laws and
regulations. The Placement Agents are not obligated, however, to make a market
in the Certificates or the Exchange Certificates, and any such market-making may
be discontinued at any time at the sole discretion of the Placement Agents.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Certificates or the Exchange Certificates.
Each Placement Agent or its affiliates has provided or is currently
providing investment banking and other advisory or financial services to Midway
and its affiliates for which they receive customary compensation and may
continue to provide such services to Midway and its affiliates in the future.
MSCS, an affiliate of Morgan Stanley & Co. Incorporated, will act as the
Liquidity Provider. The obligations of MSCS under the Liquidity Facilities will
be fully and unconditionally guaranteed by its parent company, MSDW, which is
also the parent company of Morgan Stanley & Co. Incorporated.
It is expected that delivery of the Certificates will be made against
payment therefor on or about the date specified in the last paragraph of the
cover page of this offering memorandum, which will be the third Business Day
following the date of pricing of
89
<PAGE>
the Certificates. Under Rule 15c6-1 under the Exchange Act, trades in the
secondary market generally are required to settle in three Business Days, unless
the parties to any such trade expressly agree otherwise.
In order to facilitate the offering of the Certificates, the Placement
Agents may engage in transactions that stabilize, maintain or otherwise affect
the price of the Certificates. Specifically, the Placement Agents may overallot
in connection with the offering, creating a short position in the Certificates
for their own accounts. In addition, to cover overallotments or to stabilize the
price of the Certificates, the Placement Agents may bid for, and purchase,
Certificates in the open market. Finally, the Placement Agents may reclaim
selling concessions allowed to a dealer for distributing Certificates in the
offering, if the Placement Agents repurchase previously distributed Certificates
in transactions to cover short positions established by said Placement Agent, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Certificates above independent market
levels. The Placement Agents are not required to engage in these activities, and
may end any of these activities at any time.
The offering expenses and commissions to the Placement Agents are estimated
to be approximately $2,000,000.
TRANSFER RESTRICTIONS
The Certificates have not been registered under the Securities Act and may
not be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except (1) in compliance with the registration
requirements of the Securities Act and all other applicable securities laws, or
(2) pursuant to an exemption from, or in a transaction not subject to the
registration requirements of the Securities Act and any other applicable
securities laws. Accordingly, the Certificates are being offered and sold only
(1) to QIBs in compliance with Rule 144A, (2) to a limited number of other
institutional "accredited investors" within the meaning of Rule 501(a) (1), (2),
(3) or (7) of Regulation D under the Securities Act ("Institutional Accredited
Investors") that, prior to their purchase of Certificates, deliver to the
Placement Agents a letter in the form attached hereto as Appendix III, which
contains certain representations and agreements and (3) outside the United
States to persons other than U.S. persons ("foreign purchasers"), which term
shall include dealers or other professional fiduciaries in the United States
acting on a discretionary basis for foreign beneficial owners (other than an
estate or trust), in reliance upon Regulation S under the Securities Act. In
addition, purchasers of Certificates will be deemed to have made certain
representations regarding compliance with ERISA.
By its purchase of Certificates, each purchaser of Certificates will be
deemed to:
1. represent that it is purchasing the Certificates for its own account or
an account with respect to which it exercises sole investment discretion and
that it and any such account is (1) a QIB, (2) an Institutional Accredited
Investor, or (3) a foreign purchaser that is outside the United States (or a
foreign purchaser that is a dealer or other fiduciary as referred to above);
2. acknowledge that the Certificates have not been registered under the
Securities Act and may not be offered or sold within the United States or to, or
for the account or benefit of, U.S. persons except as set forth below;
3. agree that if it should resell or otherwise transfer any Certificate
within the period prior to the expiration of the holding period applicable to
sales thereof under Rule 144(k) under the Securities Act (or any successor
provision), it will do so only (1) to a QIB in compliance with Rule 144A (2)
inside the United States to an Institutional Accredited Investor acquiring
$100,000 or more aggregate principal amount of such Certificate that, prior to
such transfer, furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Certificates (the form of which letter can be obtained from the Trustee), (3)
outside the United States in compliance with Rule 904 under the Securities Act,
(4) pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available), (5) pursuant to a registration statement which
has been declared effective under the Securities Act (and which continues to be
effective at the time of such transfer) or (6) to Midway or any subsidiary
thereof. Each Institutional Accredited Investor that is not a QIB and that
acquires a Certificate will be required to sign an agreement to the foregoing
effect in the form attached hereto as Appendix III. Subject to the procedures
set forth under "Description of the Certificates -- Book Entry; Delivery and
Form" in the case of any certificated Certificate, prior to any proposed
transfer of Certificates within the period prior to the expiration of the
holding period applicable to sales thereof under Rule 144(k) under the
Securities Act (or any successor provision) (otherwise than pursuant to an
effective registration statement), the holder thereof must check the appropriate
box set forth on the reverse of its certificate relating to the manner of such
transfer and submit the certificate to the Trustee. If such transfer is to an
Institutional Accredited Investor prior to the expiration of the holding period
applicable to sales thereof under Rule 144(k) under the Securities Act (or any
successor provision) the holder (or beneficial holder, as the case may be) will
be required to furnish to the Trustee such certifications, legal opinions or
other information as it may reasonably require to confirm that the proposed
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act;
4. agree that it will deliver to each person to whom it transfers
Certificates notice of any other restrictions on transfer of such Certificates;
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5. if it is a foreign purchaser outside the United States, understand that
the Certificates will initially be represented by the Regulation S Global
Certificates and that transfers thereof are restricted as described under
"Description of the Notes -- Book Entry; Delivery and Form" for a period ending
40 days after the later of the commencement of the offering and the Closing
Date. If it is a QIB, it understands that the Certificates offered in reliance
on Rule 144A will be represented by the Restricted Global Certificate. Before
any interest in the Restricted Global Certificate may be offered, sold, pledged
or otherwise transferred to a person who is not a QIB, the transferee will be
required to provide the Trustee with a written certificate (the form of which
certification can be obtained from the Trustee) as to compliance with the
transfer restriction referred to above;
6. represent and warrant that either (1) no Plan assets have been used to
purchase such Certificate or an interest therein or (2) the purchase and holding
of such Certificate or interest therein are exempt from the prohibited
transaction restrictions of ERISA and the Code pursuant to one or more
prohibited transaction statutory or administrative exemptions;
7. acknowledge that Midway, the Trustee, the Placement Agents, the
Liquidity Provider and others will rely upon the truth and accuracy of the
foregoing acknowledgements, representations, warranties and agreements and agree
that, if any of the acknowledgements, representations, warranties and agreements
deemed to have been made by its purchase of the Certificates is no longer
accurate, it shall promptly notify Midway, the Trustee, the Placement Agents and
the Liquidity Provider. If it is acquiring any Certificates as a fiduciary or
agent of one or more investor accounts, it represents that it has sole
investment discretion with respect to each such investor account and that it has
full power to make the foregoing acknowledgements, representations and
agreements on behalf of each such investor account.
The Certificates will bear a legend to the following effect unless
otherwise agreed by Midway and the holder thereof:
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, ANY PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS CERTIFICATE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT, PRIOR TO
EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE CERTIFICATES UNDER
RULE 144(K) UNDER THE SECURITIES. ACT (OR ANY SUCCESSOR PROVISION) RESELL OR
OTHERWISE TRANSFER THIS CERTIFICATE EXCEPT (A) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (B) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING $100,000 OR MORE
AGGREGATE PRINCIPAL AMOUNT OF SUCH CERTIFICATE, THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE AND MIDWAY AIRLINES CORPORATION ("MIDWAY") A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS CERTIFICATE (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE OR MIDWAY), (C) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER) OR (F) TO MIDWAY OR ANY SUBSIDIARY
THEREOF; (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE
2(E) ABOVE), IT WILL FURNISH TO THE TRUSTEE SUCH CERTIFICATIONS, LEGAL OPINIONS
OR OTHER INFORMATION AS THE TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CERTIFICATE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS CERTIFICATE PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD
APPLICABLE TO SALES OF THE CERTIFICATES UNDER RULE 144(K) UNDER THE SECURITIES
ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT
THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL
ACCREDITED INVESTOR OR IS A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND MIDWAY, SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
91
<PAGE>
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE CERTIFICATES
PURSUANT TO CLAUSE 2(E) ABOVE OR UPON ANY TRANSFER OF THE CERTIFICATES UNDER
RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE PASS
THROUGH TRUST AGREEMENT CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS CERTIFICATE IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
The Certificates will bear a legend to the following effect unless
otherwise agreed by Midway and the holder thereof:
BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT EITHER (A) NO PLAN
ASSETS HAVE BEEN USED TO PURCHASE THIS CERTIFICATE OR (B) THE PURCHASE AND
HOLDING OF THIS CERTIFICATE ARE EXEMPT FROM THE PROHIBITED TRANSACTION
RESTRICTIONS OF ERISA AND THE CODE PURSUANT TO ONE OR MORE PROHIBITED
TRANSACTION STATUTORY OR ADMINISTRATIVE EXEMPTIONS.
LEGAL MATTERS
The validity of the Certificates offered hereby will be passed upon for
Midway by Fulbright & Jaworski L.L.P., New York, New York, and for the Placement
Agents by Shearman & Sterling, New York, New York. Certain federal income tax
matters with respect to the Trust and Certificateholders will be passed upon by
Fulbright & Jaworski L.L.P., special tax counsel to Midway. The respective
counsel for Midway and the Placement Agents may rely upon Ober, Kaler, Grimes &
Shriver, a Professional Corporation, counsel to Allfirst Bank, as Trustee, as to
certain matters relating to the authorization, execution and delivery by the
Trustee of the Pass Through Trust Agreements and the issuance by the Trustee of
the Certificates. Shearman & Sterling has also acted on behalf of MSCS, as
Liquidity Provider.
INDEPENDENT AUDITORS
The financial statements of Midway as of December 31, 1999, 1998 and 1997
and for each of the three years in the period ended December 31, 1999, 1998 and
1997, incorporated by reference in this offering memorandum have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
which is incorporated by reference in this offering memorandum.
EXPERTS
The references to AISI, AvS and SH&E, and to their respective appraisal
reports dated as of the following dates: AISI as of August 7, 2000; AvS as of
August 9, 2000; and SH&E as of June 20, 2000 are included herein in reliance
upon the authority of each such firm as an expert with respect to the matters
contained in its appraisal report.
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APPENDIX I
INDEX OF CERTAIN DEFINED TERMS
The following is an index showing the page in this Offering Memorandum
where certain defined terms appear.
<TABLE>
<CAPTION>
Defined Terms Page
------- ----- ----
<S> <C>
737s............................................................................................................ 12
Adjusted Expected Distributions................................................................................. 65
Administrative Expenses......................................................................................... 65
AFA............................................................................................................. 36
Aggregate LTV Collateral Amount................................................................................. 66
Aircraft........................................................................................................ 2
Aircraft Operative Agreements................................................................................... 47
AISI............................................................................................................ 68
ALPA............................................................................................................ 36
American........................................................................................................ 32
Appraisals...................................................................................................... 18
Appraised Current Market Value.................................................................................. 66
Assumed Aircraft Value.......................................................................................... 72
Assumed Amortization Schedule................................................................................... 44
Average Life Date............................................................................................... 72
AvS............................................................................................................. 68
Base Rate....................................................................................................... 60
Basic Rent...................................................................................................... 82
Business Day.................................................................................................... 43
Cash Collateral Account......................................................................................... 59
Cede............................................................................................................ 48
Certificate Account............................................................................................. 43
Certificateholders.............................................................................................. 41
Certificates.................................................................................................... 22
Class A Certificates............................................................................................ 41
Class A Trust................................................................................................... 41
Class B Certificates............................................................................................ 41
Class B Trust................................................................................................... 41
Class C Certificates............................................................................................ 41
Class C Trust................................................................................................... 41
Class Exemptions................................................................................................ 88
Clearstream..................................................................................................... 53
Continuous Stay Period.......................................................................................... 75
Controlling Party............................................................................................... 20
Corporate Airlines.............................................................................................. 32
CRAF Program.................................................................................................... 82
CRJs............................................................................................................ 12
Current Distribution Date....................................................................................... 64
Definitive Certificates......................................................................................... 54
Delivery Period................................................................................................. 68
Delivery Period Termination Date................................................................................ 2
Deposit......................................................................................................... 55
Deposit Account................................................................................................. 55
Deposit Agreement............................................................................................... 55
Deposit Make-Whole Premium...................................................................................... 56
</TABLE>
AI-1
<PAGE>
<TABLE>
<S> <C>
Depositary........................................................................................................ 55
Depreciation Assumption........................................................................................... 73
Disqualified Investor............................................................................................. 35
Distribution Date................................................................................................. 43
DOT............................................................................................................... 15
Downgrade Drawing................................................................................................. 59
DTC............................................................................................................... 48
DTC Participants.................................................................................................. 48
Equipment Notes................................................................................................... 69
ERISA............................................................................................................. 88
ERISA Plans....................................................................................................... 88
Escrow Agent...................................................................................................... 57
Escrow Agreement.................................................................................................. 57
Escrow Receipts................................................................................................... 57
Euroclear......................................................................................................... 53
Event of Loss..................................................................................................... 81
Exchange Act...................................................................................................... iv
Exchange Certificates............................................................................................. 82
Exchange Offer.................................................................................................... 82
Exchange Offer Registration Statement............................................................................. 82
Expected Distributions............................................................................................ 64
F100s............................................................................................................. 15
FAA............................................................................................................... 16
Final Distributions............................................................................................... 64
Final Drawing..................................................................................................... 60
Final Expected Distribution Date.................................................................................. 41
Final Legal Distribution Date..................................................................................... 42
foreign purchasers................................................................................................ 91
Global Certificates............................................................................................... 54
H.15 (519)........................................................................................................ 72
IAM............................................................................................................... 36
Indentures........................................................................................................ 46
Indenture Default................................................................................................. 48
Indirect Participants............................................................................................. 54
Institutional Accredited Investors................................................................................ 91
Intercreditor Agreement........................................................................................... 19
Interest Drawings................................................................................................. 58
IRS............................................................................................................... 84
Issuance Date..................................................................................................... 59
Lease............................................................................................................. 69
Lease Event of Default............................................................................................ 48
Leased Aircraft................................................................................................... 46
Leased Aircraft Indenture......................................................................................... 46
Leased Aircraft Notes............................................................................................. 69
Leased Aircraft Trustee........................................................................................... 69
Leased Participation Agreement.................................................................................... 46
LIBOR............................................................................................................. 61
Liquidity Event of Default........................................................................................ 61
Liquidity Expenses................................................................................................ 64
Liquidity Facility................................................................................................ 58
Liquidity Obligations............................................................................................. 64
Liquidity Provider................................................................................................ 62
Loan Trustee...................................................................................................... .5
LTV Appraisal..................................................................................................... 66
LTV Collateral Amount............................................................................................. 66
LTV Ratio......................................................................................................... 66
</TABLE>
AI-2
<PAGE>
<TABLE>
<S> <C>
LTVs.............................................................................................................. 3
Make-Whole Premium................................................................................................ 71
Mandatory Document Terms.......................................................................................... 47
Mandatory Economic Terms.......................................................................................... 46
Maximum Amount.................................................................................................... 56
Maximum Available Committment..................................................................................... 58
Midway............................................................................................................ 1
Minimum Sale Price................................................................................................ 64
Moody's........................................................................................................... 20
most recent H.15 (519)............................................................................................ 72
MSCS.............................................................................................................. 5
MSDW.............................................................................................................. 5
NMB............................................................................................................... 36
Non-Delivery Redemption Amount.................................................................................... 6
Non-Extension Drawing............................................................................................. 60
Non-Global Purchasers............................................................................................. 54
Non-Performing Equipment Note..................................................................................... 66
Non-U.S. Certificateholder........................................................................................ 87
Note Purchase Agreement........................................................................................... 45
Owned Aircraft.................................................................................................... 46
Owned Aircraft Indenture.......................................................................................... 46
Owned Aircraft Notes.............................................................................................. 69
Owned Participation Agreement..................................................................................... 46
Owner Participant................................................................................................. 21
Owner Trust....................................................................................................... 9
Owner Trustee..................................................................................................... 41
Par Redemption Amount............................................................................................. 6
Participants...................................................................................................... 54
Participating Broker-Dealer....................................................................................... 83
Participation Agreements.......................................................................................... 46
Pass Through Trust Agreements..................................................................................... 41
Paying Agent Account.............................................................................................. 43
Performing Equipment Note......................................................................................... 59
Permanent Regulation S Global Certificate......................................................................... 53
Permitted Investments............................................................................................. 49
Permitted Lessee.................................................................................................. 82
Placement Agents.................................................................................................. iii
Placement Agreement............................................................................................... 90
Plan Asset Regulation............................................................................................. 88
Plans............................................................................................................. 88
Pool Balance...................................................................................................... 43
Pool Factor....................................................................................................... 44
PTC Event of Default.............................................................................................. 50
PTCE.............................................................................................................. 88
QIB............................................................................................................... 53
Rating Agencies................................................................................................... 20
RDU............................................................................................................... 12
Receiptholder..................................................................................................... 57
Record Date....................................................................................................... 5
Registration Event................................................................................................ 83
Registration Rights Agreement..................................................................................... 82
Regular Distribution Dates........................................................................................ 42
Regulation S Global Certificate................................................................................... 53
Remaining Weighted Average Life................................................................................... 72
Replacement Liquidity Facility.................................................................................... 59
Required Amount................................................................................................... 58
</TABLE>
AI-3
<PAGE>
<TABLE>
<S> <C>
Restricted Global Certificate..................................................................................... 53
RLA............................................................................................................... 36
Scheduled Payments................................................................................................ 42
SEC............................................................................................................... iv
Section 1110 Period............................................................................................... 59
Securities Act.................................................................................................... 92
Series A Equipment Notes.......................................................................................... 69
Series B Equipment Notes.......................................................................................... 69
Series C Equipment Notes.......................................................................................... 69
SH&E.............................................................................................................. 68
Shelf Registration Statement...................................................................................... 83
Shortfall Amounts................................................................................................. 86
Special Distribution Date......................................................................................... 42
Special Payment................................................................................................... 42
Special Payments Account.......................................................................................... 43
Specified Default................................................................................................. 80
Standard & Poor's................................................................................................. 20
Stated Interest Rate.............................................................................................. 42
Sublessee......................................................................................................... 82
Subordinated Certificateholders................................................................................... 86
Subordinated Certificates......................................................................................... 86
Subordinated Trusts............................................................................................... 86
Subordination Agent............................................................................................... 5
Supplemental Rent................................................................................................. 82
Tax Counsel....................................................................................................... 84
Temporary Regulation S Global Certificate......................................................................... 53
Term.............................................................................................................. 77
Termination Notice................................................................................................ 61
Threshold Rating.................................................................................................. 59
Transportation Code............................................................................................... 50
Treasury Yield.................................................................................................... 71
Triggering Event.................................................................................................. 50
Trust Agreements.................................................................................................. 68
Trust Indenture Act............................................................................................... 51
Trust Indenture Estate............................................................................................ 70
Trust Property.................................................................................................... 41
Trustee........................................................................................................... .5
Trusts............................................................................................................ 41
U.S. Certificateholders........................................................................................... 84
U.S. Persons...................................................................................................... 84
Underwriter Exemption............................................................................................. 89
</TABLE>
AI-4
<PAGE>
APPENDIX III
ACCREDITED INVESTOR LETTER
[DATE]
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Seabury Securities LLC
3 Stamford Landing, Suite 250
Stamford, Connecticut 06902
Midway Airlines Corporation
2801 Slater Road
Morrisville, North Carolina 27560
Ladies and Gentlemen:
In connection with our proposed purchase of % Midway Airlines Pass
Through Certificates, Series 2000-1 (the "Certificates") we confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), relating to the Certificates and such other
information as we deem necessary in order to make our investment
decision. We acknowledge that we have read and agree to the matters
stated in the section entitled "Transfer Restrictions" of such
Offering Memorandum. We acknowledge that neither Midway Airlines
Corporation (the "Company") nor any Placement Agent, nor any person
representing the Company or any Placement Agent, has made any
representation with respect to the offer or sale of any Certificates.
2. We understand that any subsequent transfer of the
Certificates is subject to certain restrictions and conditions set
forth in the Pass Through Trust Agreement between the Company and
Allfirst Bank (the "Trustee") relating to the Certificates, and we
agree to be bound by, and not to resell, pledge or otherwise transfer
the Certificates except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities
Act").
3. We are purchasing Certificates having an aggregate
principal amount of not less than $100,000 and each account (if any)
for which we are purchasing Certificates is purchasing Certificates
having an aggregate principal amount of not less than $100,000.
4. We understand that the Certificates have not been registered
under the Securities Act, that the Certificates are being sold to us
in a transaction that is exempt from the registration requirements of
the Securities Act and that the Certificates may not be offered or
resold except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that, if we should sell any Certificates within
the applicable time period referred to in Rule 144(k) of the
Securities Act, we will do so only (A) to the Company or a subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to
a "qualified institutional buyer" (as defined therein), (C) inside the
United States to an Institutional Accredited Investor (as defined
below) acquiring $100,000 or more aggregate principal amount of such
Certificate that, prior to such transfer, furnishes to the Trustee and
the Company a signed letter containing certain representations and
agreements relating to the restrictions on transfer of the
Certificates (the form of which letter can be obtained from the
Trustee or the Company), (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act, (E) pursuant
to the exemption from registration provided by Rule 144 under the
Securities Act or (F) pursuant to a registration statement which has
been declared effective under the Securities Act (and which continues
to be effective at the time of such transfer), and we further agree to
provide to any person purchasing any of the Certificates from us a
notice advising such purchaser that resales of the
AIII-1
<PAGE>
Certificates are restricted as stated herein. We further understand
that the Certificates purchased by us will bear a legend to the
foregoing effect.
5. We understand that, on any proposed resale of any
Certificates, we will be required to furnish to the Company and to the
Trustee such certifications, legal opinions and other information as
the Company and the Trustee may reasonably require to confirm that the
proposed sale complies with the foregoing restrictions. We further
understand that the Certificates purchased by us will bear a legend to
the foregoing effect.
6. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) ("Institutional Accredited Investor") and have such knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of our investment in the Certificates,
and we and any accounts for which we are acting are each able to bear
the economic risk of our or their investments.
7. We are acquiring the Certificates purchased by us for our
own account or for one or more accounts (each of which is an
Institutional Accredited Investor) as to each of which we exercise
sole investment discretion.
8. We represent that (1) no ERISA Plan assets have been used to
purchase the Certificates or (2) one or more prohibited transaction
statutory or administrative exemptions applies such that the use of
such plan assets to purchase and hold the Certificates will not
constitute a non-exempt prohibited transaction under ERISA or section
4975 of the Code.
You are entitled to rely upon this letter and are irrevocably authorized to
produce this letter or a copy hereof to any interested party in any
administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By:_______________________________
Name:
Title:
Securities To Be Purchased:
$ principal amount
AIII-2
